Custom, Excise & Service Tax Tribunal
Start Rite Shoes Pvt. Ltd. vs Cce Mumbai – I on 12 March, 2019Bench: D. M. Misra, Sanjiv Srivastava IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL Nos. E/42,43/2009 (Arising out of Order-in-Original No. 20/M-I/2008 dated 3.10.2008
passed by Commissioner of Central Excise, Mumbai-I) Start Rite Shoes Pvt. Ltd. Appellant
Ashok Mane Vs.
Commissioner of Central Excise, Mumbai-I Respondent Appearance:
Shri Gajendra Jain, Advocate, for appellant
Shri Ajay Kumar, Additional Commissioner (AR), for respondent CORAM:
Hon’ble Dr. D.M. Misra, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical) Date of Hearing: 26.11.2018 Date of Decision: 12.03.2019 ORDER No. A/85470-85471/2019 Per: Sanjiv Srivastava These appeals are directed against order in original No 20/M-I/2008 dated 30.10.2008 of Commissioner Central Excise Mumbai – I.

Commissioner has by the said order held as follows:

“40.1 In view of the detailed discussion
hereinabove, I, hereby confirm the demand of Central
Excise Duty, as discussed above, totally amounting to Rs
66,52,254/- (Rupees Sixty Lakhs Fifty Two Thousand 2 E/42,43/2009 Two Hundred and Fifty Four only), comprising of BED of
Rs 64,60,286/- and SED of Rs 1,91,968/- evaded by
M/s Start Rite Shoes Pvt Ltd. during the period January,
1993 to October 1996 under SCN No V/PI/12-358/TF-
XII/96/7113 dated 04/02/1998. They should make the
payment forthwith.

40.2 M/s Start Rite Shoes Pvt Ltd. shall pay all the dues
along with interest as applicable under Section 11AB of
Central Excise Act, 1944.

40.3 I impose a penalty of Rs 16,00,000/- (Rupees
Sixteen Lakhs only) against M/s Start Rite Shoes Pvt Ltd
under Rule 173Q Central Excise Rules, 1944 during the
time when duty adjudicated was evaded.

40.4 I impose a penalty of Rs 4,00,000/- (Rupees Four
Lakhs only) on Shri Ashok Ramchandra Mane, Director,
M/s Start Rite Shoes Pvt Ltd under Rule 209 of the
Central Excise Rules, 1944 then in force.

40.5 Proceedings against Shri Ramchandra Bandu
Mane, Shivam Bandhu Mane and Shri Atul Ramchandra
Mane, Directors of M/s SRSPL is dropped.

40.6 Amounts paid towards Central Excise duty worked
out during the investigation, be appropriated against the
demands confirmed hereinabove to the extent it relates to
the above demand as may be verified by the Assistant
Commissioner of Central Excise.

40.7 I hereby drop proceedings against the following
persons namely, (i) Shri Amar Raghuvir Dhus, Chairman, Navyug Industrial Footwear Cooperative Society Ltd.
(ii) Shri Shashikant Dhondiram Pawar, Secretary, Navyug Industrial Footwear Cooperative Society Ltd.
3 E/42,43/2009 (iii) Shri Dinkar Shankar Shinde, Chairman,
Bhartiya Charmakala Gramodyog Sahari Sangh Ltd. Ltd.
(iv) Shri Ravikant Dhondiram Pawar, Secretary, Bhartiya Charmakala Gramodyog Sahari Sangh Ltd. ”

2.1 Appellants are engaged in manufacture of leather footwear falling under Chapter Heading 6401.11 of the Schedule to Central Excise Tariff Act, 1985 primarily for exports.

2.2 As a sequel of investigation undertaken by sales Tax Department, a Show Cause Notice dated 4.1998 has been issued to them proposing to demand Central Excise duty of Rs 2,9387,013/- towards alleged clandestine clearance of leather foot wears during the period January 1993 to October 1996. The demands were raised relying on the following evidences:

i. 26 statements of various persons recorded during investigation.

ii. Xerox copies of some private records surrendered to sales tax authorities on 19.10.1996 by Shri Ramachandra Mane, Managing Director of SRSPL.

iii. Various statutory records maintained and returns filed by SRSPL, for complying with Central Excise Law and Procedures.

iv. Xerox copies of records of two co-operative societies namely, Navyug Footwear Industrial Co-
4 E/42,43/2009 op Society and Bharatiya Charmakala Gramudyog Sahakari Sangh obtained from Sales Tax Authorities.

2.3 As per the show cause notice- i. Two directors in the appellant Company namely Mr Ramchandra Mane and Mr Ashok Mane effectively controlled the affairs of two co-operative societies namely, Nayug Footwear Industrial Co-op Society and Bharatiya Charmakala Gramudyog Sahakari Sangh. Both the societies were bogus entities and were engaged only in issuing the sale bills without actually manufacturing or supplying any goods.

ii. The shop owners used to receive the goods clandestinely cleared from the appellant company and bills from the said societies.

iii. Thus goods shown against the bills raised by the said two societies were actually cleared by the appellant without properly being accounted in their books or records.

iv. Thus the sale shown from the two societies need to be clubbed with the clearances effected from the appellant company.

2.4 The case was adjudicated by Commissioner of vide his order No 54/MI/2006 dated 05.05.2006 confirming 5 E/42,43/2009 the demand of duty along with interest. However in the appeal filed by the Appellant’s the matter was remanded back to the adjudicating authority by Tribunal vide its order No A/2118 to 2120/WZB/06 C.1 (EB) dated 18.10.2006 for re-adjudication after following the principles of natural justice.

2.5 Matter in remand proceedings have been re-

adjudicated by the Commissioner as per the order in para 1, supra. Aggrieved appellants have filed this appeal.

3.1 In their appeal appellants have assailed the impugned order stating-

i. The entire demand is based on assumptions, presumptions and unauthenticated/ unproved documents. The documents which have been basis for making the demand have been recovered by the sales tax department without any panchnama and the alleged private records so recovered do not bear any reference to the appellants.

ii. Commissioner has himself in his order observed that manufacture of goods by the appellants is not proved. If there was any doubt in this regard, Commissioner could not have proceeded to confirm the demand. Manufacture and clearance are necessarily to be established by the revenue 6 E/42,43/2009 and without discharging the said burden demand of Central Excise Duty cannot be sustained.

iii. The Directors of the Appellant company were not controlling the affairs of the two societies as alleged and held by the Commissioner.

iv. Appellants have not received an amount from the two societies, for the supply of goods to retail shop owners.

v. Entire case has been made on the basis of the photocopies of the documents obtained from the sales tax department. Central Excise department could not have proceeded against them on the basis of photocopies received from the sales tax department.

vi. The author of so called relied upon private records recovered has not been found or established.

Tribunal decisions in following cases relied upon-

a. LML Ltd [1997 (94) ELT 519 (T)] b. Balbir Steels [2003 (161) ELT 281 (T)] c. Shradha Forge [2005 (179) ELT 336 (T)] vii. Department has not established details of description of goods allegedly manufactured and cleared.

viii. No evidence has been produced to show that these goods were manufactured by the appellants, and no evidence as to raw materials, manpower, 7 E/42,43/2009 electricity, transporter etc has been put forth.

Following decisions relied upon-

a. Arch Pharmalabs [2005 9182) ELT 413 (T)] b. Chemco Steels [2005 (191) ELT 856 (T)] c. Mohan Steels [2004 (177) ELT 668 (T)] d. Deena Paints [2001 (43) RLT 805 (T)] e. M M Dyeing and Finishing [2002 (139) ELT 143 (T)] f. Rajasthan Petro Synthetics [2003 (160) ELT 297 (T)] g. Someshwara Cements [2005 (191) ELT 1062 (T)].

ix. No statement of the person called Raju who allegedly was delivering the goods to the shop owners has been recorded.

x. The statements of the Director of Company were recorded under threat and coercion and hence cannot be relied upon.

xi. Since nothing was suppressed demand beyond normal period of limitation is barred.

xii. Demand needs to be re-quantified after allowing the benefit of cum duty value.

xiii. Since no specific provision of Rule 173Q(1) has been invoked, no penalty under said Rule could be imposed {Amrit Foods [2005 (190) ELT 433 (SC)]} 8 E/42,43/2009 xiv. No penalty is imposable in view of Section 132 of Finance Act, 2001.

