Central Excise Appeal No. 214 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Central Excise Appeal No. 214 of 2010 Date of decision: 29.10.2010 M/s. Super Tyres Pvt. Ltd. --- Appellant Versus Union of India and another --- Respondents. CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. S.K. Bagaria, Sr. Advocate with Mr. Sandeep Goel, Advocate for the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 35G of the Central Excise Act, 1944 (for short “the 1944 Act”) has been filed by the appellant-firm which is liable to pay duty under the provisions of the said Act. The challenge at the instance of the appellant-firm is to the order No. 864/2009-EX dated 4th November 2009, (Annexure P-10), passed by the Custom, Excise and Service Tax Appellate Tribunal, New Delhi (in short, “the Tribunal”) in Appeal No. E/4672/2004-Ex (BR). In short, the facts necessary for adjudication as narrated in the appeal are that the appellant-firm has been manufacturing pneumatic tyres and tubes since 1969, in its factory premises situated at G.T. Road, Karnal in respect of which it is holding Central Excise Central Excise Appeal No. 214 of 2010 2 Registration Number dated 27.12.1969. Removal of finished goods from the factory of the appellant was subject to strict scrutiny and checking by the ‘proper officer’ stationed at the unit itself for levy of tax and every clearance was made under the signature of the said officer. The tyres manufactured by the appellant included Animal Driven Vehicle Tyres (for short “ADV Tyres”) which were exempted from payment of Central Excise duty during the period under consideration. The appellant-factory had been maintaining all registers required under the 1944 Act and the Rules framed there under. The Excise Authorities conducted visits to the factory of the appellant on 21.1.1988 and 4.2.1988 and resumed the Central Excise statutory and other private records. The visiting team also seized tyres and tubes of different sizes and alleged that the same were not accounted for in the R.G-I Register and that 400-8 size tyres were mis- declared as 16x4 size tyres. The said authorities made another visit to the factory premises of the appellant on 28.6.1988 and carried out the physical weighment of tyres of certain sizes. A chart indicating measurement of weights of different tyres of the same size has been attached as Annexure A-1 with this appeal by the appellant. The authorities issued a show cause notice dated 18.2.1988 to the appellant in respect of the goods seized from its factory premises. The Additional Collector adjudicated upon the case of the appellant and vide order dated 20.2.1989, imposed redemption fine and personal penalty of Rs. 40,000/- and Rs. 1,00,000/-, respectively. The appellant carried appeal before the Tribunal challenging the order of the Additional Collector. The Tribunal vide order dated 25.1.1991 set aside a part of the order inasmuch as it related to the Central Excise Appeal No. 214 of 2010 3 alleged mis-declaration of 544 tyres of the size of 400x8 as 16x4. That part of the order having not been challenged further by any of the parties became final. The Tribunal confirmed the order of demand of differential duty. Rest of the order of the Additional Collector in respect of seizure of tyres on the ground of alleged non-entry in the R.G.-I Register was, however, upheld by the Tribunal. After scrutiny of records resumed on 21.10.1988 and 4.2.1988, the respondents issued another show cause notice to the appellant under Section 11A of the 1944 Act indicating various irregularities and omissions. The appellant sent reply to the show cause notice. But the respondent authorities confirmed the demand raised in the show cause notice, vide order-in-original, dated 30.10.1992, Annexure A-4. The appellant filed appeal before the Tribunal challenging the order Annexure A-4. The Tribunal remanded the matter for de novo adjudication of the matter in the light of the observations made in its order dated 27.3.2000, Annexure P-6.. The Respondent vide order-in- original dated 18.6.2004, Annexure A-8, confirmed the demand of Rs. 2,76,48,219/- under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the 1944 Act, along with a penalty of Rs.10,00,000/- under Rule 173Q of the said Rules. The appellant again filed appeal before the Tribunal, challenging the order dated 18.6.2004 but the same did not find favour with the Tribunal and dismissed vide order dated 4.11.2009, Annexure A-10, observing that the appellant had indulged in suppression of production and clandestine removal of goods. It is how the present appeal has been filed by