2005 (98) ECC 84 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(B)

Shri V.K. Agrawal, Member (T) and Shri P.G. Chacko, Member (J)

Gupta Pigments & Chemicals Ltd. & Ors

Versus

CCE, Ghaziabad

Appeals No. E/1656 & 1657/2003 and E/1664 to 1665/2003

[Arising out of Order-in-Appeal No. 158 & 159/2003 dated 16.4.2003 and Order-in-Appeal No. 160 to 162/2003 dated 16.4.2003 passed by the Commissioner of Central Excise (Appeals)]

Final Order No. 418-422/2004-B, dt. 1.6.2004, Certified on 15.6.2004

Demand (C. Excise)

Clandestine Removal -- MTIL -- Ingots -- Evidence -- In the absence of any mould having been removed form MTIL's premises to assessee's in accordance with law or otherwise, it cannot be accepted that the "MTIL" -- marked ingots had been manufactured by assessee by using MTIL's moulds. Secondly, remoulding of the latter with allegedly non-uniform composition as per test report. Hence, demand set aside. -- Sec. 11A of CEA.

Personal Penalty (C. Excise)

MTIL ingots -- Raw material imported and clandestinely removed contravention of Rule 57F -- Fact stated by assessee not proved -- In the result, the department's allegation that lead ingots (input) had been removed from assessee's factory in contravention of Rule 57F stands unrebutted. The assessee not physically dealt with the goods in any manner with the knowledge or belief that the goods were liable to confiscation under the Central Excise Rules. The penalty imposed on him under Rule 209A is, therefore, set aside -- Rules 209A, 173Q of CER.

Confiscation (C. Excise)

Whether the MTIL ingots (not being intermediate product) were liable to confiscation under Rule 173Q of CER. (YES)

Demand and Penalty (C. Excise)

Clandestine Removal -- Excess Quantity Seized -- Plea of "trial run" of factory also does not appear to be correct inasmuch as the records of the factory showed that the factory was running in three shifts and that a huge quantity or raw materials had been consumed. Lead ingots, in finished condition, found in excess in the factory would also support the view that MTIL were manufacturing lead ingots without accountal in RG- 1. These ingots were also found to be identical to the "MTIL" marked ingots found in assessee's factory. Clandestinely removed proved -- The demand of duty on the goods is sustained. In contravention of Rules 9(1), 52A, 53, 173G and 173F of CER r/w Sec. 11AB (for interest on duty) and Sec. 11AC (for penalty) stood of CER.

PRESENT :

Shri R. Praveen Sharma, Adv. for the appellants.

Shri U. Raja Ram, JDR for the respondent.

Cases Cited :

1. Bhilai Conductors Pvt. Ltd. v. CCE, 2000 (69) ECC 192 (Tri).............................. [Para 7]

2. Aluminium Cables Ltd. v. CCE, 1999 (112) ELT 1056 (Tri)................................. [Para 7]

Per : P.G. Chacko

These are five appeals, two of them (Nos. 1656 & 1657) directed against one order passed by the Commissioner (Appeals) and the remaining three against another order passed by him. The two impugned orders pertain to two show-cause notices issued by the department on the basis of results of the same investigation.

2. On 6.9.99, a team of Central Excise Officers had made a surprise visit to the factory of M/s. Gupta Pigments & Chemicals Ltd. (GPCL, for short) and checked physical stock of finished goods and inputs, whereupon an excess stock of 105.740 MTs of lead ingots (finished product) was found vis-a-vis the recorded balance in RG - I register as also shortages of 274.629 MTs of lead ingots (input) and 100 kgs. of white lead (input) were noticed vis-a-vis the respective stock balances recorded in RG 23A Part I register. The stock verification was done in the presence of Shri S.K. Chauhan (General Manager), Shri R.K. Srivastav (Production Manager) and independent witnesses and the details thereof were duly recorded in panchnama. The excess stock of finished goods was seized, also, under the panchnama. A statement of Shri Chauhan was also recorded under Section 14 of the Central Excise Act, wherein he could not explain the excess or shortage of goods. The officers also noticed a stock of lead ingots with "MTIL" marking in the factory premises, regarding which Shri Chauhan stated that the said goods had been manufactured by them by using moulds borrowed from M/s. Met Trade India Ltd. (MTIL, for short). He, however, could not produce evidence of movement of any moulds between MTIL and GPCL. On 6.9.99 itself, the officers visited M/s. MTIL's factory and found excess stock of 15.020 MTs of lead ingots (finished) vis-a-vis RG - 1. They also noticed that lead ingots with "MTIL" marking were being manufactured by them without showing such production in their records. They believed that the goods with "MTIL" marking found in GPCL's premises had been manufactured by M/s. MTIL and clandestinely cleared to M/s. GPCL without payment of duty. They, therefore, visited GPCL's premises again, took stock of the lead ingots with "MTIL" marking, which weighed 278.274 MTs, and seized the same under panchnama in the presence of the aforenamed persons and witnesses.

