Tejwal Dyestuff Industries v. Commissioner Of C. Ex., Ahmedabad

[Order per : M. Veeraiyan, Member (T)]. - All these appeals arise out of the order of the Commissioner No. 191/Commr/2005 dated 8-4-2005. Against M/s. Tejwal Dyestuff, the main appellant, a sum of Rs. 1,09,35,008/- + Rs. 55,163/- stand demanded, a penalty of Rs. 50 lakhs imposed besides demand of interest and imposition of redemption fine of Rs. 30,000/-. A sum of Rs. 5 lakhs is imposed as penalty on Shri Nareshbhai F. Shah, partner of M/s. Tejwal Dyestuff Industries, Rs. 25,000/- as penalty on Shri Heshbhai M. Shah, authorized signatory of M/s. Tejwal Dyestuff Industries. In addition, a penalty of Rs. 25 lakhs, each is imposed on Shri Jayeshbhai Bhimani and Shri Jignesh J. Bhimani representing the firm which allegedly supplied the invoices.

2. Heard both sides.

3. The relevant facts, in brief, are as follows :

(a)  During the visit by the officers on 4-6-03, shortages in respect of certain finished goods and inputs valued at Rs. 3,44,769/- were detected and excess in respect of certain other finished goods and inputs valued at Rs. 1,55,685/- was found and the excess found goods seized.

(b)  Shri Heshbhai M. Shah, the authorized signatory and Shri Hitesh R. Patel, in-charge of the production and Laboratory furnished the details of the raw materials which were required for the manufacture. They also admitted that Linear Alkyl Benzene (LAB), Soda Ash, and some other inputs were not brought into the factory and were not consumed in the manufacture of finished products and they were also not sent as such outside the factory for manufacture of other products. But the factory has shown receipt and issue of such inputs and thus availed Cenvat credit without physically receiving the said inputs.

(c)  Shri Nareshbhai F. Shah, partner in his statement dated 6-6-03 corroborated the version given by the authorized signatory of the firm as well as of Shri Hitesh J. Patel, in-charge of the production and Laboratory. Further, when his statement was recorded on 12-6-03, he produced TR-6 challans for having deposited a total sum of Rs. 25 lakhs towards fraudulently availed Cenvat credi by their unit. In fact, Shri Nareshbhai F. Shah has reiterated the submissions in his further statement which were recorded a few months later on 5-10-03. He also stated that he has received Bills from M/s. Jinal Chem Pvt. Ltd., M/s Bhimani Chemicals Pvt. Ltd. and M/s P.M. Bhimani Orgo Chem Pvt. Ltd. and paid for the same by cheque but subsequently received the amounts in cash after deduction of 2% of the invoice value as their commission, as no goods have been physically supplied and received.

(d) Shri Ravindrabhai M. Shah, proprietor of M/s. Shah Bulk Carrier, Vadodara in his statement dated 20-10-03, inter alia, stated that they have transported LAB during the period from 23-9-1999 to 24-5-03 but the same goods were not delivered to M/s. Tejwal Dyestuff Industries, Naroda.

(e) However, Shri Jayeshbhai Bhimani and Shri Jignesh J. Bhimani representing the firms which have supplied the input documents submitted that they have, indeed, supplied the inputs as mentioned in the invoices and they have not received any commission as mentioned by Shri Nareshbhai F. Shah.

4. The following defence submissions inter alia, were taken before the Commissioner :

(a)  Stock taking had not been done properly.

(b) The final product was not tested and therefore it was not open to the Department to rely on the secondary evidence.

(c) They produced along with their reply dated 23-3-2005 technical opinion dated 13-3-2004 issued by Dr. N.D. Jadav, Vadodara which support the case that LAB can be used in that manufacture.

(d) The assessee had got their finished goods tested by extracting a small portion of 200 gms from the bag of seized goods and the test report so obtained clearly shows presence of LAB in the material.

(e) The departmental officer coerced Shri Nareshbhai F. Shah into making a statement that payment was received back in cash.

(f) All the persons had retracted the statements within two days of recording of statement by filing affidavit before Notary Public. However, the said retraction affidavits were enclosed only along with their reply dated 23-3-2005.

5. After evaluating the submissions and replies and those of the personal hearings, the Commissioner has held that appellant firm was guilty of receiving only documents without receipt of goods and taking Cenvat credit fraudulently and passed the order referred earlier.

6. Learned Advocate for the appellants M/s. Tejwal Dyestuff Industries and connected parties submits that the case is merely based on statements of some persons which have been promptly retracted. Further, the statement of partner, authorized signatory, production in-charge of the firm were not corroborated by the statements of the persons representing raw materials supplying units. The statement of the partner of transport company does not prove anything positive. Further, the investigation has not been carried out with the driver of the vehicle to conclusively prove that LAB was not delivered to the factory premises. When LAB has been procured from more than one source, the investigation has been restricted only to Bhimani Group Companies and not to other suppliers like Reliance. While the partner’s statements admitting receiving back the money from Bhimani Group Companies has been relied, no evidence from the bank regarding withdrawal of corresponding cash has been obtained and relied upon.

7. On behalf of the appellants Shri Jayeshbhai Bhimani and Shri Jignesh J. Bhimani, it was submitted that they are big and reputed dealers of chemicals; they have supplied the material as mentioned in their invoices; they have received the payment as mentioned in the invoices; they have not given back any amount to Shri Nareshbhai F. Shah as claimed by him; no conspiracy in any evasion by M/s. Tejwai Dyestuff Industries can be attributed to them.

8. Learned SDR submits that it is a clear and admitted case of receiving only documents without actually receiving the inputs and thus, fraudulently availing Cenvat credit.

