The Principal Commissioner, CGST And Central Excise vs. Ramesh M Shah, Director M/S. Shah Foils Limited
Original PDF →Facts
The Directorate General of Central Excise Intelligence (DGCEI) conducted searches on July 10, 2013, at the factory and office premises of M/s. Shah Foils Limited (SFL), a manufacturer of Stainless Steel Cold Rolled Coils and Strips. Searches also extended to the residential premises of its Director, Shri Ramesh M. Shah, and a stall in Mumbai. Incriminating documents and three pen drives were recovered from lockers maintained under fictitious names. Data retrieved from the pen drives included computerized ledgers detailing purchases, sales, payments, and financial accounts for the period April 2009 to March 2012. Handwritten Gujarati sheets were also recovered, which, when compared with the pen drive data, showed similar transactions but with amounts reduced by one digit. Shri Ramesh M. Shah admitted in a statement that the pen drives and hard copies belonged to SFL and reflected their daily financial transactions.
Held
The Court held that the CESTAT was justified in its findings. Regarding the charges of clandestine removal, the Tribunal correctly noted that the onus to prove such removal lies with the revenue and requires sufficient, cogent, and unimpeachable evidence. The Tribunal found that the revenue failed to provide corroborative evidence such as receipt of unaccounted raw material, transportation, production of unaccounted finished goods, consumption of consumables, extra labour, excess electricity usage, or receipt of cash from any single person for alleged clandestine sales. Furthermore, the revenue did not investigate M/s. SFPL, from where clearances were allegedly made. The Tribunal's reliance on various precedents, including CCE vs. Laxmi Engg. Works and Shingar Lamps Pvt. Ltd. vs. CCE, supported its conclusion that charges of clandestine removal based solely on pen drive data and sheets were not sustainable. Consequently, the appeals filed by the Revenue were summarily rejected as no substantial question of law arose.
Key Issues
1. Whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) erred in making perverse findings on facts without sufficient evidence, contrary to the material on record? (Question of fact) 2. Whether the CESTAT erred in allowing the assessee's appeal solely based on submissions, without examining the material evidence discussed by the adjudicating authority? (Question of fact) 3. Whether the CESTAT erred in concluding that charges of clandestine removal based on pen drive data are not sustainable? (Question of mixed law and fact, turning on interpretation of evidence) 4. Whether the assessee can avail CENVAT credit on inputs when the supporting documents were not genuine or were fake? (Question of law, concerning eligibility for CENVAT credit under relevant provisions) 5. Whether the CESTAT was justified in holding that no case for penalty was made out? (Question of fact and law, concerning the imposition of penalty) Contentions: Petitioner (Revenue): Argued that the CESTAT made perverse findings, allowed the appeal based on submissions without evidence, and erred in dismissing charges of clandestine removal based on pen drive data. They also questioned the eligibility for CENVAT credit if documents were fake and argued that a penalty was warranted. Respondent (Assessee): Relied on various judgments stating that in the absence of corroborative evidence, no demand can be made. They contended that the revenue failed to provide evidence of unaccounted raw material, transportation, production, consumption, or receipt of cash for alleged clandestine sales. The revenue also did not investigate M/s. SFPL, from where goods were allegedly cleared.
Sections Cited
Section 260A
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
Mr.Nirzar Desai, learned advocate for the appellant has tendered Draft Amendment. The same is allowed in terms of the Draft. To be carried out forthwith.
These Tax Appeals under Section 260A of the Income Act, 1961 (for short the “Act”) at the instance of Revenue and are directed against the common impugned Order No.A/1012010125/2019 dated 18.01.2019 passed by the Customs, Excise & Service Tax Appellate Tribunal, Western Zonal Bench, Ahmedabad in Appeal Nos.E/10151/2018, E/11436/2018 and E/11433/2018. C/TAXAP/659/2019 ORDER
As the Tribunal has passed the common order in case of the the appellantCompany and its two Directors, all three appeals are disposed of by this common order.
