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S.M Steel Ropes v. Balkrishna Agarwal

CESTAT

Feb 13, 2014

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Tribunal Opinion

Factual and Procedural Background

Three appeals were before the Tribunal: one filed by the Revenue and two filed by the appellants — M/s. S.M. Steel Ropes, Mumbai and Shri Balkrishna Agarwal (a partner of M/s. S.M. Steel Ropes). These appeals challenged Order-in-Original No. 11/Commr/(AH)/2005 dated 28-1-2005 passed by the Commissioner of Central Excise (Adjudicating Authority), Mumbai.

The impugned order (dated 28-1-2005) confirmed a duty demand of Rs. 11,80,000 against M/s. S.M. Steel Ropes, ordered confiscation of excisable goods seized under Panchnama dated 5-3-2008 valued at Rs. 2,15,490 with an option to redeem on payment of a Rs. 50,000 fine, and ordered confiscation of Indian currency totalling Rs. 11,01,300 with an option to redeem on payment of a Rs. 2.5 lakh fine. Interest on the confirmed duty was also upheld. Penalties of Rs. 8.00 lakhs were imposed on the main appellant and Rs. 1.00 lakh on Shri Balkrishna Agarwal. The adjudicating authority, however, dropped a duty demand of Rs. 10,64,404.

The Revenue appealed against the dropping of the Rs. 10,64,404 demand. The appellants appealed against confirmation of duty demand, confiscation of goods and currency, and imposition of fines and penalties. The appellants also relied on a prior remand direction from this Tribunal (Order No. C-II/814-17/WZB/2001 dated 24-3-2001) that documents requested by the assessee be supplied; counsel for the appellant contended that only part of the documents were supplied and some seized documents were misplaced.

Legal Issues Presented

Whether confirmation of a duty demand can be sustained when it is founded primarily on the voluntary statements (confession) of the Managing Partner in the absence of corroborative documentary evidence.
Whether confiscation of the currency seized from the appellant's premises (alleged sale proceeds of clandestine removals) is permissible under the statutory scheme invoked (Section 121 of the Customs Act read with Section 12 of the Central Excise Act, 1944).
Whether the adjudicating authority erred in dropping part of the computed duty demand (Rs. 10,64,404) and whether the Revenue's appeal against that dropping is tenable.
Whether penalties imposed on Shri Balkrishna Agarwal survive where he has died during the pendency of proceedings.
Whether principles of natural justice were violated by non-supply (or partial supply) of documents ordered to be furnished by this Tribunal earlier.

Arguments of the Parties

Appellant's Arguments

The Tribunal had previously remanded the matter directing supply of documents to the assessee; the impugned order records that only part of the documents were supplied and some seized documents were misplaced, thereby violating principles of natural justice.
The confirmation of duty demand rests solely on the statement of Shri Balkrishna Agarwal; there is no corroborative evidence (no records of purchases, receipts by customers or transport evidence) to support the Revenue's case.
The appellant was a small-scale manufacturer and clearances were below the exemption limit; therefore, the appellant was exempt from registration and from maintaining statutory records, explaining the absence of such records.
Confiscation of currency under Central Excise law is not sustainable and should be set aside.
Proceedings against Shri Balkrishna Agarwal should abate because he died on 5-9-2005.

Revenue's Arguments

The Revenue relied on the admitted clandestine production and removal as confessed by Shri Balkrishna Agarwal (the Managing Partner); thus confirmation of duty demand is sustainable.
Dropping of part of the demand (Rs. 10,64,404) by the adjudicating authority was incorrect because the computation was based on worksheets prepared from delivery challans recovered at the appellant's premises during Panchnama proceedings; even if the delivery challans are not presently available, the computation cannot be faulted and the full demand of Rs. 22,44,404 should have been confirmed.
The currency seized represented proceeds of clandestine sales and therefore was liable to confiscation under Section 121 of the Customs Act as made applicable to Central Excise by Section 12 of the Central Excise Act, 1944.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
K.I. Pavunny v. Asstt. Collector (HQ) Central Excise Collectorate, Cochin (Supreme Court)	Confessional statement, if voluntary, can form the sole basis for conviction; if retracted, court must examine whether it was obtained by threat, duress or promise and whether it is truthful.	The Tribunal relied on this principle to hold that the voluntary statements of Shri Balkrishna Agarwal (not retracted) could form the basis for confirming the duty demand.
Govindasamy Ragupathy (Madras High Court)	Admitted facts need not be proved.	The Tribunal cited this to support that admissions in the statements need not be separately corroborated by documentary proof.
Telestar Travels Pvt. Ltd. (Supreme Court)	Reliance can be placed on statements if they are based on consideration of relevant facts and circumstances and are found to be voluntary.	The Tribunal applied this principle to validate acceptance of the voluntary statements of the Managing Partner as evidence for confirming demand.
Commissioner of Central Excise, Mumbai v. Kalvert Foods India Pvt. Ltd. (Supreme Court)	Statements of concerned persons made out of their volition and without allegation of threat, force, coercion, duress or pressure can be accepted as valid evidence.	The Tribunal used this authority to reinforce that the un-retracted voluntary statements could be treated as reliable evidence to sustain duty, interest and penal liabilities.