9. We have carefully considered the rival submissions. At the outset, it is noticed that on the day of visit by the officers there were certain shortages and excesses in respect of some of the finished goods and some of the inputs. The authorized signatory of M/s. Tejwal Dyestuff Industries as well as Shri Hitesh R. Patel, in-charge of the production clearly admitted  non-receipt of certain materials like LAB Soda Ash but showing records as if the same have been received and issued for production with an intention to avail Cenvat credit wrongly. Shri Nareshbhai F. Shah, partner was not present on the date of visit by the officers. However, his statement was recorded on 6-6-03 and he not only corroborated the version given by the authorized signatory and the production in-charge but added that he had understanding with Bhimani Group of Companies by which only documents enabling taking up of credit were received without actual receipt of inputs mentioned therein. He went on to add that Bhimani Group of Companies having supplied only documents used to deduct 2% of the invoice value as their commission and returned the balance amount in cash. He has chosen to deposit as much as Rs. 25 lakhs on 10-6-03 towards duty payable on account of wrongly availed Cenvat credit and gave further admission of statement on 12-6-03. In fact, he has given his statement a few months later on 5-10-03 confirming the same facts. Under these circumstances, his claim that within  two days of recording his statements he went to Notary Public and gave affidavits retracting his statements and kept such affidavits safely with him and produced the same along with his reply dated 23-3-2005 does not amount to retraction of the statements and does not deserve any consideration.

10. The statement of Shri Nareshbhai F. Shah has admissions on several aspects. He clearly admits that inputs like LAB are not required for use in the manufacture; the inputs have not been received; only documents have been received on which credit has been wrongly taken; Bhimani Group of Companies have returned the cash after deducting commission. Of these  admissions on various aspects, the admissions like non-receipt of the main inputs in the factory, non-use of the same and taking credit merely based on document are clearly corroborated by the evidence of his own employees, namely, Shri Heshbhai F. Shah, authorized signatory and Shri Hitesh R. Patel, production in-charge. The other admission regarding receipt of cash back from Bhimani Group of Companies, the same is not corroborated. Even if a benefit of doubt is to be given on this count, it will not lead to the conclusion that other aspects of his statements namely that the inputs have not been at all received and not used cannot be relied upon. Further, his admission about fraudulently availment of Cenvat credit was followed by positive action on his part in depositing substantial amount (Rs. 25 lakhs) towards duty due on 10-6-03.

11. The alleged retraction of statements given by his employees of M/s. Tejwal Dyestuff Industries is worth considering of the above grounds.

12. As regards non-testing of the finished goods for presence of LAB and other inputs which were not reportedly received,  it  suffices to say that the representative of the assessee and the partner clearly admitted to non-procuring of this material and not using the same at the time of visit by the officers. Technical opinion dated 13-3-04 issued by Dr. N.D. Jadav to support that LAB could have been used in the manufacture is not significant and relevant when admittedly no LAB has been used; technical opinion that it could be used does not support this case in the light of clear admission that the LAB was not received and not used. Further, the claim by the appellant firm M/s. Tejwal Dyestuff Industries that subsequently sample  was taken and got it tested and its test result shows the presence of LAB is also not acceptable inasmuch as the sample drawn from seized goods by the party themselves is not authentic.

13. As regards the submissions that though the statement of the partner of the transport company does not prove anything conclusive and the investigation has not been carried out with the driver of the vehicle, it is noted that though they are relevant submission. However, even if the statement of the partner of the transport company is ignored, the findings arrived at is not affected. Similarly, non-production of Bank statements showing corresponding withdrawal by Bhimani Group of Companies of money deposited by M/s. Tejwal Dyestuff Industries cannot have adverse impact on the admission of the partner, authorized signatory and production in-charge of M/s. Tejwal Dyestuff Industries regarding non-receipt of raw  materials and non-use of raw materials in the manufacture.

14. As regards the findings against Shri Jayeshbhai Bhimani and Shri Jignesh J. Bhimani, it was held that they conspired with Shri Nareshbhai F. Shah by furnishing only duty paying documents and paid back in cash after taking their commission. This part of the finding is based only on the statement of Shri Nareshbhai F. Shah which is not otherwise corroborated, therefore, the finding of collusion by these appellants cannot be sustained even when the allegations against M/s. Tejwal Dyestuff Industries and their partner and employees are sustained and the benefit of doubt should be given in favour of Shri Jayeshbhai Bhimani and Shri Jignesh J. Bhimani.

15. In the light of the above, the appeals are disposed of as follows :

(a)     The appeals by Jayeshbhai Bhimani and Jignesh J. Bhimani are allowed.

(b)     Demand of duty, demand of interest against M/s. Tejwal Dyestuff Industries are sustained. Penalty imposed on M/s. Tejwal Dyestuff Industries is reduced from Rs. 50 lakhs to Rs. 20 lakhs (rupees twenty lakhs only).

(c)     Having sustained penalty on the partnership firm, separate penalty of Rs. 5 lakhs on Shri Nareshbhai F. Shah may not be required and accordingly set aside.

(d)    Penalty imposed on Shri Heshbhai M. Shah, production in-charge is reduced from Rs. 25,000/- to Rs. 10,000/- (rupees ten thousand only).

(Pronounced in the open Court on   ..2-2007)

16. [Order per : Archana Wadhwa, Member (J)]. - I have gone through the order proposed by my ld. Brother Shri M. Veeraiyan, Member (Technical) rejecting the appeal filed by M/s. Tejal Dyestuff Industries and partially allowing the appeal of Shri Heshbhai M. Shah, Production Incharge and fully allowing the appeal of Shri Nareshbhai F. Shah and of Shri Jayeshbhai Bhimani and Shri Jigneshbhai Bhimani. As I find myself not in agreement with the order proposed by my ld. brother, a separate order is being recorded.

