Commissioner Of Central Goodsandser Tax vs. M/S Barijoriwala Rolling Mills PVT LTD

By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee.

This court while admitting the appeal on 21.02.2018 framed the following question of law:- “Whether

Now, the Controversy is covered by the decision of this court in Commissioner of Central/Excise & Service Versus R. M. Brothers Pvt Ltd and Others, in D.B. Central/Excise Appeal

This court while admitting the appeals framed following substantial questions of law:- (1) D.B. Central/Excixe Appeal No.58/2015 “(1) Whether it is necessary to give an opportunity of the cross examination to the assessee in absence of any such prayer made in this regard by him and also in view of settled law that the cross examination cannot be claimed by the parties as their legal right in the circumstances where the documentary evidence in itself is available”? (2) Whether the Tribunal is justified in interfering with the finding of facts of Order in Original while making observations contrary to the record regarding

The facts of the case are that M/s. Shree Sharma Steel Rolling Mills Pvt Ltd., Plot No. A, B, C, Industrial Area, Jhotwara, Jaipur holding Central Excise registration

1 Acting upon an intelligence that M/s. Shree Sharma Steel Rolling Mills Pvt. Ltd. Industrial Area, Jhotwara, Jaipur were indulging in suppression of production and clandestine removal of the goods without reflecting in their books of accounts, without issue of any invoice or bill and without payment of any duty, the officers of the Headquarters Anti-Evasion Wing of Central Excise Commissionerate, Jaipur-I paid a surprise visit to the factory premises as situated at the above address on 10.9.2005. During the course of checking

Counsel for the department has relied on the following decisions:

1 (All.), it has been held as under:-

Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated

2 He has also relied upon the decision of this court in the case of D.B. Central Excise

The matter is remitted back to the Tribunal with a view to have a cross-examination of the Foreman. It will be open for the parties to cross-examine the Foreman.

We make it clear that we have not decided any other point accept cross-examination nor disturbed any finding of any authority.

Issue is to be decided not solely on the basis of owner statement without thoroughly considering the corroborative piece of evidence which may be available, it will decide the case on the basis of law declared by different High Courts.

Counsel for the assessee Mr. Sameer Jain has relied upon the following decisions:-

1 In Commissioner Vs. R.A. Castings Pvt. Ltd.- 2011 (269) ELT A 108 (SC), the Supreme Court held as under:- “The Allahabad High Court in its impugned order had held that excess production of steel ingots, as proof of clandestine removal, could not be estimated based only on higher electrcity consumption. The Court held that even if income shown in balance sheet was not derived from sources declared by assessee, there has to be some record to link it with so called clandestine removal of goods. It had also held that as allegations relating to fictitious fimrs and income for share trading, were based on incriminating statements of share borkers etc. it was incumbent upon Revenue to produce them as well as investigating officer for cross- examination by assessee and that as no case was made out either in show cause notice or in adjudication order about mis- statement, suppression of fact or fraud on part of assessee, extended period was not invocable.” 6.2 held as under:-

Now, these calculations certainly involve some assumptions. The first is that the difference of 56 maunds noticed by the (8 of 29) [EXCIA-18/2018] Assistant Chemical examiner during the two and quarter hours test conducted by him on May 7, 1957 was uniform for every 2-1/4 hours working throughout the working hours of the crushing season which began on November 4, 1956 upto May 7, 1957 when the test was conducted.

If any one of these assumptions breaks down, then the ultimate conclusion will have to be rejected as incorrect. It has to be borne in mind that human element is involved at certain stages of the operations such as time of commencement of the day’s working, the rapidity or slowness in feeding cut sugarcane into the crusher and mills, accurately adding the same quantity of water in the crusher and mills, stopping the inflow of mixed juice into the tanks at a uniformly higher level than that indicated by the mixed mark, allowing a uniform time lag between the emptying of the tanks and starting inflow into them again and so on. It is also unsafe to rely on the average of 10.11% of sugar recovery for the entire periods because it involves the assumption that even during the periods when the gross weight of the tanks was 7.5 tons or less than sugar content of the sugarcane crushed in the factory was such as could not have been yielded anything less than 10.11%. For, it is well known that the sugar content of sugarcane even grown in the same area is not constant but is variable according to the time of the year. Again it has to be borne in mind that the recovery of sugar must necessarily depend upon the milling performance. It cannot be assumed that even in an ordinarily well run factory the performance would be uniformly good or uniformly the same.