3.1 We have heard Shri Gajendra Jain Advocate for the appellants and Shri Ajay Kumar Additional Commissioner, Authorized Representative for the revenue.

3.2 Arguing for the Appellants learned counsel submitted-

a. To demand excise duty, excise department needs to independently prove that appellants “manufactured” the goods in its premises. It is not sufficient for them to rely on figures supplied by the sales tax department. {Girdharilal Nannelal [1976 (3) SCC 701]} b. No evidence has been put forth by the department to show the good clandestinely cleared were manufactured by them. In this regard they have relied upon following decisions-

i. Puneet Steels and Alloys Pvt Ltd [2017 (358) ELT 1253 (T)] ii. Vardhman Chemtech [2016 (7) TMI 1320 (CESTAT)] iii. Zoloto Industries [2013 (294) ELT 455 (T)] c. No evidence of receipt of raw materials, manpower, electricity transport etc for undertaking alleged 9 E/42,43/2009 production has been produced. Reliance placed on following decisions_ i. Continental Cement Company [2014 (309) ELT 411 (ALL)] ii. Triveni Engineering & Industries Ltd[2016 (334) ELT 595 (ALL)] iii. Sunrise Food Products [2017 (357) ELT 599 (T)] iv. Shree Nathjee Industries [2011 (267) ELT 241 (T)] v. Rajasthan Explosives & Chemicals [2017(357) ELT 269 (T)] vi. Mittal Pigment [2018 (360) ELT 157 (T)] vii. Gupta Synthetics Ltd [2014 (312) ELT 225(T)] viii. Arch Pharmalabs Ltd [2005 (182 ELT 413 (T)] ix. Chemco Steel Pvt Ltd [2005 (191) ELT 856 (T)] x. Mohan Steels [2004 (177) ELT 668 (T)] xi. Deena Paints [2001 (43) RLT 805 (T)] xii. M M Dyeing and Finishing [2002 (139) ELT 143 (T)] xiii. Rajasthan Petro Synthetics [2003 (160) ELT 297 (T)] xiv. Someshwara Cements [2005 (191) ELT 1062 (T)].

d. Receipt of consideration by the appellants for goods alleged to be manufactured and sold clandestinely, not proved by revenue.
10 E/42,43/2009 i. Continental Cement Company [2014 (309) ELT 411 (ALL)] ii. Sunrise Food Products [2017 (357) ELT 599 (T)] iii. Shree Nathjee Industries [2011 (267) ELT 241 (T)] e. Loose papers alleged to be Balance Sheet & Profit & Loss statement of the appellants are not substantiated.

i. Goldy Engineering Works [2017 (345) ELT 149 (T)] ii. Sharadha Forge Pvt Ltd [2005 (179) ELT 336 (T)] iii. Kuber Tobacco Products Ltd [2013 (290) ELT 545 (T)] f. Directors have retracted their statement hence their statements cannot be relied upon. Further the charge of clandestine removal cannot be sustained only on the basis of Director’s statements held in following cases i. Magnum Steels Ltd [2017 (357) ELT 226 (T)] ii. Mittal Pigment Pvt Ltd [2018 (360) ELT 157 (T)] iii. Davinder Sandhu Impex Ltd [2016 (337) ELT 99 (T)] iv. Mahavir Metals Industries [2014 (313) ELT 581 (T)] 11 E/42,43/2009 v. Shivam Steel Corporation [2016 (339) ELT 310 (T)] g. Case of sales tax before the magistrate is that the goods were got manufactured from others.

h. Commissioner should have dropped the notice as the case made out in order is not the same as that made in the show cause notice.

i. Quantification of demand needs to be reworked.

j. No penalty and interest is imposable.

k. No penalty is imposable in view of Section 132 of Finance Act, 2001-

i. J K Spinning & weaving Mills Ltd [1987 (32) ELT 234 (SC)] ii. Chemo Pulp & Tissue [2000 (119) ELT 715 (T-LB)] iii. Ranga Vilas CS & W Mills [2002 (149) ELT 742 (T)] iv. Shaw Wallace Co [2003 (156) ELT 406 (T)] v. Sunrise Structurals [2004 (117) ECR 307 (t)] vi. Rama Vision Ltd [2005 (181) ELT (SC)] l. No penalty under Rule 209A should have been imposed on Shri Ashok Mane.

4.3 Arguing for the revenue learned Authorized Representative submitted-

i. Statements Shri Abdul Razaque Sheikh Export Executive, Shri Ashok Mane Director, Shri 12 E/42,43/2009 Sashikant D Pawar Secretary of Nayug Footwear Industrial Co-op Society (NFICS), Shri Dinkar Shankar Shinde Chairman of Bharatiya Charmakala Gramudyog Sahakari Sangh (BCGSL), Shri Amar Raghuveer Dhus of NFICS, Shri Ravi Kant Dhindiram Secretary BCGSL, Smt M Z Kerawala former Chairman of M/s Jai Hind, M/s Jai Bharat and member of NIFCS and present member of M/s Jai Hind, Shri Ramchandra Mane Managing Director of Appellant, and Shri Shivram B Mane, clearly show the modus opearandi adopted by the appellants for the clandestine clearance of the goods by raising invoices and Bills in name of the NFICS and BCGSL.

ii. In their statement Shri Jalaludin Noorallah Virji partner of M/s Regal Shoes and Shri Hanif Amir Manjee Proprietor of M/s Faith also admitted the fact about receiving the goods through Mr Raju from the Appellants.

iii. The department has sufficiently discharged the burden to prove clandestine clearance done by the appellants within the preponderance of probability as has been held by the Apex Court in case of D Bhoormal [1983 (13) ELT 1546 (SC)] 13 E/42,43/2009 5.1 We have considered the submissions made in the appeal and during the course of argument of appeals.

5.2 Commissioner has in his order in para 24, while examining the issue in respect of investigations undertaken against the appellants by sales tax department and police, have observed as follows:

“24. It appears that during the relevant period there was
exemption from sales tax on all purchases and sales of leather
effected by co-operative societies. If any person was buying
leather goods from co-operative societies they did not have to
pay further sales tax on it. Further during the relevant period
bank finance at concessional rate of interest was being made
available to co-operative societies recognized by KVIB. So it
appears that certain co-operative societies were set up for
availing bank loans at concessional rate of interest and to
save sales tax. These societies were not genuine but a sham
created by certain individuals who were actually acting in the
name of the societies. The proceedings initiated by Sales Tax
Authorities have not yet concluded. The proceedings initiated
by police have resulted in filing of charge sheet in court and
the matter is pending in court. Against this back ground it
may be proper to have a look at the charge sheet filed by the
police in this regard. The charge sheet reads as under:-