The following substantial questions of law are proposed by the Revenue: “2(a) Whether in the facts and circumstances of the case, the Hon'ble Custom, Central Excise and Service Tax Appellate Tribunal, Western Zonal Bench, Ahmedabad has committed an error in giving perverse findings on facts which are without any evidence and contrary to the material evidences available on record? (b) Whether in the facts and circumstances of the case, the Hon'ble Custom, Central Excise and Service Tax Appellate Tribunal, Western Zonal Bench, Ahmedabad has erred in allowing the Appeal merely on the basis of submissions made by the assessee that too without any contrary evidence and without examining the material evidences on record discussed by the adjudicating authority? (c) Whether in the facts and circumstances of the case, the Hon'ble Custom, Central Excise and Service Tax Appellate Tribunal, Western Zonal Bench, Ahmedabad has erred in coming to the
conclusion that charges of clandestine removal on the basis of pen driver data are not sustainable? (d) Whether the assessee can avail CENVAT credit on inputs even when the declared in the documents on the strength on which credit availed, were not genuine or were fake? (e) Whether in the facts and circumstances of the case, the Hon'ble Custom, Central Excise and Service Tax Appellate Tribunal, Western Zonal Bench, Ahmedabad is justified in holding that no case for penalty is made out? C/TAXAP/659/2019 ORDER
The short
question
which arises
for consideration is whether the electronic evidence collected during the course of the investigation by the appellant is properly taken into consideration by the Tribunal for adjudication in the appeal or not?
The short facts leading to the case of the appellant herein as under:
1 M/s. Shah Foils Limited, 1820/1, Santej Khatraj Road, Opp. Raj Nagar Bus Stop, Near GEB Sub Station, Santej, Taluka Kalol, District:Gandhinagar, Gujarat (the Assesseee/M/s.SFL) is engaged in the manufacture of Stainless Steel Cold Rolled Coils (S.S.C.R. Coils) and Stainless Steel Cold Rolled Strips (S.S.C.R. Strips) falling under Chapter 72 of Central Excise Tariff Act, 1985 for manufacturing these goods, their main raw materials is Stainless Steel Hot Rolled Coils (S.S.H.R. Coils). Based on intelligence, searches were conducted by Directorate General of Central Excise Intelligence (DGCEI), Mumbai on 10.07.2013 at factory premises, office premise of M/s. SFL, at residential premises of Shri Ramesh M. Shah, Director of M/s.SFL and at Lootery/Ice cream Stall of Shri Manoj Tanna, opposite of Office Premises of M/s. SFL at Mumbai. During search at Mumbai office, it was revealed that M/s. SFL was operating one trading firm in the name of M/s. Sankalp Foils Pvt. Ltd. (M/s. SFPL) which was registered with Central Excise Department as 'Dealer'. During search at Lottery/Ice Cream Stall, certain incriminatory documents pertaining to the C/TAXAP/659/2019 ORDER period from April2012 to July2012, indicating clearance effected by M/s. SFL and one key of locker of Shri Ramesh M shah in 'Venilal Safety Vaults Pvt. Ltd.' were recovered. Further search of lockers in possession of Shri Ramesh M Shah resulted in recovery of 11 bundles of loose incriminating documents and three Pen Drives. It was found that these lockers were maintained by Shri Ramesh M Shah under fictitious names namely 'R.M.Jani & 'R.M.PateL' because while opening of the locker by the key, retrieved from Ice Cream Stall, Shri Ramesh M Shah made the formalities like signature etc. as being owner of the locker. Data retrieved from these Pen Drives were in the form of computerized ledgers, consisting of main ledgers such as purchase and sale of S.S.C.R. Coils, details of payment received and made vide cheque and cash, capital of directors of M/s. SFL, Profit and Loss Account and Balance Sheet etc. and relevant party ledgers pertaining to the period from April2009 to March2012.
2 During investigation, the details contained in these handwritten Gujarati Sheets were compared with the details/data retrieved from seized Pen Drives and it was observed that the details such as date of transaction, name of party, quantity of the goods, Invoice No. of M/s. SFL, cheque nos. etc. were found to be tallied, except the fact that the amount in handwritten Gujarati Sheets were mentioned by reducing amount by one digit i.e. if any transaction entered in Pen Drives as Rs.100/ then in handwritten sheet. It was shown as Rs.10/. Further it was also C/TAXAP/659/2019 ORDER observed that handwritten data show all transaction of a day while the retrieved pen drives data show parawise transaction covering a certain period. All these facts were admitted by Shri Ramesh M Shah, Director of M/s. SFL in his statement recorded on dated 10.07.2012. Accordingly, the investigation came into conclusion that the pen drives alongwith the hard copy of the documents belonged to M/s. SFL and these data reflected details of their daily financial transaction.