17. As the fact stands detailed in the order of learned Member (Technical), the same are not being reproduced. It is seen that the entire case of revenue for alleged non-receipt of LAB and Soda ash in their factory and non-use of the same in the appellant’s final product is based upon statement recorded by the officers at the time of their visit to the appellant’s factory and during the course of subsequent investigation. Based upon the said statement, Revenue’s case is that firm owned by Shri Bhimani used to prepare and send only invoices and other relevant documents to the main appellant M/s. Tejal Dyestuff Industries without sending the goods for the purpose of availment of unauthorized modvat credit. It is Revenue’s case that though payments were being made by cheque to M/s. Bhimani, the entire cash was subsequently received by M/s. Tejal Dyestuff Industries after deduction of commission of 2% by Shri Bhimani.

18. The above sequence of events as projected by Revenue would show that M/s. Tejal Dyestuff Industries and Shri Bhimani were links of the same chain. In the order proposed, learned Member (Technical) has extended the benefit to Bhimanis on the ground that there does not exist sufficient evidences against them except the statement of Shri Shah of M/s. Tejal Dyestuff Industries. I agree with the above view that the statement of co-accused, unless corroborated in material particulars, can not be made basis for drawing an inference against the other accused. It is also seen that Shri Bhimani in their statement recorded during  investigation, has nowhere admitted that only invoices were being sent to M/s. Tejal, without the goods being sent and the entire payment received by cheque were being returned by them after deduction of 2% of commission. As such, allowing of appeal of Shri Jayeshbhai Bhimani and Shri Jigneshbhai Bhimani on the ground that statement of Shri Nareshbhai Shah and of Shri Heshbhai M. Shah, Production incharge of M/s. Tejal Dyestuff Industries, without any corroboration is in accordance with the law of evidence. As such, I agree with the said part of the order proposed by learned Member (Technical).

19. However, I ask myself a question. What would be the effect of  allowing of Bhimani’s appeal on the basis of insufficient evidences, on the case against M/s. Tejal Dyestuff Industries. Having not admitted the correctness of the statement of Shri Nareshbhai F. Shah and Shri Heshbhai M. Shah to the extent that the cheque amount given to Shri Bhimani was being received back by them in cash and having  believed that part of their statement which is to the effect that only invoices were being received without actual receipt of the goods, at the time of extending benefit to Shri Bhimani, can the same statement be made basis for holding against them. It is to be kept in mind that if benefit is extended to Shri Bhimani, it will lead to the effect that the goods were also being sent along with invoices and no money was being reimbursed by them to M/s. Tejal Dyestuff Industries. If that is held so, while allowing the appeals of Bhimanis, the entire case of Revenue crumbles down in as much as it is their allegation that Shri Bhimani were sending invoices without goods and were returning amount received through cheque by cash. Bhimanis being an important link of the same chain, if case against them is allowed on the grounds of insufficiency of evidences, the case against M/s. Tejal Dyestuff Industries and its proprietor and production incharge, has necessarily to be allowed.

20. Apart from the above, independently appreciating the evidences against M/s. Tejal Dyestuff Indstries, I find that the appellants were availing the benefit of modvat credit in respect of LAB and Soda ash after filing a due declaration with their jurisdictional Central Excise authorities, as required in terms of provisions of Rule 57G. Jurisdictional officer is required to acknowledge the said declaration and after applying his mind, it is within his right to object to eligibility of any input claimed by the assessee. But, LAB and Soda ash were declared input and no objection was ever raised by their jurisdictional Central Excise officers for use of the same. For a period of more than 4 years, the appellants were availing benefit of Modvat credit by maintaining proper statutory record, which were being submitted by them to their jurisdictional Central Excise authorities. The invoices were being submitted for de-facing the same and no objection, whatsoever, at any point of time was ever raised by jurisdictional authority. The availing of  modvat credit is a elaborate procedure necessitating checks and verification at every stage. The period of about 5 years starting from 1999 to 2004 involved in present appeal, never invited any objection from the concerned Central Excise authorities. In fact, they have pleaded before Commissioner that their factory was visited by officers number of times and their records were checked and stock of inputs as also finished products put to verification, but not on any occasion, any discrepancy was found. The above plea does not stand rebutted by the adjudicating authority. If that be so, it is surprising that for such a long period, appellant was showing receipt and use of LAB, without actually receiving and utilizing, without having been detected by the officers.

21. During the course of adjudication, appellant strongly contended that the statements were recorded under duress and were not correct reflection of the true state of affairs, have strongly relied upon the contemporary statutory document, record and returns which stands verified and assessed by the concerned officer and submitted that the Revenue’s contention of incapability of LAB and Soda Ash in the final product, can not stand on the sole basis of statement, which on face of it are contrary to the statutory record. It is seen that Revenue’s case is that LAB (which relates to major demand) was not at all capable of being used in the appellant’s final product. This view has been upheld by the adjudicating authority on the basis of statement given by Shri Shah.

22. Though the said statements were retracted immediately by way of filing an affidavit before notary, but the same do not stands accepted by adjudicating authority on the ground that the same were produced on record along with the reply to the show cause notice. As such, he concluded that retraction was manipulated. On the other hand, the appellants have contended that by retracting it before the notary by swearing in an affidavit established their bona fides and placing of the same on record along with the reply to the show cause notice is a procedural aspect. The same cannot lead to inevitable conclusion in the absence of any evidence that such retraction was subsequently manipulated. Be it as may be, I find that having demolished the Revenue’s case based on the same statement, while extending the benefit to Shri Bhimani, the statement does not remain worthy of reliance. It is well settled law that part of statement can not be held to be true and voluntary and other part as untrue and not worthy of reliance. As such, it can not be held that a part of the statement of Shri Shah revealing that he was getting back money from Shri Bhimani is incorrect whereas the other part admitting that LAB was not being received by them from Shri Bhimani is correct.

23. As such, I am of the view that the sole reliance on the statement can not be made, especially in view of the fact that the same has been proved to be incorrect vis-a-vis Shri Bhimani.

