CEA No.175 of 2005 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. C.E.A.No.175 of 2005 (O&M) Date of decision: 23.8.2010 Commissioner of Central Excise, Delhi III -----Appellant. Vs. M/s Martin & Harris Laboratories Limited, Gurgaon. -----Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Gurpreet Singh, Advocate for the appellant. Mr. Pradeep Jain, Advocate with Mr. Sumeet Goel, Advocate for the respondent. --- Adarsh Kumar Goel, J. 1. This appeal has been preferred by the revenue under section 35G of the Central Excise Act, 1944 (for short, ‘the Act’) against order dated 17.3.2005, Annexure A-3 passed by the Customs, Excise and Service Tax Appellate Tribunal, proposing to raise following substantial questions of law:- i) Whether allegation of clandestine removal can be sustained in case the Balance Sheet shows a higher figure of clearance of excisable goods in comparison to figure shown in the Excise Records? ii) Whether extended period for payment of duty can be invoked in view of the fact that party has never brought to the notice of the 1 CEA No.175 of 2005 department about the discrepancy in the balance sheet? 2. The respondent assessee is engaged in manufacture of medicines falling under Chapter heading 3003.10 and 3003.20 of the Central Excise Tariff Act, 1985. On scrutiny of excise records for the assessment years 1998-99 to 2001-02, it was noticed that figure of production shown in the monthly RT-12 returns was very less compared to figure shown in its balance sheet and it was inferred that there was clandestine removal of goods of the value of more than Rs.4 crores resulting in short payment of Central Excise duty of about Rs.75 lacs. Accordingly, show cause notice was given to the assessee and after due adjudication, order in original was passed by the adjudicating authority raising demand of duty and also imposing penalty. The finding recorded therein is as under:- “The party has further contended that in response to a letter from the jurisdictional Range Supdt. they have already explained the reasons for difference production reflected in RT-12 returns and balance sheet. The reasons cited by them are that strips of 2’s was multiplied by 8 and some strips were also included in capsules besides being counted under tablets. Similarly in respect of liquid’s they have stated that the goods were produced in different capacities but while accounting all the packs were multiplied by the 2 CEA No.175 of 2005 quantity of higher capacity. I find that on the basis of party’s representation, the data was reconciled by the Range/Division office and it is observed that discrepancies still exist in respect of the production related to the years 1998-99 and 2001-02. I find that the reasoning given by the party to explain way the discrepancies does not appear to be convincing at all in as much as the same is not supported by any documentary evidence such as work sheet prepared for the balance sheet, showing that there were indeed, calculation errors. It is also not disclosed in their reply that in the absence in the manner explained by them. It is also not disclosed as to which documents they had referred continued to happen repeatedly in the same fashion in the next year too and it remained unnoticed till it was pointed out by the audit team. They have also not produced any kind of clarification from the Chartered Accountants. Who prepared the balance sheets or any other authentic documents to support their view. Their plea is also unacceptable from the point of view of consumption of raw materials as shown in the balance sheets. It is observed that during the years 1998-99 and 1999-2000 the raw material was consumed to the tune of Rs.1632.80 lacs and 1222.54 lacs respectively and total number of medicines produced during these cost or raw material consumed is about 25-30% more during 1998-99 as compared to 1999-2000, the increase in production is just marginal during 3 CEA No.175 of 2005 1998-99 than 1999-2000 and is not in consonance with the increase in the cost of raw material. Even if it is assumed that the consumption of the inputs is different for different products, there is bound to be significant increase in the production even if the increase is not by the same amount of magnitude as in the case of raw material. The party has relied upon certain judgments of the various Courts/Tribunals. In the case of J.K.Bankers v. Wealth Tax Officer, the Supreme Court had observed that “the phrase having regard to the balance sheet of such business” in Section 7 (2) means that WTO has to take into consideration or account the balance sheet of such business for valuation and not that such balance sheet is conclusive or binding or decisive of the value of the assets appearing therein. I find that these observations were made by the Apex Court in a different context to explain the meaning of phrase appearing in Section 7 (2) of the Wealth Tx Act and as such its ratio cannot be made applicable in the facts and circumstances of the instant case. The case of Commissioner of Wealth Tax Vs. Tungbhadra Industries Ltd. 1966 (60) ITR 447 (Cal) and Illahi Baksh Vs. Commissioner of Wealth Tax 1990 (183) IRT 331 (Karnataka) cited by the party are also related to the assessment under Wealth Tax Act where the Court has held that in cases where the value as shown in balance sheet does not represent the real or market value, the same needs to be adjusted. Even I am also of the view that if there are genuine mistakes in 4 CEA No.175 of 2005 preparing the balance sheet, the same should be overlooked. But it is not so in the instant case. In the case of Hindustan Lever Ltd. Vs. CCE Chandigarh 2004 (170) ElT 72 (T), the excess production was shown in the balance sheet. The explanation that the same was due to wrong reading of unclear figures in the fax regarding production sent from factory to head officer was accepted. Nothing of this sort has happened in this case. Similarly, in the case of whole Stationery Products Ltd. Vs. CCE Meerut 2004 (168) ELT 405 (T), there was difference between the value of clearances as per profit and loss accounts of balance sheets and value of clearances as per Rule 173B declarations. Such difference was explained as on account of trading sales clearances effected by unit through their Head Office by adducing clarifications