the appellant- firm against the order of the Tribunal, Annexure A-10, raising the following substantial questions of law, for determination by this Court: Central Excise Appeal No. 214 of 2010 4 a- Whether the Tribunal’s order is perverse and suffers from a complete non-application of mind inasmuch as the Tribunal has failed to appreciate that the entirety of the demand is based on mere presumptive calculations and not on any evidence of clandestine removal? b- Whether the Tribunal’s order is perverse as it has not appreciated that the Respondent had confirmed the demand of differential duty on the basis that the appellant had manufactured huge quantities of 400x8 size tyres whereas the appellant did not even possess the moulds required for such manufacture? c- Whether the Tribunal’s order is perverse as it is completely vitiated on account of a grave error of fact wherein the Tribunal presumed that the Appellant presumed that the Appellant was operating under Self Removal Procedure when the Appellant was in fact under physical control since 1985 and every clearance was made with the permission of a Central Excise Officer stationed at the factory, and not even a single clandestine sale has been unearthed by the investigating agency? d- Whether a finding of clandestine removal can be arrived at by relying upon an unauthenticated list which the Department purports to be a consumption norm according to tyre size without appreciating the fact that the consumption of raw materials does not merely depend on the size of a tyre but also on factors like the number of plies, tread pattern, variations in machine output etc.? Central Excise Appeal No. 214 of 2010 5 e- Whether the Tribunal failed to appreciate that when there was intrinsic evidence available on record to establish that even for the same tyres size there were significant variations in weight, a presumption of clandestine removal on the basis of a calculation removal on the basis of a calculation of raw material consumption based on a standard norm of raw material usage correlated only to tyre size was erroneous and misconceived? f- Whether the Tribunal’s finding on clandestine removal are perverse as they refer to and rely upon various extraneous material like registers referred to by the Department as the ‘Batch Register’, the ‘Mixing Formulation Register’, the Abrasion Notebook, the Store Register etc. which were not the basis of the demand at all but where used only to come to a finding of suspicion that there could have been clandestine removal of goods by the Appellant? g- Whether the Tribunal completely failed to consider the fact that the Appellant manufactures goods classifiable under Headings 4011 and 4013 which are assessed in units and not in weight terms for the purpose of calculation of the applicable excise duty, whereas the entire demand upon the appellant is on the ground that the weight of the raw material received and consumed by the Appellant at its factory was more than what could presumably have been required for the production of the units of tyres removed from the factory? Central Excise Appeal No. 214 of 2010 6 h- Whether the impugned order is bad in law as the excise duty payable by the appellant has been calculated on the assessment of an assumed number of units of tyres, which have neither been traced nor its transfer to any other person proved? i- Whether the Tribunal erred in not holding that the entirety of the demand was time barred as the SCN had been issued beyond limitation without invoking the proviso to Section 11A of the Central Excise Act, 1944? j- Whether the Tribunal failed to appreciate that the onus to prove clandestine removal of goods is much higher in a case of physical control and in the facts of the present case, in the absence of a even a single piece of evidence to establish clandestine sale, the onus had not been discharged by the Department? k- Whether the Tribunal erred in its finding that the appellant is under a statutory obligation to produce private documents such as the Stock Register and Rubber Board Register or to intimate the Department of their maintenance under Rule 173G, when the Appellant’s unit was under physical control during the relevant time? l- Whether the Tribunal’s order is contrary to the principle laid down by the Supreme Court in Oudh Sugar Mills inasmuch as the finding of clandestine removal is based only on presumptive calculations and does not take into account various factors including consumption of other raw materials, electricity, machine capacity, labour etc.? Central Excise Appeal No. 214 of 2010 7 m- Whether in the