2004 (96) ECC 581 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(A)

Hon'ble Justice (Mrs.) K.K. Usha, President and Shri C.N.B. Nair, Member (T)

G.D. Steel (P) Ltd.

Versus

CCE, Meerut

No. E/ROA/221/02-A & Appeal No. E/284/98-NB-A

[Arising out of Order-in-Original No. 42/Comm./M-1/97 dated 28.11.1997 passed by the Commissioner of Central Excise, Meerut-I]

Misc. No. 124/2004-NB(A)
Final Order No. 501/2004-NB(A), dt. 26.5.2004, Certified on 1.6.2004

Demand

Suppression of facts -- Assessee carrying out fake entries, production and clearance -- Tribunal found that in regular transaction and supplies, adjusting account periodically against the value of mutual supplies and thereby making differential payments through bank between parties is a common business practice prevailing in the market -- The investigation failed to found any material relating to fake clearance or market purchase. -- Sections 11A of CEA.

[Paras 10 & 11]

Appeal allowed

PRESENT :

S/Shri J.S. Agarwal & R. Santhanam, Advs. for the appellant.

Shri S.M. Tata, SDR for the respondent.

Per : C.N.B. Nair

The appellants have been in the production of Iron and Steel Ingots by melting iron and steel waste and scrap. The waste and scrap is procured from various sources. The duty paid on such scrap by the suppliers was available to the appellant as duty credit on inputs (Modvat) and the appellant availed of such credit and utilized the same for payment of Central Excise duty on the ingots manufactured by the appellant. In 1991 the appellant purchased a total quantity of about 9800 MTs of scrap and produced about 7100 MTs of ingots. Similarly, in 1991-92 there was a purchase of about 4100 Tonnes of scrap and production of 3350 tonnes of ingots. The figures for 1992-93 were about 4560 tonnes of scrap and about 1970 tonnes of ingots. At this juncture, it may be noted that part of the procurement of scrap was from two parties, namely M/s Jayashri Steels and Ms Jayashri Industries. The procurement from them was about 750 MT and 500 MT respectively for 1991, 600 & 875 MT respectively for 1992-92 and 413 & 270 MT respectively for 1992-93. Modvat credit had been taken in respect of these purchases also.

2. Central Excise authorities carried out some investigations into the excise related activities of M/s Jayashri Steels and M/s Jayashri Industries and issued show cause notice alleging that they were carrying out clandestine operations and the production and clearance shown by them were false. As a corollary to this, show cause notice dated 28.7.93 was issued to the appellant also alleging that they have wrongly taken credit under the sale documents of M/s Jayashri Steels and M/s Jayashri Industries and credit was liable to be recovered. The show cause notices to M/s Jayashri Steels and M/s Jayashri Industries and the appellant were confirmed in adjudication. The appellant came in appeal to this Tribunal challenging the adjudication order, inter-alia on the ground of violation of principles of natural justice. This Tribunal remanded the matter for fresh decision vide its Final Order Nos. 967-985/95 dated 31.10.95. This remand order covered present appellant's appeal as well as 18 other appellants. Pursuant to remand, the Commissioner of Central Excise, Meerut-I passed his adjudication Order-in-Original No. 42/Commr/M-1/97 dated 28.4.1997 confirming an amount of Rs. 23,34,240 against the appellants. The order also imposed penalty on the appellant. The present appeal challenges that order.

3. The present appeal was dismissed by this Tribunal vide Final Order No. A/1053/98-NB-DM dated 9.12.98 for failure to comply with the requirement for making pre-deposit. Subsequently, the appellant filed their restoration application seeking to restore the appeal upon deposit of the amount. The appellant also made the required deposit and produced TR challan from Punjab National Bank, Mohan Nagar dated 11.12.2002, and accordingly, we allowed restoration of appeal and heard both sides. On the last date of hearing of the appeal on 13.11.2003, both sides desired to file written notes. The same was allowed and orders reserved. Both sides that subsequently filed written summaries, M/s G.D. Steel (P) Ltd., filed their Note on 27.11.2003. Further, written submissions were filed by M/s G.D. Steel (P) Ltd., on 5.2.2004 and the SDR on 12.1.2004.