Again the value of fibre percentage in cane is very difficult to determine directly and accurately. For calculations, only indirect values are taken which may at the most be only approximate and, therefore, no absolute

The other finding that the registers were not property maintained as required by Rule 83 is also an inferential finding based upon the calculations made by the Assistant Chemical Examiner. As we have already held those calculations being based upon unwarranted assumptions cannot form legal basis for a finding that more juice than what was recorded in the register had gone into the production of sugar.

It was however, contended on behalf of the respondent that at the personal hearing given by the Central Board of Revenue, Shri C.M. Dalmia, Assistant Secretary of the Appellant and Shri, J.M. Shah, Superintendent Technologist employed by the Appellant had conceded that there had been “Some erroneous accounting on their part in showing the weight of mixed juice on an average of 7.5 tons and that their only plea was that this was not intentional or deliberate nor did it signify any mala fides on their part. No reliance has, however, been placed upon this confession in the Respondents statement of the case. We may however point out that the gross annual turnover of sugar manufactured in the factory is in the neighbourhood of 12 lakhs of maunds and the amount of excise duty the appellant pays to government runs into about a crore of rupees per annum. It would therefore be a little

3 In Commissioner of C. Ex. Meerut-I vs. R.A. Castings Pvt. Ltd. 2011 (269) ELT 337 (All.), it has been held as under:-

Being aggrieved by the impugned orders, the respondents filed appeals before the Customs, Excise & Service Tax Appellate Tribunal, New Delhi. The Tribunal observed that it is settled principle of law that the electricity consumption can not be the only factor or basis for determining the duty liability, that too on imaginary basis, especially when Rules 173E mandatorily requires the Commissioner to prescribe/fix norm for electricity consumption first and notify the same to the manufacturers and thereafter ascertain the reasons for deviations, if any, taking also into account the consumption of various inputs, requirements of labour, material, power supply and the conditions for running the plant together with the attendant facts and circumstances. The Tribunal further observed that no experiment have been conducted in the factories of the appellants for devising the consumption norms of electricity for producing on MT of steel ingots. Tribunal also observed that the electricity consumption varies from one heat to another and from one date to (11 of 29) [EXCIA-18/2018] another and even from one heat to another within the same date. Therefore, no universal and uniformly acceptable standard of electricity consumption can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the Revenue with no other supporting record, evidence or document to justify its allegations. The Tribunal has also considered the report of Dr. Batra, which has been relied upon for making the allegations that there was higher electricity consumption. It appears that Dr. Batra in his report has observed that for the production of 1 MT of steel ingots, 1046 units electricity required.

So far as the various after allegations relating to the fictitious firms and the income from the share trading, the Tribunal recorded the finding that since the incriminating statements of share brokers etc. have been relied upon in the proceedings, it was incumbent upon the Revenue to produce them as well as the investigating officer for cross- under:-

In so far as the general propositions are concerned, there can be no denying that when any statement is used against the assessee, an opportunity of cross-examining the persons who made those statements ought to be given to the assessee. This is clear from the observations

The Division Bench also observed that though it cannot be denied that the right of cross-examination in any quasi-judicial proceeding is a valuable right given to the accused/noticee, as these proceedings may have adverse consequences to the accused, at the same time, under certain circumstances, this right of cross- examination can be taken away. The court also observed that such circumstances have to be exceptional and that those circumstances have been stipulated in section 9D of the Central Excise Act, 1944. The circumstances referred to in section 9D, as also in section 138B, included circumstances where the person who had given a statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay and expense which, under the circumstances of the case, the court considers unreasonable. It is clear that unless such circumstances exist, the noticee would have a right to cross-examine the persons whose statements are being relied upon even in quasi judicial proceedings. The Division Bench also observed as under ( GSTR): Thus, when we examine the provision as to whether this provision confers unguided powers or not, the conclusion is irresistible, namely, the provision is not uncanalised or uncontrolled and does not confer arbitrary powers upon the quasi- judicial authority. The very fact that the statement of such a person can be treated as relevant only when the specified ground is established, it is obvious that there has to be objective formation of opinion based on sufficient material on record to come to the conclusion that such a ground exists. Before forming such an opinion, the quasi- judicial authority would confront the assessee as well, during the proceedings, which shall give the assessee a chance to (14 of 29) [EXCIA-18/2018] make his submissions in this behalf. It goes without saying that the authority would record reasons, based upon the said material, for forming the opinion. Only then, would it be possible for the affected party to challenge such a decision effectively. Therefore, the elements of giving opportunity and recording of reasons are inherent in the exercise of powers. The aggrieved party is not remediless. This order/opinion formed by the quasi-judicial authority is subject to judicial review by the appellate authority. The aggrieved party can always challenge that in a particular case invocation of such a provision was not warranted.