absence of any evidence of sale of tyres and tubes purportedly cleared clandestinely, the Tribunal’s finding which confirmed the demands of differential duty merely on the basis of calculations based on hypothetical raw material consumption norms is erroneous and perverse? n- Whether the Tribunal erred in arriving at the finding of clandestine production of tubes on the basis of the fact that only one ‘nulky’ is required in the manufacture of a tube when the Store Register merely records the issue of nulkies and not its actual use? o- Whether the Tribunal failed to appreciate that there is no provision for a best judgment assessment based on estimation in excise law, and the manner of computation of the demand was erroneous and perverse being based purely on estimation? From the perusal of the aforesaid substantial questions of law as claimed by the assessee, the only point that arises for determination in this appeal is, whether the assessee had clandestinely removed goods from the premises without their clearance under the excise law after paying duty thereon during the period April 1986 to December, 1987. Learned counsel for the appellant submitted that the substantial questions of law claimed by the assessee as noticed above do arise for consideration by this Court. Learned counsel, however, laid emphasis on the plea that the findings recorded by the Tribunal, affirming those of the first appellate authority, are based on non- consideration of the submissions of the appellant and, thus, have been Central Excise Appeal No. 214 of 2010 8 arrived at on wrong assumptions. The counsel urged that the substantial questions of law would arise as the order of the Tribunal stands vitiated. Learned counsel for the appellant in support of his submissions relied upon Oudh Sugar Mills Ltd. vs. Union of India, 1978 (2) E.L.T. (J 172) S.C.); Amrit Foods vs. Commissioner of Central Excise, U.P. 2005(190) E.L.T. 433 (S.C.); Standard Radiators Pvt. Ltd. v. Commissioner of Central Excise, 2002(143) E.L.T. 224 (S.C.); Collector of Central Excise v. H.M.M. Limited, 1995(76) E.L.T. 497 (S.C.); Kaur Singh v. Collector of Central Excise, New Delhi, 1997(94) E.L.T. 289 (S.C.); J.K. Corporation Ltd. vs. Commissioner of C. Ex. & Cus. Bhubaneshwar, 2007(210) E.L.T. 501 (Ori.); Town Municipal Council, Athani v. The Presiding Officer, Labour Courts, Hubli and others, etc. 1969(1) Supreme Court Cases 873; and Norton Intec Rubbers (P) Ltd. v. Collector of C. Ex., Madras, 2004 (164) E.L.T. 5 (Mad.). We have given our thoughtful consideration to the submissions made by the learned counsel for the appellant. The Adjudicating Authority while passing the order in original dated 18.6.2004 had scrutinized the following documents before arriving at the conclusion that the assessee had clandestinely removed goods from the factory:- 1- Stock Register/Batch Register 2- Monthly returns submitted by the manufacturer in form ‘K’ to the Rubber Board. 3- Lab. Monthly consumption report of raw material. Central Excise Appeal No. 214 of 2010 9 4- Rubber Board Register 5- Mixing formulation Register 6- Slips mentioned as Annex. 2(a) to 2(f) of the Show Cause Notice. 7- Typed list showing consumption of RMA & Carbon black per tyre/Tube (Annex.6) 8- Outstation Register / Stores Register 9- Abrasion Note Book 10-Correspondence of the notices with its consumers (Annex.7) 11-Challan/Dispatch Advices.” The Adjudicating Authority had elaborately discussed the discrepancies and short-comings in the record which led it to record a finding against the assessee. It was further recorded that the assessee, in spite of having been provided with ample opportunities to put forth factual position during investigation and also after issuance of show cause notice had neither replied nor provided answers to the discrepancies and rather had tried to avoid them. On appeal by the assessee, the aforesaid findings of the Adjudicating Authority were affirmed by the Tribunal. The Tribunal, on appreciation of evidence, recorded the following observations in paras 8 to 10 of its order, which read thus: “8. Ample opportunity was given by us to demonstrate from the records placed before us that the findings of the Commissioner on the core issues like excess use of raw materials, the relevance of mixing formulation register/batch register for determining the nature and quantum of finished Central Excise Appeal No. 214 of 2010 10 products manufactured by the assessee and the finding that the appellants were not able to show that entries made in the loose slips regarding clearances have been accounted were erroneous or perverse. The appellant could not show that there was any such error. It is not disputed by the appellant that the details regarding consumption of RMA furnished to the Rubber Board by them are incorrect. Records also indicate that the appellants have received orders from dealers for supply of tyres which are not shown as accounted in the statutory records and have also received payments. The conclusion is inescapable that the appellants have indulged in unaccounted production of such varieties of tyres. The loose sheets indicating clearances of goods which were not co-related with duty paying documents are also evidences clandestine removals. 