3 During investigation, it was further noticed that the computerized ledgers broadly contained data like (I) Sale to brokers (ii) Sale to M/s. SFL (iii) Sale to a category named as “Bombay Sales” (iv) Sim Cash (v) Direct sale and (vi) Bill Conditions etc. it was noticed that the data contained in the handwritten (Gujarati) papers were fed in the computer and party wise & item wise ledger in tally format was created and hard copy of such computerized data was found in the locker and in the ice cream stall. Further, all these data were also found available in the pen drives which were subsequently retrieved in the form of hard copy. On detailed investigation of these data, it was observed that: (i) The ledger account “Bombay Sales” reflected cash sales of the goods to the various parties situated in and around Mumbai. Particulars of such cash sale & cash purchase were also shown in the Ledger of the Brokers like Shri Atul Bhai, Shri Narendrabhai etc. C/TAXAP/659/2019 ORDER (ii) The details of cash purchase and some cash sales, other than “Bombay Sales” were reflected in ledger account namely “Smi (Cash)”. They had received only invoices of inputs from various parties without actual purchase/receipt of the inputs and vailed ineligible Cenvat credit. They had also issued only invoices of final goods to various parties without actual sale/delivery of goods and passed on the ineligible Cenvat credit to those parties. The details of such transaction i.e. receipt of only invoices and issuing of only invoices were also reflected in ledger account namley “Smi (Cash)” maintained yearwise. (iii) Ledger account namely “Bill Condition” maintained by them reflected issuing of only invoices without sale of the goods to the various parties situated in and around Mumbai. (iv) Ledger account namely “Direct Purchase (Value Diff)” & “Direct Sale (Value Diff)” maintained by M/s. SFL reflected the under valuation of final goods by them thereby paid less amount of Central Excise duty.
4 From the foregoing, it emerged that M/s Shah Foils Ltd. Santej, Ta:Kalol, Dist:Gandhinagar, Gujarat had: (i) suppressed their production of final goods S.S.C.R. Coils in their books of account and cleared C/TAXAP/659/2019 ORDER the said unaccounted S.S.C.R Coils (as detailed in their Ledeger Account “Bombay Sales”) without the cover of valid documents/invoices and without payment of central excise duty due thereon and thereby evaded payment of central excise duty amount to Rs.13,22,68,484/ during the period from April2009 to 10.01.2012. (ii) suppressed their production of final S.S.C.R. Coils in their books of account and cleared the said unaccounted S.S.C.R Coils (as detailed in their Ledger Account “Smi (Cash)”) without cover of valid documents/invoices and without payment of Central Excise Duty due thereon and thereby have evaded payment of Central Excise Duty amounting to Rs.86,71,119/ during the period from April2009 to 10.07.2012; (iii) Suppressed their production of final goods S.S.C.R. Coils in their books of account and cleared the said unaccounted S.S.C.R. Coils (as detailed in their Ledger Account “Smi (Cash)” without the cover of valid documents/invoices and without payment of central excise duty due thereon and thereby evaded payment of Central Excise duty amounting to Rs.6,35,42,173/ during the period from April2009 tp 10.07.2012. (iv) Undervalued their final goods Stainless “Steel Cold Rolled Coils [as per their ledger accounts “Direct Purchases (Value Diff.) and “Direct Sales (Value Diff.) at the time of removal from their C/TAXAP/659/2019 ORDER factory totally by an amount of Rs.10,26,08,226/ and thus short paid Central Excise duty amounting to Rs.1,07,76.323/ during the period from April2009 to 10.07.2013. (v) availed ineligible Cenvat Credit on their purchase invoices received without actual receipt of the goods (as detailed in their Ledger Account “Smi (Cash)” amounting to Rs.31,40,087/ during the period from April2009 to 10.07.2012. (vi) They availed inadmissible credit, received only invoices without receiving goods, with an intent to utilize it so that they could evade payment of appropriate duty. Similarly, they followed fraudulent practice of issuing invoices without supplying goods helping the buyers to avail inadmissible credit, violating the Central Excise & Cenvat Credit Rules. (vii) The transaction relating to clandestine removal inadmissible cenvat credit were not recorded in specified financial records viz. ledgers of M/s. SFL. Those rawmaterials & finished goods were not willfully accounted for in the specified records viz. rawmaterials registers, and Daily Stock registers of the finished goods by M/s. SFL and not disclosed in the statutory returns viz. ER1 to ER6 only with intent to evade payment of Central Excise duty.