24. I also do not find the said statement to be inspiring any confidence in as much as, Shri Nareshbhai F. Shah has deposed in his statement that LAB is not one of the required raw material for manufacture of their  final product. The said fact stands demolished by the expert opinion produced on record during the course of investigation. Opinion offered  by Dr. N.D. Jadhav can not be brushed aside lightly. The appellant had also withdrawn small portion of their product from the bag of seized goods and got it tested, which test reports show the presence of LAB as one of the raw material. The above evidences stands rejected by adjudicating authority on the ground that sample was not drawn in the presence of officers and expert opinion does not establish the actual usage of LAB in the final product. However, it is not understood as to why the Revenue, during the course of investigation, did not draw  samples from the seized final product and sent them to a reputed laboratory to substantiate their stand on non-use of LAB. This is a big  lacunae in Revenue’s case, which goes to demolish the entire case of the department. On the contrary, when the appellant have got the sample tested, the same stands rejected on flimsy ground. It is also very  surprising that the investigations were directed only against one supplier  i.e. Shri Bhimani whereas the appellant was procuring the said raw  material from other sources also i.e. M/s. Reliance Industries and M/s. Gujrat Heavy Chemicals Ltd. There is not even a whisper of any allegation in respect of the material received from other two sources. If it is the Revenue’s case that LAB is not at all required for manufacture of appellant’s final product, it is not understood that why investigations in respect of procurement of the said material from the above two sources have not been conducted by them.

25. It is further seen that appellant have strongly contended before adjudicating authority that the goods were received along with the  invoices as is clear from the octroi receipt. It is recorded in the order that copies of octroi receipts were produced before adjudicating authority. However, he has chosen to rely upon the statement of proprietor of the transport company to the effect that the goods were being delivered to the dealer’s representative before octroi check posts. It is not understood as to how the said statement can be given preference over the documentary evidence in the shape of octroi receipt. The adjudicating authority has observed that M/s. Tejal Dyestuff Industries should have procured a certificate from octroi naka that evidence of the invoices in their name and to demonstrate that octroi has been duly paid on all such consignments. I, fail to understand as to how such certificate would have helped, when there are octroi receipts available showing the payment of octroi. It is well established that charges of clandestine activity are required to be established by Revenue by production of sufficient and tangible evidences on record and not on  the basis of assumptions and presumptions. Ld. Collector has recorded that Central Excise case is not supposed to be proved beyond the pale of reasonable doubt i.e as conclusive proof. It is of civil consequence and not of creating criminal liability. It is to be based on pre-ponderence of probabilities. However, the above legal proposition adopted by adjudicating authority is not correct and is against the settled law, as declared by various judicial also quasi judicial authorities. It has been repeatedly held by Tribunal that charges of clandestine removal have to be based upon the tangible, strict, positive, direct and corroborative evidence and not merely on the basis of alleged confessional statement, which may be open to doubt. Reference in this regard may be made to that the Tribunal’s decisions in cases of M/s. Ghodavat Pan Masala Products Ltd. v. CCE Pune [ (Tri-Mumbai)], Shri Radheshyam Kanoria v. CCE Thane-II [ (Tri-Mumbai], M/s. Pioneer Industries v. CCE Mumbai-II [ (Tri-Mumbai)], Shri Shiv Charan Bajpai v. Collector of Cus & C.Ex., Kanpur [ (Tri-Del.)]. Admittedly, there is no corroboration to the said statement and there is no independent evidence available on record. In fact, on the contrary, the said statement stands contradicted by the statement of Shri Bhimani. The adjudicating authority’s observations that the said statements stands corroborated by the fact of shortages in respect of inputs is not correct in as much as the small shortages are not in respect of LAB, but the some other raw material.

26. It is also seen that no further investigations stands conducted by Revenue at Bhimani’s end to show that the cheques given by M/s. Tejal Dyestuff Industries were withdrawn by Bhimanis subsequently, so as to corroborate the statements of Shri Nareshbhai F. Shah and others. It is seen that transactions between M/s. Tejal Dyestuff Industries and Shri Bhimani were running in crores and there is nothing to establish the money flow back.

The above points may be minor, as observed by adjudicating authority, but when viewed cumulatively are sufficient to throw out the Revenue’s case.

27. It is also seen from the order of the Commissioner, as recorded in Para 12 that, he has arrived on a finding that the appellant procured raw material and invoices worth Rs. 8 crores approx, whereas their clearance of final product during the period 1999 to 2004 were only to the tune of Rs. 3.56 crores. This finding arrived by adjudicating authority stands strongly contested by the learned advocate on the ground that firstly the said fact was not mentioned in the show cause notice and secondly the same is factually incorrect in as much as the sale during the said period were to the tune of Rs. 9 crores. In support, they have produced certificate of their chartered accountant on record.

28. Similarly, the fact of deposit of amount of Rs. 25 lacs towards duty, during the course of investigations, in my views, cannot be a factor leading to assessee’s admission of offence. If the same is indicative of and has to be considered as an evidence leading to inevitable conclusion of fraud, then it would be easier for the Revenue to make an assessee deposit the duty along with recording of statements and conduct no further investigations. Judicial jurisprudence requires establishing of a case with production of evidence of affirmative and tangible evidence and not the one which moves in the arena of surmises and conjectures, which may lead to doubt but cannot take the place of legal evidence.

29. Apart from above, adjudicating authority has also confirmed demand of duty of Rs. 55,163 in respect of shortage of finished goods and raw materials and has further confiscated raw material and finished goods found in excess than the recorded balance in statutory records with an option to the appellant to redeem the same on payment of fine of Rs. 30,000/-.

30. As my ld. brother has not dealt with the above portion of the order, I record my findings in respect of same as under :

31. The appellant’s have not advanced any plausible reasoning in respect of shortages either before us or before the adjudicating authority except submitting that stock taking was not done properly. In the absence of any serious contest to the confirmation of demand of Rs. 55,163/- by M/s. Tejal Dyestuff Industries, I confirm the same.

