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'REPORTABLE' IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2830 OF 2005

M/S. MAAN ALUMINIUM LTD.             .... Appellant VERSUS

COMMISSIONER OF CENTRAL EXCISE, INDORE       .... Respondent

J U D G M E N T A. K. SIKRI, J.

The appellant herein is engaged in the business of manufacturing of Aluminium Profils, bars and roads, tubes and  papers.   These  items  which  are  finished  goods  are subjected to excise duty and classified under chapter 76 of the  Schedule  to  the  Central  Excise  Act.   Substantial quantity  of  the  aforesaid  goods  manufactured  by  the appellant is exported.  Some officials of the Central Excise Department  visited  the  factory  of  the  appellant  on 16.08.1996 and checked the physical stock of the finished goods  viz-a-viz,  the  stock  recorded  in  its  books.   On verification, these officials found that several quantities of goods are unaccounted.  These goods were, accordingly, seized.  The raiding party also visited the office premises of the appellant.  It went to the dealers of the appellant and recorded their statements as well.  Statements of some of the employees of the appellant company who were dealing with the affairs of the appellant were also recorded.   

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On  the  basis  of  the  aforesaid  material  and  the statements recorded, the Department took the view that the appellant  had  been  clandestinely  removing  some  of  the quantities of the finished goods.  On this basis, a show cause notice dated 03.03.1999 was issued to the appellant company as well as its managing director.  Making out the case of evasion of excise duty and suppression of facts on the part of the appellant, extended period of limitation was invoked, as per proviso to Section 11A(1) of the Central Excise Act.   

The appellant submitted its reply to the said show cause notice contesting the position which was taken by the Department in the said notice.  The appellant submitted that there was no clandestine removal of any quantity of finished goods and the raw material was in fact used in manufacturing the finished goods.   

After  hearing  the  appellant,  the  adjudicating authority  passed  the  Order-in-Original  dated  28.08.2002, raising the demand of Rs.64,82,565/- as differential duty payable by the appellant.  The appellant went in appeal, which  appeal  was  dismissed  by  the  Customs,  Excise  and Services Tax Appellate Tribunal (hereinafter referred to as 'CESTAT')  as  well  vide  its  orders  dated  22.12.2003. Relevant portion of this order which contains the discussion on the essential aspects is reproduced below:-

“3.1 The company had cleared goods for export also. The export documents showed the “catalogue weight” of  the  goods,  which  was  more  than  the  actual

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(physical)  weight  recorded  in  RG-1  register. Consequently, the weight of goods actually exported was less than what was shown I the export documents viz. AR4s. Invoices etc.  The SCN alleged that the differential  quantity  of  goods  had  not  been accounted  and  the  same  had  been  clandestinely cleared without payment of duty during the period February 1994 to January 1999.  this allegation was also based on the finding that the “gate register” and other records seized from the factory premises had  shown  that  goods  had  been  cleared  without invoice and without payment of duty.  The demand of Rs.1,05,67,090/- was raised on a total quantity of 641.145 Mts of goods which was allegedly cleared in the  above  manner  during  the  above  period, corresponding to which the total quantity of exports as noted by the Commissioner was 6507.073 Mts.  The adjudicating authority has found that out of this quantity of total exports, the exports made to M/s Man Intertrade Co. (UAE) are not to be taken into account for demanding duty and accordingly it has requantified the demand as Rs. 64,82,565/-.  That authority has worked out this demand on the basis of the  appellants  own  records  and  statements.   For instance a letter issued by Sh. U. D. Selvan, Senior Engineer  of  the  company,  to  their  Indore  office showed  the  catalogue  weight  of  certain  Aluminium Sections as 21986 Kgs. and its physical weight as 21404.2  Kgs.   Shri  Selvan,  in  his  statement, confirmed this fact.  Some official correspondence between functionaries of the company also indicated that the catalogue weight of export goods was 5-10% more  than  the  actual  weight.   Shri  Deepak  Das, Senior Manager (Tool Room) who was confronted with the  letters,  admitted  that  the  catalogue  weight (despatch weight) was always more than the physical weight.  Shri Prahalad Das Sarda, Excise (Officer & Authorised  Signatory,  stated  that  it  was  his function to make entries in RG-1 Register on the basis of the Packing departments reports which were prepared on the basis of actual weight.  But he could  not  explain  as  to  how  the  differential quantity  of  goods  was  disposed  of.   He  further stated that he had only acted as per the directions of the Managing Director and the latter alone could offer any explanation.  Shri J.C. Mansukhani, in his statement, admitted that in some cases of exports, the catalogue weight was higher than the physical weight  and  the  differential  quantity  of  goods remained in the factory.  However, he could not say as to how this quantity was disposed of.  In the aforesaid example, the quantity of Sections exported under GP2 No. 58 dated 29.12.93 was shown as 21986