5 The accounting of clandestine activities of receipts of raw materials, production and sale of excisable goods etc. was maintained in the form of C/TAXAP/659/2019 ORDER handwritten sheets in Gujarati and various types of computerized ledger accounts in Tally Format by Shri Ramesh M Shah, Director of M/s.SFL and was being kept secret in the form of Physical Sheets and also in the form of data stored in Pen Drives in lockers taken by him fictitious names in “VENILAL SAFETY VAULTS PVT.LTDL” at Bhuleshwar, Mumbai. The physical records i.e. handwritten Gujarati Sheet were maintained by Shri Ramesh Shah in his own handwriting, which find mention of clandestine removals of excisable goods without cover of Excise Invoice and without payment of duty of excise, along with removals of goods by M/s. SFL on payment of duty of excise. Further the records of current clandestine removals were being kept by him at the premises of Lottery/Ice Cream Stall of Shri ManojTanna situated opposite Sunrise Building (Office of M/s. SFL), C.P.Tank Road, Mumbai 400004. The keys of the lockers were kept with ManojTanna only to avoid detection. Moreover, the handwritten Gujarati Sheets were maintained by him by placing decimal after one digit from right of an amount of artificially reduce the data by 1/10th, adopting illicit tactics to deceive the government exchequer. Thus, his intention was quite obviously, not to pay legitimate of excise, by manipulating the business of statutory records/returns, and thus they had acted to defraud the Government exchequer. Shri Kartik R Shah, Director of M/s. SFL admitted part of clandestine transactions and also paid an amount of Rs.80,00,000/ towards their Central Excise duty liability arising out of the above discussed C/TAXAP/659/2019 ORDER clandestine transactions effected by M/s. SFL.
6 Accordingly,
Show
Cause
Notice No.DGCEI/MZU/I&OS'C'/12(4)104/12 dated 06.05.2014 was issued to them proposing recovery of central excise duty and inadmissible cenvat credit totally amounting to Rs.21,83,98,186/ (Ruppees Twenty One Crore Eighty Three Lakh Ninety Eight Thousand One Hundred & Eighty Six Only) along with interest and penalty. Personal penalties upon Directors of M/s.SFL were also proposed.
7 To above said SCN was adjudicated vide OIO No.AHMEXCUS003COM121718
dated
2018, wherein the adjudicating authority confirmed the demand of Rs.21,83,98,186/ along with interest and also imposed of equal amount of duty upon the assessee; personal penalty of Rs.2.00 Crore each on two DirectorsShri Ramesh M Shah and Shri Kartik R Shah, and penalty of Rs.1.00 Crore upon M/s. Sanklap Foils Pvt.Ltd.
8 Being aggrieved with the above OIO, the assessee and it's Directors, Shri Ramesh M Shah and Shri Kartik R Shah filed an appeal before the CESTAT, West Zone, Ahmedabad vide Appeals No.E/12274/2018; E/11436/2018 and E/11433/2018 respectively. The Hon'ble CESTAT vide Final Order No.A/10120 10125/2019, dated 18.01.2019 allowed all the appeals and set aside the impugned order dated 27.02.2018 mainly observing that: C/TAXAP/659/2019 ORDER (i) the charges of clandestine removal on the basis of pen drive data are not sustainable; (ii) since already held that the pen drive data is not substantial evidence and no evidence of extra receipt has been produced in the form of person from whom such extra consideration was given, how it was given and how it was received by assessee, therefore, the demand on account of undervaluation is not sustainable. (iii) revenue has not proved the allegation with any evidence as it has to be shown by making investigation at the supplier's end, statements of suppliers and other corroborative evidences including receipt from suppliers, thus, the allegation on the ground of availment of CENVAT on the basis of invoice without receipt of goods are not sustainable.
