RUKMINI INDUSTRIES Vs. COMMISSIONER OF CENTRAL EXCISE, HYDERABAD

JUDGEMENT

(1.) THESE two appeals are filed by M/s. Rukmini Industries Ltd. (hereinafter referred to as RI) and Shri Damodar Rao, General Power of Attorney holder of M/s. Rukmini Industries Ltd. against Order -in -Original No. 13/98 -CCE Hyd -I dtd. 13 -11 -1998.

(2.) THE facts in brief are that on the basis of an intelligence that M/s. RI are indulging in evasion of CED by removing acid slurry without payment of duty and without accounting in their statutory records, officers of Directorate General of Anti Evasion, Hyderabad, searched their factory, registered office and dealers premises on 13th April 1994 and recovered certain documents. On the basis of these documents and statements of Shri I. Veera Raju, Plant Supervisor, Shri Narasing Rao, Manager of M/s. RI, further investigations were conducted. On investigation, it was found that the principal raw material used in manufacture of acid slurry is LAB mostly purchased from M/s. Tamil Nadu Petro Products Ltd., Madras (hereinafter referred to as M/s. TPL). The LAB purchased was accounted for by them in their Form -IV register from February 1990 onwards. For manufacture of 220 Kgs of acid slurry, 149 Kgs of LAB is mixed with 178 Kgs of Oleum and 40 Kgs of water. LAB and Oleum are received and stored in separate storage tanks, which are connected to the plant by means of pipelines. LAB and Oleum are pumped by motors and water in required quantities supplied through diluter. All these pumps are caliberated as per formula. Thus, raw materials are intermixed in the pipeline system and pass through the heat exchanger. Finally the end product is collected in separate storage tank where acid slurry and spent acid get separated. Acid slurry is tapped and collected into the drums. M/s. RI were purchasing LAB from M/s TPL, Madras. M/s TPL are having agents for distribution for LAB throughout the country. M/s Maurya Agencies, Bangalore are agent of M/s TPL for Andhra Pradesh and Karnataka States. Customers placed their orders on M/s TPL through the agents. Payments are made either in advance or after the goods are received by DD or by cheque drawn in favour of M/s TPL and sent through the agent. Based on customers indents the agent advises M/s TPL, Madras the quantity to be supplied and the person in whose name the documents like delivery challans/invoices are to be raised. The goods are cleared from the factory of M/s TPL, Madras on delivery certificate cum proforma invoice accompanied by excise gate pass. M/s TPL has opened two stock points in Andhra Pradesh, one in the factory premises of RI at Hyderabad named M/s Maurya Agencies and the other at Vijayawada. LAB is cleared from M/s TPL, Madras to these stock points on stock transfer basis with delivery certificate cum proforma invoice. On a scrutiny of the delivery certificate cum proforma invoice issued by M/s TPL, Madras and regular invoices issued by TPL stock point, Hyderabad, it was found that large quantities of LAB were sold in the name of several firms whose complete address were not mentioned, except the name of the firm and its place. On investigation it was found that LAB was supplied to 27 such firms. Since the name and addresses of these firms were not available on the delivery challans and proforma invoices issued by M/s TPL, Madras. Investigating officers contacted Commercial Tax authorities to get the addresses and genuineness of those firms. On investigation it was found that all these firms/persons were fictitious. Investigation further revealed that the sale bills for LAB in the name of these fictitious customers were actually paid by M/s RI and the stock was actually not sold to any customer but this was used in the factory of M/s RI and from this they manufactured acid slurry which was sold by them as acid slurry and soap oil by under valuing the goods and without accounting for in their records. M/s Maurya Agencies confirmed that through the stock point of M/s TPL at Hyderabad, the bills were being raised in the name of different customers but infact the quantities of the LAB was physically taken by M/s RI. It was also found that the payment in the name of different fictitious customers was made by M/s RI and the drafts were got prepared and the application for obtaining Pay Order, drafts were signed by Shri Narasing Rao, Manager and B. Damodar Rao, Power of Attorney holder of M/s RI. They manufactured acid slurry with this accounted LAB and part of it was cleared in the guise of soap oil and rest without accounting for in their statutory records and without payment of duty. Thus, it was found that from January 1990 to March 1994, M/s RI had manufactured and cleared 140155 Kgs of acid slurry in the guise of soap oil from the quantity of LAB, which was purchased by them from M/s TPL in the name of different fictitious customers. On investigation from the customers of soap oil it was found that they actually received the acid slurry and made the payment partly in cash and partly by DD. Thus, the investigation had led to evasion of CED of Rs. 53,73,428/ - during the period from January 1990 to March 1994, which was demanded from M/s RI in the show cause notice and penalty was also proposed on them. Penalty was also proposed on Shri C. Ramachander Rao, Partner, Shri B. Damodar Rao, General Power of Attorney of M/s RI and Shri M. Narasing Rao, Manager and General Power of Attorney holder of M/s RI under Rule 209A. The case was adjudicated by the Commissioner of Central Excise, Hyderabad -I under the impugned order wherein he confirmed the duty of Rs. 53,73,428/ - and imposed a penalty of Rs. 5 lakhs on M/s RI and penalty of Rs. 1 lakh on Shri Ramachander Rao and Rs. 50,000/ - each on Shri B. Damodar Rao and Shri Narasing Rao.