For this reason, we feel that the Tribunal should have a fresh look at these cases keeping in mind the provisions of section 138B as also the decision of this court in J and K Cigarettes Ltd. : (2010) 1 GSTR 482 (Del). The Tribunal will also consider the fact of non-supply of the report and other documents which were obtained by the concerned authorities from Sri Lanka after hearing had been concluded on October 14, 2004. Consequently, we set aside the impugned order and remit the matters to the Tribunal for a fresh consideration in the light of the observations and directions given above. Parties shall be at liberty to raise all issues available to them in law.

5 He has taken us to the decision of this court in D.B. Central/Excise Appeal No.120/2017 (Commissioner of Central held as under:- 5. has been observed as under:-

The manufacturer’s case from the beginning was that the register found during the visit of Excise Authorities in question was not a register maintained for recording production but was a document maintained for the purpose of keeping supervision over the factory workers and on their daily production was entered on estimate basis only. Before entries were made in RG-1 the product was actually weighed and actual weight was entered in RG-1. In support of this contention, the manufacturer had also produced a chart of procuring raw material and its corresponding production. This explanation had not been accepted by the Adjudicating Officer.

However, the Tribunal found the explanation to be plausible and considering the fact that no attempt was made by Adjudicating Officer to verify the correctness of explanation put forward by the manufacturer in light of corroborative material produced by about the procurement and disposition of the raw material, there was no reason to doubt the correctness of the material. In view thereof the explanation

The aforesaid narration clearly goes to show that findings reached by the (16 of 29) [EXCIA-18/2018] Tribunal are findings of fact and does not give rise to question of law.

Accordingly, the appeal fails and is hereby dismissed.”

He has also relied upon the decisions of Madras High Court in:

It is also the findings on the part of observed:-

Mr. K. Ramaswami, learned Counsel for the petitioner, would primarily urge that the decision of the Criminal Court on merits and on identical facts and charges having been rendered in favour of the petitioner, anterior to the disposal of the appeal by the second respondent, it would be unfair and not in consequence with the principles of natural justice to ignore the said decision and penalise the petitioner by the imposition of the penalty. He places reliance on certain pronouncements of this Court, which I shall presently refer

Commissioner of Central Excise vs. Omkar Textile Mills Pvt. Ltd., 2010 (259)

The facts of the case stated briefly are that the Respondent is engaged in the business of processing of cotton fabrics and man made fabrics falling under Chapter 52, 54 and 55 of the First Schedule to the Central Excise Tariff Act, 1985. The factory premises of the Respondent came to be searched on 9- 7-2003. According to the Appellant, during the course of search, on physical verification of finished processed cotton fabrics and man made fabrics at the various stages of processing i.e., bleaching, dyeing, printing, finishing, packed in HDPE bags on comparison with recorded stock, a shortage of 175178 L. mtrs. of processed MMF valued at Rs. 31,53,204/- involving Central excise duty of Rs. 3,15,329/- was detected. Accordingly, a panchnama came to be drawn recording the said facts. Statement of a Director of the Company, Shri Rajnikant Omkarmal Agarwal also came to be recorded, under Section 14 of the Act, wherein apart from several other admissions, he admitted the contents of the panchnama. Statements of other employees of the Respondent were also recorded under Section 14 of the Act. Subsequently, a show cause notice came to be issued to the Respondent calling upon it to show cause as to why Central excise duty amounting to Rs. 4,30,275/- should not be demanded under Section 11A of the Act, as well as, as to why mandatory penalty and penal interest should not be imposed.

