Sarla Performance Fibers Ltd. vs C. (Adjudication), C.E.

These Appeals under Section 35G of the Central Excise Act, 1944 challenge the order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT for short) dated 5th July 2013 in two Appeals, which were filed by the appellants before us. The First Appeal before us is by Sarla Performance Fibers Ltd., the successor in title of Sarla Polyester Ltd. The appellant is engaged, inter alia, in the manufacture of Synthetic Yarn and for that purpose it had a factory at Silvassa. A letter of permission was granted to it to set up a 100% Export Oriented Unit for manufacturing Synthetic Yarn and another unit was also set up. Both units were duly licensed as private bonded warehouses under Section 58 of the Customs Act, 1962.

The Appellants have been carrying on business and it is their case that the Deputy Development Commissioner has accorded permission to the appellants for supply of 1,04,000 Kgs., of textured yarn valued at Rs. 1,09,20,000/- to M/s. S.R. Industries Ltd., a 100% export-oriented unit under paragraph No. 109 of the Export Import Policy 1992-97. The requisite application in the prescribed Form was submitted by the appellants and it is the case of the appellants that even the said M/s. S.R. Industries Ltd. is also licensed as a private bonded warehouse. The show cause notice alleges that the appellants-consignor cleared Polyester Texturised Yarn (PTY)/Polyester Filament Yarn (PFY) to the consignee M/s. S.R. Industries Ltd. on the strength of CT-3 certificate obtained by M/s. S.R. Industries Ltd. The consignment was delivered to the transporters nominated by the said consignee. It has been alleged by the department in the show cause notice that the appellants'' case is that no duty can be demanded in respect of the goods cleared on the strength of CT-3 certificates and on the basis of bond executed by the consignee. Therefore, it is the end user consignee who protects the interest of the Revenue. The searches were conducted at the units and what has been alleged further in the show cause notice is that the statements of the concerned persons, were recorded.

The show cause notice was adjudicated and an order was made thereon, styled as an Order-in-Original, dated 27th October 2005. That was challenged and was the subject matter of the Appeals before the CESTAT inter alia by the appellants in three Appeals before us. The First Appeal is by a limited company namely the successor of Sarla Performance Fibers Ltd. and two Appeals by Shri Krishna Kumar Jhunjhunwala and Sushil Deora. The Tribunal has dismissed these Appeals and it is not necessary to refer to the detailed findings. The only contention raised by Mr. Shah appearing in support of these Appeals is that Rule 173Q and 209 of the Central Excise Rules, 1944 could not have been invoked and applied so as to impose penalty on the appellants. The submission is that the appellants were charged with evasion of duty and once they were required to answer such a charge and allegations, which they duly answered, then, the basis for imposition of the penalty is absent. Once it is absent, then, no penalties under these Rules could have been imposed far from recovering the same and that is how these Appeals raise a substantial question of law.

In the submission of Shri Shah, the order passed by the Tribunal to this extent travels beyond the show cause notice. The Tribunal has not dealt with the specific contention of the appellants that the show cause notice nowhere proposes imposition of penalty under Rule 209. In such circumstances, and when a particular provision is not invoked in the show cause notice, then, no findings can be based on the same in the final order and unless the noticee was put to notice with regard to the allegations and the specific role in the entire episode. In this case, the order passed by the adjudicating authority, so also the Tribunal fails to adjudicate and consider this aspect.

Mr. Shah has referred to the language of Rule 173Q and 209 and submitted that once the basis for alleging the role and imposing penalty is that if any manufacturer, producer, registered person of a warehouse or registered dealer as defined has contravened any of the provisions of these rules with intent to evade payment of duty but as far as the appellants are concerned, they are not held to be guilty of evasion of duty, then, such a finding cannot be sustained, particularly, when Rule 173Q and 209 are identically worded.

Reliance is placed by Mr. Shah on the judgment of the Hon''ble Supreme Court in the case of Amrit Foods v. Commissioner of Central Excise U.P. reported in (2005 (190) E.L.T. 433 S.C.)