Court's Reasoning and Analysis

The Tribunal undertook a fact-specific analysis anchored primarily on the voluntary statements of Shri Balkrishna Agarwal. The key factual points and steps in the Tribunal's reasoning were:

Examination of the recorded statements: Shri Balkrishna Agarwal's statement dated 5-5-1998 admitted turnovers for 1993-94 through 1996-97 (Rs. 50 lakhs, Rs. 60 lakhs, Rs. 65 lakhs and Rs. 75 lakhs respectively). A subsequent statement dated 18-8-1998 confirmed earlier figures and added the turnover for 1997-98 as Rs. 94 lakhs. He undertook to pay duty and made partial payments of Rs. 1.25 lakhs (31-3-1998) and Rs. 50,000 (20-8-1998).
Modus operandi admitted in statements: In his declarations, Shri Balkrishna Agarwal explained three categories of sales — (a) sales to genuine customers with invoices and delivery challans and recorded in accounts; (b) sales at the factory gate for cash without invoices or bills; and (c) supplies lifted under delivery challans in the name of genuine customers but actually sold to other customers in cash without invoices. The Tribunal regarded this as a clear admission of clandestine removals and the commercial practice followed.
Voluntariness and non-retraction: The Tribunal emphasized that none of the statements were retracted and that Shri Balkrishna Agarwal declared the statements were made voluntarily without force, threat or coercion.
Adjudicatory approach in absence of documentary evidence: The adjudicating authority confirmed demand based on the admitted figures in the voluntary statements because the delivery challans that supported the worksheet computations were not available at the time (some seized documents were misplaced). The Tribunal noted the adjudicator proceeded strictly on available evidence (the statements).
Application of legal principles and precedents: Relying on the cited authorities (K.I. Pavunny; Govindasamy Ragupathy; Telestar Travels; CCE v. Kalvert Foods), the Tribunal concluded that voluntary confessional statements, un-retracted and free from allegations of coercion, can be the sole basis for confirming duty and penal liabilities; admitted facts need not be separately proved.
Confiscation of currency: The Tribunal accepted the Revenue's legal position that confiscation of currency was permissible because the currency represented proceeds of clandestine removals. It applied the statutory framework of Section 121 of the Customs Act as made applicable to Central Excise by Section 12 of the Central Excise Act, 1944.
Effect of death of a party: Because Shri Balkrishna Agarwal had died (on 5-9-2005), the Tribunal held that proceedings against him abate and accordingly set aside the penalty imposed on him.
Revenue's appeal on dropped demand: Regarding the Revenue's challenge to the dropping of the Rs. 10,64,404 portion of demand, the Tribunal found that in the absence of documentary evidence the adjudicating authority's dropping of that portion could not be faulted and the Revenue's appeal lacked merit.

Holding and Implications

Core Ruling: The Tribunal upheld the impugned adjudicating order except insofar as it imposed a penalty on Shri Balkrishna Agarwal (who had died), which was set aside. Consequently, the appeals of the main appellant and the Revenue were dismissed as devoid of merits.

Implications and Direct Consequences

The duty demand of Rs. 11,80,000 confirmed by the adjudicating authority (together with interest and penal liabilities) is sustained against M/s. S.M. Steel Ropes.
The confiscation of excisable goods seized under the Panchnama (valued at Rs. 2,15,490) and the confiscation of Indian currency totalling Rs. 11,01,300 (with the stated redemption options and fines) are upheld by the Tribunal under the statutory provisions relied upon by the Revenue.
The penalties imposed on the main appellant (M/s. S.M. Steel Ropes) remain in force; the penalty of Rs. 1.00 lakh imposed on Shri Balkrishna Agarwal is set aside because proceedings against him abated on his death.
The Revenue's appeal challenging the adjudicating authority's decision to drop a demand of Rs. 10,64,404 was dismissed; the Tribunal found no error in the dropping given the absence of documentary evidence.
The Tribunal based its outcome primarily on voluntary, un-retracted statements of the Managing Partner and on the cited judicial authorities endorsing the evidentiary weight of such statements when they are voluntary and un-coerced.

Note: The opinion itself does not undertake to state broader legal consequences beyond the direct effects on the parties; it resolves the appeals by reference to the facts, the statutory provisions invoked (Section 121 of the Customs Act read with Section 12 of the Central Excise Act) and the cited precedents.

