2004 (97) ECC 348 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Bangalore

Dr. S.L. Peeran, Member (J) and Shri K.C. Mamgain, Member (T)

Jai Industries, Hyderabad and
Shri Omeshwar Baldawa

Versus

Commissioner of Customs, Mumbai

Appeals No. C/1345/98, C/1346/98 & C/1470/98

[Arising out of Order-in-Original No. CAO/No. 153 to 154/CACCC-K.D.M. dt. 14.7.98 passed by the Commissioner of Customs (Adjudication), Mumbai]

Final Order No. 939-941/2004, dt. 18.5.2004, Certified on 2.6.2004

Evidence

Affidavits -- Admissibility -- Since address of deponent was not given in any of the affidavit, it was not possible either to summon the deponent for cross examination or for getting it verified by any other means. Therefore, the Commissioner has correctly discarded these affidavits.

Remand

Re-adjudication -- Natural justice -- There is violation of principles of natural justice as the Commissioner instead of calling the information regarding details of alleged sales of footwear soles to various customers has asked the appellants to furnish it to DRI for verification. Remand the case back for re-adjudication within six months after giving proper opportunity to the appellants. Sec. 35-I of CEA.

PRESENT :

Shri R. Sasidharan, Sr. Adv. and Shri M.S. Rajappa, Consultant for the appellants.

Shri M.K. Madhyastha, JDR for the respondent.

Cases Cited :

1. Mehta Parikh & Co. v. Commissioner of Income Tax Bombay, AIR 1956 SC 554 [Para 4]

2. Subhash Chandar Nishat v. UOI, 1979 ELT J212............................................. [Para 4]

3. Subhash Chander Nishat v. UOI, 1997 (4) ELT (J218) Bombay........................ [Para 10]

Per : Shri K.C. Mamgain

These are three appeals filed by M/s. Jai Industries, Hyderabad (Appeals No. C/1345/98 and No. C/1470/98) and Mr. Omeshwar Baldawa General Power of Attorney holder of M/s. Jai Industries (Appeal No. 1346/98) against the Order-in-Original Number 153-154/98 CAC/CCE-Admn dated 14.7.98.

2. Shri R. Sashidharan, Senior Advocate alongwith Shri M.S. Rajappa, Consultant appeared on behalf of the appellant and Shri M.K. Madhyastha DR appeared for Revenue.

3. Shri R. Sashidharan learned Senior Advocate pleaded that M/s. Jai Industries had imported Polyol and Toluene Di-Iscocynate (TDI) by availing benefit of Notification No. 72/91-Cus dated 25.7.91 as amended. This Notification provides for concessional rate of Customs duty at the rate of 35% advalorem in respect of Polyol and Iscocynate if the same are utilized in the manufacture of Polyurethane footwear soles subject to compliance of the conditions as mentioned in the said Notification. M/s. Jai Industries imported Polyol and Toluene Di-Iscocynate (TDI) through Hyderabad and Mumbai at concessional rate during the period from 91-92 to 93-94 and it was alleged that they have not utilized these goods for manufacture of Polyurethane foam footwear soles but manufactured polyurethane foam sheets. They obtained end use certificate by collusion/forgery and claimed discharge of end use obligation cast on them. The DRI conducted investigation and found that by not manufacturing the polyurethane footwear soles, M/s. Jai Industries have evaded customs duty of Rs. 1,45,80,497 for the clearances of the imported polyol and Iscocynate from Mumbai and also evaded duty of Rs. 1,18,57,397 for imports at Hyderabad. Therefore, show cause notices were issued to them for recovery of duty short-paid i.e. Rs. 1,45,80,497 for imports through Mumbai and Rs. 1,18,57,397 for imports through Hyderabad. The entire duty demanded was confirmed by the Commissioner of Customs (Adjn), New Customs House Mumbai under the impugned order wherein he confirmed the total duty of Rs. 2,63,83,693 and imposed a penalty of Rs. 2 crores on M/s. Jai Industries and 2 Crores on Omeshwar Baladwa and Rs. 10 lakhs on Shri Mangaiah.