“ALPHA (MANE) GROUP CHARGE SHEET NO.23 BHARTIYA CHARMAKALA SAHAKARI SANSTHA CHARGES IN G.B., C.B. CID, C.P. NO.95/96, U/Sec., 465,
467,468,471,403,406,409,420 IPC r/w. 120(b) IPC and or 34,
114 IPC & 147(e-1) & (p) of Maharashtra Co.op. Soc. Act,
1960.
FIRSTLY That the accused Nos.1 to 4 respectively being partners
i.e. 1) Ramchandra Bandu Mane 2) Shivaram Bandu
Mane 3) Ashok Ramchandra Mane and 4) Anil 14 E/42,43/2009 Ramchandra Mane of 1) Startrite Shoes Company, 411-B
Sussex Industrial Estate, Sussed Road Byculla, Mumbai
27 2) Mane & Company, 226 Divyadeep, S.V. Road,
Borivali (W), Mumbai, 3) K.K. Enterprises, 226 Divyadeep,
S.V. Road, Borivali (W), Mumbai and 4) Eros Services, Juhu
Scheme Near Sahakar Bhandar, Vileparle (W), Mumbai at
Brihan Mumbai and particularly at retail outlets shops of
Alpha Footwear, situated at Colaba, Juhu and Kandiwali; and
Startrite Shoes Company at Company’s office at Sussex
Industrial Estate, Byculla Mumbai and at the office of Leather
Co-operative Society namely Bharatiya Charmakala
Gromoudyog Sahakari Sanstha as registered body, registered
under No. BOM/IMD/E/981/83 having its registered office at
Palanjee Batanjee Chawl, No.8, Room No.7, Ground Floor,
Sussex Road, Byculla, Mumbai-27. During the period from
1983 upto 1996 did hatch a criminal conspiracy to defraud
the Government of Maharashtra, in Sales Tax Department by
misusing the concessional scheme of Sales Tax, meant for the
members of the co-operative Societies of cobblers by
camouflaging the actual sales and purchases of Leather goods
from the individual cobblers in open market as sale and
purchase by society floated and controlled by themselves and
their agents, and thereby causing loss of revenue in form of
sales tax which they were supposed to collect on behalf of
Government and deposit it with the Sales Tax Department,
and for that purpose all of them agreed to do or caused to be
done the following various Illegal Acts:

A. To float and register the cobblers co-operative society
by name Bharatiya Charmakala Gramoudyog Sahakari
Sanstha by manipulating the Membership Forms,
Membership Registers and other allied documents
required for registration of society, which was initially
a genuine society consisting of 57 genuine persons,
which numbers was inflated by bogus entries in
membership register in fictitious names from time to
time.
15 E/42,43/2009 B. To approach Maharashtra State Khadi and Village
Industrial Commission with the application for registration of
the said society as an eligible society producing leather goods
which could claim the concession of exemption from collection
and payment of sales tax on sale and purchase of the leather
goods supposed to have been produced by the poor cobbler
members of such society and thereafter to apply for and
obtain exemption of sales tax from sales tax department on
the strength of certificate issued by Maharashtra State Khadi
and Village Industrial Board, and then to avail of such
exemption from collection and deposit of the sales tax which
they were in fact supposed to collect.

C. To fabricate and manipulate the record of sale and
purchase such as 1) Sales Bills, 2) Sales Registers, 3)
Cash Book, 4) Purchase Registers, 5) Purchase Vouchers
and other allied documents of leather goods at both the
ends i.e. society’s record on one hand and companies
record on other hand to serve the purpose of
camouflaging the transaction of actual sale and
purchase from individual cobblers and other institution
in open market (emphasis supplied) D. To fabricate and manipulate the records to support
the fictitious production of leather goods shown to have
been produced by the aforesaid society out of the so
called raw material purchased from out of State for
purpose of such productions, and also, showing the
fictitious expenses on labour for such fictitious
production, allegedly shown paid to the members of
society.

E. To fabricate and submit the yearly turnover returns
of the 1) Startrite Show Company, 2) Mane & Company,
3) K.K. Enterprises, 4) Eros Services and 5) Alpha
Footwear and Bhartiya Charmakal Society to sales tax
department in order to claim and avail of the
exemption from sales tax on the strength of such
fraudulent returns.
16 E/42,43/2009 F. To mislead and misrepresent the sales tax department of
the Government of Maharashtra on the strength of aforesaid
fraudulent set of documents to vouch for diversion of actual
purchase from individual cobblers and other companies to
purchases from co-operative society, with intention to avail of
the concession meant for such society and thereby to actually
induce the officers and staff of sales tax department in
granting the exemption from payment of sales tax and thereby
to cause wrongful loss to Government of Maharashtra in
collection of due tax on sale and purchase of leather goods by
persons other than the society and thereby to cheat the
Government in that behalf.

And thereby Accused Nos.1 to 4 did commit the offence
of hatching criminal conspiracy punishable u/s. 120(b) IPC,
r/w 465,467,468,471,403,406,409,420 IPC.

SECONDLY That in pursuance to the aforesaid criminal conspiracy
and in furtherance of common intention of all the accused in
the course of same transaction at the aforesaid date, time,
place and duration, accused namely 1) Ramchandra Bandu
Mane, 2) Shivram Bandu Mane, 3) Ashok Ramchandra
Mane and 4) Anil Ramchandra Mane the office bearers
of aforesaid companies, in their respective capacities
caused fabrication Society i.e. Bhartiya Charmakala
Sahakari Sanstha by filling in false application forms,
making false entries in application, preparing false record
of receipt of membership fees, preparing false record of receipt
of membership members of society, making false entries in the
Shares functioning of the society as listed in detail in the
statement annexed as “A” and thereby committed the offences
of forgery, forgery of valuable securities, forgery for purpose of
cheating and using the forged documents as genuine,
punishable u/s. 465,467,468,471 IPC r/w. 120(b) IPC and or
34 IPC and or 114 IPC. THIRDLY 17 E/42,43/2009 That in pursuance to the aforesaid criminal conspiracy
and in furtherance of common intention of all the accused in
the course of same transaction at the aforesaid date, time,
place and duration, accused namely 1) Ramchandra
Bandhu Mane, 2) Shivram Bandu Mane, 3) Ashok
Ramchandra Mane and 4) Anil Ramchandra Mane the
office bearers of aforesaid companies, in their
respective capacities caused fabrication of the
documents, which were required for showing diversion
of sale and purchase of leather goods from open market
as allegedly manufactured by the members of society
with purpose to avoid collection and payment of sales
tax otherwise required to be collected and paid by 1)
Startrite Shoes Company, 2) Mane & Company 3) K.K.
Enterprises, 4) Eros Services and 5) Alpha Footwear and
Bhartiya Charmakala Society, such as purchase of raw
materials bills, sales bills, sales registers, raw material
distribution registers, labour charges payment registers,
ledger and cash books as mentioned in detailed in the list
annexed as “A” and thereby committed the offences of forgery,
forgery of valuable securities, forgery for purpose of cheating
and using the forged documents as genuine, punishable u/s.
465,467,468,471 IPC r/w. 120(b) IPC and or 34 IPC and or
114 IPC.

FOURTHLY That in pursuance to the aforesaid criminal conspiracy
and in furtherance of common intention of all the accused in
the course of same transaction at the aforesaid date, time,
place and duration, accused namely 1) Ramchandra Bandu
Mane, 2) Shivram Bandu Mane, 3) Ashok Ramchandra
Mane and 4) Anil Ramchandra Mane, the office bearers
of aforesaid companies, in their respective capacities,
approached through the aforesaid society and their
agents either acting as office bearers of the said society
or otherwise to Maharashtra State Khadi & Village
Industries Board for recommendation of the said
Bhartiya Charmakala Society for exemption from 18 E/42,43/2009 payment of sales tax to Sale Tax Department and after
getting such recommendation did approach Sale Tax
Department and applied for, and obtained exemption
Certificates entitling the society not to collect and pay the
sales tax from time to time and on the strength of such
exemption did dishonestly avoid to collect and pay sales tax
to the total tune of Rs.26,05,733/- approximately at the rate of
Rs.48 for the aforesaid period and thereby caused wrongful
los to State Exchequer to that extent on account of such
misrepresentation and thereby committed the offence of
cheating punishable u/s. 420 IPC r/w 120(b) IPC and or 34
IPC and or 114 IPC.