(Operative part of the order pronounced in Court.)

Show all summary ...

, Member (T)]. - There are three appeals, one filed by the Revenue and two filed by the appellant, M/s. S.M. Steel Ropes, Mumbai and Shri Balkrishna Agarwal, partner of M/s. S.M. Steel Ropes, against Order-in-Original No. 11/Commr/(AH)/2005, dated 28-1-2005 passed by Commissioner of Central Excise (Adj.) Mumbai.

2. Vide the impugned order, the learned adjudicating authority has confirmed a duty demand of Rs. 11,80,000/- against the appellant, M/s. S.M. Steel Ropes. He has further ordered confiscation of excisable goods seized under Panchnama dated 5-3-2008 valued at Rs. 2,15,490/- with an option to redeem the same on payment of fine of Rs. 50,000/-. He has also ordered for confiscation of Indian currency totalling to Rs. 11,01,300/- seized with an option to redeem the same on payment of a fine of Rs. 2.5 lakhs. He has also confirmed the interest liability on the duty confirmed. He has also imposed a penalty of Rs. 8.00 lakhs on main appellant, M/s. S.M. Steel Ropes and a penalty of Rs. 1.00 lakh on Shri Balkrishna Agarwal, partner of the appellant firm. In the said order, the adjudicating authority has dropped a duty demand of Rs. 10,64,404/-. The Revenue is in appeal against dropping of demand of Rs. 10,64,404/- while the appellants are in appeal against confirmation of duty demand along with interest, confiscation of the seized goods and the currency and imposition of fine and penalties.

3. The Ld. Counsel for the appellant makes the following submissions.

3.1 The impugned order has been passed in pursuance to this Tribunal order No. C-II/814-17/WZB/2001, dated 24-3-2001 wherein the appeal was remanded with a direction that the documents requested by the assessee be supplied to them. However, as it can be seen from the impugned order only part of the documents have been supplied to the appellant and part of the documents seized could not be supplied as they have been mis-placed, which fact has been recorded by the adjudicating authority in para 12 of the impugned order. Therefore, it is contended that the principles of natural justice have been violated in view of the non-supply of documents.

3.2 The learned Counsel further contends that the entire confirmation of duty demand under the impugned order is based on the statement of Shri Balkrishna Agarwal, wherein he had admitted to having manufactured and cleared excisable goods, namely, steel wire ropes of various sizes and dimensions to various parties. There is no corroborative evidence adduced by the Revenue in support of the contention that the noticee has manufactured and supplied these goods without payment of duty. Therefore, without any corroborative evidences, the confirmation of duty demand on the basis of strength of statement alone is not sustainable in law. It is also the contention of the learned Counsel that the appellant was a small scale manufacturer and the clearances made by the appellant were below the exemption limit. Therefore, the appellant was exempt from taking registration under Central Excise laws and maintaining statutory records. It was for these reasons, the appellant did not maintain any statutory records regarding the production and clearances of the goods. The Revenue has also not adduced any evidence regarding purchase of raw materials, receipt of goods by various customers and its transportation and therefore, in the absence of any tangible evidence, the confirmation of duty demand along with interest and imposition of penalties is not sustainable in law.

3.3 The learned Counsel also argues that confiscation of the currency under excise law is not sustainable and therefore, the same merits to be set aside. Lastly, the learned Counsel submits that Shri Balkrishna Agarwal passed away on 5-9-2005 and hence the proceedings against him should abate.

4. The Additional Commissioner (AR) appearing for the Revenue strongly refutes the contentions of the learned Counsel for the appellant. He submits that clandestine production and removal has been admitted to by Shri Balkrishna Agarwal who was the Managing Partner of the appellant’s firm and therefore, the confirmation of duty demand by the adjudicating authority is sustainable in law. However, he submits that dropping of part of demand to the extent of Rs. 10,64,404/- by the adjudicating authority is incorrect in law as the computation of duty demands were made on the strength of worksheets annexed to show- cause notice and these worksheets were prepared based on the delivery challans recovered from the appellant’s premises during the Panchnama proceedings. Therefore, even though the delivery challans are not available at present, the computation of duty demand could not be faulted and therefore, the adjudicating authority should have confirmed the entire demand of Rs. 22,44,404/- as against Rs. 11.80 lakhs confirmed in the impugned order. As regards the seizure of currency the learned Additional Commissioner states that the currency seized from the premises of the appellant was the sale proceeds of the goods clandestinely removed and sold and therefore, they are liable to confiscation in terms of Section 121 of the Customs Act made applicable to Central Excise Act, vide notification issued under Section 12 of the Central Excise Act, 1944.