4. The learned Sr. Advocate challenged the order of the Commissioner of Customs (adjn) on the ground of violation of principles of natural justice and submitted that the Commissioner failed to consider the affidavits of the traders who are regular procurers of P.U. Soles from the appellant M/s. Jay Industries and proceeded only on unilateral investigation conducted by DRI with the traders who purchased P.U. Foam Sheets from the appellant. He relied on the Supreme Court decision in the case of M/s. Mehta Parikh & Co. v. Commissioner of Income Tax Bombay, AIR 1956 SC 554 and Bombay High Court decision in the case of Subhash Chandar Nishat v. UOI, 1979 ELT J212 and pleaded that the Commissioner without any investigation and basis has reached the conclusion that the appellants had manufactured only PU foam sheets and not PU soles. The details of manufacture of sole and their sales (cash and credit of PU sole) were submitted by the appellants to the Commissioner which were rejected by him without consideration. These details of cash and credit sale of footwear soles were culled out from the records which were recovered by the DRI on 11.6.94 during the search of the appellants premises and from the records which were subsequently submitted to DRI on 13.6.94. These records were returned to the appellant on 25.4.97 as un-relied upon documents. The Commissioner instead of satisfying himself as to the veracity of the documents directed the appellants to submit the same to DRI for verification and re-investigation. During personal hearing on 25.2.98, the appellant pleaded before the Commissioner that it would lead to investigation of entire case by DRI. The case against appellants should be on the basis of the charges in show-cause notice. The Commissioner without considering these gave a finding in the impugned order that the appellants shied away from the investigation of DRI, and they are attempting to conceal information and hence the details about cash and credit sale of PU soles ought to be rejected without further re-examination. The impugned order instead of establishing as to how the appellant had misutilised the above quantities of TDI and Polyol, the Commissioner erred in presuming that appellant had manufactured the above PU foam solely out of imported TDI and Polyol without taking into account the already existing stock of TDI and Polyol with the appellants. He also pleaded that no procedure has been prescribed under Notification 72/91. Hence, the Commissioner should have taken into account the private documents of the appellants which clearly establish utilization of imported raw-material in manufacture of PU soles. It was also pleaded that Order of the Commissioner goes beyond the charges made out in show-cause notices. The Commissioner without properly understanding sales figure has misapplied the same to reach erroneous conclusion. He therefore, pleaded that the Order of the Commissioner may be considered as a show cause notice and the matter may be remanded to him for re-adjudication of the case.

5. Shri M.K. Madhyastha, learned JDR appearing for the Revenue pleaded that figures of credits given on 22.1.98 do not give either the name of the customer or its address, these figures of credits did not tally with the audited balance sheet. In their submission on 22.1.98, they claimed the production shown by them can be achieved by using existing 2 machines by working in shift for 18 hours a day. This claim has not been made at any stage earlier. As per the earlier statements they were having only one P.U. footwear soles making machine and working for only one shift a day. R.G. I. registers for 91-92, 92-93, 93-94 were produced to DRI three months after the raid. The production and sale figures of P.U. soles were found inserted in these registers and separate RG I (Vol. II) registers in respect of P.U. soles for the year 1993-94 was produced. Shri John, Excise Clerk, vide his statement dated 21.9.94 admitted that the said entries were subsequently inserted. It has been proved that the said Vol. II RG I registers for 93-94 is subsequently fabricated. The claim of the so-called production of PU soles as shown in the revised statement given on 22.1.98 was got done by contract labourers. But in the profit and loss account for the relevant year does not show for having payment towards contract charges. No Bank statement in respect of the so called credit sales for having realised the amount was shown. Sale Tax return in proof of sales made was not produced.