4. As already noted the dispute is about the Modvat credit taken on the receipts of steel scrap from M/s Jayashri Steels and M/s Jayashri Industries during the period May 1990 to July 1992. The appellants' explanation is that the two parties in question were only two of the supplies of inputs to the appellants. The quantity procured from these parties does not also work out to any major portion of the total procurement of inputs. It is also being pointed out that each of the input consignments came under specified Central Excise document (GP-I). These documents had been filed by the appellants with the jurisdictional Central Excise authorities on a monthly basis and the Central Excise authorities raised no objection about the material received, duty paid on them by their suppliers or the nature and quantity of the materials. Even the subsequent show cause notice does not dispute that the appellants have converted the input into ingots and cleared them on payment of duty. It is being contended that in these circumstances, it was not proper for the Central Excise authorities to challenge the fact about part of the inputs alone, that too based merely on the mistakes or fraud, if any, committed by two of the inputs suppliers.

5. The appellants contend that the findings about the inputs supplier cannot be applied in toto to the appellants' receipt of inputs, and duty demand raised against them. It is their contention that a finding that the appellants had taken credit wrongly is required to be made based on the facts ascertained in respect of each of the consignments of inputs received by them. It is being pointed out that such examination of evidence and recording of finding has not taken place and the revenue authorities have taken a view that findings against the inputs suppliers apply to the appellants and the others and for that reason along the Modvat credit taken by the appellants is required to be returned.

6. The appellants have also submitted that evidence and findings themselves do not go against the appellant. It is being pointed out that one of the grounds against M/s Jayashri Steels and M/s Jayashri Industries is that they were having extremely high production of scrap -- 68% and 80% and very irregular production. The appellants', submission is that, this, in fact, supports the receipt of scrap by the appellants. Another circumstance relied on against M/s Jayashri Steels and M/s Jayashri Industries is that some of the vehicles indicated as carriers by them are auto rickshaw, Govt. vehicle etc., which vehicles were either inappropriate or unavailable for the transport of scrap. The appellants have strongly countered this allegation and have submitted that none of the supplies to them was in such vehicles. The carriers used for supplies to the appellants were always trucks. The learned Counsel for the appellants have emphasized that the evidence regarding use of auto-rickshaw and other unlikely vehicle for transport in respect of other goods is wholly irrelevant to a decision as to whether the supplies to the appellants were real.

7. The impugned order has held that there was actually no supply of materials between the appellant and the two suppliers; but only book entries made to cover the receipt of scrap from market sources. The learned Counsel for the appellants has pointed out that this finding is entirely against facts. During the relevant period, while the appellant was receiving scrap from these two parties, they were also selling ingots to them. The value of ingots supplies was much less than the value of the scrap purchased. The differential amount was being paid, mostly by account payee cheques. During the hearing, appellants have filed statement of accounts and has submitted that the summary showed that the relationship between the parties was entirely commercial, and it cannot be false book-keeping, particularly when considerable sums are paid by a/c payee cheques and the banking transaction evidences payments.

8. The appellants have also emphasized that the Revenue's allegation remains entirely un-corroborated. It is being pointed out that there is no evidence whatsoever brought on record in support of the allegation that the appellant had, in fact, procured the scrap from any other source. Revenue has obtained no evidence regarding purchase, payment, transport or any other aspect of such purchases. The learned Counsel for the appellants emphasized that, in the present case, acceptable evidence is entirely lacking. According to him the revenue is seeking to transport wholesale their findings against those two parties M/s Jayashri Steels and M/s Jayashri Industries to the appellant, while the evidence covering the appellants' transactions with those two parties is in favour of the appellant. Further, the transaction between the appellant and the two parties M/s Jayashri Steels and M/s. Jayashri Industries remain fully proved through excise documentation and payments. There is also no corroboration of the allegation through evidence from other sources. Learned Counsel has submitted that, in these circumstances, the order is required to be quashed for want of evidence and being contrary to whatever evidence is on record.