With regard to sole evidence which has been relied upon by the Department is only pen driver data and statement of brokers which were even self contradictory, the Tribunal has held that: “Though the statement of directors has also been relied upon by the department, but we found that even in some statements they have stated that the data found in pen drive do not belong to M/s SFL and it belongs to M/s Sankalp. Inspite of fact that some of the statements were recorded in presence of Snehil R shah who is director of M/s Sankalp, but even then he was not questioned about such data. At least the officers could have C/TAXAP/659/2019 ORDER recorded his statement to ascertain the truth. Even if the statements of director are considered inculpatory the same cannot be relied upon in absence of corroboration with material evidence as held in case of Tejwal Dyestuff Ind. Vs. 2007 (216) ELT 310 (TRI) and 2009 (234) ELT 242 (GUJ.). Thus the statement of directors cannot lead to inference that the goods stated in "Bombay Sales" ledgers are of Appellant. We also find that the brokers have even stated that they have taken the goods from Vasai Godown of M/s SFPL. In such case there is no reason to hold that the Appellant has dealt with M/s SFL. Thus in both cases i.e "Bombay Sales" and "Smi Cash Sales" apart from the statements which are even contradictory no corroborative evidence. The Appellant has placed reliance upon various judgments to canvas their point that in absence of corroborative evidence no demand can be made. We find that no corroborative evidence has been stated in show cause notice in the form of receipt of unaccounted raw material, transportation of unaccounted such raw material to SFL factory, consumption of unaccounted raw material, production of unaccounted finished goods, production record of unaccounted finished goods, use of consumables, extra labour and excess consumption of electricity, clearance of goods from the factory, receipt of cash from even a single person on account of alleged clandestine sale. We also find that the revenue did not undertake any investigation at the end of M/s SFPL from where the clearance of goods has taken place. When the brokers had stated that the delivery was C/TAXAP/659/2019 ORDER taken from Vasai Godown which was under the ownership of M/s SFPL, the officers should have made investigation. Thus in such circumstances, the demand on account of clandestine removal cannot be made. In case of Davinder Sandhu Impex Ltd. 2016 (337) E.L.T. 99 (Tri. Del.), the tribunal has held that
In this case during the course of investigation, the statement was recorded and the statement given by Shri Baldev Singh, Managing Director admits that there is a shortage of 10 to 15% for manufacturing the final product and it is also admitted by Shri Baldev Singh that they have cleared certain goods without payment of duty, but the said statement was retracted by Shri Baldev Singh who claims to be that same has been recorded under influence and duress, thereafter, another statement was recorded on 3rd May, 2005 which was also retracted on the same day, where also same statement recorded which is a typed one and it is the claim of the Revenue that same has been typed by Shri Dinesh Kumar (who is an employee of the appellant) in the office of the Department. To that effect, Shri Dinesh Kumar filed an affidavit on 1st August, 2006 that the statement has been typed by the officers of the Department themselves not by him and that said affidavit has not been controverted. Further, the crossexamination of Shri Ashwani Kapoor, Inspector on 3rd August, 2006 explaining that wastage on each stage of production have not been considered by the Adjudicating Authority. Moreover, the Knitwear Club, Ludhiana which is an independent body have also stated in their letter dated 19 May, 2005 C/TAXAP/659/2019 ORDER that in normal course, there is a wastage of around 40% same has also not been considered by the Adjudicating Authority but without bringing any corroborative evidence apart from statement of Shri Baldev Singh demand has been confirmed.”
With regard to onus to prove clandestine clearances by sufficient cogent, umimpleachable evidence, the Tribunal has held that: “20. We also find that the onus to prove 205 ) P & H), Shingar Lamps Pvt. Ltd., Vs CCE 2002 (150) ELT 290 (T), CCE Vs Shingar Lamps Pvt. Ltd. 2010 (255) ELT 221 (P & H), Ruby Chlorates (P) Polyester 2015 (321) ELT A217 (SC), Flevel ELT 277 (T), Industrial Filter & Fabrics Pvt. Ltd. Vs CCE 2014 (307) ELT 131 (T), CCE Vs Birla NGK C/TAXAP/659/2019 ORDER 165 (P & H), CCE Vs Sree Rajeswari Mills Ltd. 2009 (246) ELT 750 (T), CCE Vs Sree Rajeswari Mills data and sheets are not sustainable.”
In view of the aforesaid findings of facts arrived at by the Tribunal, after considering the material placed before it, no question of law much less any substantial question of law arises for consideration out of the impugned order and accordingly, the appeals are summarily rejected. No order as to cost. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) GIRISH
Reproduced from the public record of the Gujarat High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.