6. The appellants were using a pressing machine which compresses PU sheets of 25 mm thickness at 300'C for making PU footwear soles. This submission was made before the original authority on 4.9.97 during the personal hearing and claimed that the footwear sole manufacturing process is carried out with the help of electrically operated verticle cutting machine. Therefore, production of footwear soles are done with the aid of power. They should have kept an account and paid duty on PU footwear soles which were not exempted from Central Excise Duty if it is manufactured with the aid of power. The end use bonds were cancelled by the customs authorities on the basis of false end use certificates. 12 of such end use certificates were issued by Shri V. Mangaiah, Supdt. and 5 were issued by Shri Saraschandra, Supdt. The department's claim is that Shri Mangiah, Supdt. has issued these certificates in connivance with the appellants as there was no records at that time to show that the materials have been used in the manufacture of PU footwear soles. Shri Mangiah in his statement admitted that he is not sure that raw materials have been utilized for manufacture of PU footwear soles. He has not seen entries in this regard. Shri Saraschandra, Supdt. vide his statement dated 14.7.94 denied the fact of having issued any end used certificate. The end use certificates said to have been signed by Shri Saraschandra, Supdt. were sent for examination by the Examiner of questioned documents who certified that the signature contained in the certificates did not tally with the signature of Shri Saraschandra, Supdt. The end use certificate issued by Shri Tata, C.A. were not produced before the customs authority for getting the end use bonds cancelled. The same were obtained from the Chartered Accountant only on 20.6.94 and these certificates were issued when all the records were under the custody of DRI officers and therefore the veracity of certificates itself is doubtful. The affidavits submitted by the appellants from the traders do not contain complete address of the deponent nor it gives any quantity or specific bill numbers under which footwear soles were purchased. These affidavits cannot be considered in the absence of any proper address.

7. The learned DR stated that PU foam sheets manufactured by M/s. Jai Industries as per RGI register recovered on 11.6.94 and RT 12 returns submitted to the range during the year 92-93 & 93-94 are 290.407MTs and 256.092 MTs respectively. At no point of time production and clearance figures of footwear soles were recorded in RG-I. At a later date, in September 94, the appellants submitted RG-I for the period 91-92, 92-93 & 93-94, which contained the details of manufacture and clearances of footwear soles. Shri Omeshwar Baladwa at the time of personal hearing on 4.9.97 submitted to the adjudicating authority that foam sales for the period 92-93 as Rs. 5,41,89,544 and footwear soles as Rs. 52,16,660 which is tallying with the figures incorporated in the audited balance sheet submitted before the adjudicating authority. However, on 22.1.98, at the time of second personal hearing, Shri Baldawa submitted another statement to the adjudicating authority in which he stated that the cash and credit sale of footwear soles as Rs. 3,60,66,410, the comparison of the figures submitted by importer at the time of both personal hearing are discussed by the Commissioner in his Order-in-Original and it can be seen that the figures submitted at the time of Second personal hearing on 22.1.98 were completely concocted.

8. Shri R. Sashidharan, Senior Advocate in his rejoinder to the pleadings of Shri Madhyastha stated that the figures submitted at the time of second personal hearing were the figures both imports from Hyderabad and Mumbai, as after the first personal hearing, the show cause notice issued at Hyderabad was also assigned to the Commissioner of Customs (Adjn) Mumbai for adjudication. Therefore, they also submitted the figures of Hyderabad at the time of second personal hearing which were not submitted at the first personal hearing when only show-cause notice issued by Mumbai was being considered. He also pleaded that the appellant has right to submit figures before the adjudication order is passed. It is for the Department to say that these figures are not correct after proper investigation. The appellants have already shown that the figures are as per their record. He therefore pleaded that the Commissioner has wrongly rejected their figures without investigation. Shri Sashidharan pleaded that for the imports of the raw-materials made during the year 91-92 to 93-94, under Notification No. 72/91 the utilization was scrutinized by the jurisdictional officers and on the basis of the scrutiny 25 certificates of consumption of the imported materials for specific purposes were issued by superintendent Shri Mangaiah. 7 certificates by Shri Saraschandra and four certificates by C.A. M/s. Ravikanth Tata & Co. Hyderabad.