9. From the above, the following emerge: a) On the date of visit by the officers, there was unaccounted stock of finished goods. b) The quantity of rubber accounted as consumed as per Central Excise records is about 16% lower than the quantity of rubber consumed as per the records and returns to the Rubber Board. c) When only one “Nulky” is required for manufacture of one “Tube”, the records indicate use of 12,350 nulkies during the period when only 4350 tubes were shown to have been manufactured. Central Excise Appeal No. 214 of 2010 11 d) The entries in the abrasion note book on the resting relating to various varieties for the period 20-10-86 to 3-12-87 do not match with varieties accounted in the RG-1 register. e) The appellant has not been able to co-relate the entries in the loose slips with the entries in the statutory records like RG-1 register and gate passes evidencing clearance of the said goods on payment of duty. The appellants have received orders from dealers for supply of tyres which are not shown as accounted in the statutory and have also received payments. f) The Kacha challans contained code numbers for tyres which were different from code numbers used in statutory records which was uncovered from the dispatch advices with corresponding GR numbers of dispatches from the branch offices. g) The statutory records maintained by them for excise purposes do not reflect the true position. The appellant has not disclosed the maintenance of private records like stock register, Rubber Board, Mixing Formulation register maintained by them. h) The private records like, the Mixing Formulation Register, Batch Register/ Stock Register, Typed List, and Abrasion Note Book relate to the day to day activities of the appellant company. Central Excise Appeal No. 214 of 2010 12 10. If the above facts and circumstances are taken in totality on the yardstick of preponderance of probability, the conclusion reached by the Commissioner that the appellant has indulged in suppression of production and clandestine removal appears legal and proper. When the appellant has chosen to deal in clandestine activity, the department is left with no alternative but to rely on the private records for working out the suppressed production and clandestine removal. Under these circumstances, the demand of duty by the Commissioner based on the short accounted principal raw material, using the formula/norms as revealed from the private records resumed from them can not be faulted. The penalty imposed is also justified.” The learned counsel for the appellant has made strenuous efforts to challenge the findings of the authorities below, but nothing could be shown by him that the findings with regard to clandestine removal of the goods were perverse. His total effort was to record findings in favour of the appellant on re-appreciation of evidence. The Tribunal after minutely scanning the evidence had come to the conclusion that there was clandestine removal of items of tyres from the premises of the assessee on which excise duty was not paid in accordance with law. The Tribunal has taken a plausible view on appreciation of material on record. Now coming to the case law relied upon by the learned counsel for the appellant, we are of the opinion that the proposition of Central Excise Appeal No. 214 of 2010 13 law laid down therein is well-recognized. However, the aforesaid judgments do not come to the rescue of the appellant as the same are not applicable to the factual situation as noticed above. Further, if the finding of fact regarding clandestine removal of goods is not disturbed, the show cause notice cannot be held to be beyond limitation in terms of proviso to Section 11A of the Act. The findings recorded by the Tribunal being not vitiated by any error of law or mis-reading of evidence do not raise any substantial questions of law. Accordingly, finding no merit in the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) October 29, 2010 JUDGE *rkmalik*