vkns k dh frffk Date of Order:- tkjh djus dh frffk Date of Issue:-

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1 lhek kqyd,oa dsunzh; mrikn kqyd vk;qdrky;] dsunzh; mrikn kqyd Hkou] jsl dkslz] fjax jksm jktdksv OFFICE OF THE COMMISIONER OF CUS & C. EXCISE RACE COURSE RING ROAD, RAJKOT FILE No.V.69/15-419/ADJ/10 Ekwy vkns k Lka :- ORDER IN ORIGINAL NO. 125/ADC/2012 vkns kdrkz dk uke : Passed by: ds lanhkz esa : In the matter of Dkj.k crkvksa uksfvl la- &frffk Show Cause Notice No. & Date. By RPAD/HAND DELIVERY vkns k dh frffk Date of Order:- tkjh djus dh frffk Date of Issue: (MkW- Ckychj flag) vij vk;qdr ds0 m-0 kqyd vk;qdrky;] jktdksv M/s Sogo Ceramic Pvt Ltd, P.O. Box No. 222, Old Ghuntu Road, Morbi. FILE No.V.RJT-II/AR-WNR/JC/28/ 2011 dated ;g izfrfyfi ml O;fDr dks futh mi;ksx ds fy, fu% kqyd nh xbz gs] ftls ;g tkjh fd;k x;k gsa 2 bl vkns k ds fo:) vk;qdr( vihy) ds- m- kq- vk;qdrky;] jktdksv esa vihy dh tk ldrh gsa 3 vihy QkeZ bz-,-&1 esa dh tkuh pkfg,,o adsunzh; mrikn vihy fu;e 2001 dh /kkjk&3 dh mi/kkjk (2) dh krsz mfyyf[kr O;fDr }kjk glrk{kfjr gksuh pkfg,a 4 dsunzh; mrikn kqyd vf/kfu;e 1944 dh /kkjk 35 dh mi/kkjk 1 ds vuqlkj vkns k dks izkir fd, tkus dh rkjh[k ls 60 fnuksa ds vunj vihy Qkby dh tkuh pkfg,a 5 bl vihy ds lkfk fueufyf[kr dkxtkr gksus pkfg,% (a) LVkEi vf/kfu;e 1870 ds /kkjk 1 dh mi/kkjk 6 ds vuqlkj bl vkns k dh izfrfyfi ;k nwljs dh izfrfyfi&ftl ij uhps n kkz, v/khu fu/kkzfjr dksvz dh LVkEi Qhl gksuh pkfg,% (i) ;fn lctskdv esvj dh jde ewy; 50 :Ik;s ;k mlls de gks rks 25 isls gksa (ii) ;fn ;fn lctskdv esvj dh jde ewy; 50 :Ik;s ls vf/kd gks rks 50 isls gksa (b) vihy dh izfrfyfi ftlij :Ik;s 2-50 dh dksvz Qh LVkEi gksuh pkfg,a 6- vihy QkZe ds lkfk M~;wVh@isUkYVh vkfn ds Hkqxrku dk ewyhkwr izek.ki= layfxur gksuh pkfg, Notes: - [These notes are for broad general guidance only. The original text of the Central Excise Act, 1944 and the Rules framed there under may be referred to before taking any action in terms of these Notes.] ************** Page 1 of 26

2 BRIEF FACTS : M/s Sogo Ceramic Pvt Ltd, P.O. Box No. 222, Old Ghuntu Road, Morbi (hereinafter referred to as noticee No. 1 ) is engaged in the manufacture of vitrified tiles falling under CETSH of the First Schedule to the Central Excise Tariff Act, 1985 and is registered with Central Excise department having registration No. AAHCS4649BXM On the basis of gathered intelligence that the noticee No.1 was indulging in clandestine removal of finished goods, a team of officers of the head quarters preventive unit, Central Excise Commissionerate, Rajkot visited and searched the factory premises of noticee No.1 on in presence of two Panchas and Shri Vineet R. Bhalodia, Director of the noticee No. 1 (hereinafter referred to as noticee No 2). During the course of search, various incriminating documents / records were found, which were resumed under Panchnama. 3. A statement of noticee No. 2 was recorded on under Section 14 of the Central Excise Act, 1944, wherein he inter alia stated that he was one of the directors of noticee No. 1; that other directors of the company were Shri Ramesh Patel, Shri Raghavjibhai Patel and Shri Premalbhai Patel; that they were engaged in manufacture of vitrified tiles since 2005 and were registered with Central Excise department since beginning; On being shown a file containing page No. 1 to 283 found during the search of their factory premises and seized under Panchnama on , he explained that page No. 1 to 273 of the said file were dispatch forms related to dispatch of goods to M/s Jet Granito Pvt Ltd; that the goods shown in the said dispatch forms were dispatched from their unit without preparing invoices and were also not accounted for in their statutory records; that they received amount in cash in respect of goods sold to M/s Jet Granito Pvt Ltd under the said dispatch forms; that page Nos 275 to 283 of the said file contained cash transactions entered with the said company as no bills were prepared; On being shown file No. 2 seized under the said Panchnama, he explained that the said file contained ledger account of M/s Jet Granito Pvt Ltd and all the transactions shown therein were carried out without issuing any invoices and amount shown therein were received in cash; that the transactions shown therein were not incorporated in their statutory records; that the title J.V.A. of the said ledger account was a code name to identify the transactions carried out Page 2 of 26