32. As regards excess found finished goods, appellant submit that perusal of RG-1 would demonstrate that there is a system of checking real weight of product prior to the stage of clearance that the goods are entered in RG1 register on receipt of Order after checking real weight and dispatched weight that it is not possible to Premark the bags with real  weight; that duty is paid on the basis of real weight; that considering the practical difficulties involved, real weight is ascertained at the time of dispatch which is to be made out as per orders. Moreover the purity of the product will also be affected if the good after packing are lying there for some time owing to the effect of moisture etc. Hence real weight of the product is taken only at the time of dispatch. Hence, ONCBS, a product which was yet not subjected to testing and ascertainment of real weight. The same was therefore not entered in RG1 register. The above  plea does not stand dealt with by Commissioner. I find force in the above  stand of the appellant especially in view of the fact that there is no  evidence showing either the actual removal of the goods or reflecting  upon intention on the part of M/s. Tejal Dyestuff Industries to remove the  same without payment of duty. Accordingly, I set aside the confiscation  of the excess found goods.

33. In view of the foregoing, I set aside confirmation of demand of duty against M/s. Tejal Dyestuff Industries except upholding of demand of Rs. 55,163. Confiscation of goods is also set aside. Penalties imposed upon the said appellant and Shri Heshbhai M. Shah are also set aside. Further, I agree with ld. brother, Shri M. Veeraiyan that penalties imposed upon Shri Jayeshbhai Bhimani and Shri Jignesh J. Bhimani and Shri Nareshbhai F. Shah are to be set aside and I order accordingly.

34. All the appeals are disposed off in the above manner.

DIFFERENCE OF OPINION

35. Whether the demand of duty of Rs. 1,09,35,008/- against M/s. Tejal Dyestuff Industries along with interest is to be upheld as held by Member (Technical) or the same is to be set aside as observed by Member (Judicial) ?

36. Whether the demand of duty of Rs. 55,163/- to be confirmed as held by Member (Judicial), but not considered by Member (Technical)?

37. Whether the confiscation of excess found goods to be set aside as held by Member (Judicial), but no order passed by Member (Technical)?

38. Whether penalty imposed on M/s. Tejal Dyestuff Industries to be reduced from Rs. 50 lacs to Rs. 20 lacs, as held by Member (Technical) or the entire penalty to be set aside, as held by Member (Judicial) ?

39. Whether penalty imposed upon Shri Heshbhai M. Shah to be reduced to Rs. 10,000/- as held by Member (Technical) or the same to be set aside in toto as held by Member (Judicial)?

40. In view of the above-difference of opinion, Registry is directed to place the papers before Hon’ble President for referring the matter to third member.

41. [Order per : Justice R.K. Abichandani, President]. - In view of the difference of opinion, between the Members of the Division Bench, the matter has been referred for opinion of the Third Member on the following points :

“1.    Whether the demand of duty of Rs. 1,09,35,008/- against M/s. Tejal Dyestuff Industries along with interest is to be upheld as held by Member (Technical) or the same is to be set aside as observed by Member (Judicial)?

2.      Whether the demand of duty of Rs. 55,163/- to be confirmed as held by Member (Judicial), but not considered by Member (Technical)?

3.      Whether the confiscation of excess found goods to be set aside as held by Member (Judicial), but no order passed by Member (Judicial) ?

4.      Whether penalty imposed on M/s. Tejal Dyestuff Industries to be reduced from Rs. 50 lacs to Rs. 20 lacs, as held by Member (Technical) or the entire penalty to be set aside, as held by Member (Judicial) ?

5.      Whether penalty imposed upon Shri Heshbhai M. Shah to be reduced to Rs. 10,000/- as held by Member (Technical) or the same to be set aside in toto as held by Member (Judicial) ?”

42. According to the Revenue, M/s. Tejal Dyestuff Industries, was engaged in the manufacture of intermediates falling under Chapter 29 of the First Schedule to the Tariff Act and were indulging in evasion of central excise duty by way of availing modvat/cenvat credit fraudulently on the strength of the input invoices, without physically receiving such inputs, namely, Linear Alkyl Benzene (LAB), Soda Ash and other inputs, in their factory. On 4th June, 2003, the Excise Officers visited the factory of the assessee, M/s. Tejal Dyestuff Industries, and conducted stock verification, as a result of which, a shortage of finished goods and inputs valued at Rs. 3,44,769/- involving duty of Rs. 55,163/- was noticed. Moreover, excess of finished goods and inputs totally valued at Rs. 1,55,685/- were lying there and were, therefore, seized on a reasonable belief that they were liable to confiscation. During the investigation, from the statements of the authorized signatory of the assessee, Shri IIesh and the person incharge of production and laboratory of the assessee, Shri Hitesh, and also from the statement of the partner of the assessee firm, Shri Nareshbhai, it appeared that, during the period from 1999-2000 to 2003-2004 (upto 30th June, 2003), the appellant-assessee had shown to have received various inputs, such as, LAB (1168.437 MT), Soda Ash (589.525 MT), and five other inputs described in the show cause notice, and had availed total Modvat/Cenvat credit of Rs. 1,09,90,171/-. According to the Revenue, Modvat/Cenvat credit was availed in respect of these inputs fraudulently without receiving the inputs which are also detailed in paragraph 3 of the impugned order.