As can be seen from the order made by the adjudicating authority, before the adjudicating authority, the Assessee had contended that the shortage of fabrics shown in the panchnama was not correct as they had produced the documents to show that the fabrics in question had not been cleared without payment of duty, but the officers who drew the panchnama did not take into consideration their request and did not even physically verify the stocks. Shri Rajnikant Agarwal, Director of the Assessee-Company

Thus, all the authorities below viz., the adjudicating

Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final

Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose

In the instant case, no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely

The said submission is without any merit. Specific defence had been taken by the manufacturer that no effort had been made to segregate the nuts and bolts into various sizes and to find the shortage by comparing the same with the recorded balance and there was huge stock of 91 lacs pieces of various sizes of nuts and bolts and it was impossible for the Department to come to a conclusive factual finding that there was shortage of 14,25,900 pieces of particular size and if they were all mixed together. The onus would lie upon the Department to undertake the said exercise which was not possible in such a short period due to the large number of inventory which was there at the site. Nothing was brought on record, in any manner, to show that to manufacture such a large amount of 14,25,900 pieces, there was material which had been consumed since neither any relevant record had been shown to show that electricity had been consumed or labour had been utilized to manufacture the said quantity. Neither the fact of purchase of raw material from the vendors or the sale to the consumers was brought on record. In the absence of any corroborative evidence, the levy of such a huge demand was, thus, totally arbitrary and has been rightly set aside.

It is apparent that the demand was raised and a sum of ` 14 lacs was taken on the same day and in order to justify the said demand which had been encashed, a show cause notice was issued on 25.04.2006 thereafter. Thus, not onlythe demand was confirmed but (22 of 29) [EXCIA-18/2018] even the penalty had been imposed, which was without any basis. The confirmation is not only on the manufacturer but also on the Proprietor. Such action which had illegally created the demand without even meeting the defence of the manufacturer, has, thus, been rightly set aside by the Commissioner (Appeals) and upheld by the Tribunal. The retraction was made at the earliest, the moment the show cause notice was served and in such circumstances, the questions of law which have been raised by the appellant are answered against the appellant- Revenue and the appeal is, accordingly, dismissed. 7.We have heard learned counsel for both the parties. 8.Taking into consideration the ratio laid down by the Allahabad High Court, as quoted above, only on the basis of statement of Tara Chand who was the partner of the Company, case of the department is not sustainable.

In that view of the matter, in our considered opinion, the Tribunal has not committed any error in reversing the view taken by the Commissioner Excise. In that view of matter, no substantial question of law arises. However, we make it clear that since no other material was available as per judgment of Allahabad High Court, therefore, we are not interfering.

6 He has also taken us to the decision of this court in D.B. Custom Appeal No.2/2016 (M/s. P.G. Foils Ltd. vs. Commissioner of Customs) decided on 20.12.2017 wherein it has been held as under:- “9. Before proceeding with the matter, it will not be out of place to mention that on the cross examination, it is right of the assessee and such request should be made at the very first opportunity when it is available i.e. before adjudicating authority and not after adjudicating authority accepts the report and decides the matter against the assessee.

In that view of the matter, three judgments of the Gujarat High Court

We make it clear that the cross examination or request for referring the matter to the expert laboratory should be made at the very first time and if such request is made then only the laboratory should decide thickness, quality after physical verification of the product. However, such request cannot be made the appellate stage. In the present case, if the appellant would have made such request at the first stage then it could have been open for the authority to send the product for further examination at the cost of the appellant. However, in the present case, no such request was made and therefore, the authorities upto the tribunal have correctly accepted the report of Shriram Institute.

Regarding the argument raised by the appellant in reference to Tolerance Limit, we are of the considered opinion that benefit of tolerance limit cannot be granted to the appellant and the liability of duty is ascertained as per actual thickness of the product.

In that view of the matter and in the facts and circumstances of the case, we are of the opinion that no error has been committed by the authorities and no substantial question of law arises in the present case.

