Commissioner of Central Excise and Customs vs Afzal Fazal Dalal

Sonia Gokani, J.—Being aggrieved by the order of the CESTAT, dated November 12, 2009, these tax appeals are preferred raising the following questions of law for the consideration of this court:

In Tax Appeal No. 1284 of 2010

(i) Whether the learned CESTAT is justified in the eye of law in holding that the Revenue has failed to establish from the documentary evidence that the grey fabrics were imported one and customs duty is liable to be paid therein, ignoring the material evidence being the statement of Shri Afzal Fazal Dalal, director of the unit recorded u/s 14 of the Central Excise Act, 1944 which has not been retracted by him at any point of time?

(ii) Whether the learned CESTAT is justified in the eye of law in holding that the unit is not liable to pay the amount as the customs duty because it is Central excise duty which could be leviable on the said unit?

(iii) Whether the learned CESTAT is justified in the eye of law in holding that from the extract of annexure A attached to the panchnama dated July 3, 2001, the goods have been procured by the said unit from a 100 per cent. EOU or from some other local traders, is the perverse finding as 100 per cent. EOU cannot have imported the goods without proper documents ?

(iv) Whether Shri Afzal Fazal Dalal, director of the said unit has deliberately and willfully, illicitly cleared 1,045 pieces of grey fabrics admeasuring 1,02,148 1. mtrs. valued at Rs. 20,42,960 in the open market, without payment of customs duty, without recording the same in the records of the said unit and without valid invoices, with a view to evade the payment of customs duty leviable thereon, is liable to make the payment of the penalty of Rs. 3,20,650 u/s 112(b) of the Customs Act, 1962?

In Tax Appeal No. 1542 of 2010

(i) Whether the learned CESTAT is justified in the eye of law in holding that the Revenue has failed to establish from the documentary evidence that the grey fabrics were imported one and customs duty is liable to be paid therein, ignoring the material evidence being the statement of the director of the unit recorded u/s 14 of the Central Excise Act, 1944 which has not been retracted by him at any point of time?

(ii) Whether the learned CESTAT is justified in the eye of law in holding that the unit is not liable to pay the amount as the customs duty because it is Central excise duty which could be leviable on the said unit ?

(iii) Whether the learned CESTAT is justified in the eye of law in holding that from the extract of annexure A attached to the panchnama dated July 3, 2001, the goods have been procured by the said unit from a 100 per cent. EOU or from some other local traders, is the perverse finding as 100 per cent. EOU cannot have imported the goods without proper documents?

To briefly state, the facts are that the respondent is engaged in processing MMF falling under Chapter 54 of the Schedule to the Central Excise Tariff Act. During the preventive checks to the factory premises, the team detected shortage of fabrics. In presence of the panchas, statement of the director of the respondent had also been recorded, wherein he confirmed illicit removal of 1,045 pieces of grey fabrics admeasuring 1,02,1481, meters valued at Rs. 20,42,960. A show-cause notice was issued u/s 124 of the Customs Act demanding customs duty, interest as well as penalty from the respondent. This was adjudicated by the Joint Commissioner, which confirmed the demand of duty and interest and also imposed penalty of equal amount upon the respondent with further levying of penalty of Rs. 3,20,650 on the director of the respondent.

This was, when challenged before the Commissioner of Appeals, it concurred with the findings of the order-in-original authority, and therefore, the respondent herein challenged the same before the CESTAT, which set aside the order of both the adjudicating authorities vide its impugned order dated November 12, 2009 and therefore, the present appeal by the Department proposing the aforementioned questions of law.

Heard learned counsel Mr. Bhatt for the Department, who has extensively argued in support of the appeals as also taken us through the orders of the adjudicating authorities to contend that the order passed by the Tribunal is apparently erroneous and the findings since are not based on materials which were made available before the Tribunal, the same is not to be sustained. It is also further pointed out that in both, the order-in-original and in the order of the Commissioner of Appeals, there are categorical findings with regard to the illicit removal as also of raw material being imported material having been procured from 100 per cent. EOU and yet the Tribunal disregarded those aspects concluding contrary to the same.

The learned counsel Ms. Dilbur Contractor with Mr. Premal Nanavati for the respondent submitted that there was a clear and apparent mistake on the part of both the authorities to hold that there was contravention of the provisions of Notification No. 53/1997, dated June 3, 1997 as also that the goods removed were manufactured from the material which were imported. It is also further argued that the onus was on the Department to prove that the material procured was from a 100 per cent. EOU or was imported raw material and the respondent cannot be asked to prove negative as that would be virtually impossible to do so. The decision of the Tribunal is fervently supported on the ground that the Tribunal has rightly arrived at the conclusion and that in the absence of either that the raw material was imported or the same having been procured from a 100 per cent. EOU, there is no question of levying customs duty and therefore, the entire notice has to fail.

On duly considering the submissions of both the sides and also closely examining the orders of all the authorities below, what emerges and requires to be noted, at the outset, is the fact that the notice has been issued u/s 124 of the Customs Act. There is no reference in the entire notice of any demand under the Central Excise Act. It is from the very beginning, the case of the Department is that of illicit removal of the imported material which was noticed at the time of preventive checks and confirmed by the statement of the director of the respondent. Therefore, in the show-cause notice itself, the demand was made for the duty, interest and levying of penalty for having removed the material without payment of customs duty leviable thereon,. It is also needed to be noted that the order-in-original dealt with the contention raised by both the sides with regard to the import of fabrics used in the material which was said to have been illicitly removed. It was from the beginning contended, as mentioned hereinabove, by the respondent that the fabrics was received from a 100 per cent. EOU and under D-3 and AR-3A procedure they were not liable to pay customs duty. The order-in-original notes thus:

As regards mills contention that the investigating officers have failed to collect any corroborative evidence to prove the case, I find that whatever evidence available on records are sufficient to prove the case, I find that whatever evidence available on records are sufficient to prove the present case of illicit removal. Here, it is a settled law that in the case of unauthorised production and illicit removal of goods, no person shall keep the evidence against them as the same are duplicate and secret in nature and maintained by them for his personal account. Further, it is to be noted here that the said shortage/illicit removal was noticed by the Department at the time of preventive checks in the factory premises. Had the Department not conducted the checks, this shortage/illicit removal of fabrics could have remained unnoticed.