LASTLY That accused No.2 Shivram Bandu Mane, 3) Ashok
Ramchandra Mane and 4) Anil Ramchandra Mane in the
capacity of promoter members of a registered co-
operative society by name Bhartiya Chamkala
Chamudyog Sahakari Sangh Maryadit showed as
having collected money (Share Capital) by misleading
other members about the purpose of the society, to
facilitate registration of the society; and secondly they
intentionally had shown false transaction of
manufacture of leather goods and sale of the same to 1)
Startrite Shoes Company, 411-B, Sussex Industrial
Estate, Sussed Road, Byculla, Mumbai-27 2) Mane &
Company, 226, Divyadeep, S.V. Road, Borivali (W),
Mumbai and 4) Eros Services, Juhu Scheme, Near Sahakar
Bhandar, Vileparle (W), claiming sales tax exemption and
actually availed of such exemption for their benefits and thus
accused numbers 2 to 4 and for that purpose cause to falsify
the books, papers or securities and other valuable documents
belonging to the society and thereby committed the offences
punishable u/s 147 (e-l) & (p) of the Maharashtra Co-operative
Societies Act, 1960.”

25. The reasons for stating this background is that while for
sales tax authorities it is enough to prove “sale of goods” and 19 E/42,43/2009 evasion of sales tax payable on the sale involved for
demanding excise duty from SRSPL, there is a need to prove “manufacture of goods” by SRSPL. The main argument raised
in defence is that no proof of manufacture of the impugned
footwear by SRSPL is adduced. So the evidence has to be
appreciated to see whether there is any evidence of
manufacture by SRSPL of the goods for which duty is
demanded in the SCN from SRSPL.”
5.3 In respect of the recovery of documents relied upon for alleging the clandestine clearance Commissioner has in para 28 to 30 of his order recorded as follows:

“28. The major objection that remains to be dealt with is
that the alleged private records are not seized under any
panchnama and they do not indicate the name of SRSPL
in any way. Another issue raised is that the department
cannot rely on photocopies.

29. I have considered the objection that these
documents are not recovered under a panchnama and
the documents do not bear the name of any firm or
person who maintained it. But from the receipt given by
the sales tax authority to Shri Ramchandra Mane, M.D. of
SRSPL (ANM. B. S.No.36 to SCN) for the records
withdrawn by them from the premises of SRSPL and the
letter from Shri Ashok Mane to sales tax office confirming
that the records were withdrawn from the office and
factory premises (ANN B, S.No.37 to SCN) it is clear that
these records belong to9 SRSPL. After these evidences
are put forward, if Shri Mane denies that these are not
records of SRSPL the burden to prove the owner of the
records shifts to Shri Mane. But Shri Mane has nothing
to say in this matter. So I find it proper to consider that 20 E/42,43/2009 these are secret records maintained by SRSPL. In the
normal course nobody will indicate the name of the
company or put any signatures in such records of
clandestine activities for tax evasion. So the records
cannot be rejected as evidence for the reason that the
register does not indicate the company’s name or the
signature of any authorized person of the company.

30. The documents relied upon in this SCN are relied
upon in the charge sheet filed before the court also
against these notices. So the notices have access to
these documents if they so desire. In fact for defending
the charge against them in the court they have to go
through the original document if they are disputing it.
They have only raised the objection that it is only a
photocopy and there is no objection that the records are
different from the original. Since this is only a technical
objection and since strict rules of evidence are not
applicable to quasi-judicial proceedings I hold that these
can be relied upon as evidence.”

5.4 Section 36A & 36B of Central Excise Act, 1944 provides as follows:

“Section 36A Where any document is produced by any person or has
been seized from the custody or control of any person, in
either case, under this Act or under any other law and
such document is tendered by the prosecution in evidence
against him or against him and any other person who is
tried jointly with him, the Court shall,-

(a)unless the contrary is proved by such person, presume (i)the truth of the contents of such document;

(ii)that the signature and every other part of such
document which purports to be in the handwriting of any 21 E/42,43/2009 particular person or which the Court may reasonably
assume to have been signed by, or to be in the
handwriting of, any particular person, is in that persons
handwriting, and in the case of a document executed or
attested, that it was executed or attested by the person
by whom it purports to have been so executed or
attested;

(b) admit the document in evidence, notwithstanding that
it is not duly stamped, if such document is otherwise
admissible in evidence.

SECTION 36B (1) Notwithstanding anything contained in any other law
for the time being in force, –

(a) a micro film of a document or the reproduction of the image or images embodied in such micro film (whether enlarged or not); or
(b) a facsimile copy of a document; or
(c) a statement contained in a document and included in a printed material produced by a computer (hereinafter referred to as a “computer print out”), if the conditions mentioned in sub-section (2) and the other provisions contained in this section are satisfied in relation to the statement and the computer in question, shall be deemed to be also a document for the purposes of this Act and the rules made there under and shall be admissible in any proceedings there under, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible.

(2) ……..” 22 E/42,43/2009 The provisions of Section 36A has been held applicable to the adjudication proceedings also in case of CCE, Surat-I v. Umiya Chem Industries, [2005 (185) E.L.T.

410 (Trib)]. This judgment of the Tribunal has been affirmed by Hon’ble Gujarat High Court vide judgment reported in 2009 (239) E.L.T. 429 (Guj). Hon’ble M P High Court has in case of Wear Well Tyre and Tubes Pvt Ltd [2013 (294) ELT 185 (MP)] has held as follows:

” 7. After considering the submissions made by learned
counsel for the parties and looking to the facts and
circumstances of the case, it appears that the learned
Additional Sessions Judge has rightly discussed the
matter in detail. There is no illegality or perversity visible
in the order passed by the learned Sessions Judge. The
judgments and orders passed in the case of Smt. Rekha
Rana (supra) and Deoki Nandan Aggarwal (supra) cannot
be applied in the present case because in those orders an
interpretation of the general provisions of the Evidence
Act was given. In both the judgments special provisions
under Section 36A and 36B of the Act were not
considered. It is settled law that if any provision is given
in a Special Act which is contrary to the provisions of the
general law then the special law shall supersede the
provisions of the general law. Under such circumstances,
looking at the provisions of Sections 36A and 36B of the
Act, the prosecution not only could file copy of the
documents as mentioned under Section 36B of the Act
but, prove such copies as original. There is no need to file
or show the original documents before the trial Court.
Under such circumstances, the application of the
prosecution appears to be a formality. The prosecution
could prove the copies of the documents as mentioned 23 E/42,43/2009 under Section 36B of the Act and therefore, if the
revisionary Court has accepted the application filed by
the prosecution then no illegality or perversity has been
done by the revisionary Court.”
In view of the discussions as above we do not find any merits in the submissions made to the effect that revenue has proceeded on the basis of the photocopies of document obtained from Sales Tax Department.

5.5 Appellants have relied upon the decision of Apex Court in case of Girdhari Lal Nanne Lal, supra to argue that for making the demand reliance placed on the documents received from the Sales Tax department is not correct. In case of Girdhari Lal Nannelal, Apex Court was dealing with the issue of determination of liability to sales tax on the basis of income received. In para 7, Apex Court stated –

“7. The approach which may be permissible for imposing
liability for payment of income-tax in respect of the
unexplained acquisition of money may not hold good in
sales tax cases. For the purpose of income-tax it may in
appropriate cases be permissible to treat unexplained
acquisition of money by the assessee to be the assessee’s
income from undisclosed sources and assess him as
such. As against that, for the purpose of levy of sales tax
it would be necessary not only to show that the source of
money has not been explained but also to show the
existence of some material to indicate that the acquisition
of money by the assessee has resulted from transactions
liable to sales tax and not from other sources. Further, 24 E/42,43/2009 whereas in a case like the present a credit entry in
respect of Rs. 10,000 stands in the name of the wife of
the partner, no presumption arises that the said amount
represents the income of the firm and not of the partner
or his wife. The fact that neither the assessee-firm nor its
partner or his wife adduced satisfactory material to show
the source of that money would not, in the absence of
anything more, lead to the inference that the said sum
represents the income of the firm accruing from
undisclosed sale transactions. It was, in our opinion,
necessary to produce more material in order to connect
the amount of Rs. 10,000 with the income of the
assessee-firm as a result of sales. In the absence of such
material, the mere absence of explanation regarding the
source of Rs. 10,000 would not justify the conclusion that
the sum in dispute represents profits of the firm derived
from undisclosed sales.”