Mr. Jetly appearing on behalf of the respondent, on the other hand, submits that all the appellants were aware of the allegations in the show cause notice. They have never disputed, as has been observed, that the duty has been evaded. The allegations insofar as evasion of duty by the notice have not been controverted. Our attention is invited to paragraph Nos. 11 to 13 of the Order-in-Original and equally the findings affirming the same in the Tribunal''s order. Mr. Jetly submits that once the allegations and replies in the notices point out to an undisputed and uncontroverted fact, then, the only aspect which has to be noted is the responsibility and culpability. This is a case where the goods have been diverted to the local Bhiwandi market with the help of unscrupulous brokers by the licensee, which the appellants assisted and facilitated and the parties are named in paragraph No. 11 in the Order-in-Original, then, all the more such findings of fact do not raise any substantial, question of law. Mr. Jetly submits that Rule 173Q and 209 can be invoked also for imposing penalty for removal of any excisable goods in contravention of any of the provisions of the rules or if the assessee does not account for any excisable goods manufactured, produced or stored or enters willfully any wrong or incorrect particulars in the invoice issued for the excisable goods dealt with by him with intent to facilitate the buyer to avail of credit of the duty of excise in respect of such goods which is not permissible under these rules. Thus, it is not only contravention of any of the provisions of the Rules with intent to evade payment of duty that the penalty can be imposed. For all these reasons, it is submitted that the appellants are challenging the concurrent findings of fact which cannot be termed as perverse. The Appeals be, therefore, dismissed.

With the assistance of Mr. Shah and Mr. Jetly, we have perused the paper book in three Appeals including all annexures thereto. We have perused the impugned orders.

Appellant No. 1 before the Tribunal inter alia was M/s. S.R. Industries Pvt. Ltd. The appellants before us are Sarla Performance Fibers Ltd., Krishna Kumar Jhunjhunwala and Sushil Deora, who are appellant Nos. 7, 8 and 9. M/s. S.R. Industries Ltd. claims to be 100% export-oriented unit manufacturing terry towel. The Managing Director and the employee of this appellant No. 1 together with six brokers are one set of the appellants. It is alleged that for manufacturing of Terry Towel, appellant No. 1 does not require any polyester Texturised Filament Yarn. However, it has got CT-3 certificate issued incorrectly and in some cases forged on the basis of which they procured from six Gujarat/Silvassa based 100% units the PTY/PFY. It was procured duty free, instead of being used in the manufacturing process in the unit of appellant No. 1, the same was diverted from Gujarat/Silvassa based unit directly to Bhiwandi market with the help of brokers. A fictitious entity in the name of M/s. S.R. Industries Ltd., was floated on paper. A few bank accounts were opened under the said name and fake addresses were mentioned therein. The Gujarat/Silvassa based suppliers were aware of the fact that the goods are not going to the unit of appellant No. 1 but are diverted to the Bhiwandi market. They were aware that the goods are not required in the manufacture of towel. However, they were supplying the goods based upon such certificates and were receiving back warehousing Form AR3-A and some of them containing forged signatures. The motive for whole exercise was to share the duty evasion among the management of said S.R. Industries Ltd., the Gujarat based suppliers/units, brokers involved and some money to certain employees.

The Tribunal as also the Commissioner found that there is no challenge by any of the appellants to the fact that these goods from six units were cleared without making payment of duty, to another unit namely S.R. Industries Ltd. It was diverted and sold in Bhiwandi market. The findings in that regard in both the orders are concurrent. It is in these admitted factual circumstances that we have to consider the submission of Mr. Shah. We find from the reading of relevant paragraphs of the impugned order that there appears to be no dispute with regard to these events and role of the parties therein. However, we further find and as is now being urged that so far as appellant Nos. 7, 8 and 9 in the Appeals before the Tribunal, as is clear from paragraph No. 14 page No. 243 of the paper book, restricted their arguments to the imposition of the penalties. The Tribunal has dealt with the only argument noted in this paragraph. There appears to be no argument that the notices were not put to notice with regard to the allegations and particularly of violation of Rules 173Q and 209, that such rules have been invoked and in the light of the allegations with regard to evasion of payment of duty. What appears to us as very clear is the fact that the arguments were restricted to compliance with the procedure and rules. The argument was that the goods were supplied to M/s. S.R. Industries Ltd. under Notification No. 1/95 by following correct procedure namely CT-3 certificates and Re-warehousing certificates. There was nothing wrong done and hence no penalty be imposed. These arguments have been dealt with by the Tribunal by rendering the findings based on the documents as also uncontroverted and undisputed events that the goods were diverted with the connivance of present appellants and they were getting some additional amount over and above the normal price. As far as Mr. Jhunjunuwala is concerned, his statement has been referred. He is also the Managing Director of M/s. SPL. He accepted that the goods were delivered in Bhiwandi on the basis of letters of M/s. S.R. Industries Ltd. and all the documents were handed over to brokers instead of sending to buyer. This includes AR3-A. These documents were received back through brokers and Shri Sushil Deora, Marketing Manager has also given a statement. It may be that it is now argued that his statement was retracted. However, we do not find any such argument being raised before the Tribunal. It is one thing to say that in replies to the notices, certain stand was taken and that was negatived while passing Order-in-Original. This stand was pursued further in the form of raising grounds in the memo of appeal to challenge an adverse order. However, it is another thing to say that though such specific stand was taken and an argument was canvassed on that basis orally as well as in writing. We do not find any such argument being raised and in the nature raised before us. Even if the said retracted statement is kept aside, the role of the Managing Director Jhunjhunuwala is apparent from the undisputed and uncontroverted evidence and admissions. The Commissioner''s findings and which are reiterated in paragraph No. 14 of the order of the Tribunal, cannot be termed as perverse. The Tribunal upholds these findings of fact and observes that it has no hesitation, in holding that the appellant Nos. 7, 8 and 9 namely the appellants before us were not only having full knowledge of the case but they actively involved in the said transaction by getting extra money over and above the normal price.