3 without bills with M/s Jet Granito Pvt Ltd. Admitting their offence, he produced two post dated cheques of Rs. 10 lac each totally amounting to Rs. 20 lac towards their Central Excise duty liability. 4. A statement of Shri Dhiren Premgarbhai Gosai, Clerk of noticee No. 1 was recorded on under Section 14 of the Central Excise Act, 1944, wherein he inter alia stated that he was working as clerk in M/s Sogo Ceramic Pvt Ltd, Morbi for the last one year; that their company was engaged in the manufacture and sale of Vitrified Tiles; that Shri Ramesh Bhalodia and Shri Vineet Bhalodia were directors of their company; that he looked after accounts related work like entering purchase bills and sale bills in computer; payment of purchase and miscellaneous expenses etc. On being shown file No. 2 (containing ledger account J.V.A. ) seized under Panchnama during the search carried out at the factory premises of noticee No. 1 on and asked to produce the corresponding sale invoices, he explained that the said file contained the details of vitrified tiles sold to M/s Jet Granito Pvt Ltd, Wankaner without preparing invoices and without payment of Central Excise duty; that they had sold vitrified tiles totally valued at Rs. 1,89,02,042/- to M/s Jet Granito Pvt Ltd, Wankaner without preparing invoices; that as per the instructions of Shri Jaybhai of M/s Jet Granito Pvt Ltd, Wankaner, they had dispatched goods directly to their customers. On being shown file No. 1 seized under the said Panchnama, he explained that the said file contained dispatch forms under which they had sold goods to M/s Jet Granito Pvt Ltd, Wankaner without preparing invoices; that trucks were arranged by M/s Jet Granito Pvt Ltd, Wankaner for transportation of the said goods sold without bills; that payment of the goods sold without bills to M/s Jet Granito Pvt Ltd, Wankaner were received in cash which was narrated in the said file No A statement of Shri Rameshbhai B. Patel, Director of noticee No. 1 (hereinafter referred to as noticee No 3) was recorded on under Section 14 of the Central Excise Act, 1944, wherein he inter alia stated that he was one of the directors in M/s Sogo Ceramic Pvt Ltd, Morbi; that they were engaged in the manufacture of vitrified tiles since 2005 and were registered with Central Excise department; that he was looking after sales and purchase of the company. He endorsed the correctness of statement dated of Shri Vineet Bhalodia, director of noticee No. 1, statement dated of Shri Dhiren Gosai, Clerk of noticee No. 1 and statement Page 3 of 26

4 dated of Shri Amarshibhai Patel, Director of M/s Jet Granito Pvt Ltd, Wankaner. On being shown J.V.A. ledger account contained in file No. 2 seized under Panchnama during the search carried out at the factory premises of noticee No. 1 on , he explained that the said ledger account contained details of vitrified tiles sold by them to M/s Jet Granito Pvt Ltd, Wankaner during the period from to On being asked to produce corresponding sale bills issued by noticee No. 1 in respect of said sales, he admitted that they had not prepared any sale bills in respect of said sales. He further admitted that they had sold the said goods totally valued at Rs. 1,89,02,042/- to M/s Jet Granito Pvt Ltd, Wankaner without preparing invoices and without payment of central excise duty; that price per box reflected in the said ledger account was not MRP but actual price at which they had sold the said goods; they had sold the said goods at approximately half the price of MRP prevalent at that time; that they used to show lesser production in their daily stock account register to accommodate the said goods sold without preparing bills; that on the instructions of M/s Jet Granito Pvt Ltd, Wankaner, they had directly dispatched the said goods sold without preparing invoices to their customers under cover of dispatch forms; that trucks were arranged by M/s Jet Granito Pvt Ltd, Wankaner for transportation of the said goods; On being shown file No. 1 seized under said Panchnama on , he explained that the said file contained dispatch forms under which they had sold goods to M/s Jet Granito Pvt Ltd, Wankaner without preparing invoices and without payment of central excise duty; that the said file also contained ledger account named Jet Granito Pvt Ltd. (cash). On being asked to explain about the said account, he stated that an understanding was reached between the directors of their company and the directors of M/s Jet Granito Pvt Ltd, Wankaner in August, 2009; that management of their company was shared with them; that due to their weak financial condition, the said company used to give them cash to pay day to day expenses and whenever they had free cash, they returned the same to the said company; that they had sold vitrified tiles to them totally valued at Rs. 92,06,270/- on without preparing bill as reflected in the said ledger account. 6. In pursuit of gathering corroborative evidences regarding clandestine removal of goods by the noticee No. 1, Shri Amarshibhai Patel, Director of M/s Jet Granito Pvt Ltd, Wankaner (hereinafter Page 4 of 26

5 referred to as noticee No 4) was summoned and his statement was recorded on under Section 14 of the Central Excise Act, 1944, wherein he endorsed the correctness of statement dated of noticee No. 2 and statement dated of Shri Dhiren Gosai, Clerk of M/s Sogo Ceramic Pvt Ltd, Morbi. On being shown ledger account named Jet Granito Pvt Ltd. ( cash ) from the file No. 1 seized under Panchnama during the search carried out at the factory premises of noticee No. 1 on , he explained that an MOU was entered in August, 2009 between the directors of noticee No. 1 and directors of M/s Jet Granito Pvt Ltd, Wankaner for managing the factory of noticee No. 1; that due to financial crisis in M/s Sogo Ceramic Pvt Ltd, Morbi, M/s Jet Granito Pvt Ltd, Wankaner used to give cash to them to pay day to day expenses of the said factory; that whenever M/s Sogo Ceramic Pvt Ltd, Morbi had sufficient cash, they used to return the same to them; that M/s Jet Granito Pvt Ltd, Wankaner had purchased vitrified tiles totally valued at Rs. 92,06,270/- on without bill from M/s Sogo Ceramic Pvt Ltd, Morbi as reflected in the said ledger account Jet Granito Pvt Ltd. ( cash ). On being shown J.V.A. ledger account for the period to contained in file No. 2 seized under the said Panchnama, he admitted that the said accounts were in respect of vitrified tiles purchased by them from M/s Sogo Ceramic Pvt Ltd, Morbi without bills; that they had not purchased vitrified tile on MRP but on actual price. 7. During the course of search carried out at the factory premises of noticee No. 1 on , one computer CPU of noticee No. 1 was seized. The said CPU was opened and accessed in presence of two Panchas and noticee No. 2 on The CPU contained details of vitrified tiles and broken tiles cleared by noticee No. 1 during the years and The computer print out of the said details was obtained in presence of Panchas. 8. Whereas, during the search carried out at the factory premises of noticee No. 1 on , two files (Sr No. 1 and 2 of the Annexure - A to Panchnama dated ) were recovered. The said two files contained dispatch forms and ledger account J.V.A., showing details of goods despatched by noticee No. 1. When the said dispatch forms, ledger account as well as print outs generated from the said CPU of the noticee No. 1, were compared with the corresponding sale invoices of noticee No. 1, it was revealed that the noticee No. 1 had Page 5 of 26