3. From the above findings coupled with the results of further investigations including scrutiny of records resumed from both the premises, it appeared to the department that the 278.274 MTs of lead ingots with "MTIL" marking were not duty-paid and hence liable to confiscation; that 274.629 MTs of lead ingots (input) involving Modvat credit of Rs. 9,63,948 and 100 kgs. of white lead (input) involving modvat credit of Rs. 906 had been disposed of GPCL otherwise than under Rule 57F of the Central Excise Rules and hence the total modvat credit of Rs. 9,64,854 was recoverable from them under Rule 57I of the said Rules; and that M/s. GPCL and Shri Chauhan were liable to be penalised under Rule 173Q [read with Rule 57I (4)] and Rule 209A respectively. Accordingly, a show-cause notice was issued by the department, which was adjudicated by the jurisdictional Additional Commissioner, who (a) imposed redemption fines of Rs. 9 lacs and Rs. 3 lacs in lieu of confiscation of the `MTIL' -- marked ingots (278.274 MTs) and the other ingots (105.740 MTs) respectively, (b) ordered appropriation of these amounts from the Bank guarantee finished by GPCL at the time of provisional release of the goods, (c) ordered recovery of Rs. 9,64,854 (equivalent to modvat credit on the inputs found short) with interest from the party, (d) imposed penalties of Rs. 9,64,854 and Rs. 50,000 on GPCL under Rule 57I(4) (read with 173Q) and Rule 209A respectively and (e) imposed a penalty of Rs. 2 lacs on Shri Chauhan under Rule 209A.

4. Further, it had appeared to the department that M/s. MTIL had clandestinely manufactured and cleared to GPCL 278.274 MTs of lead ingots with "MTIL" marking, without payment of duty; that excise duty of Rs. 14,24,763 was recoverable on the goods from M/s. MTIL; that the excess stock of 15.020 MTs of lead ingots was liable to confiscation; that M/s. MTIL were liable to be penalized under Rule 173Q read with Section 11AC; and that penalties were liable to be imposed on Shri Chauhan and M/s. GPCL under Rule 209A. Accordingly, the department issued a show-cause notice to the said parties. The adjudicating authority (a) confiscated the 15.020 MTs of lead ingots with option for redemption thereof on payment of a fine of Rs. 75,000 (b) ordered recovery of duty of Rs. 14,24,763 (with interest thereon under Section 11AB) from M/s. MTIL (c) imposed a penalty of equal amount on them under Section 11AC read with Rule 173Q and (d) imposed penalties of Rs. One lakhs and Rs. two lakhs respectively on M/s. GPCL and Shri Chauhan under Rule 209A.

5. Both the orders passed by the adjudicating authority were affirmed by the first appellate authority. Hence, the present appeals by the aggrieved parties.

6. Heard both sides. Ld. Counsel for the appellants reiterated the written submissions filed by him. He relied on S.K. Chauhan's statements, chemicals reports etc. Ld. DR countered by relying mainly on R.K. Srivastav's statements and certain documentary evidences. We have carefully considered the records and submissions. Regarding the shortage of 274.629 MTs of input (lead ingots) found in GPCL's factory, it was submitted by the counsel that there was no such shortage in view of the stock of 278.274 MTs of lead ingots (with `MTIL' marking) found in the factory on the same day. The minor difference of weight was said to be due to "slight variation in weighment". It was submitted that the imported lead ingots were not of uniform composition; that they were melted and remoulded into ingots of uniform composition in moulds borrowed from M/s. MTIL; that it was only when these `MTIL' -- marked ingots were issued, later on, for manufacture of finished goods that the imported raw material was accounted in RG 23A Part I; and, therefore, that the 278.274 MTs of `MTIL' -- marked ingots were nothing but the imported input remoulded for use in the manufacture of finished product. We are not convinced by these submissions. Firstly, in the absence of evidence of any mould having been removed from MTIL's premises to GPCL's in accordance with law or otherwise, it cannot be accepted that the "MTIL" -- market ingots had been manufacture GPCL by GPCL by using MTIL's moulds. Secondly, the "MTIL" -- marked ingots can hardly be considered to be the same as the imported ingots as, admittedly, the former with allegedly uniform composition were obtained by a process of melting and remoulding of the latter with allegedly non-uniform composition. This apart, the appellants have not established that the "MTIL" - marked ingots were of uniform composition. The test report on a sample of the goods is no evidence of uniformity of composition of all the ingots in the stock of 278.274 MTs. According to this test report of the Chemical Examiner, the sample contains 95.9% by weight, of lead, 1.64% of tin and traces of antimony (0.79%), copper (0.58%), iron (0.02%) manganese (0.002%), zinc (0.0028%), cadmium (0.0024%) and silver (percentage not given). The appellants (GPCL) have not brought on record any other test report showing that the ingots imported by them prior to 6.9.99 contained all these alloying elements in different (non-uniform) proportions. That the "MTIL" - marked ingots were not manufactured by GPCL is also evident from R.K. Srivastav's statement that the ingots, were the raw material procured by them. This statement by the Production Manager of GPCL was neither retracted by him nor disproved by the appellant (GPCL). Though S.K. Chauhan stated that the said ingots had been manufactured by GPCL using 25 moulds borrowed from MTIL, he could not prove the fact stated by him. In the result, the department's allegation that 274.629 MTs of lead ingots (input) had been removed from GPCL's factory in contravention of Rule 57F stands unrebutted. The modvat credit taken on the goods is liable to be recovered as rightly held by the lower authorities.