43. The case of the Revenue that, though the inputs were not physically received, Modvat/Cenvat credit was taken on the basis of invoices issued by M/s. Bhimani Chemicals Pvt. Ltd. was upheld by the Commissioner, mainly on the basis of the statements of Shri Hitesh R. Patel, Production and Laboratory Incharge, of the assessee, Shri Ilesh Maheshbhai Shah, authorized signatory of the assessee, and Shri Naresh Fatehchand Shah, partner of the assessee, who had admitted in their statements that the inputs, namely, LAB, Soda Ash and some other inputs, were not brought into their factory, nor were they consumed in the manufacture of their finished products, nor were they sent “as such” outside for manufacture of other products on job work basis. The case of the Revenue was that, the assessee had made payments by cheques for the goods to M/s. Bhimani Chemicals Pvt. Ltd. and thereafter, cash had flown back, after deducting 2% of the invoice value, from Mr. Jayesh Bhai Bhimani, Director of M/s. Jinal Chemicals Pvt. Ltd., as per the statement of Shri Nareshbhai, recorded under Section 14 of the Act.

44. The case of the assessee and other appellants was that, the transactions were genuine and that the goods were received from Bhimanis under the invoices of their Company, M/s Jinal Chemicals Pvt. Ltd. and were brought within the municipal limits after paying octroi, the receipts of which were produced and relied upon by the assessee. According to the assessee and the other appellants, payments for the inputs were made by cheques, which fact was also borne out from the statements of Bhimanis (Jayesh and Jignesh). It was contended that there was no evidence to show any flow back of the amounts which were paid by cheques for the inputs purchased by the assessee. According to the assessee, the fact that the raw material including LAB was used by the appellants for their final products was duly proved, inter alia, from the sample test report dated 3rd July, 2003 of the Chemical Research and Development Centre, Ahmedabad, showing the content of LAB as 5.39%, in the sample of 150 gms. of the finished product.

45. The Commissioner rejected all the contentions of the appellants mainly on the basis of the confessional statements of the partner of the assessee and its two employees. The demand for recovery of modvat/cenvat credit of Rs. 1,09,35,008/- was confirmed against the assessee, M/s Tejal Dyestuff Industries, and a penalty of Rs. 50,00,000/- was imposed on that firm. Demand of recovery of the excise duty of Rs. 55,163/- was also confirmed against the assessee in respect of the shortage of the finished goods and the raw material. The finished goods and the raw material valued at Rs. 1,55,685/-, which were seized under the Panchnama dated 4th June, 2003, were ordered to be confiscated with a redemption fine of Rs. 30,000/-. The amount of Rs. 25,00,000/-, which was paid by the assessee during the course of investigation, was ordered to be appropriated and interest as recoverable under Section 11AB of the Act was ordered to be paid. The original noticees, Shri Jayeshbhai Bhimani, Director of Jinal Chemicals Pvt. Ltd. and Shri Jignesh J. Bhimani, Director of Bhimani Chemicals Pvt. Ltd., and also P.M. Bhimani Orgo Chem. P. Ltd. and Proprietor of M/s. Parshwa Chemicals, were imposed a penalty of Rs. 25,00,000/- each, while the partner of the assessee was imposed a penalty of Rs. 5,00,000/- and the authorized signatory of the assessee, Shri Ileshbhai, was imposed penalty of Rs. 25,000/-.

46. When the appeals were heard by the Division Bench, the Hon’ble Member (Technical) opined that, the demand against the assessee, M/s. Tejal Dyestuff Industries, was required to be sustained, but the penalty imposed on the assessee was reduced from Rs. 50 lacs to Rs. 20 lacs. The penalty on the partner of the assessee was set-aside, since the penalty on the partnership firm was sustained. The appeals of Shri Jayeshbhai Bhimani and Jigneshbhai Bhimani were required to be allowed by setting aside their penalties as held by the Member (Technical). Penalty on Shri Ileshbhai was reduced to Rs. 10,000/-

47. The Learned Member (Judicial), however, was of the opinion that, only the demand of Rs. 55,163/- was required to be confirmed and the rest of the impugned order was required to be set aside.

48. The learned Counsel appearing for all the appellants contended that, ever since 1999, statutory declarations were filed by the assessee about the use of the inputs for the purpose of availing the modvat/cenvat facility. It was submitted that, the inputs used in the manufacture of the final products by the assessee were duly mentioned in the declarations and in the returns. Moreover, accounts of the assessee were duly audited by the Departmental auditors and no objection was ever raised on the ground that the inputs were not received or that they were not used by the assessee. It was also submitted that the evidence disclosed that similar inputs were also received by the assessee from the other parties. He then argued that, the statements of Nareshbhai, Hitesh and Ilesh cannot be relied upon because immediately after the statements, the deponents had sworn affidavits retracting them, stating that, they were recorded under duress. He referred to the affidavits dated 9-6-2003, 13-6-2003 and 16-10-2003 to show that soon after the statements were recorded under Section 14, these affidavits were sworn before the Notary retracting the statements and mentioning that they were not voluntarily given. He submitted that, though these affidavits were produced much later, during the hearing before the Commissioner, their existence and genuineness cannot be questioned because they were duly sworn on the dates mentioned therein. He further argued that, the statements of Hitesh and Ilesh, when read together, showed that they were identical and, therefore, it should be inferred that they were prepared by the Excise Authorities themselves. He further submitted that, all statements should carry equal evidentiary value and that evidentiary value will not depend upon whether the statement is in favour of the Revenue or not. He submitted that, the invoices of the inputs tallied with the octroi receipts. Moreover, the payments were all made by cheques. This fact was accepted in the statements of Bhimanis and their ledger account also supported the same. Since there was no flow back of cash proved, there was no valid reason to infer that the amounts were returned to the assessee. He also submitted that, the expert’s evidence showed that, LAB could be used in the products manufactured by the appellants.

48.1 The learned Counsel for the appellants relied upon the decision of the Tribunal in Ghodavat Panmasala Products v. CCE, Pune, reported in , for pointing out that, the Tribunal did not rely upon confessional statements which were given in order to avoid tension, since the Department did not adduce any primary evidence or other proof in the form of sale proceeds, cash etc. to support their case of clandestine removal.