6 removed vitrified tiles totally valued at Rs. 5,86,21,643/- without preparing invoices and without payment of Central Excise duty during the period from to The ledger account contained in the said file indicated actual price at which the vitrified tiles were sold by the noticee No. 1, whereas their corresponding dispatch forms indicated MRP at which the vitrified tiles were sold. The said MRP price has been considered for calculating duty liability after granting applicable abatement. Further, the noticee No. 1 also removed broken tiles without preparing invoices and without payment of Central Excise duty. On being confronted, the noticee No. 2 admitted that they had removed their finished goods without preparing invoices and without payment of Central Excise duty. The noticee No. 1 is, therefore, required to pay Central Excise duty to the tune of Rs. 32,82,931/- in respect of goods removed without payment of Central Excise duty. 9. The noticee No. 2 credited Rs. 10,00,000/- each on and , totally amounting to Rs. 20,00,000/- in Government account towards their Central Excise duty liability. 10. From the facts narrated supra and investigation carried out has revealed that : (i) (ii) (iii) (iv) (v) (vi) the noticee No. 1 is engaged in the manufacture of vitrified tiles falling under CETSH of the First Scheduled to the Central Excise Tariff Act, 1985; the noticee No. 1 is registered with Central Excise department; the noticee No. 1 indulged in clandestine removal of excisable goods without preparing sale invoices and without payment of Central Excise duty; the noticee No. 1 used to show lesser production in their statutory record, in order to accommodate clandestine removal; the noticee No. 2 and 3 admitted that they had cleared their finished products clandestinely under cover of dispatch forms without payment of Central Excise duty; the customer of the noticee No. 1 i.e. noticee No. 4 have admitted that they had purchased the excisable goods without bills from noticee No. 1; Page 6 of 26

7 (vii) the noticee No. 1 dispatched the goods directly from their factory premises to the customers of noticee No. 4, under cover of dispatch forms ; (viii) the noticee No. 1 has removed vitrified tiles and broken tiles without preparing invoice and without payment of Central Excise duty to the tune of Rs. 32,82,931/ In view of the above, it appeared that noticee No. 1 have contravened the provisions of : a) Rule 4 read with rule 8 of the Central Excise Rules, 2002 inasmuch as they have removed the excisable goods without discharging the Central Excise duty in the manner prescribed under the said rules; b) Rule 6 of the Central Excise Rules, 2002 inasmuch as they failed to assess the duty payable on the excisable goods manufactured and cleared by them; c) Rule 10 of the Central Excise Rules, 2002 inasmuch as they have failed to maintain true and correct daily stock account of the goods manufactured and cleared from their factory; d) Rule 11 of the Central Excise Rules, 2002 inasmuch as they have failed to issue Central Excise invoice in respect to the goods manufactured and cleared from their factory; e) Rule 12 of the Central Excise Rules, 2002 inasmuch as they failed to file the prescribed proper Return showing the correct value of their production and clearance; 12. It appeared from the para supra that all these acts of contravention on the part of noticee No. 1 have been committed with the sole intention to evade payment of Central Excise duty. The noticee No. 1 acting through noticee No. 2 and noticee No. 3, was well aware about the duty liability on finished goods being a registered unit. Hence, they have clandestinely removed their finished products in order to evade payment of Central Excise duty. Therefore, Central Excise duty to the tune of Rs. 32,82,931/- so evaded, is required to be recovered from noticee No. 1 under proviso to section 11A(1) of the Central Excise Act, 1944 along with interest under section 11AB of the Central Excise Act, It also appears that noticee No. 1 has intentionally and willfully removed the goods clandestinely under the cover of dispatch forms with sole intention to evade Central Excise duty. All these acts of Page 7 of 26

8 contravention constitute an offence, of the nature and the type described in clauses (a), (b), (c) and (d) of Rules 25 of Central Excise Rules, 2002 read with section 11AC of Central Excise Act, 1944 and, therefore, they are liable to penal action under Rule 25 of Central Excise Rules, 2002 and section 11AC of the Central Excise Act, It also appears that the noticee No. 2 and noticee No. 3 were the persons concerned in producing, keeping, storing, removing, selling, accounting, etc. of the excisable goods which they knew and had reason to believe that the same were liable for confiscation. This act on their part has made each of them liable to penal action under Rule 26 of the Central Excise Rules, The noticee No. 4 is the customer concerned in purchasing, storing, keeping, removing and selling of the said excisable goods which he knew and had reason to believe that the same were liable for confiscation. The said noticee have abetted with the noticee No. 1 by purchasing the excisable goods without bill and thereby helped the noticee No. 1 in evasion of Central Excise duty. This act on their part has made them liable for penal action under Rule 26 of the Central Excise Rules, The noticee No. 1 was called upon to show cause as to why: (i) Central Excise duty amounting to Rs. 32,82,931/- (Rupees Thirty Two Lac Eighty Two Thousand Nine Hundred and Thirty One Only) including Education Cess and Secondary and Higher Education Cess, should not be demanded and recovered from them under section 11A of the Central Excise Act, 1944 by invoking extended period of limitation under proviso to section 11A of the Central Excise Act, 1944 due to reasons as discussed in para 12. As an amount of Rupees 20,00,000/- have already been paid by the noticee No. 1 towards their duty liability, why the same should not be appropriated/adjusted against the said duty demand; (ii) the interest at appropriate rate should not be recovered from them under section 11AB of the Central Excise Act, 1944; and Page 8 of 26