9. The appellants have also submitted that the case is hit by limitation inasmuch as the appellants were submitting all records periodically for scrutiny to Central Excise authorities and those authorities had accepted those documents. The utilization of the inputs in question for production and clearance of ingots on payment of duty also is not being disputed. Further, no evidence of any fraud committed by the appellant is forthcoming. It is their contention that in these circumstances the requirement of suppression, mis-statement of facts or fraud cannot arise and the demand cannot be raised by invoking the extended period as provided in the proviso to Section 11A.

10. The learned SDR has forcefully contended that the demand against the appellant is entirely sustainable inasmuch as it has been found that the appellants' inputs suppliers were found to be not carrying out any manufacturing activities and the entire account kept by them about production, transport etc. were found to be false. He pointed out that the huge fraud committed by M/s Jayashri Steels and M/s Jayashri Industries remain established by large shortages of inputs, extremely high production of scrap, irregular production, claim about use of scooter, car, moped etc., for transport of scrap, discrepancy in salary and other registers and ledgers, the factory being shown as closed on Sunday while it was in production on Sunday day etc. The learned SDR has emphasized that when the entire transaction of the appellants' suppliers was found to be false and not reliable, there is no requirement to prove that each of the transactions shown between the appellants and the two parties M/s Jayashri Steels and M/s Jayashri Industries were false. The learned SDR also submitted that the appellants have failed to proof each of the transactions.

11. Upon the perusal of the record and careful consideration of the submissions made by both sides, we are of the opinion that revenue's case against the appellant is not established. While the evidence in the cases involving M/s Jayashri Steels and M/s Jayashri Industries could be used as evidence in the case against the appellants, also, their applicability would be only to the extent they were relevant to the appellants transactions with those two parties. The materials and findings against those two parties cannot substitute for findings based on reliable evidence in relation to the transactions under investigation. One piece of evidence relied on by the revenue against the two suppliers is that Scooters, auto-rickshaws, mopeds or a Government vehicle have been stated as carriers, hardly, the carriers suitable or available for the transport of such materials. While this is a material factor, the appellants' submission is that, in none of the case of supply to the appellants, the carrier indicated in the excise document is any of the above-mentioned vehicles. They are right in their contention that while that material will be relevant to findings about the appellant's suppliers, that, in no way, vitiates the purchases made by the appellants from those parties. The appellants have also shown how unacceptable is the allegation that the appellants' transaction with these two parties were mere book entries. The two parties in question were not the sole source of supply of scrap to the appellant. The appellants were also not paying for the scrap entirely by return supply of ingots. Part of payment was made through cheques and those transaction are evidenced by the banking documents. Adjusting accounts periodically against the value of mutual supplies and making differential payments between parties is a common business practice. Such adjustments do not indicate or mean that the business transactions are mere book entries. Such adjustment is merely a matter of convenience. They reduce number of transactions and save costs for both parties. Therefore, the revenue is not justified in rejecting those transaction as false. There is also a complete lack of corroborative material. The revenue's allegation is that no scrap was purchased from the two parties in question and scrap was actually purchased from the market. The transactions involved several thousand MTs of scrap. The investigation has not found any material relating to such market purchase, payment, transport or on any other aspect relating to the procurement of such a large quantity. The these circumstances it has to be held had revenue's case is not supported by acceptable evidence.

12. In the light of what is stated above, the appeal succeeds and is allowed with consequential relief to the appellants. The pre-deposit made in terms of the interim order, or any other payment made by the appellant in relation to the present demand, fine and penalty shall be returned to the appellants immediately.

……………………..