The issue was not vis a vis the documents received from the sales tax authority which were independently examined and scrutinized for the purpose of demand of Central Excise duty. Commissioner has in his order in para 31, specifically held as follows:

“31. It is clear that the societies were a sham
maintaining only some accounts without actually
manufacturing or selling footwear. For deciding liability
of excise duty what is crucial is manufacture of goods.
So the books of accounts of the societies are not very
relevant for deciding excise duty liability. So the issue to
be examined is whether there is any evidence of evasion
of excise duty based on the private records recovered by
Sales Tax Authorities from Shri Ramachandra Mane and 25 E/42,43/2009 accepted to be records of SRSPL by Shri Ashok Mane in
his statement dated 28.2.97.”

Since the approach of Commissioner was to determine the demand on the basis of manufacture, reliance placed by the documents recovered or surrendered by the appellant to the sales tax authority cannot be faulted with.

5.6 All other arguments raised by the appellants with regards to production of the goods, receipt of raw material, power consumption transportation and manpower has been dealt by the Commissioner in para 32 and 33 of his order. Said paras of the order are reproduced below-

“32. In the matter of confirming duty demanded based on
the entries in private records recovered from Shri
Ramachandra Mane, arguments other than those dealt with
above are,-

(a) Manufacture of the impugned goods by SRSPL is not
proved.

(b) The private balance sheet shows figures for procurement of
raw material as well as conversion charges. This gives strong
support to the theory that the goods were got manufactured
through some body else by the person maintaining the
accounts.

(c) The statements of dealers implied that they had purchased
shoes from SRSPL and got bills from two co-operative societies
namely Navyug Footwear Industrial Co-op Society and
Bharatiya Charmakala Gramudyog Sahakari Sangh Ltd.
However in cross examination these witnesses say what they
originally stated is their bonafide impression and they do not 26 E/42,43/2009 know anything conclusively to say that the shoes in question
were manufactured by SRSPL.

(d) The statements of 17 dealers (owners of shoe shops) are
relied upon. These dealers stated that they bought shoes
from SRSPL as per the books of accounts (allegedly of SRSPL)
shown to them, received bills of the societies and issued
cheques to the societies concerned. These dealers were cross
examined. The main relevant issue that comes out in the
cross-examination is that they never used to deal directly with
SRSPL. One Mr. Raju and another Mr. Shinde used to contact
them with samples and get orders. They used to get shoes
without any packing or any indication to show that the goods
were manufactured by SRSPL. They used to issue cheques
for payments to the concerned society and hand over to Shri
Raju or Shri Shinde. Mr. Raju used to give them the
impression that the shoes were manufactured by SRSPL and
they had a bonafide impression that the shoes they bought
were manufactured by SRSPL. But no investigation to identify
Shri Raju or Shri Shinde was carried out. It is not shown with
any evidence that these persons were employees of SRSPL.
Their depositions have not been recorded. With the result the
link between SRSPL and the shoes bought by the dealers
remains unsubstantiated.

(e) It is argued that since the proceeds of cheques issued to
societies by the dealers to the societies were returned to the
dealers in cash (after deducting 2% to 3% commission) SRSPL
had nothing to do with the transaction. It is argued that if the
goods belonged to SRSPL the money would have been paid to
SRSPL. However this is a false argument. The deposition of
the office bearers of the societies is that the proceeds of the
cheques were paid to the persons who brought the cheques
(that is to say persons like Mr. Raju or Mr. Shinde, who are
alleged to be employees of SRSPL). The statement is not that
the proceeds were returned to the dealers who issued the
cheques.
27 E/42,43/2009 33. The arguments in favour of confirming excise duty
demanded on the basis of sales recorded in the private
records recovered from Shri Ramachandra Mane are,-

(a) The statements of various persons show that the two
fictitious co-operative societies were functioning from the
premises of SRSPL. The account books of the societies were
recovered by the sales tax authorities from the premises of
SRSPL. There are records which show that raw materials
ordered in the name of the societies were shipped to the
premises of SRSPL. For example in a communication dated
30/11/95 relating to confirmation of dispatch of “Synthetic
Materials for footwear uppers” shipped under letter of credit
11-1/0557/95 addressed by CONF.AR.C of Italy the
destination of goods is shown as “NAVYUG/START RITE”.
The reply to this communication is sent by fax in the letter
head of SRS Start Rite Shoes Pvt. Ltd. on 21-11-95. All these
facts shows that SRSPL was engaged in the manufacture of
shows for sale through the societies.

(b) The buyers of shoes as per these accounts stated in their
initial statement that they had purchased such shoes from
SRSPL. During cross-examination it emerged that their initial
statement was only their bonafide impression based on their
dealing with Mr. Raju or Mr. Shinde, the sales persons. They
had not directly interacted with SRSPL. This evidence is to be
appreciated considering the fact that the dealers are also
accused of evading sales tax by routing their transaction
through the co-operative societies.

(c) The statement of Shri Ashok Mane on 28.2.97 (Para 11
herein above) the salient part of which reads as under:

“After going through and scrutinizing the said documents, Shri
Ashok Mane immediately agreed and accepted that all the
documents/records mentioned in the said letter and
acknowledgment receipt belonged to SRSPL; that all the
documents shown, to him in his earlier statement were the
same records as those mentioned in the said letter. He also
accepted and admitted to the fact that SRSPL have cleared 28 E/42,43/2009 leather footwear to all the parties reflected in these private
documents/records clandestinely without payment of Central
Excise Duty; that he could not identify these records because
he was not shown the letter of receipt, indicating his intention
of misleading this office as far as possible. On the basis of
the above facts he also agreed to pay RS.20 Lakhs towards
the central excise duty liability under protest.”
5.7 Appellants have relied upon plethora of case laws to argue that revenue should establish the clandestine clearance to hilt by producing the evidence receipt of raw material, transportation, power consumption, manpower employed and actual manufacture of goods clandestinely cleared. From the facts as stated above the issue has arisen on the basis of sales shown to be effected through two Cooperative Societies, which have been found to be bogus and not undertaking any activity other than issuing the invoices for sale of goods and receiving the payments against the such invoices for which the goods were being supplied from elsewhere.

In their statements-

A. Recorded on 3.12.1996 and 7.05.1997, Shri Dinkar Shankar Shinde, the Chairman of the Bharatiya Charmakala Gramudyog Shahakari Sangh Ltd stated that, o the society was formed by Shri Ramchandra Mane and Shri Ashok Mane and on record there were 29 E/42,43/2009 around 350 members which are bogus and non existent;

o the main business of the society was to prepare sales bills on the basis of the information provided by the show rooms or shoe dealers and to maintain registers like purchase, sales ledgers etc. B. Recorded on 30.01.1997 and 09.05.1997, Shri Amar Raghuveer Dhus, Chairman of Navyug Footwear Industrial Co-operative Society stated that, o he was made Chairman and Treasurer from 1994 to 1996 on the instruction of Shri Ashok Mane, Director of SRSPL;

o the society was controlled by Shi Ashok Mane, a all the accounts/ records of the day to day activity were looked and maintained by Shri S D Pawar under instruction of Shri Ashok Mane;

o around 340 bogus members were registered with the society;

o he was only signing the cheques and office documents sent to him by Shri Pawar at the instance of Shri Ashok Mane;

o he had never attended any meeting of the society.

C. Recorded on 9.01.1997 and 13.01.1997, Smt M Z Kerawala, former Chairperson Jai Hind, Jai Bharat and 30 E/42,43/2009 Member of Navyug Footwear Industrial Co-operative Society stated that-

o Jaihind and Jaibharat were controlled by Shri Rafique Malik of Metro Shoes Ltd and herself;

o Navyug was controlled by SRSPL;

o These societies did not manufacture any footwear but were used as an instrument for routing the footwear manufactured by other manufacturing units and for supplying bogus bills to the shoe shops;

o Only bogus purchases and sales transaction were shown in the records of these societies;

o Delivery of footwear were received from Shri Ramchandra Mane and Shri Ashok Mane of SRSPL and other footwear manufacturers;

o Footwear from SRSPL were received on the challans of Navyug to the tune of Rs 80 lakhs;

o The payments were made in cash.