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Kgs. (catalogue weight) whereas the actual weight was only 21404.2 Kgs.  The differential quantity (581.8 Kgs.) was not actually cleared and exported, though,  in  RG-1,  it  was  shown  as  debited  for clearance  for  export.   Shri  Mansukhani  in  his statement conceded this factual position but could not  say  as  to  how  the  581.8  Kgs.  of  Sections remaining  in  the  factory  were  disposed  of.   The Consultant for the appellants submitted before us that J.C. Mansukhani and Deepak Das had been wrongly quoted in the SCN and the Commissioner's order.  He added that the allegation of clandestine removal of goods had not been proved by the department.  Yet another submission made by the Consultant was that the difference in weight of the goods was less than 5 which according to him, was too negligible to be taken into account.  The DR submitted that he demand of duty was based only on the differential quantity admitted  by  the  appellants  and  hence  was irresistible.   We  are  unable  to  accept  the Consultant's arguments as we have noted that the demand of duty of Rs. 64,82,565/- is based on the unrebutted documentary evidence gathered from the appellants  premises  as  well  as  the  unretracted statements  of  the  Managing  Director  and  other responsible functionaries of the company.  We have perused  these  statements  and  find  that  the adjudicating  authority  has  correctly  quoted  and appreciated the same.  The statements were never retracted, nor, was any of the documents disowned. The result was that the differential quantity of goods  i.e.  the  difference  between  the  actual (physical) weight and the weight shown to have been cleared for export was proved to have been removed from  the  factory  without  invoices  and  without payment  of  duty.   The  differential  quantity  was admitted but its accountal and clearance in terms of the legal provisions were not shown.  (In view of the admission of the differential quantity by the company authorities, it was not necessary for the adjudicating  authority  to  allow  them  to cross-examine any officer of the department).  The department's allegation of clandestine removal of the said quantity stood proved.  The appellants have stated that the total exports quantity noted by the Commissioner (6507.073 Mts) is not correct and that the correct figure must be less by 95.614 Mts and, on this basis, the demand of duty should be reduced. We are unable to accept this claim as we find that the Commissioner has noted the above quantity from a report of the Deputy Commissioner of Central Excise Division II, Indore, which has not been called in question in these appeals.  Yet another ground of

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challenge to the demand of duty is that many of the exports taken into account by the Commissioner had taken place prior to the period of demand.  This, again,  cannot  be  accepted  as  J.C.  Mansukhani admitted that the differential quantities remained in the factory.  Such quantities which accumulated from past exports could well be removed during the period of demand.  We uphold the above demand of duty for the reasons recorded.”   The  appellant  preferred  further  appeal  to  the  High

Court under Section 35G of the Central Excise Act.  This appeal has also been dismissed by the High Court primarily on the ground that the two authorities below have looked into  the  facts  and  law  in  confirming  the  demand  and  a finding of fact has been arrived that it was a case of evasion  of  duty  by  resorting  to  clandestine  manner  in removing the finished goods and therefore, these findings do not call for any interference.  Since the High Court has dismissed the appeal with the aforesaid observation, that was  a  reason  for  reproducing  in  detail,  the  discussion carried out by the CESTAT in its order.

This is how the present appeal comes up for hearing which challenges the orders of the authorities below.   