7. Regarding the excess stock of 105.740 MTs of lead ingots, it was submitted by counsel that it was only an intermediate product meant for captive consumption. It was also claimed that the process of manufacture of the final product was a continuous process and, therefore, it was not possible to account the "intermediate" in RG - 1. To our mind, these submissions are inconsistent. If the above ingots which were found in tangible physical stock were really "intermediate", the manufacture of final product could not be a "continuous" process and vice versa. Counsel has asserted that GPCL's was a continuous process of manufacture. It would follow that the above ingots were finished goods resulting from such a process and were not an intermediate product. Therefore there is no reason to fault the lower authorities' finding of non-accountal, in RG - 1 of 105.740 MTs of lead ingots. As we have rejected GPCL's plea of "captive consumption of intermediate product", the case law cited by Ld. Counsel Aluminium Cables Ltd. v. CCE, 1999 (112) ELT 1056 (Tri) & Bhilai Conductors Pvt. Ltd. v. CCE, 2000 (69) ECC 192 (Tri) : 2000 (91) ECR 569 (Tri) is not relevant to the question whether the above ingots (not being intermediate product) were liable to confiscation under Rule 173Q. The challenge to the lower authorities' order of confiscation of the goods is not well-founded. However, there appears to be a good case against the quantum of redemption fine in respect of the ingots (105.74 MTs). The authorities below have imposed a fine of Rs. 3 lakhs, which appears to be on the higher side in the facts and circumstances of the case. We reduce the fine to Rs. Two lakhs.

8. We have already found that the "MTIL"-marked ingots weighing 278.274 MTs were not manufactured by GPCL but raw material procured by them. The party could not show that duty of excise had been paid on the goods, which was enough for the lower authorities to hold that the goods was liable to confiscation under Rule 173Q. However, again, the redemption fine of Rs. 9 lakhs imposed in this connection requires to be reduced in the facts and circumstances of the case. We reduce it to Rs. Five lakhs.

9. Coming to the penalty of Rs. 9,64,854 imposed on GPCL, we note that this penalty has been imposed under Rule 57 I (4) read with Rule 173Q. The ground raised in GPCL's appeal against this penalty is that they had no mala fide intention. This ground is vague. Moreover, mens rea was not a necessary ingredient of the offence of irregular availment of modvat credit under Rule 173Q. This offence is well-found against GPCL and hence they are liable to be penalised under the said rule. However, the quantum of penalty imposed by the authorities below is unreasonably high. Having regard to the facts and circumstances of the case, we reduce it to Rs. Three lakhs. Insofar as the penalty of Rs. 50,000 imposed on GPCL under Rule 209A is concerned it is noticed that the show-cause notice had not proposed any such penalty against GPCL. This penalty, which is beyond the scope of these proceedings, is vacated. The penalty of Rs. Two lakhs on S.K. Chauhan under Rule 209A is based on the finding that he was responsible for GPCL's manufacturing activity and other affairs and had reason to believe that the subject goods were liable to confiscation under the Central Excise Rules. This finding is not enough for a penalty under Rule 209A. The penalty cannot be sustained in the absence of a finding that Shri Chauhan had physically dealt with the goods in any manner with the knowledge or belief that the goods were liable to confiscation under the Central Excise Rules. The penalty imposed on him under Rule 209A is, therefore, set aside.