9 (iii) penalty should not be imposed upon them under section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, The noticee Nos. 2 to 4 were also called upon to show cause as to why a penalty should not be imposed upon each of them under Rule 26 of the Central Excise Rules, DEFENCE REPLY AND PERSONAL HEARING: 15. The personal hearing in the matter was held on , wherein Shri R.C. Prasad, Consultant along with noticee No.2 and 3 appeared and requested to grant 10 days time to file defence reply. Shri R.C. Prasad appeared on on behalf of all the noticees and submitted reply to show cause notice as under: 15.1 CASH TRANSACTIONS WERE ONLY FOR FINANCIAL HELP BY M/s JET TO M/s SOGO AND NOT FOR CLANDESTINE REMOVAL : They submitted that as per the SCN, regular cash payments by M/s Jet to them is one of the main evidence to allege that they have sold vitrified tiles to M/s Jet, clandestinely. However the fact is that from August, 2009 there was an understanding between Directors of M/s Sogo and M/s Jet regarding management of financial crisis of M/s Sogo. Directors of both the firms have accepted in their statements that on account of severe financial crisis and liquidity crunch of M/s Sogo, M/s Jet used to give them cash to meet day-to-day expenses. Though this fact has been acknowledged in the SCN itself at various places department as nowhere disputed it. However, while concluding the investigation, department has very intentionally twisted it to allege that the payments were towards the purchase of tiles clandestinely removed from the premises of M/s Sogo which is far away from truth. The hard fact is that the payments were in the nature of loan to M/s Sogo to manage their day to day expenses and the fact that M/s Sogo have returned this cash was never investigated by the department intentionally THE CALCULATION OF DEMAND OF DUTY IS INCORRECT : Page 9 of 26

10 They submitted that the demand of duty is based on Annexure-C and Annexure-D to the Show Cause Notice, which has been summarized in Anneure-B to the notice and is not correct They submitted that the very basis on which demand has been made through entry at Sr. No: 2 of Annexure C of the SCN, which shows that they are liable to pay an amount Rs. 7,58,597/- as duty (inclusive of EC and SHEC) on account of having cleared 23,248 boxes of vitrified tiles having MRP of Rs. 720/- on assessable value of Rs. 92,06,270/- to M/s. Jet Granito Pvt. Ltd., without preparing invoices and without paying any Central Excise duty, is also not mentioned in the SCN. There is no such entry, either in JVA Ledger account or dispatch form, seized during the search carried at the factory premises of the M/s Sogo on out by the department, which is the base document for demand of duty They submitted that the assessable value of Rs. 92,06,270/- has been picked from a journal / transfer entry dated in the ledger account of M/s Jet Granito Pvt. Ltd. from the books of the M/s Sogo and consequently duty was demanded by working it out at the prevailing rates. M/s Sogo submits that the above mentioned entry is a transfer entry in its books on account of payment received from M/s Jet Granito on account of having cleared to it boxes of vitrified tiles through 48 invoices from to with a counter entry in its books of account in the ledger account of Jet Granito Pvt. Ltd. (Sales). They would like to submit a copy of sales ledger account of M/s Jet for the period to wherein details of all the invoices are mentioned and copies of the 48 invoices covering the clearance of 25,203 Boxes of tiles They submitted the amount of Rs. 92,06,270/- received by the M/s Sogo from M/s Jet as per the said entry is on account of sales of vitrified tiles through various invoice during the period to to it and hence were removed by preparing invoice and on payment of duty. As the duty has already been paid on the removed goods no demand can be raised on it and as such demand of duty of Rs. 7,58,597/- is baseless and uncalled for ANNEXURE D TO THE SHOW CAUSE NOTICE: DEMAND OF DUTY ON CLEARANCE OF BROKEN TILES : Page 10 of 26

11 They submitted that Annexure D to the SCN is a worksheet showing the Central Excise duty payable by them in respect of broken tiles manufactured and cleared without payment of duty They submitted that Broken Vitrified Tiles are not excisable goods as per the Central Excise Tariff Act, 1985 and hence legally they are not required to pay any duty either on its manufacture or its clearance. The demand of Central Excise Duty by the department on the clearance of Broken Vitrified Tiles by them is not only unlawful but also unconstitutional. Article 265 of the Constitution of India clearly mandates that no tax shall be levied or collected except by the authority of law. Section 2 (d) of Central Excise Act, 1944, reads as under:- and, Excisable Goods means goods specified in the First Schedule and the Second Schedule to the Central Excise Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt; Explanation :- For the purpose of this clause, goods includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable. (Emphasis provided). Section 3 of the Central Excise Act, 1944, reads as under:- Duties specified in the First Schedule and the Second Schedule to the Central Excise Act, 1985 to be levied. (1) These shall be levied and collected in such manner as may be prescribed; - (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods excluding goods produced or manufactured in special economic zones which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to Central Excise Act, 1985 (5) of 1986). (Emphasis provided) They submitted that from the above sections of Central Excise Act,1944 it clear that in order to attract excise duty on any goods, the following ingredients are sine qua non:- (a) Goods should be specifically specified in the First Schedule to the Central Excise Tariff Act,1985; (b) Duty of excise is to be levied and collected at the rate set forth in the First Schedule. Page 11 of 26