(3.) SHRI K.P. Jagadeesan, Advocate appearing for the appellants pleaded that M/s Rukmini Industries Ltd. is a small scale industry, manufacturing Acid slurry and waste weak acid, since 1989 -90 for which statutory declarations were being filed with Central Excise department every year. Since 1990 they are under Central Excise licence and they are maintaining statutory central excise records from the beginning and accounting for the finished goods properly without any irregularity being noticed. They are using the Linear Alkyl Benzene (LAB), Oleum etc. as raw materials on which they are availing Modvat credit and are filing appropriate returns for the same. No discrepancy either in receipt of the inputs and the raw materials or in the stock or in availment of Modvat claim was noticed by the authorities. All the periodical returns have been accepted and RT -12s assessed. Show cause notice dtd. 20 -1 -1995 was issued to them where the charges were that they purchased LAB from stock point of M/s TPL at Hyderabad for their own consumption. In order to suppress such purchases they obtained bills from TPL on different customers names. They deliberately suppressed the manufacture of acid slurry out of the unaccounted LAB and removed the same without accountal and without payment of duty and deliberately removed the acid slurry so manufactured out of the unaccounted LAB in the guise of soap oil, by resorting to mis -classification and under valuation of the goods for evasion of duty. He stated that during enquiry against them by the Intelligence Officers of Directorate General of Anti -evasion, Regional Unit, Hyderabad on 13 -4 -94, their factory and Registered Office was searched from where records were seized. At the time of search, the stock of the goods in the premises were found to tally with the statutory records and no unaccounted goods were seen. At the time of search, Shri I. Veera Raju, Supervisor of the factory also informed the officers that there was no stock point of TPL within their factory premises. He has stated that the case of the Department is that the appellant had purchased LAB from TPL in their own name and also in the name of their clients and have made payment for such purchases through bank pay orders/drafts drawn by them in the name of different customers and such draft has been either in the hand writing or under the signature of Shri M. Narasing Rao/P. Damodara Rao. All quantities of the LAB received from TPL in the name of their clients are not accounted for by them in their statutory records and the same are used in the manufacture of acid slurry which is cleared in the guise of soap oil on payment of excise duty on the suppressed assessable values and rest without accountal and without payment of CED during the period January 1990 to March 1994. The entire case in the notice stress only on the allegation of receipt of unaccounted LAB from the stock point of the sellers. He stated that for manufacture of 250 Kgs of acid slurry, 149 Kgs of LAB and 178 Kgs of Oleum and 40 litres of water is required. According to this ratio, to manufacture acid slurry out of 546 tonnes of LAB the manufacturer is required to mix 652 tonnes of Oleum to obtain the alleged clandestine removal of 856 tonnes of acid slurry. The Oleum is required in greater quantity than LAB for manufacture of acid slurry. There is no allegation that the appellants have received Oleum clandestinely. In the absence of any evidence of clandestine receipt of corresponding quantity of Oleum, to prove the case in the notice, the impugned order cannot be sustained. He further pleaded that stock taking of the raw materials were done in their factory right from 1990 -91, which does not show any discrepancy in the raw materials. Illustrative evidence of four persons has been given against them for illicit clearance of acid slurry and soap oil. He stated that the main charge is that the stock point of M/s TPL, Madras is in the factory premises of the appellant and to show that LAB received from M/s TPL, Madras, is being sold, sales invoices were raised in the names of 27 fictitious and non -existing customers. All quantities of LAB were actually received and consumed by RI for the manufacture of acid slurry. He pleaded that on this issue, the Commissioner has given a finding that it is correct that the stock point of M/s TPL, Madras is in the factory premises of M/s Rukmini Industries. The non -existence of so called 27 customers of LAB was proved by collecting names and addresses from Commercial Tax Department and also by sending the letters through post which was returned by postal authorities with remarks not known or No such address. In the name of the so called customers, Rukmini Industries had obtained demand drafts and sent the same to TPL, but during the enquiries/investigations though opportunity was given to them they could not come forward with any other evidence to show the genuineness of the 27 customers or at the time of filing reply to the notice or during cross -examination. On this, Shri K.P. Jagadeesan, ld. Counsel pleaded that once the Commercial Tax records shows that the goods have passed through them then the sale is proved and the movement of the goods is also proved. Now it is for the Department to produce 27 persons to establish that the sale is not genuine. However, the Department has neither made any enquiries except sending the letters regarding these persons not able to locate them. Therefore, if the Department failed to produce these persons or trace out these persons they cannot allege that the goods, which were cleared in their names and also passed through the Commercial Tax check post were received by the appellant company. He stated that the Commissioner has relied on the statement dtd. 7 -12 -94 of Shri Narasing Rao. They had removed Shri Narasing Rao from their services in May 1994 and he was not their Power of Attorney Holder thereafter. His statement dtd. 7 -12 -94 when he was not in service cannot be relied upon. Shri Narasing Rao on whose statement the Department has relied upon was not produced for cross -examination. Shri Aswathnarayana of M/s Maurya Agency was also not produced for cross examination. Therefore, the evidence that 27 persons were fictitious can also not be taken against them. They were clearing soap oils right from 1990 classifying it under sub -heading 34.01 and they had filed classification list for the same. Therefore, it cannot be said that they have cleared the acid slurry in the garb of soap oil. He therefore, pleaded that the case against them has been made only on suspicion and not on any solid ground and therefore the order of Commissioner may be set aside as neither it proves that they have received Oleum for manufacture of acid slurry nor they have produced the 27 persons who are said to be fictitious to establish that LAB was not cleared to them but received by the appellant.