10. Referring to the demand of duty confirmed against M/s. MTIL, Ld. Counsel submitted that whatever goods were found in their factory on 6.9.99 had been generated in the trial run of the factory. Commercial production had started only in February 2000. Counsel further submitted that MTIL had not removed any lead ingots to GPCL and that the 278.274 MTs of "MTIL"-marked ingots found in GPCL's premises were GPCL's production only. We have already rejected this last plea. The plea of "trial run" of factory also does not appear to be correct inasmuch as the records of the factory showed that the factory was running in three shifts and that a huge quantity of raw materials had been consumed. 15.020 MTs of lead ingots, in finished condition, found in excess in the factory would also support the view that MTIL were manufacturing lead ingots without accountal in RG - 1. These ingots were also found to be identical to the "MTIL"- marked ingots found in GPCL's factory. In our assessment, M/s. MTIL have not succeeded in rebutting these evidences gathered against them by the department. Therefore, we uphold the finding that MTIL had manufactured clandestinely removed 278.274 MTs of "MTIL"-marked lead ingots to GPCL without payment of duty. The demand of duty on the goods is sustained. As the goods were removed in contravention of Rules 9(1), 52A, 53, 173G and 173F with obvious intent to evade payment of duty, both Section 11AB (for interest on duty) and Section 11AC (for penalty) stood attracted. M/s. MTIL are liable to pay the duty with interest chargeable under Section 11AB. They are also liable for penalty under Section 11AC. In our view, a penalty of Rs. Two lakhs will be reasonable under this provision in the facts and circumstances of the case. Accordingly the penalty imposed on MTIL by the lower authorities will stand reduced.

11. The authorities below have also imposed a penalty on S.K. Chauhan under Rule 209A for his alleged role in relation to the goods seized from MTIL's premises. We set aside this penalty for the same reason as stated by us in respect of similar penalty on Shri Chauhan vide para (9) of this order. The authorities below have imposed a penalty on GPCL also under Rule 209A on the ground that they had acquired possession of 278.274 MTs of lead ingots. We note that neither of the lower authorities has recorded any finding to the effect that M/s. GPCL, while acquiring possession of the goods, knew that the goods were liable to confiscation. This assumes significance when it is noted that the show-cause notice had clearly alleged to this effect. In the absence of such finding we are unable to sustain the penalty on GPCL under Rule 209A.

12. We have already noted that a quantity of 15.020 MTs of lead ingots in finished condition was found in MTIL's factory, unaccounted in RG 1. The company could not explain the non-accountal. Their counsel also has not been able to explain the same. We, therefore, do not find anything wrong with the confiscation of the said goods under Rule 173Q. The redemption fine imposed in respect of the goods, valued at Rs. 4.8 lakhs, is only Rs. 75,000 which appears to be reasonable.

13. In the result, our order is as below:

(a) (i)The redemption fine in respect of 278.274 MTs of `MTIL' - marked lead ingots is reduced to Rs. Five lakhs;

(ii)The redemption fine in respect of 105.740 MTs of ingots is reduced to Rs. Two lakhs;

(iii)The order for recovery of Modvat credit of Rs. 9,64,854 from M/s. GPCL is upheld;

(iv)The penalty imposed on M/s. GPCL for irregular availment of Modvat credit is reduced to Rs. Three lakhs;

(v)The penalty on M/s. GPCL under Rule 209A is set aside;

(vi)The penalty on Shri S.K. Chauhan under Rule 209A is set aside.

(vii)Appeal No. E/1656/03 - B stands disposed of in terms of clauses (i) to (v) above and Appeal No. E/1657/03 - B is allowed as per clause (vi) above. The order impugned in these appeals shall stand modified to the aforesaid extent.

(b) (i)The demand of duty of Rs. 14,24,763 against M/s. MTIL is upheld. They shall pay the duty with such interest as chargeable under Section 11AB of the Central Excise Act;

(ii)The penalty on M/s. MTIL under Section 11AC of the Act is reduced to Rs. Two lakhs.

(iii)The redemption fine of Rs. 75,000 in respect of 15.020 MTs of lead ingots is affirmed;

(iv)The penalty on M/s. GPCL under Rule 209A is set aside;

(v)The penalty on Shri S.K. Chauhan under Rule 209A is set aside;

(vi)Appeal No. E/1664/03 - B stands rejected, but with a reduction of quantum of penalty under Section 11AC of the Act vide Clause (ii); Appeal Nos. E/1665/03 and E/1666/03 are allowed as per clauses (iv) and (v). The order impugned in these appeals shall stand modified to the above extent.

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