through revised notes showing break of “Trading Sales” and ‘manufacturing sales’ of the unit and assessment orders passed by Sales Tax and Income Tax Authorities. But the party has failed to adduce any convincing evidence to explain away the said discrepancies in this case.” 3. On further appeal, the Tribunal set aside the order in original. It was held:- “In the balance sheets, the production shown was more than that was reflected in the RT-12 returns by them. But we find that the adjudicating authority in the impugned order has observed in 5 CEA No.175 of 2005 these words “that he was of the view that there was genuine mistake in preparing the balance sheets and the same should be over looked”. He has also observed that the discrepancies in the RT-12 returns vis-à-vis balance sheets regarding the production for the years 1999-2000 and 2000- 2001, had been reconciled by the appellants and there existed no discrepancies. He had even dropped the duty demand for these years. For the previous years (1998-99), he has confirmed the duty by not accepting the explanation of the appellants regarding the discrepancies found in the balance sheets and the RT-12 returns. According to the appellants, the discrepancies took place on account of the fact that varieties of tablets were packed in strips of varying quantity, some strips 2-10 while other contained 12-20 or even 30 tablets. Similarly, the liquid bottles had different capacities, such as, 60 ml., 100 ml. or even 200 ml. The mistake occurred while converting or computing the total production by the officers/officials who prepared the balance sheets in the Head Office. There is not an iota of evidence on the record to prove the clandestine clearance of the goods by the appellants without payment of duty in the market during these years in dispute. None from the market has come forward to accept the purchase of the goods/ medicines, from the appellant’s company without payment of duty during these years. There is also no evidence to prove the excess receipt of inputs by the appellants’ company during these years 6 CEA No.175 of 2005 from outside. No unaccounted goods were also detected and seized from the factory of the appellants. In the absence of such an evidence, in our view, the balance sheet could not be taken as a sacrosanct documents for proving the allegations of clandestine production and removal of the goods by the appellants and thereby evasion of duty by them.” 4. We have heard learned counsel for the parties and perused the record. 5. Learned counsel for the revenue submitted that the Tribunal erred in holding that allegation of clandestine removal could not be sustained inspite of huge difference in the figure in the balance sheet and in the returns and also other circumstances pointed out by the adjudicating authority. He submitted that the Tribunal as a highest statutory authority failed to adopt proper approach in dealing with the matter. It has neither appreciated all the facts and circumstances nor dealt with the reasons given by the adjudicating authority for rejecting the explanation of the assessee. 6. Learned counsel for the assessee on the other hand submitted that the finding of the Tribunal was a finding of fact and no substantial question of law arises. 7. It is patent that difference in the figures entered in the balance sheet and the figure shown in RT-12 return is huge. Explanation of the assessee that there was mistake in calculation 7 CEA No.175 of 2005 which led to the said huge difference was rejected by the original authority on the ground that the assessee failed to produce any work sheet to corroborate the explanation and it was also not explained as to how such mistake happened repeatedly and for a long period of time and how the production did not increase corresponding cost of raw material. These findings have not been dealt with by the Tribunal. The Tribunal merely observed that none from the market came forward to accept the purchases of goods and no unaccounted goods were detected. Even though the Tribunal is a final authority on facts, while exercising its power as highest statutory departmental appellate authority like any other appellate court, it has to deal with all the issues and the reasons given by a lower authority while reversing the finding of such an authority. Failure to act properly as an appellate authority itself may be a substantial question of law. 8. Dealing with identical issue, Hon’ble the Supreme Court in L.N.Ashwathama v. P.Parkash, (2009) 13) SCC 229 observed:- “8……It is equally well settled that where the trial court has considered the entire evidence and recorded several material findings, the first appellate court would not reverse them on the basis of conjectures and surmises or without analyzing the relevant evidence in entirety. As the final court of facts, if the first appellate court is reversing the judgment of the trial court, it is 8 CEA No.175 of 2005 bound to independently consider the entire evidence…” 9. When there is huge difference in the figures reflected in the returns on the one hand and in the balance sheet on the other, the same could not be ignored in absence of any valid explanation. Failure of the assessee to give satisfactory explanation to the apparently conflicting entries can itself be circumstance which can be basis for inferring clandestine removal. Adjudicating authority having rejected the explanation of the assessee, approach adopted by the Tribunal in the present case can hardly be held to be satisfactory in absence of dealing with reasons given by the adjudicating authority and considering the material on record. We are, thus, of the view that a substantial question of law arises as to whether the Tribunal failed to properly act as an appellate authority in failing to deal with reasons given by the adjudicating authority in recording a finding of clandestine removal. The question has to be answered in favour of the appellant and against the respondent. 10. Accordingly, we set aside the impugned order of the Tribunal and remand the matter for fresh decision on merits in accordance with law. The parties may appear before the Tribunal on 20.12.2010 for further proceedings. 11. The appeal is disposed of. 9 CEA No.175 of 2005 (Adarsh Kumar Goel) Judge August 23, 2010 (Ajay Kumar Mittal) ‘gs’ Judge 10