In  the  first  blush,  the  impression  that  would  be gathered is that a finding of fact is arrived at by the authorities below holding that there was clandestine removal of  the goods  from the  factory premises  of the  appellant without  the  payment  of  excise  duty  and  therefore,  no

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question of law is involved in the present case.  However, the  submission  of  Mr.  S.  Ganesh,  learned  senior  counsel appearing for the appellant, is that from the reading of the order of the CESTAT, it becomes apparent that the CESTAT has primarily been influenced by the statements of two employees of the appellant company viz., Mr. Deepak Das and Mr. J.C. Mansukhani and the entire order is rested on the so called admissions  contained  in  the  statement  of  these  two employees.   He  submitted  that  from  the  reading  of  the statement of the two employees it would be crystal clear that there was no such admission made by them at all and what is sought to be read into those statements is not there at all and is conspicuously missing in these statements. It was thus, argued that the present case is a case of perverse findings.   It  is  additionally  argued  that  when  the Commissioner or for that matter, the CESTAT relied upon the so-called  admissions  of  the  aforesaid  two  employees,  it failed  to  look  into  any  explanation  furnished  by  the appellant in reply to the show cause notice and also in the form  of  other  materials  produced  before  the  adjudicating authority.  It was also argued that even in the statements of  the  said  two  employees,  these  employees  had  amply demonstrated  and  clarified  the  doubts  pertaining  to  the differential in quantity but the authorities have blissfully ignored those parts of the statements of these employees, which has resulted in miscarriage of justice.  

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In order to substantiate the aforesaid statement, Mr. Ganesh took us through the reply to the show cause notice, other documents filed as well as the statements of Mr.J. C. Mansukhani  and  Mr.  Deepak  Das.   On  going  through  this record, we are inclined to accept the argument of Mr.Ganesh that  the  findings  arrived  at  by  the  CESTAT  which  are accepted by the High Court are totally perverse and there is no such admission made by these two persons which has become the basis of the orders passed by the authorities below.

Before  we  advert  to  these  statements,  it  would  be pertinent to mention here that the appellant had explained that there is a variation in the die hole between 5% to 7.5%, i.e., in the manufacture of dye.  It was a specific case put by the appellant that the hole of the die, after its  continuous  use  at  Press  machine  for  extruding  the required section/ finish goods, the internal diameter always expanded to some extent and therefore the dies are being manufactured accordingly so that the produced output should match the specifications.  It had also taken support of the technical literature that is available in the market, to prove the aforesaid assertion.  On this basis, it was stated that in the export catalogue which was prepared and issued by  the  appellant  in  order  to  take  care  of  the  final production  with  varying  specifications  because  of  the aforesaid reason, 10 per cent actual weight would be 5% more or less than the weight as mentioned in the catalogue.  It

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was  further  explained  that  even  as  per  the  show  cause notice, the difference in quantity was hardly 2 per cent.   

We  find  from  the  reading  of  the  statements  of Mr.Deepak Das and Mr. J. C. Mansukhani that this aspect is explained in abundance by them in their statements.  After reading the statement of these two persons, we find that no such admission was made by them, as recorded in the order of the CESTAT which is extracted above.  Mr.Deepak Das had only stated  that  “In  export  dies,  catalogue  weight  should  be always equal or 10% than the physical weight”.  This is in reply to Question No. 4 which was put to Mr. Deepak Das. For  the  sake  of  clarity  and  better  understanding,  we reproduce the exact question and answer given thereto:  

“Question-4 Please see page No. 359 of file 2B, seized  from  factory  premises  on  16.8.96  please explain the meaning of “we may follow the wt. Range in export dies from – 10% to 0%” as mentioned in the above said letter written by you to Mr. D. K. Chandwani Indore office on 8.8.94. Ans In export dies, catalogue weight should be always equal or 10% than the physical weight.”    We fail to understand how it amounts to admission on

the part of Mr. Das that the quantity disclosed was less. To the similar effect is the statement of Mr. Mansukhani which  is  treated  as  his  admission.   In  this  behalf,  we reproduce question No. 5 and answer thereof which is taken as admission of Mr. Mansukhani: -

“Question 5: Please see page No. 137 of File 49B where catalogue weight for different Section shown

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as  21986  kg.,  and  same  goods  were  cleared  under BP-258, dated 29.12.1993 this BP 2 shows that in case of Export of goods the same are cleared on catalogue weight. Ans.  5.  As  per  my  knowledge  in  certain  exports goods we will have to charge them as per catalogue weight  and  there  is  possibility  of  (+-)  litter difference  in  the  weight  this  is  because  of international rules.”