Accordingly, the plea now taken is nothing but an afterthought and deserves rejection and any defence arguments made in connection thereto is not sustainable. Hence I find that mills has illicitly removed/diverted/sold out 1,045 pcs. of grey fabrics admeasuring 1,02,1481 mtrs valued at Rs. 20,42,960 (which were manufactured out of imported raw material and procured duty free from other 100 per cent. EOUs) under CT-3 procedure, without cover of any duty paying documents/invoices, without payment of customs duty leviable thereon and without entering the same in their statutory records.

The Commissioner (Appeals), while dealing with this issue, confirmed the findings of the original authority. It also noted the contention of the respondent that they had not contravened the provisions of Notification No. 53/1997. In the absence of any documentary evidence, the Commissioner (Appeals), found that it was not possible not to support the decision of the original authority whereby it held that the goods manufactured were out of imported raw material and were procured duty free from other 100 per cent. EOUs. It also noted that there was no separate maintenance of accounts for imported and indigenous raw materials.

Thus, both the adjudicating authorities found clear breach of Notification No. 53/1997, dated June 3, 1997 read with some of the provisions of the Customs Act. This was in violation of EXIM policy and procedures laid down under the Customs law where imported grey fabrics on payment of customs duty was to be necessarily utilized for manufacturing final products of processed MMF and the same was required to be exported.

The Tribunal while dealing with this issue has held thus:

We have considered the submissions made by both sides. We notice that in the show-cause notice, no documentary evidence to support the contention that the grey fabrics were imported one and customs duty is liable to be paid is relied upon. Further, when the appellants raised the contention that they had not imported the goods, no verification of the claim was made by both the lower authorities. As rightly submitted by the learned advocate, this could have been easily verified from the registers maintained/records by the appellant themselves. The appellants have produced extract of annexure A and we find that the goods have been procured either from a 100 per cent. EOU of from some other local traders. Both the lower authorities have not examined the contention of the appellants that the grey fabrics were not imported. The Commissioner (Appeals) has simply stated that the adjudicating authority has given a finding that the appellants has manufactured the goods out of imported raw material as well as those procured duty free from other 100 per cent. EOUs. He observed that the appellants have failed to bring any documentary evidence that the goods were wholly manufactured from the indigenous raw material nor has he submitted that they were maintaining separate accounts for imported and indigenous raw material. We find that the lower adjudicating authority also has simply relied upon the show-cause notice and the finding was not based on any evidence. While it has to be accepted that there cannot be any evidence with regard to the sales of grey fabrics in small quantities in the open market without any issue of invoice and without payment of duty, 100 per cent. EOU cannot have imported the goods without proper documents. Further, for demand of customs duty on the raw material, it is necessary to prove that the same were imported. In the absence of any proof that the same were imported, the customs duty could not have been demanded. We also agree with the learned advocate that the decisions cited by him in support of his contention that what was leviable was Central excise duty in respect of the goods obtained from 100 per cent. EOU and other local sources and not customs duty.

As can be noted from the findings of the Tribunal, it held that the findings of the lower authorities were not based on evidence, while accepting the fact that for removal of goods in illicit manner and for selling grey fabrics in small quantities in the market, there could not be possibly any evidence available. It is required to be specifically mentioned that the Tribunal noted that there ought to be proper documentation for 100 per cent. EOU taking out the goods.

As can be seen from the orders of all the adjudicating authorities that the order-in-original and the order of the Commissioner (Appeals) have based their decisions on the materials that had been made available to the authorities. As can also be seen that these authorities relied on the evidence that have been adduced by the Department and also depended heavily on the statement given by the director who has not retracted the same till date. What had further weighed with the authorities is the fact that there was no separate maintenance of records which would reveal either the material having been imported or having been procured from a 100 per cent. EOU.

The learned counsel for the respondent at this stage, attempted to point out from the show-cause notice that there were records adduced by the Department at the time of show-cause notice indicating maintenance of records by the respondent and also suggesting and strengthening the stand of the respondent with regard to such separate maintenance of accounts. Although the show-cause notice does mention some of the registers but, as can be seen clearly, none of the registers is updated and therefore such records would be wholly without substance. Again the authorities cannot be oblivious of the statement of the director who admitted illicit removal of fabrics, without retracting the same in all these months. Again the orders of both the authorities go to unfailingly suggest and as mentioned hereinabove, by way of clearly given findings that there was no such documentary evidence, however, if the Tribunal still found that the material which had been placed before the authorities was not sufficient for them to reach to the conclusion with regard to such material, in our opinion, on such a specific finding of the Tribunal, it could have remanded the matter back to the authority who passed the order-in-original for it to examine in greater detail instead of setting aside orders of both the adjudicating authorities despite strongly worded reasoning in the wake of glaring facts of this case.

We are, therefore, inclined to remand the matter back to the authority who passed the order-in-original. Resultantly, setting aside the order of the CESTAT in both these appeals, these matters are remanded for fresh consideration of the original authority.

Without being influenced by any of the observations made in this appeal, the authority shall examine the entire material produced by the Department and the respondent and shall independently conclude with regard to the issues proposed.

Both the appeals are disposed of in the above terms with no order as to cost.