49. The learned authorized representative for the Department, supported the reasoning and findings contained in the impugned order. He submitted that, LAB was not capable of being used in the products of the assessee. He argued that, mere octroi receipts cannot show that the inputs were actually received in the factory premises of the assessee. He submitted that even if Bhimanis got cheque payments from the assessee for the inputs mentioned in the invoices, it cannot be inferred that the goods had been received by the assessee. He also submitted that, the assessee did not have sufficient storage capacity for LAB and, therefore, could not have received the said inputs. Relying upon the certificate issued by an expert, which was produced on behalf of the appellants, it was submitted that, only 5% of LAB was detected in the product of the assessee and, therefore, as found by the Commissioner in para 28 of the impugned order, the total quantity of the input LAB would have produced much more quantity of the final products than the quantity shown by the assessee in its record. He submitted that, there was no valid reason to discard the confessional statements of the partner of the assessee and the two employees, which categorically established that though the inputs were never received in the factory of the assessee, Modvat/Cenvat credit was availed only on the basis of the invoices. He also submitted that, merely because the audit party had visited the premises of the assessee or that monthly returns were filed, it did not absolve the assessee from having manipulated the data and wrongly taken credit in respect of inputs which were not received.

49.1 The learned authorized representative for the Department placed reliance on the decision of the Hon’ble Supreme Court in CCE, Madras v. Systems Components Pvt. Ltd., reported in (S.C.), for the proposition that what is admitted need not be proved. The Hon’ble Supreme Court held, in para 5 of the judgment, that once it was an admitted position by the party itself, that the parts in question were parts of a chilling plant and the concerned party did not even dispute that they had no independent use, there was no need for the Department to prove the same. He also relied upon the decision of the Tribunal in Carpenter Classic Exim Pvt. Ltd. v. Commissioner of Customs, Bangalore, reported in , for the proposition that in a quasi judicial proceedings the Tribunal was concerned more with a pre-ponderance of probability rather than proof beyond reasonable doubt. He also relied upon the decision of the Tribunal in CCE, Indore v. Prashant Electrode, reported in , in which the Learned Single Member had observed in para 4 of the order that, the statement of the partner admitting the shortages was itself an end of investigation inasmuch as there was no further requirement of any investigation. He also referred to the decision of the Tribunal in Customs Appeals No. 754 & 759 of 1998 decided on 12-1-2007, for the proposition that, notwithstanding the retraction, the confession which amounted to admission would bind the maker of the confession.

50. There can be no dispute over the proposition that admitted facts need not be proved and that the confession would  be binding on the maker of the confession. The confession by the partner of the assessee and by the employees of the assesse would ordinarily be binding on the assessee. However, such confession would not bind the co-noticees without corroboration. This is why, the Learned Member (Technical) as well as the Learned Member (Judicial) did not hold Jayesh Bhimani and Jignesh Bhimani, liable on the basis of the confessions made by others. However, from the fact that confession of the maker is not held to be proving the involvement of the co-noticee, it cannot be inferred that such same confession will also not bind its maker.

51. Though admissions will bind the maker of the confessional statements and in the absence of any other out weighing evidence, the facts admitted will be taken to have been established, in cases where the confessional statement is retracted and/or other evidence is available to create a doubt over the making of such confession, the Court will be required to weigh such other evidence and find out whether the confessional statement should be implicitly relied upon. Any proposition which gives irrebutable sanctity to a confessional statement, will tend to shut out consideration of other relevant material which might out-weigh the evidentiary value of the confessional statement. The proposition that in view of the confessional statement all other evidence should be discounted, cannot, therefore, be accepted.

52. In the present case, on the one hand, we have the statements of Naresh, Hitesh and Iesh, fully incriminating the assessee by stating that, the inputs were not received in the factory nor were they used in the final products manufactured by the assessee; on the other hand, we have an established fact of the payments having been made by cheques in respect of the inputs covered by the invoices which are on record along with the other evidence in the nature of octroi receipts relatable to such goods. The octroi receipts constitute a very important and independent documentary evidence in support of the fact that, the inputs covered by the invoices drawn in the name of the assessee, were, in fact, carried in the tankers and brought within the municipal limits in which the factory of the assessee was situated. Admittedly, no driver of these tankers was examined by the Revenue authorities. The owner of the transport company has stated that, the delivery of the goods was to be taken at Asiali Naka, but from his statement, it cannot be inferred that the goods were not transported further into the municipal limits in the same tankers. The fact that the goods entered the municipal limits from Aslali Naka in the same tankers is amply borne out from the octroi receipts. If the appellant-assessee had not received the goods sent under these invoices, it would not have been in possession of the octroi receipts, were produced by the assessee. In other words, if the goods were delivered  elsewhere within the municipal limits, the octroi receipts would ordinarily be with the person who has taken them from the Octroi  naka. Therefore, there was no reason to infer that the goods were  delivered outside octroi Naka of Aslali and that they were not delivered to the consignee.