9. He also relied upon the decision of Bombay High Court, in case of Vasanji Ghela & Co. v. Commissioner of Sales Tax, in Sales Tax Reference No. 50 of 1969 decided on 17.11.1975 wherein it was held that --

"In our view, when a conclusion adverse to a party is sought to be arrived at by the authority, there is generally speaking a duty cast on it to disclose to that party the materials sought to be relied on against him in the case before it. As we have already pointed out the question in the case before us relates to disallowance of certain sales in the assessment proceedings under the Bombay Sales Tax Act. The facts and circumstances, which we have referred to in some detail earlier, do not disclose any sufficient reason why the request of the applicants to be allowed to read Keshavji's letter could not have been complied with. In the circumstances to the applicants the transcript of the statement of Keshavji made to the Personal Asstt. to the Collector as well the letter of Keshavji excluding from both only protions (sic) as, in the opinion of the Deputy Commissioner, were not fit for disclosure in the public interest. As the Deputy Commissioner has failed to do this, the order of the Deputy Commissioner is bad on the ground of non-compliance with the principles of natural justice and the order of the Tribunal which uphold the order of the Deputy Commissioner is also bad on the same ground."

He therefore pleaded that the case may be remanded back to the Commissioner.

10. We have carefully considered the submissions made by both the sides. The first issue raised by the appellants in this appeal is that the principle of natural justice has been violated by the Commissioner and therefore the case may be remanded to him for de novo adjudication. In support of this, the appellants have pleaded that the Commissioner has erred in not considering the affidavit submitted before him by the traders who are regular procurers of PU Soles from the appellants. The Commissioner did not even attempt to verify the affidavits of the PU soles purchasers submitted before him. We find that all the affidavits are of the following nature --

"AFFIDAVIT

I, K. Prabhakar S/o K. Raghavulu, aged 40 years resident of Jeedimetla, Hyderabad do hereby conform (sic) and State on oath as follows.

I have been doing trading business in Footwear Soles and I have been purchasing regularly Footwear Soles from Jai Industries, Thimmapur from January, 1992 onwards.

Sd/-xxxxx

DEPONENT"

No address of the deponent is given in any of the Affidavits to summon them for the verification. These affidavits also do not show that how much quantity of PU footwear soles were purchased and when these were purchased and how and when payment was made. We find that in case of Subhash Chander Nishat v. UOI, 1997 (4) ELT (J218) Bombay High Court has decided that --

"where affidavits are filed before an officer, it would not be proper for him to arbitrarily reject them as incorrect. Normally speaking, if the officer desires to challenge the correctness of such affidavits he should call the deponents for being cross-examined or test the averments by any other means open to him."

We find that since address of deponent was not given in any of the affidavit, it was not possible either to summon the deponent for cross-examination or for getting it verified by any other means. Therefore, the Commissioner has correctly discarded these affidavits.

11. The appellants have also pleaded that the details of the manufacture and sale (cash & credit) submitted before the Commissioner were rejected without further consideration and these details were culled out from the records which were recovered by the DRI during the search of the appellants' premises and which were subsequently submitted to the DRI on 13.6.94 and which were returned by the DRI on 25.4.97 as un-relied upon documents. We find that the Commissioner in his finding has given reasons, in Para 12.1 of the impugned order wherein he has observed that --

"12.1. ........ On 22.1.98, they were clearly told to prepare the details of each credit sale, and furnish the statement to DRI which they promised and yet they are withholding this information which proves the hollowness of the claim. ..."