12 They submitted that nowhere, in the show cause notice it has been either claimed that Broken Vitrified Tiles are capable of being used as Vitrified Tiles or are excisable goods. Question whether Broken Vitrified Tiles are excisable goods or not is no longer a res integra. However, investigation, while maintaining cryptic silence over classification of Broken Vitrified Tiles throughout the SCN, has demanded Rs.1,52,047/- (inclusive of Education Cess and S&H Education Cess) on Broken Vitrified Tiles, without even ascertaining its correct classification ( Annexure D to the SCN) They submitted that as there is no specific entry of Broken Vitrified Tiles or Waste of Vitrified Tiles under any Chapter of Central Excise Tariff Act, 1985, excise duty cannot be demanded on clearance of the said Broken Vitrified Tiles They submitted the following ruling of the Hon ble SUPREME COURT:- The Supreme Court Bench comprising of Hon ble Mr. Justice J.S. Verma and Hon ble Mr. Justice B.N. Kirpal on has dismissed the Civil Appeal Nos of 1992 filed by Collector of Central Excise against the CEGAT Order Nos. E/464 & 465/91- D, dated and reported in 1992 (59) E.L.T. 451 (Tribunal) (Collector v. Somany Pilkington Pvt. Ltd.). bthe Appellate Tribunal in its order in question had held that broken glazed tiles are distinct from glazed tiles and are not excisable as waste material as there being no specific entry for it. [Collector v. Somany Pilkington Pvt. Ltd (84) E.L.T. A51 (S.C)] They pleaded that no excise duty can be demanded on Broken Vitrified Tiles. Therefore, they are not liable to pay excise duty on clearance of Broken Vitrified Tiles as demanded under ANNEXURE D to the show cause notice NO PENALTY IS IMPOSABLE UNDER SECTION 11AC/RULE 25 : I They submitted that penal actions proposed under the notice are also unlawful and uncalled for. M/s Sogo submit that penalty can be imposed under Section 11AC where it is proved that duty of excise has been short levied/ paid by reasons of fraud, collusion or any willful mis-statement or suppressions of facts with intent to evade payment of duty. In the case on hand the department has failed to establish clandestine manufacture and removal of goods. M/s Sogo Page 12 of 26

13 had discharged full amount of duty for the goods manufactured and cleared by it from time to time and all the transactions are on record. The very basis of demand is the entry in the ledger account. Therefore, there cannot be any short levy of duty hence no penalty can be imposed on them under Section 11AC or under Rule 25 of the Central Excise Rules, They submitted that when charge of clandestine removal is vacated, question of contravention of any rules do not remain in force. It goes without saying that when penalty cannot be imposed under Section 11AC of the Act, no penalty is imposable under Rule 25 of Central Excise Rules, 2002 in the instant case They submitted that from the provisions of Rule 25 that confiscation is the pre-requisite condition before imposition of penalty. M/s Sogo respectfully submit that Rule 25 cannot be made applicable in this case as neither any goods were seized nor confiscation of the goods has been proposed in the notice. Thus, proposal for imposing penalty under rule 25 is outside the purview of legal provisions of the law hence unwarranted SIMULTANEOUS PENALTY UNDER SECTION 11AC OF CENTRAL EXCISE ACT, 1944 AND RULE 25 OF CENTRAL EXCISE RULES, 2002: They further submit that when penalty is proposed to be imposed under Section 11AC, there cannot be any proposal to impose penalty under Rule 25 of the Central Excise Rules, In this regard your kind attention of is invited towards the provisions of Rule 25 which is starting with the words subject to the provisions of Section 11AC ibid. Therefore, proposal to impose both the penalty is illegal. M/s Sogo further invite your kind attention to the clarification given under CBEC s Excise Manual Para 2.2 of Part III of Chapter 13 which reads as under: 2.2 If penalty is imposed under Section 11AC, penalty under rule 25 cannot be imposed. This, however, does not preclude the Department from confiscating imposing any fine in lieu of confiscation and prosecuting a person. Page 13 of 26

14 They submitted that the CBEC s Excise Manual is issued under Rule 31 of the Central Excise Rules, 2002 and therefore binding upon the department. Thus, no penalty can be imposed under Rule 25 ibid in addition to penalty if any, imposed under Section 11AC of the Central Excise Act, They relied upon the following case laws : (i) MEK SLOTTED ANGLES (I) LTD. Versus COMMISSIONER OF C. EX., BELAPUR: 2009 (247) E.L.T. 364 (Tri. - Mumbai) Penalty - Imposition of - Where mis-declaration, suppression etc. ruled out, clear finding has to be recorded as to how assessee evaded duty - In absence thereof, penalty not sustainable - Rule 173Q of erstwhile Central Excise Rules, Rule 25 of Central Excise Rules, [para 3] Penalty - Imposition of - Particular clause/s of statutory rules violated, have to be specifically invoked to put assessee on notice as to exact nature of contravention - Broad mention of rule is insufficient to sustain penalty - Rule 173Q of erstwhile Central Excise Rules, Rule 25 of Central Excise Rules, [para 3] They submitted that they are not required to pay any duty under Section 11A on alleged quantity of goods. Therefore, question of recovery of interest does not arise at all. In the same way, they are also not liable to penalty under Section 11AC of the Central Excise Act, 1944 for the reasons submitted supra. They, therefore, request your honour to drop the proceedings initiated against them and in any case the demand to the extent of Rs. 9,10,644 {Rs.7,58,597/- (demand of duty on which duty has already been paid)+ Rs.1,52,047/- (demand of duty on broken tiles)} may be reduced from the total demand. 16. The noticee no. 2,3, and 4 submitted their replies on , wherein their identical contentions were as under : 16.1 PROPOSAL OF IMPOSING PENALTY ON ME IS UNLAWFUL: The penalty proposed to be imposed on them under Rule 26 of the Central Excise Rules, 2002 is absolutely unjustified. For the above proposal, it is alleged at paragraph 13 of page 7 of the impugned show cause notice which reads as under: It also appears that the Noticee No.2 and Noticee No.3 were the persons concerned in producing, keeping, storing, removing, selling, Page 14 of 26