53. The fact that payments in respect of the inputs covered by the invoices were made by cheques, is not at all disputed. There is no iota of evidence to justify any inference that there was flow back of the amount of more than six crores of rupees over the period in question from Bhimanis to the assessee in cash after having received the payments by cheques and deducting 2% by way of commission. Ordinarily, when an amount of more than rupees six crores is paid against the invoices, covering the inputs,  it would be difficult to contemplate the imprudence of returning cash amount of more than Rs. 5.50 crores, which cannot be accounted for. In other words, ordinarily, no prudent businessman would convert more than Rs. 6 crores of white and legitimate money held by him into an unaccounted money of more Rs. 5.50 crores. Admittedly, all the entries in the ledger account of Bhimanis in respect of the transactions with the assessee were cheque entries and there was no cash entry or cash flow back detected. From the cross-examination of the Revenue Officer, Mr. Y.S. Bhatt, it transpires that, no verification was done by him with the bankers of the firms of Bhimani Brothers, whether payments were received through cheques. He stated that, Jayesh Bhimani and Jignesh Bhimani, had confirmed that the payments had been made by the assessee to them through cheques only. According to him, the  Revenue Officers had withdrawn the ledgers from Bhimani firm, though they did not call for or collect bank statements from their bankers. In answer to the question, whether he found any entry or cash payment in the ledger account of Bhimanis in favour of M/s Tejal Dyestuff Industries, he answered that in the ledger, the payments made by M/s. Tejal Dyestuff Industries to Bhimanis stood reflected only through cheques. Thus, payments against all the invoices were made by cheques by the assessee. The inputs, in fact, were transported under the cover of these invoices. Octroi receipts show that the said goods were, in fact, transported inside the municipal limits in which the consignee’s factory was situated. The octroi receipts were produced from the custody of the assessee and all the inputs were duly entered in the RG-23 Register of the assessee. There is absolutely no evidence, apart from the statement of Naresh that there was any flow back of the amounts paid by cheques for the inputs. There is also evidence to show that the inputs LAB was detected in the final product of the assessee. No attempt was made by the Revenue to verify whether the inputs could have been used in any of the 20 products said to have been manufactured by the assessee.

54. It appears that, having obtained confessional statements the Revenue Officers did not carry out the detailed investigation into the relevant aspects of the case, particularly, the Bank accounts of Bhimanis and the working of the assessee’s factory. Recording of the confessional statement would not put an end to the investigation and the Revenue Officers should be careful to ensure that they are not tricked out of a regular and detailed investigation by making strategic confessions which are retracted by preparing affidavits soon after they are made and which affidavits are again strategically withheld from the Revenue Officers, so that they become complacent and do not carry out a fuller investigation. It appears that the Revenue Officers in the present case have fallen victim to this type of strategic confessional statements which have been retracted soon after they were made in the affidavits which were withheld by the deponents till the proceedings came up before the Commissioner, by which time the damage of not a making fuller investigation, thinking that the confessional statements are made and not retracted, was already done. The Revenue Officers have not even cared to investigate into the types of final products manufactured by the appellants despite detailed declarations which were on record with them, which showed that all these inputs, particularly LAB and Soda Ash were being used by them for their final products. Some of these declarations which are on record as Annexure ‘A’ (Collectively) show that at least for seven final products, LAB and Soda Ash were used as inputs, besides other inputs enumerated in the description of inputs in the declarations dated 22-2-1999, 3-4-2000, 12-4-2000, and 12-6-2000. It is not disputed that the returns were regularly filed and the fact that these inputs were used for the final products was mentioned from the very inception in the declarations made and the returns filed by the assessee before the Revenue authorities. The copies of monthly returns filed under Rule 7 of the Cenvat Credit Rules, 2001, which are on record, show the use of these inputs in the final products manufactured by the assessee. The receipt of these inputs in the factory premises of the assessee having been established, coupled with the fact that, as per the declarations and returns and other statutory record, the inputs were in fact used in the final products by the assessee, the lethargy of the Revenue Officers in not verifying the relevant statutory records and invoices, as to what exact quantity of raw material was used in the final products, and that in how many final products such inputs could have been used, existence of the particulars in the RG-23 Register reflecting the invoices and the existence of octroi receipts as also the expert opinion in respect of LAB having been used in the final product, altogether create a doubt as to the correctness of the contents of the statements of Naresh, Hitesh and Ilesh. The pre-ponderance of probabilities in the context of all other evidence vis-a-vis the confessional statements does not lead to the conclusion of inadmissibility of  Modvat/Cenvat credit as reached by the Commissioner. The storage capacity in the factory of the assessee included two tanks of 15 MT capacity, 250 mild steel drums of 250 kg capacity and 45 carboys of 60 kg. capacity. It is not even ascertained by the Revenue as to what storage capacity was available at different times of the receipt of LAB. Adequacy of storage capacity can be judged with reference to the quantity of inputs received at a particular point of time and not with reference to the total inputs received over the period of two years. It is difficult to come to the conclusion, in the face of the evidence that has come on record that, the transactions of inputs covered under the invoices in question, were not genuine. The demand of Rs. 1,09,35,008/-confirmed against the appellant, M/s. Tejal Dyestuff Industries as well as penalty imposed on it and recovery of interest ordered to be recovered cannot, therefore, be sustained. However, the demand of Rs. 55,163/- for the shortage of finished goods and raw material has been correctly confirmed and the liability in respect of this amount is not being disputed, as stated by the learned counsel for the assessee. The Commissioner did not deal with the explanation given by the assessee for not entering the goods which were found in excess in RG-1 Register. According to the assessee, there was a system of checking the real weight of the product prior to the stage of clearance, and that the real weight of the product was taken only at the time of despatch. This is why ONCBS, which was a product, which was not yet tested and the real weight of which was yet to be ascertained, was not entered in RG-1 Register. Since the explanation of the assessee was plausible, the confiscation of the excess goods cannot be sustained.

55. For the foregoing reasons, concurring with the findings of Member (Judicial), it is opined that the confirmation of demand of duty against the appellant, M/s. Tejal Dyestuff Industries, except the demand of Rs. 55,163/- which deserves to be upheld, is required to be set-aside and that the confiscation of goods, recovery of interest as well as the penalties imposed on all the appellants, are also required to be set-aside and the appeals should be disposed of accordingly.

[Dictated and pronounced in the open Court]

FINAL ORDER

56. In view of the majority order, the confirmation of demand of duty on M/s. Tejal Dyestuff Industries, excepting the demand of Rs. 55,163/- is set aside, confirmation of interest and imposition of penalty upon the appellants are set aside and confiscation of the goods is also set aside.

57. All the appeals are disposed off in above manner.