On the issue of penalty, we are of the opinion that the appellant has bonafidely imported products pursuant to the invoices which were received from the manufacturer. In that view of the matter, for penalty we are of the opinion that present case being the first instance for mis-declaration on part of the appellant, we absolve appellant in appeal no.1/2016 from penalty and personal penalty. In that view of the matter, in appeal 1/2016 penalty imposed on the appellant is waived. However, all other findings recorded by the authorities are upheld. “

7 He has also taken us to the decision of this court in D.B. Central/Excise Appeal

The Single Bench decision of the Karnataka High Court in Reletronics Ltd. (supra) is not on the question as to whether inspection would be a proper substitute for supply of copies. However, it only observes that the requirement is to furnish copies of the materials relied upon in the show cause notice and not on the merits and other records which is referred. There is a difference between relying upon documents and referring to the same. As already seen in the facts of this case, it cannot be disputed that the documents were relied on in the show cause notice and they were not just referred to. In Roshanlal Agarwal's case (supra), a learned Single Judge of this Court only directed the Department of the Union of India to make available to the assessee concerned copies of all documents and records relied upon by the department. Again in this case, the question whether inspection would be a proper substitute for supply of copies was not before the Court.

In the light of the aforesaid discussion, we allow this petition and direct the respondent No. 1 to furnish authentic copies of the documents relied upon in the show cause notices dated 15.01.1999 and 31.05.1999, as enumerated in the petitioner's letter dated 19.06.1999 addressed to the respondent No. 1 and proceed to adjudicate on the show cause notice only after supply of such copies.”

In that view of the matter, we remit back the matter to the first authority. The petitioner will appear before the first authority on 06.11.2017 and authority will settle the matter within a period of four weeks and reply after the documents are supplied to the appellant. Reply will be filed if required within the period of three weeks from receipt of the documents. Therefore, issue No.1 is answered in favour of assessee.

We are not deciding the issue No.2 since we are remitting matter back to the first authority. The order of the Tribunal

Taking into consideration the fact that the finding with regard to electricity consumption is contrary to decision of Supreme Court in R.A. Castings (supra), the said issue is required to be answered in favour of the assessee and against the department.

The other issue which has been raised by both the parties relying on the documents which have been recovered during search from M/s. Sharma Steel Rolling Mills Pvt. Ltd., the matter requires reconsideration by original authority as the addition was also based on the documents found during surprise visit made by the authorities to the factory premises of the assessee and was not solely based on electricity consumption.

As per the chart submitted by the revenue, the matter is remitted back to the original authority after setting aside the order of tribunal and order in original for consideration of the demand to the extent of following period only:- Assessee Period R.M. Brothers July 2005 to August 2005 Amar Pratap Steel May 2005 to August 2005 Savitri Concast April 2005 to June 2005 Jagdama Ispat April 2005 to September 2005

1 Records recovered from Nirmal Inducotoment in regard to the supply of Ingots to the following assessee along with time period are as follows:- Assessee Period Khaitan Alloys August 2005 to October 2005 M. P.K. Products August 2005 to October 2005 Everest Rolling Mills August 2005 to October 2005 M/s. Shree Sharma Steel Rolling Mills Pvt Ltd. April 2005 to October 2005

The original authority will proceed on merits and document found during search on the basis

In the light of above, following directions are issued in all these appeals:- i. The Original Authority will give documents to the parties, if it is not already supplied and not available with the parties. ii. If any statement is to be relied upon and parties are desirous, they will be allowed to cross examine the same. The principles of natural justice will be strictly followed and thereafter, the authority will pass a reasoned order and if any cross examination is not allowed, the authority will pass a reasoned order for not granting cross examination. iii. The parties will appear before the original authority/ Commissioner on 16.4.2018. The Authority will try to complete proceedings within four months. iv. If any amount which has been paid by the assessee, the same will be kept in Suspense Account. In case the appeal is not heard within four months from 2.4.2018, the amount will be refunded on 1.9.2018. However, it is made clear that if any adjournment is taken by the assessee, that period will not be counted in the period of four months. v. If the authority is not in a position to complete the proceedings within 120 days then he will be required to refund the amount deposited.

With the above observations, the appeals stand partly allowed to the aforesaid extent for the period specified above.

The order of the tribunal and order in original are quashed and set aside. Dismissal of appeal filed by department will not affect the passing of adjudication order on merits. After original order is passed, it will be open for the department to pass appropriate order with respect to penalty in accordance with law. It is clarified that demand on the basis of electricity consumption is set aside and the appeal is (29 of 29) [EXCIA-18/2018] remanded only for the period of search as indicated above.

In view of the above, the order of the Tribunal and order in original are quashed and set-aside. The matter is remitted back to the Original Authority.

The appeal stands partly allowed to the aforesaid extent. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J B.M.G/Gourav/53