15 accounting, etc. of the excisable goods which they knew and had reasons to believe that the same were liable to confiscation. This act on their part has made each of them liable to penal action under Rule 26 of the Central Excise Act, They pleaded that since the impugned show cause notice issued to the noticee No. 1 is not maintainable, so no penalty is imposable upon them It is evident from the above that the notice does not specify whether penalty is proposed to be imposed under sub-rule (1) or sub-rule (2) of Rule 26. However from wordings of above allegations it appears that the same is proposed under sub-rule (1) as the above allegations are mechanical reproduction of Rule 26(1) in the notice. For better appreciation, Rule 26(1) is reproduced below for your honour s ready reference: RULE 26. Penalty for certain offences. (1) Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater It is obvious from the above that before proposing or imposing penalty under Rule 26(1) it is absolutely essential to bring out specific role played by an individual which made certain goods liable to confiscation under the Central Excise Act, 1944 or the Rules framed there under. Not only this, it is also required to be established that the said individual was aware of the fact that the goods were liable to confiscation under the Act/ Rules. As against this, it is evident from the notice that there is no proposal for confiscation of any goods manufactured and cleared by M/s Sogo. In other words, the department has concluded that no goods were liable to confiscation in this case. Now when the department itself holds that no goods are liable to confiscation, how can it be presumed that I had reason to believe that the same was liable to confiscation? This fact, in no uncertain terms, confirms that accusation of my prior knowledge and belief about confiscation of goods is totally unfounded and unlawful. Even Page 15 of 26

16 otherwise, it is settled principle of law that when there is no proposal for confiscation of goods in the notice, no penalty can be imposed under Rule 26 of the Central Excise Rules, The noticee No. 2 relied upon following case laws: (i) RINKOO PROCESSORS PVT. LTD. Versus COMMISSIONER OF C. EX., AHMEDABAD: 2007 (212) E.L.T. 529 (Tri. - Mumbai) Penalty - Imposition of - Goods not found liable to confiscation - No penalty could be imposed under Rule 209A of erstwhile Central Excise Rules, Rule 26 of Central Excise Rules, [para 7] (ii) SHIEL ICE & CHEMICALS PVT. LTD. Versus COMMISSIONER OF C. EX., MUMBAI reported in 2004 (176) E.L.T. 897 (Tri. - Mumbai): Penalty - Personal penalty under Rule 209A of erstwhile Central Excise Rules, Since there is no goods held liable to confiscation, penalty not invocable Rule 26 of Central Excise Rules, [para 2(a)] (iii) ELANGO RAVI Versus COMMISSIONER OF CENTRAL EXCISE, BANGALORE reported in 2006 (198) E.L.T. 47 (Tri. - Bang.): Rectification of mistake - Penalty - Duty paid before issue of show cause notice - Penalty not leviable either under Section 11AC of Central Excise Act, 1944 or under Rule 173Q of erstwhile Central Excise Rules, No proposal in show cause notice for confiscation of goods, hence penalty not leviable under Rule 26 of Central Excise Rules, ROM disposed off - Section 35C(2) of Central Excise Act, [para 4] It is an established law that no penalty can be imposed without any cogent reasons duly supported by corroborative documentary evidence. It is very much evident that in this case there is no independent documentary evidence to sustain allegations made against me. Under the given circumstances, no penalty can be imposed on me under Rule 26 ibid. There are numerous judgments supporting my views and few of such are cited below for favour of your honour s kind consideration please: (i) CCE, KANPUR Versus MANOJ KUMAR PANI: 2010 (260) E.L.T. 92 (Tri. - Del.) Penalty - Imposition of - Mere prescription by law does not mean penalty could be imposed automatically - Governing facts and attendant circumstances with cogent evidence should suggest that doer himself submitted to offence or questionable act - Rules 25 and 26 of Central Excise Rules, [para 4] Page 16 of 26