5.8 From the scheme of things as emerge from the above statement we find that this is a case wherein bogus transactions were undertaken through the cooperative society to cover the goods clandestinely cleared by the shoe manufacturers. In our view in cases of such type corporate veil needs to be pierced (lifted) and to determine the actual persons who had actually controlled the affair of said societies. Hon’ble Supreme 31 E/42,43/2009 Court has in case of Calcutta Chromtype Ltd [1998 (99) ELT 202 (SC)], held as follows while approving such an approach:

12. The principle that a company under the Companies
Act, 1956 is a separate entity and, therefore, where the
manufacturer and the buyer are two separate companies,
they cannot, than anything more, be `related persons’
within the meaning of clause (c) of sub-section (4) of
Section 4 of the Act is not of universal application. Law
has traveled quite a bit after decision of the House of
Lords in the case of Salomon v. Salomon [1897 AC 22].
This is how this Court noticed in Tata Engineering and
Locomotive Company Ltd. v. State of Bihar & Ors. [(1964)
6 SCR 885] :

“The true legal position in regard to the character of a
corporation or a company which owes its incorporation to
a statutory authority, is not in doubt or dispute. The
corporation in law is equal to a natural person and has a
legal entity of its own. The entity of the corporation is
entirely separate from that of its shareholders; it bears its
own name and has a seal of its own; its assets are
separate and distinct from those of its members; it can
sue and be sued exclusively for its own purposes; its
creditors cannot obtain satisfaction from the assets of its
members; the liability of the members or shareholders is
limited to the capital invested by them; similarly, the
creditors of the members have no right to the assets of
the corporation. This position has been well-established
ever since the decision in the of Salomon v. Salomon &
Co. [(1897) A.C. 22 H.L.] was pronounced in 1897; and
indeed, it has always been the well recognised principle
of common law. However, in the course of time, the
doctrine that the corporation or a company has a legal 32 E/42,43/2009 and separate entity of its own has been subjected to
certain exceptions by the application of the fiction that the
veil of the corporation can be lifted and its face examined
in substance. The doctrine of the lifting of the veil thus
marks a change in the attitude that law had originally
adopted towards the concept of the separate entity or
personality of the corporation. As a result of the impact of
the complexity of economic factors, judicial decisions
have sometimes recognised exceptions to the rule about
the juristic personality of the corporation. It may be that
in course of time these exceptions may grow in number
and to meet the requirements of different economic
problems, the theory about the personality of the
corporation may be confined more and more.”

13. In Life Insurance Corporation of India v. Escorts Ltd.
& Ors. [(1986) 1 SCC 264], this Court again considered
this question and said :

“While it is firmly established ever since Salomon v. A.
Salomon & Co. Ltd. [(1897) AC 22 HL] was decided that a
company has an independent and legal personality
distinct from the individuals who are its members, it has
since been held that the corporate veil may be lifted, the
corporate personality may be ignored and the individual
members recognised for who they are in certain
exceptional circumstances. Pennington in his Company
Law (4th Ed.) states :

Four inroads have been made by the law on the principle
of separate legal personality of companies. By far the
most extensive of these has been made by legislation
imposing taxation. The Government, naturally enough,
does not willingly suffer schemes for the avoidance of
taxation which depend for their success on the
employment of the principle of separate legal personality,
and in fact legislation has gone so far that in certain 33 E/42,43/2009 circumstances taxation can be heavier if companies are
employed by the taxpayer in an attempt to minimise his
tax liability than if he uses other means to give effect to
his wishes. Taxation of companies is a complex subject,
and is outside the scope of this book. The reader who
wishes to pursue the subject is referred to the many
standard text books on Corporation Tax, Income Tax,
Capital Gains Tax and Capital Transfer Tax.

The other inroads on the principle of separate corporate
personality have been made by two sections of the
Companies Act, 1948, by judicial disregard of the
principle where the protection of public interests is of
paramount importance, or where the company has been
formed to evade obligations imposed by the law, and by
the Courts implying in certain cases that a company is an
agent or trustee for its members.

In Palmer’s Company Law (23rd Ed.), the present
position in England is stated and the occasions when the
corporate veil may be lifted have been enumerated and
classified into fourteen categories. Similarly in Gower’s
Company Law (4th Ed.), a chapter is devoted to `lifting
the veil’ and the various occasions when that may be
done are discussed. In Tata Engineering and Locomotive
Co. Ltd. [(1964) 6 SCR 885], the company wanted the
corporate veil to be lifted so as to sustain the
maintainability of the petition, filed by the company
under Article 32 of the Constitution, by treating it as one
filed by the shareholders of the company. The request of
the company was turned down on the ground that it was
not possible to treat the company as a citizen for the
purposes of Article 19. In CIT v. Sri Meenakshi Mills Ltd.
[AIR 1967 SC 819], the corporate veil was lifted and
evasion of income tax prevented by paying regard to the
economic realities behind the legal facade. In Workmen v.
34 E/42,43/2009 Associated Rubber Industry Ltd. [(1985) 4 SCC 114],
resort was had to the principle of lifting the veil to prevent
devices to avoid welfare legislation. It was emphasised
that regard must be had to substance and not the form of
a transaction. Generally and broadly speaking, we may
say that the corporate veil may be lifted where a statute
itself contemplates lifting the veil, or fraud or improper
conduct is intended to be prevented, or a taxing statute or
a beneficent statute is sought to be evaded or where
associated companies are inextricably connected as to
be, in reality, part of one concern. It is neither necessary
nor desirable to enumerate the classes of cases where
lifting the veil is permissible, since that must necessarily
depend on the relevant statutory or other provisions, the
object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the
effect on parties who may be affected etc.”

14. In M/s. Mcdowel and Company Ltd. v. Commercial
Tax Officer [(1985) 3 SCC 230 = (1985) 154 ITR 148], this
Court examined the concept of tax avoidance or rather
the legitimacy of the art of dodging tax without breaking
the law. This Court stressed upon the need to make a
departure from the Westminster principle based upon the
observations of Lord Tomlin in the case of IRC v. Duke of
Westminster [(1936) AC 1] that every assessee is entitled
to arrange his affairs as to not attract taxes. The Court
said that tax planning may be legitimate provided it is
within the framework of law. Colourable devices,
however, cannot be part of tax planning. Dubious
methods resorting to artifice or subterfuge to avoid
payment of taxes on what really is income can today no
longer be applauded and legitimised as a splendid work
by a wise man but has to be condemned and punished
with severest of penalties. If we examine the thrust of all 35 E/42,43/2009 the decisions, there is no bar on the authorities to lift the
veil of a company, whether a manufacturer or a buyer, to
see it was not wearing that mask of not being treated as
related person when, in fact, both, the manufacturer and
the buyer, are in fact the same persons. Under sub-
section (1) of Section 4 of the Act, value of the excisable
goods shall not be deemed to be normal price thereof, i.e.,
the price at which such goods are ordinarily sold by the
assessee to a buyer in the course of wholesale trade for
delivery at the time and place of removal, if the buyer is a
related person and price is not the sole consideration for
sale. As to who is a related person, we have to see its
definition of Section 4(4)(c) of the Act. It is not only that
both, the manufacturer and the buyer, are associated
with each other for which corporate veil may be lifted to
see who is behind it but also that they should have
interest, directly or indirectly, in the business of each
other. But once it is found that persons behind the
manufacturer and the buyer are same, it is apparent that
buyer is associated with the manufacturer, i.e., the
assessee and then regard being had to the common
course of natural events, human conduct and public and
private business it can be presumed that they have
interest, directly or indirectly, in the business of each
other (refer Section 114 of the Evidence Act). It is,
however, difficult to lay down any broad principle to hold
as to when corporate veil should be lifted or if on doing
that, could it be said that the assessee and the buyer are
related persons. That will depend upon the facts and
circumstances of each case and it will have to be seen
who is calling the shots in both the assessee and the
buyer. When it is the same person the authorities can
certainly fall back on the third proviso to clause (a) of
Section 4(1) of the Act, to arrive at the value of the 36 E/42,43/2009 excisable goods. It cannot be that when the same person
incorporates two companies of which one is the
manufacturer of excisable goods and other is the buyer of
those goods, the two companies being separate legal
entities, the Excise authorities are barred from probing
anything further to find out who is the person behind
these two companies. It is difficult to accept such a
narrow interpretation. True that shareholdings in a
company can change but that is the very purpose to lift
the veil to find out if the two companies are associated
with each other. Law is specific that when duty of excise
is chargeable on the goods with reference to its value
than the normal price on which the goods are sold shall
be deemed to be the value provided (1) the buyer is not a
related person and (2) the price is the sole consideration.
It is a deeming provision and the two conditions have to
be satisfied for the case is to fall under clause (a) of
Section 4(1) keeping in view as to who is the related
person within the meaning of clause (c) of Section 4(4) of
the Act. Again if the price is not the sole consideration,
then again clause (a) of Section 4(1) will not be applicable
to arrive at the value of the excisable goods for the
purpose of levy of duty of excise.