We find that when a claim was made before the adjudicating authority, without giving the name and address of the customers, he could not have verified it. He could have asked the appellants to give such details with in a reasonable time. However, it was not proper for the adjudicating authority to ask the appellants to submit the claim to DRI. He should have taken it on record and got it verified through appropriate agency, before discarding the evidence.

12. The appellants also pleaded that the show cause notice alleged that the appellants have mis-utilised quantity of polyol and isocynate imported at a concessional rate of duty. The Commissioner erred in presuming that the appellants have manufactured PU foam solely out of the imported TDI without taking into account the already existing stock of TDI & Polyol with the appellants. The Commissioner has given his findings on Para 9.2 to the effect that "as per the statement submitted on 22.1.98 that the manufactures have declared that there is a total import of 574 MT of TDI for the combined period 92-93 and 93-94. During this period, there is no other receipt of TDI, apart from imports at concessional rate of duty. This TDI ought to have been utilized by the importers for manufacture of footwear soles alone." We find that the statements for TDI and polyol consumed in footwear soles was submitted on 25.2.98 from 1991-92 to 1994-95 with written submissions. This shows that TDI used was only out of the imported sources and it does not show that there is any TDI purchased indigenously during the period. Since the claim of appellants was for use of TDI and polyol only in manufacture of footwear soles, therefore the Commissioner should have got the claim verified with other records and then should have come to proper conclusion by taking the opening and closing balance of these raw materials into consideration.

13. It is also pleaded that the Commissioner has failed to note that no procedure has been prescribed under Notification No. 72/91 and hence he ought to have taken into account the private documents which clearly established utilisation of imported raw materials in the manufacture of PU soles. We find that the appellants were manufacturing excisable goods. They were required to maintain the proper central excise records, like Form IV/RG 23A registers for raw materials and RG I register for production and clearance of excisable goods. These records were sufficient to establish the utilization of imported raw material read with their private records.

14. The appellants have also pleaded that the Commissioner has gone beyond the charges of show cause notice as has been discussed in Paragraphs 9.2, 10.2 to 10.4 and 13. We find that what has been discussed in the Commissioner's order are the figures submitted by the appellants during the personal hearing before the Commissioner and he has pointed out the reasons as to why these figures submitted by the appellants are not acceptable. Therefore, it cannot be said that the Commissioner has gone beyond show cause notice and there is violation of principles of natural justice.

15. It is pleaded that as per Panchnama dated 11.6.94, a quantity of 13.5 MT of TDI and 11.25 MT of Polyol was found in stock. This has also been taken into account in the impugned order and duty has been demanded on the said quantity. We find that the quantity which was available in the factory as claimed is not the quantity out of the imports made in the Bills of Entry which are under dispute as the appellants had produced the utilization certificate to the customs authority for the disputed Bills of Entry. The investigation was done for that quantity for which utilization certificate were produced. Therefore, duty demand in the show cause notice is only for utilized quantities. Therefore, the quantities found on 11.6.94 is not the stock of the goods imported under the disputed Bill of Entry.

16. It is also pleaded that appellant's had produced 25 certificates of utilization of raw material issued by Shri Mangaiha, Supdt. 7 (seven) certificates from Saraschandra, Supdt. and 4 (four) from Chartered Accounts. We find that no clear cut findings are given in the order about the certificates which have covered the consignments of import in dispute. The adjudication order should clearly identify the imports with corresponding bills of entry and utilization certificate which is not being accepted by the adjudicating authority with proper reasons for non-acceptance of such certificate.

17. From the above discussions, we find that there is violation of principles of natural justice as the Commissioner instead of calling the information regarding details of alleged sales of footwear soles to various customers has asked the appellants to furnish it to DRI for verification. We therefore set aside the order of the Commissioner and remand the case back to him for re-adjudication within six months from the date of receipt of this order, after giving proper opportunity to the appellants to present their case and give proper findings on all the allegations made in the show cause notice in accordance with the law.

18. These appeals are allowed by way of remand.

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