17 Adjudication - Scope of - Show cause notice indicating doubt about involvement and control of Director of assessee company on day-today affairs - However, without cogent evidence, adjudication order inculpated the Director and holding him to be involved in looking after day-to-day activities - HELD : Adjudication order travelled beyond the show cause notice - Section 33 of Central Excise Act, [para 4] (ii) AARTI STEEL INDUSTRIES Versus COMMISSIONER OF C. EX., NASHIK: 2010 (262) E.L.T. 462 (Tri. - Mumbai) Penalty on Director - Personal penalty - Show cause notice did not allege that the Director of the Company had removed the goods with the knowledge or belief that such goods were liable to confiscation under the Central Excise Act, 1944 or the Central Excise Rules, Penalty under Rule 26 of Central Excise Rules, 2002 not sustainable. - Under Rule 26 ibid, any person who acquires possession of or is in any way concerned in physically dealing with excisable goods which, he knows or has reason to believe, are liable to confiscation under the Act or the Rules shall be liable to penalty. For application of this rule, there must be a finding that certain excisable goods are liable to confiscation under the Central Excise Act or the Central Excise Rules and there must be a further finding that the person who is sought to be penalised has acquired possession of such goods or has otherwise physically dealt with the goods, knowing or believing that the goods are liable to confiscation. [para 3] (iii) NIRMAL INDUCTOMELT PVT. LTD. Versus COMMISSIONER OF C. EX., JAIPUR: 2010 (259) E.L.T. 243 (Tri. - Del.) Penalty on Director - Contumacious conduct of director not coming out from record - Once mens rea does not come out, mere acceptance of discrepancy at the investigation stage shall not be commitment of offence - Mere working of discrepancy does not amount to confession of guilt nor commitment, unless the commitment is brought on record showing his active involvement - Penalty proceedings being quasi criminal in nature the charge framed calls for evidence of conscious abetment to establish the same - No penalty imposable on Director - Rule 26 of Central Excise Rules, [para 3] 16.4 AMOUNT OF PENALTY CANNOT BE MORE THAN RS As per the provisions of said rule 26, such goods means excisable goods which are liable to confiscation. Since, there is no proposal of confiscation of goods or allegation about goods are liable to confiscation under any provisions of the Act or Rules not to speak of Section 4A of the Central Excise Act, 1944, amount of duty of such goods cannot be ascertained. In other words duty on such goods is zero in the instant case. Therefore, as per provisions of the said rule penalty amount can be zero or two thousand whichever is higher. Thus, in the instant case, in any case penalty amount cannot be more than rupees two thousand. Page 17 of 26

18 DISCUSSION & FINDINGS: 17. I have gone through the Show Cause Notice, the submissions made by the noticees, the records of personal hearing and the case records available on file. 18. I find that following issues need to be decided in the present case: (i) Whether the noticee No. 1 is liable to pay Central Excise duty of Rs. 32,82,931/- on account of clandestine removal of goods? (ii) Whether two Directors and one customer of the noticee No. 1 are liable to penalty under rule 26 of the Central Excise Rules, 2002? 19.1 I find from the records that the Department s case is that during the course of search carried out on , the officers of Preventive unit, Central Excise, Rajkot had resumed various incriminating records indicating clandestine removal of finished goods without preparing invoices and without payment of Central Excise duty. Investigation carried out in the case revealed that the noticee No. 1 removed vitrified tiles totally valued at Rs. 5,86,21,643/- under cover of dispatch forms during the period from to , on which no excise duty was paid. It was also revealed that the noticee No. 1 removed their finished goods without payment of duty, mainly to M/s Jet Granito Pvt Ltd, Wankaner The noticee No. 1 had removed their finished goods under cover of dispatch forms (file No. 1), which contained following details : a. Name and address of customer b. Design no., size, batch and grade of the tiles c. Quantity and MRP d. Truck no Similarly, J.V.A. ledger Account (file No. 2) contained details of finished goods sold to M/s Jet Granito Pvt Ltd, Wankaner, like grade, quantity, rate per box, total value etc. during the period from to The file No. 1 also contained details of ledger account Jet Granito Pvt Ltd (Cash) depicting cash received from M/s Jet Granito Pvt Ltd during the period from to Page 18 of 26

19 19.5 All the above documentary evidences clearly prove that the noticee No. 1 had removed goods under cover of dispatch forms, without preparing invoices and without payment of Central Excise duty and that the payment of such goods was received in cash. I find that the noticee No. 1 is liable to pay applicable Central Excise duty on the said goods removed under the cover of dispatch forms Now, I come to the oral evidence collected during the course of investigation by the Departmental officers, wherein I find that all have categorically and unconditionally accepted their act / role in the case. The same is narrated hereunder in a nutshell. (i) Shri Vineet Bhalodia, Director of the noticee No. 1 clearly admitted of having cleared vitrified tiles under cover of dispatch forms without paying Central Excise duty. He also admitted that the said goods were not accounted for in their statutory records. He further deposed that payment were received in cash in respect of said goods sold without invoices. (ii) Shri Rameshbhai B. Patel, Director of the noticee No. 1 identified the despach forms and admitted that they have sold vitrified tiles to M/s Jet Granito Pvt Ltd, Wankaner under cover of the said dispatch forms and had not paid any Central Excise duty on the same. (iii) Shri Dhiren Gosai, Clerk of the noticee No. 1 deposed that he was looking after the work of preparing purchase bills and sale bills on computer. He deposed that they had not prepared sale bills in respect of goods sold under cover of dispatch forms. (iv) Shri Amarshibhai Patel, Director of M/s Jet Granito Pvt Ltd, Wankaner deposed that they had purchased vitrified tiles from the noticee No. 1 without bills Thus, the documentary evidences discussed above are corroborated by the oral evidences discussed in para supra. I find that the Department has discharged its burden of proving clandestine removal by unearthing and bringing on record plethora of evidences as discussed herein above. This, in my view is sufficient to hold that the noticee No.1 has removed their finished goods clandestinely without preparing invoices and they are liable to pay appropriate duty. I place Page 19 of 26