15. In the present case, we do find that the authorities
of and the Appellate Tribunal did address themselves to
the basic question as to the shareholdings of both, the
assessee and the buyer, inasmuch as they found that the
Managing Director of both the companies was the same
and one more Director was common. It was also found
that the shares of both the companies were held by the
members of the `Sharma family’ but that is quite a vague
expression and, therefore, in our view, the Appellate
Tribunal was partly right in giving the direction to
ascertain the break up of the shares of each member of 37 E/42,43/2009 the family in the two companies. To lift the veil the actual
shareholding of both the companies and the persons in
control of the management of both the companies needed
to be ascertained to consider the identity of interest of
both the companies in the business of each other. No
presumption of such mutuality of interest in the business
of each other could have been drawn without the factual
data.”

In case of R K Chadda Vs State of UP [(2015) 76 VST 87 (All)], Hon’ble Allahabad High Court has held-

“17. Since then, the doctrine of lifting of the corporate
veil has been firmly established in a series of cases. The
corporate veil could be lifted when it is found that the
corporate personality was used as a mask for evasion of
tax where transactions were found to be a sham or
collusive or where the corporate personality was
employed to circumvent statutory liability or to evade the
tax liability. In such a situation, the veil could be lifted to
find out the real culprits hiding behind it. It was held that
even though there are no statutory provisions, the
circumstances so existing in the particular case warrants
the lifting of the corporate veil to realize the tax from the
Directors or partners as the case may be as has been
held in Telco & Ors. v. State of Bihar – AIR 1965 SC 40
(paras 24 & 27); CIT v. Shree Minakshi Mills Ltd.,
Madurai – AIR 1967 SC 819 (para 8); New Horizon Ltd. &
Another v. Union of India and Others (1995) 1 SCC 478;
Delhi Development Authority v. Skipper Construction Co.
P. Ltd. (1996) 4 SCC 622 (paras 24 to 28); Calcutta
Chromotype Ltd. v. Collector of Central Excise, Kolkata –
AIR 1998 SC 1631 = 1998 (99) E.L.T. 202 (S.C.) (paras
12, 14); Shubhra Mukharjee & Another v. Bharat Cooking
Coal Ltd. & Another – (2003) 3 SCC 312; Kapila Hingorani 38 E/42,43/2009 v. State of Bihar – JT 2003 (5) SC 1 (paras 25, 26, 27);
Vodafone International Holding B.V. v. Union of India and
Others – JT 2012 (1) SC 410 (paras 167 & 168).”

5.9 From the facts as stated in the statements referred above and also the case as investigated by police, (refer charge sheet in para 5.2 supra) we find that the real actors behind the both the bogus co-operative societies were Shri Ashok Mane and Shri Ramchandra Mane the Directors of SRSPL. Further the fact of supply of goods by Appellant to various shop owners in the name and against the bills of Cooperative Societies has been admitted by various shop owners in their statements.

The issue in respect of admissibility of the statements recorded under Section 14 of Central Excise Act, 1944 is well settled and the depositions made in the statements cannot be discarded. The shop owners have admitted receiving the goods from Appellant and invoice from the society, and such admission is itself enough to hold that the goods were manufactured and cleared by the appellants clandestinely. Once revenue is able to make allegation of clandestine clearance on the basis of records and circumstantial evidence such as statements of the person concerned, it has discharged its burden and it is for the Appellant to show that charge of clandestine clearance is not true in their case.
39 E/42,43/2009 5.10 Some of these dealers were cross examined during the course of adjudication proceedings and they have stated as follows:

Examination of Shri Jalaluddinn Noorallah Virji,
Partner M/s Regal Shoes Q 18 Whether purchases from Co-operative society were
pre-dominant in nature?

Ans. A considerable quantity was purchased from Co-
operative Society.

Examination of Shri Karim Amir Jaffer Q6 Do you know the source from which Raju used to
bring the shoes?

Ans. Raju used to mention Mr Mane.

Q 6a Is it possible that Raju could have procured from
any other source Ans. Yes it is possible.

Q 14 What do you mean by saying that Mr Mane used to
control the society?

Ans. Mr Raju used to get the Bills and mention Mr
Mane’s name.

Examination of Shri Salim Kamaruddin Jaffer Q6 Do you know the source from which Raju used to
bring the shoes?

Ans. As per my knowledge it was from Mane.

Q 6a Is it possible that Raju could have procured from
any other source Ans. I am not able to answer this.
40 E/42,43/2009 Q 7. Do you have any personal knowledge from which
you can say the goods bought by you were manufactured
by Start Rite Shoes?

Ans. I know that the shoes used to come from Mane and
he was also the owner of Start Rite Shoes.

Q8 You have seen one pages 111 and 113. While
looking at this page can you say that the transaction
represented therein pertains to goods supplied to you by
Start Rite Shoes?

Ans. I will ask my accountant and will get back to you. I
am not aware of it now.

Q.14 What do you mean by saying that Mr Mane used to
control the society?

Ans. Mr Raju used to say they are from Mr Mane. The
bills were from the society.

Examination of Shri Akbar Amirali Jaffer Q6 Do you know the source from which Raju used to
bring the shoes?

Ans. Sources could have been multiple. But we had
visited one factory as I stated in my statement.

Q.14 What do you mean by saying that Mr Mane used to
control the society?

Ans. The person who supplied the goods would have
told us.

Examination of Shri Jalaloodin Lataf Ali Merchant,
Partner of M/s Red Shoes Q.6 Who used to bring the shoes? Who used to bring the
invoice?

Ans. Sometimes Raju was bringing shoes, sometimes he
used to send it through some other person. Mr Shinde
used to bring the invoices.
41 E/42,43/2009 Q.7 Where the invoices kutcha invoices?

Ans. No. They were proper, issued by certain societies
like that of Bharti Co-op Society.

Q9 Did you know the sources from which Raju used to
bring the shoes?

Ans. I was under impression that it used to come from
Start Rite Shoes. In my mind, I was buying from Start
Rite Shoes. I have not done any independent verification
of the source.

Q 10 Did you have any personal knowledge from which
you can say that the goods were manufactured in the
factory of Start Rite Shoes?

Ans. I have visited the factory of Start Rite Shoes a few
times for seeing samples. So when goods as per sample
came I presumed that it was coming from Start Rite
Shoes.

Q.11 But you said Raju used to come to you and show
the samples?

Ans. Yes that is true. But I have visited the factory of
Start Rite Shoes also a few times.

Q.12 Is it possible that the shoes supplied from multiple
sources?

Ans. Logically it is possible.

Examination of Shri Haneef Amir Manji Q.6 Do you know the source from which Raju used to
bring the samples?

Ans. Raju used to say that he was bringing from Start
Rite Shoes.