The reliance on the final order of the Commissioner and the directions in that behalf of imposition of penalty cannot be faulted. Rules 173Q and 209 on which reliance is placed permits imposition of penalty on any manufacturer, purchaser, registered person of a warehouse or registered dealer responsible for removal of excisable goods in contravention of provisions of the rules and also without payment of duty, if any, leviable on the same. Once we find that there is no specific case as of the Central Excise Rules, then prevailing have not been contravened, and there is no intention to evade payment of duty, then, the argument of Shri Shah raised for the first time before us cannot be accepted. The findings are not based only on the admitted contravention of the rules with intention to evade payment of duty but also removal of excisable goods in contravention of the provisions of the rules themselves and not accounting the same. There is a clear case where both rules have been invoked and applied and merely because the duty liability is determined that is of M/s. S.R. Industries Ltd. and not of appellant No. 1, does not mean that in the facts and circumstances the imposition of penalty was not called for. The imposition of penalty was the cumulative effect of all the events and totality of the circumstances which enable the Commissioner to record the findings that fictitious entity was floated. It was shown to be export-oriented unit and though in its activity it did not require PTY/PFY, these goods were ordered for the alleged requirement of such unit. They were diverted firstly through the six units from Gujarat/Silvassa and by producing the documents and certifying and evidencing their supply for export-oriented unit and secondly in connivance with all concerned, such goods were diverted to Bhiwandi local market. We do not repeat and reiterate each factual conclusion recorded and based on the documents produced and material placed before the authorities. In addition to their role in facilitating the other parties in diversion of such goods which were admittedly excisable that the penalty has been imposed, merely because the appellant No. 1 has not been held guilty of any evasion or non-payment of duty, does not mean that the penalty imposed was illegal and unjustified. In the given facts and circumstances it could be for the positive act and it would also be for a collective failure of the obligations or rather active participation in bringing about this situation. Therefore the intention was to evade payment of duties. In these circumstances, we do not find any merit in the contentions of Shri Shah. The reliance placed by him on the judgment of the Hon''ble Supreme Court in the case of Amrit Foods (supra) is misplaced. There the issue was that the produce manufactured by the Amrit Foods namely Milk Shake Mix, Soft Serve Mix, Coffee Creamer and Cream Packed were classifiable under a Tariff Heading as contended by Amrit Foods, or to the contrary, by the Revenue. The department decided against the appellants on the ground that the products of the appellant contained stabilizing agents. The appellants contended that the quantum of stabilizer was minimal. The argument was that the products were basically Milk products or other dairy products. It is in those circumstances and the specific argument was that Rule 173Q under which the penalty was imposed, was not referred to in its entirety that the penalty came to be set aside. In this context, the Supreme Court made the observations relied upon. The Tribunal in that case set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened. The rules were referred and it was proved that the contents of the clauses are not the same. However, the argument before us is not that any of the contents of the clauses were not referred to. The argument is that the rule as such namely 173Q and 209 could not have been invoked firstly because the appellants were not put to notice and secondly because there was no evasion of duty on the part of the appellant No. 5, and hence, imposition of penalty must be revoked. In the light of these arguments and which we have elaborately dealt with and rejected, this judgment would be of no assistance. The judgment is, therefore, clearly distinguishable on facts. As a result of the above discussion, each of these Appeals fail and they are dismissed. They do not raise any substantial question of law. No costs.