20 reliance on the order of the Hon ble Tribunal passed in the case of A.N. Guha & Co. reported in 1996 (86) E.L.T. 333, wherein the Tribunal held that, In all such cases of clandestine removal, it is not possible for the Department to prove the same with mathematical precision. The Department is deemed to have discharged their burden if they place so much of evidence which, prima facie, shows that there was a clandestine removal if such evidence is produced by the Department. Then the onus shifts on to the Appellants to prove that there was no clandestine removal Reliance is also placed on the order of the Hon ble Tribunal passed in the case of Apurva Aluminium Corporation reported in 1996 (261) E.L.T. 515, wherein at para 5.1 of the order, the Tribunal held that, Once again the onus of proving that they have accounted for all the goods produced, shifts to the appellants and they have failed to discharge this burden. They want the department to show challanwise details of goods transported or not transported. There are several decisions of Hon ble Supreme Court and High Courts wherein it has been held that in such clandestine activities, only the person who indulges in such activities knows all the details and it would not be possible for any investigating officer to unearth all the evidences required and prove with mathematical precision, the evasion or the other illegal activities. 21. Now, I take up each of the contentions raised by the noticee No. 1 and examine the same from the legal as well as factual metrics. 22. It has been contended by the noticee No. 1 that cash transactions were only for financial help by M/s Jet Granito Pvt Ltd to them and not for clandestine removal. I do not find any merits in the said contention raised by the noticee No. 1. There are plethora of documentary evidences that are corroborated by the oral evidences as discussed above, which proved clandestine removal of goods by the noticee No. 1, beyond any doubt. The noticee No. 1 has never challenged / disputed the veracity of the evidences in the form of dispatch forms and documents contained in J.V.A. ledger Account etc at any point of time, neither during the course of investigation nor in reply to SCN / during personal hearing. I also find that the noticee No. 2, 3, and 4 have not retracted their statements recorded under section 14 of the Central Excise Act, The said noticees have categorically admitted of having sold / purchased goods without bills. In absence of any complaint of threat or harassment by the said noticees, the oral evidences given by them are vital piece of evidence in the eyes of law. Page 20 of 26

21 So, the plea that the cash transactions were only financial help is really a feeble defence put forth by the noticee No. 1 and I have no hesitation in rejecting the same being devoid of merits It has been contended by the noticee No.1 that broken vitrified tiles are not excisable goods as per the Central Excise Tariff Act, 1985 and hence legally they are not required to pay any duty either on its manufacture or its clearance. They further contended that the demand of Central Excise Duty by the department on the clearance of Broken Vitrified Tiles by them is not only unlawful but also unconstitutional. They relied upon the case law of Collector Vs. Somany Pilkington Pvt. Ltd (84) E.L.T. A51 (S.C) I have considered the above contention. I find that Central Excise duty totally amounting to Rs. 1,52,047/- has been demanded in the SCN on the broken glazed tiles removed without payment of duty. However, I find force in the contention raised by the noticee No. 1 that broken glazed tiles are not excisable goods as per the Central Excise Tariff Act, 1985 and therefore not dutiable. Accordingly, I hold that they are not liable to pay duty on the manufacture and clearance of broken glazed tiles. My views are supported by the order passed by the CESTAT in the case of Somany Pilkington Pvt. Ltd reported at 1992 (59) E.L.T. 451 wherein it has been held that broken glazed tiles is distinct from glazed tiles and the same is not excisable, there being no specific entry for it. The said order of the Tribunal has been upheld by the Hon ble Supreme Court as reported at 1996 (84) E.L.T. A51 (S.C)] In view of the legal pronouncement on the issue, I hereby drop the demand of Central Excise duty of Rs. 1,52,047/- raised on the broken glazed tiles It has been contended by the noticee No. 1 that demand in respect of 23,248 boxes of vitrified tiles having assessable value of Rs. 92,06,270/- is erroneous as there was no such clearance to M/s Jet Granito Pvt Ltd. They further submitted that the said entry was picked up from journal / transfer entry dated in the ledger account of M/s Jet Granito Pvt. Ltd. from their books and consequently duty was demanded by working it out at the prevailing rates. They further contended that the said payment was received by them in respect of vitrified tiles sold to M/s Jet Granito Pvt Ltd under cover of 48 invoices during the period from from to with a counter entry in its books of account in the ledger account of Jet Granito Pvt. Page 21 of 26

22 Ltd. (Sales). They also submitted sales ledger account of M/s Jet Granito Pvt Ltd along with copies of all the invoices mentioned therein. They also contended that there was no such entry either in JVA Ledger Account or dispatch form. They pleaded that duty has already been paid by them on the said goods and no demand can be raised on it again. They requested to drop the demand of Rs. 7,58,597/ I find that duty of Rs. 7,58,597/- has been demanded on boxes of vitrified tiles having assessable value of Rs. 92,06,270 /- as per Sr No. 2 of Annexure-C of the SCN. I have seen the relevant case records i.e. dispatch forms and J.V.A. ledger account on the basis of which, duty has been demanded in the SCN considering that there were no corresponding sale invoices issued by the noticee No. 1. However, there is no such entry of Rs. 92,06,270 /- on or any other date, either in dispatch forms or J.V.A. ledger account. It appears that the duty has been demanded on the basis of entry dated appearing in Jet Granito Pvt Ltd (Cash) ledger account, as has been rightly contended by the noticee No. 1. I have also gone through the sale invoices produced by the noticee No. 1 for the period from to as well as the ledger account of Jet Granito Pvt. Ltd. (Sales) for the said period. I find force in the contention of the noticee No. 1 that the said payment of Rs. 92,06,270/- received by them on was in respect of goods sold to M/s Jet Granito Pvt Ltd during the said peirod, on which they have already discharged duty liability. Considering the documentary evidences submitted by the noticee No. 1, it appears that the said payment of Rs. 92,06,270 /- was in respect of sales made to M/s Jet Granito Pvt Ltd during the period from to , on which they have already paid Central Excise duty. Accordingly, I hold that duty of Rs. 7,58,597/- demanded on the said goods valued at Rs. 92,06,270/- is erroneous and can not sustain and needs to be dropped and I do so. 25. In view of my above findings, the demand of duty on broken vitrified tiles amounting to Rs. 1,52,047/- and demand of Rs. 7,58,597/- in respect of boxes of vitrified tiles having assessable value of Rs. 92,06,270 /- discussed above, are not sustainable. Thus, out of total duty demand of Rs. 32,82,931/-, demand totally amounting to Rs. 9,10,644/- on these two counts are dropped and remaining duty demand of Rs. 23,72,287/- is confirmed. Page 22 of 26