5. We have carefully considered the submissions made by both the sides.

5.1 As regards the confirmation of duty demand on the strength of statement alone, we notice that Shri Balkrishna Agarwal had clearly admitted in his statement dated 5-5-1998 that the turnover of his firm during 1993-94, 1994-95, 1995-96 and 1996-97 were Rs. 50 lakhs, Rs. 60 lakhs, Rs. 65 lakhs and Rs. 75 lakhs respectively. In this subsequent statement dated 18-8-1998 while confirming his previous statements, he further stated that the turnover for the period 1993-94, 1994-95, 1995-96, 1996-97 and 1997-98 were to the tune of Rs. 50 lakhs, Rs. 60 lakhs, Rs. 65 lakhs, Rs. 75 lakhs and Rs. 94 lakhs respectively and he had also undertaken to pay the duty payable on the said goods cleared voluntarily in terms of the aforesaid submissions. He also made payments of Rs. 1.25 lakhs on 31-3-1998 and Rs. 50,000/- on 20-8-1998. In his statement dated 18-8-1998 he had admitted that he was undertaking three types of sales. In one type of sale he used to prepare sales invoices and delivery challans for sale of goods at the factory gate to the genuine customers and the said sales was duly accounted for in the records. In the second type of sales, they were selling the goods at factory gate to various customers on payment of cash without any sales invoice and bills. In the third type of sales wherever they received orders for supply of goods over phone, the goods were lifted from the factory for delivery under delivery challans made in the name of genuine customers but the goods were sold to needy customers without any sales bills or delivery challans and against payment of hard cash. Thus the modus operandi adopted by the appellant firm stood clearly admitted in the aforesaid statement of Shri Balkrishna Agarwal, who was the Managing Partner of the appellant firm during the relevant period. None of the statements have been retracted at any point of time. Further, in his statement Shri Balkrishna Agarwal had also made a declaration that the statement was made voluntarily without any force, threat or coercion. The adjudicating authority has confirmed the demand only on the basis of figures given in the statements of Shri Balkrishna Agarwal. In the absence of delivery challans which were recovered and seized at the time of Panchanama proceedings, he has not taken the computation of demand based on such delivery challans as reflected in the annexure to the show-cause notice. Therefore, the adjudicating authority has strictly proceeded based on the evidences available which in the present case are the statements of Shri Balkrishna Agarwal. As to the question whether the demands can be confirmed on the strength of confessional statements, this position stands settled by the decision of the Hon’ble Apex Court in the case of K.I Pavunny v. Asstt. Collector (HQ) Central Excise Collectorate, Cochin - (S.C.) wherein it was held that confessional statement of accused, if found to be voluntary, can form the sole basis for conviction. Only if it is retracted, the Court is required to examine whether it was obtained by threat, duress or promise and whether the confession is truthful. In the present case, we find that there is no retraction of the confessional statement by Shri Balkrishna Agarwal. As regards the lack of corroborative evidence, it is a settled position of law that “admitted facts need not be proved” as held by the Hon’ble High Court of Madras in the case of Govindasamy Ragupathy - (Mad). In a recent decision in the case of Telestar Travels Pvt. Ltd. - (S.C.), the Hon’ble Apex Court held that reliance can be placed on statement if they are based on consideration of relevant facts and circumstances and found to be voluntary. Similarly in the case of CCE, Mumbai v. Kalvert Foods India Pvt. Ltd. - (S.C.) the Hon’ble Apex Court held that if the statements of the concerned persons are out of their volition and there is no allegation of threat, force, coercion, duress or pressure, such statements can be accepted as a valid piece of evidence. In the light of the above decisions, we are of the considered view that the confirmation of duty demand based on the voluntary statements of the Managing Partner of the appellant firm is sustainable in law. Consequently, the interest and penal liabilities imposed on the appellants would also sustain.

5.2 As regards the confiscation of the currency, the same is permissible, in view of the provisions of Section 121 of the Customs Act read with Section 12 of the Central Excise Act, 1944, as the currency was the sale proceeds of the goods clandestinely removed without payment of excise duty.

5.3 Inasmuch as Shri Balkrishna Agarwal has passed away, the proceedings against him abates and therefore, the penalties imposed on Shri Balkrishna Agarwal is set aside.

5.4 As regards the appeal filed by the Revenue, in the absence of documentary evidence, the dropping of duty demand by the adjudicating authority to the extent of Rs. 10,64,404/- cannot be faulted at all and therefore, we find no merit in the Revenue’s appeal.

6. To sum up, we uphold the impugned order except for setting aside the penalty on Shri Balkrishna Agarwal who has passed away. Thus, the appeals of the main appellant and the Revenue are dismissed as devoid of merits.

(Operative part of the order pronounced in Court)