Apart  from  the  aforequoted  positions  of  the  two statements, learned counsel for the Revenue could not point out any other part of the statements on which he could rely to demonstrate any admissions by any of these witnesses.

Once we arrive at an conclusion that there was no such admission  on  the  part  of  these  two  persons  which  is erroneously read out to be so, entire basis of the impugned orders passed by the Commissioner as well as the CESTAT gets knocked off.   

We would also like to mention at this stage that in reply to show cause notice, a specific plea was taken by the appellant that the allegations made in the show cause notice were purely hypothetical and the difference occurred because of  +/-  5  per  cent  tolerance  which  was  admissible  in invoicing of export dispatches.  It was also specifically pleaded  that  the  exporter  always  dispatches  10%  less quantity and yet the importer pays foreign exchange for full invoice amount, even for 10% less quantity received by him. The statements made in the catalogue were also justified in

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the following manner: - “For  export  of  the  finished  products  to  various countries, the noticee No. 1 has made out an Export catalogue which contains technical details of our different section; weight per meter etc. and as per the international practice, the invoicing of export dispatches is made on the basis of Catalogue weight whereas the actual weight of the section may be as per catalogue weight in most of the cases and in some case it may be 5% more or less than the weight as  mentioned  in  the  catalogue.   Each  export consignment  consist  of  minimum  15-20  different varieties  of  section/  profiles  and  out  of  these different types, only in three four sections there can be variation and in rest of the sections, the weight  is  almost  same.   However,  the  aggregate value of the invoice is always as per the actual weight  of  the  total  consignment.   To  elaborate further, if the quantity of any particular section is 5% less than the catalogue weight, the quantity of  other  section  will  be  5%  more  than  that  of catalogue  weight.   The  average  weight  of  a container  is  thus  always  equal  to  the  actual weight.”

It was specifically pointed out that the Department had  taken  only  those  samples  of  products  with  larger quantity and missed out those with lesser quantity and in case all the items are taken together, there would not be any  difference  in  quantities.   This  was  sought  to  be demonstrated by a chart prepared as Annexure 'AE' to the show cause notice in the following manner: -

“The  chart  as  Annexure  'AE'  prepared  for differential  quantity  4.044  MT  pertaining  to  the exports  made  during  the  period  from  19.07.93  to 28.06.94  which  is  totally  irrelevant  as  the relevant period of the proposed demand duty is from Feb, 94 to Jan, 99.  The difference worked out in this chart comes to about 4.91% of total 82.391 MT quantity invoiced which is also appeared to be well within the tolerable limit of 5%.  Another aspect for this chart is that the investigating officers while  preparing  the  chart  “AE”  deliberately  have taken only those cases in which catalogue weight is

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more than the actual weight and ignored the cases in which actual weight were more than the catalogue weight.  On going through whole para 6, it appears that these were the only stray evidences which the investigating  officer  of  the  department  could collect after searching the files and records of Noticee  No.  1  by  spending  almost  three  years valuable  time  of  the  Central  Excise  department. But these cases are also not relevant in the case of Noticee No. 1 as the relevant period of proposed demand  of  duty  made  in  the  impugned  show  cause notice is from Feb, 94 to Jan, 99.”

It is unfortunate that in spite of the fact that the aforesaid plea was specifically raised by the appellant in explaining that there was no difference in the quantities and  thus, no  question of  any clandestine  removal of  the goods from the premises, the said plea has not been adverted to and there is no reference made to the aforesaid material produced by the appellant.  It is stated at the cost of repetition, that only on the basis of so called admissions made by Mr.Mansukhani and Mr. Deepak Das, the authorities jumped  to  the  conclusion  without  undertaking  any  further exercise.  Such an order of the CESTAT which is confirmed by the High Court does not stand legal scrutiny and therefore, these orders are liable to be set aside.  We, accordingly, allow  this  appeal  and  quash  the  demands  raised  by  the authorities.  

No costs. ..........................., J. [ A.K. SIKRI ]

..........................., J. New Delhi; [ ROHINTON FALI NARIMAN ] May 08, 2015.

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