Q.7 Is it possible that the goods were made by
somebody else?

Ans. May be.
42 E/42,43/2009 Q.9 Who used to bring samples and who used to bring
the shoes and who used to bring invoices?

Ans. Raju was bringing the samples. Raju used to
supply through carrier. Invoice was brought by Raju and
cash was given to him.

Examination of Shri Karim Rehmtulla Tejani Q.7 Do you have any personal knowledge from which
you can say the shoes were manufactured by Start Rite?

An. Raju used to mention the name.

Examination of Shri Rafiq R Tejani Q.6 Do you know the source from which Raju used to
bring the shoes?

Ans. Raju used to say that the shoes were from M/s
Start Rite Shoes. This is my only information in the
matter.

Q.7 Do you have any personal knowledge from which
you can say that the goods were manufactured by Start
Rite Shoes?

Ans. That is what was told by Mr Raju. Otherwise there
was no personal knowledge.

Q.15 What do you mean by saying that Mane used to
control the society?

Ans. Raju used to say so.
From the above records of cross examination it is quite evident that the shoes were supplied to these shop owners through one Mr Raju and were the goods supplied were from the M/s Start Rite Shoes. Most of the dealers have even during the cross examination before the adjudicating authority, with the pre-
43 E/42,43/2009 ponderence of probability admitted that shoes received by them were manufactured and cleared by M/s Start Rite Shoes against the invoices issued by the co-

operative society.

5.11 Hon’ble Supreme Court has in case of D Bhoormul [1983 (13) ELT 1546 (SC)], has held as follows:

31. The other cardinal principle having an important
bearing on the incidence of burden of proof is that
sufficiency and weight of the evidence is to be considered
to use the words of Lord Mansfield in Blatch v. Archar
(1774) 1 Cowp. 63 at p. 65 “According to the Proof which
it was in the power of one side to prove and in the power
of the other to have contradicted”. Since it is exceedingly
difficult, if not absolutely impossible for the prosecution to
prove facts which are especially within the knowledge of
the opponent or the accused, it is not obliged to prove
them as part of its primary burden.

32. Smuggling is clandestine conveying of goods to
avoid legal duties. Secrecy and stealth being its covering
guards, it is impossible for the Preventive Department to
unravel every link of the process. Many facts relating to
this illicit business remain in the special or peculiar
knowledge of the person concerned in it. On the principle
underlying Section 106, Evidence Act, the burden to
establish those facts is cast on the person concerned :
and if he fails to establish or explain those facts, an
adverse inference of facts may arise against him, which
coupled with the presumptive evidence adduced by the
prosecution or the Department would rebut the initial
presumption of innocence in favour of that person, and in
the result prove him guilty. As pointed out by Best in
`Law if Evidence’ (12th Edn. Article 320, page 291), the 44 E/42,43/2009 “presumption of innocence is, no doubt, presumptio juris :
but every day’s practice shows that it may be
successfully encountered by the presumption of guilt
arising from the recent (unexplained) possession of stolen
property,” though the latter is only a presumption of fact.
Thus the burden on the prosecution or the Department
may be considerably lightened even by such presumption
of fact arising in their favour. However, this does not
mean that the special or peculiar knowledge of the
person proceeded against will relieve the prosecution or
the Department altogether of the burden of producing
some evidence in respect of that fact in issue. It will only
alleviate that burden to discharge which very slight
evidence may suffice.

33. Another point to be noted is that the incidence,
extent and nature of the burden of proof for proceedings
for confiscation under the first part of the entry in the 3rd
column of clause (8) of Section 167 may not be the same
as in proceedings when the imposition of the other kind
of penalty under the second part of the entry is
contemplated. We have already alluded to this aspect of
the matter. It will be sufficient to reiterate that the
penalty of confiscation is a penalty in rem which is
enforced against the goods and the second kind of
penalty is one in personam which is enforced against the
person concerned in the smuggling of the goods. In the
case of the former, therefore, it is not necessary for the
Customs authorities to prove that any particular person is
concerned with their illicit importation or exportation. It is
enough if the Department furnishes prima facie proof of
the goods being smuggled stocks. In the case of the latter
penalty, the Department has to prove further that the
person proceeded against was concerned in the
smuggling.
45 E/42,43/2009 34. The propriety and legality of the Collector’s
impugned order had to be judged in the light of the above
principles.

35. It is not correct to say that this is a case of no
evidence. While it is true that no direct evidence of the
illicit importation of the goods was adduced by the
Department, it had made available to the Collector
several circumstances of a determinative character which
coupled with the inference arising from the dubious
conduct of Baboothmull and Bhoormull, could reasonably
lead to conclusion drawn by the Collector, that they were
smuggled goods. These circumstances have been set out
by us earlier in this judgment. We may recapitulate only
the most salient among them.
5.12 Decisions relied upon by the appellant seeking the establishment of production, receipt of raw material, power consumption, transport, manpower usage etc., cannot be applicable to present case as in present case appellants have used the mask of co-operative societies which have been found to be bogus for their nefarious activities. In our view the case of revenue is well established within pre-ponderence of probability as has been held by the Apex Court in case of D Bhoormal, supra.

5.13 Since the issue is in respect of duty evasion by committing fraud etc., in our view extended period of limitation under proviso to Section 11A(1) will be applicable in the present case.
46 E/42,43/2009 5.14 Appellants have raised the issue with regards to quantification of duty in their Appeal. However we find Commissioner has in para 36 & 37 of his order clearly stated t principles for quantification of duty and we do not find any merits in such a submission made by the appellants. The para 36 and 37 of the order are reproduced below:

5.15 As far as issue of allowing cum duty value benefit is concerned we do not find any merits in that submission as the issue is one involving fraud and clandestine clearance. Tribunal has in case of-

A. Jay Jalaram Processors [2014 (313) ELT 724 (T-

Ahd)] held-

7. If that be so, such value has to be adopted as
assessable value for the purpose of quantification of
duty. It has to be kept in mind that the clearances were
effected by the appellant without payment of any duty
and the consideration received by him from merchant
manufacturer was without including the element of duty.
It is not a simpliciter case of non-payment of duty, in
which case the entire realization has to be treated as cum
duty price where the duty is being subsequently
confirmed against an assessee. It is the case of
clandestine removal and the Revenue, while adopting the
value of fabrics, has not adopted the cum duty value but
has adopted the value at which the finished fabrics were
cleared without including the factor of duty. As such, I
find no merits in the contention of the learned advocate
that the duty is required to be re-quantified.
47 E/42,43/2009 B. Sagar Spun Pipes [2014 (305) ELT 179 (T)] held- “5.2 As regards the cum-duty benefit claimed by the
appellant, reliance has been placed by the learned
Counsel for the appellant in the cases of Camlin Ltd.,
Formica India, Srichakra Tyres, Maruti Udyog cited
(supra). The Maruti Udyog case dealt with a situation
where the appellant Maruti Udyog Ltd. did not discharge
excise duty on the waste and scrap of aluminium and
iron and steel sold by them to various buyers. The
appellant had also availed Cenvat Credit of the duty paid
on the inputs under Rule 57A of the Central Excise Rules.
In that case, the Hon’ble Apex Court held that “the facts
indicate that after the sale transaction was completed,
the purchaser was under no obligation to pay any extra
amount to the seller, namely, the respondent. In such a
transaction, it is the seller who takes on the obligation of
paying all taxes on the goods sold and in such a case,
the said taxes on the goods sold are to be deducted
under Section 4(4)(d)(ii) and this is precisely what has
been directed by the Tribunal. There is also nothing to
show that the sale price was not cum-duty.” Similarly, in
the case of Supreme Fabrics Ltd., the issue was whether
excise duty was payable on loading charges which the
appellant had claimed as abatement while computing the
taxable value. In that context, the Hon’ble Apex Court
held that loading charges form part of assessable value
and excise duty would be leviable and the loading
charges so collected should be treated as cum-duty tax.
In Srichakra Tyres Ltd. case, the facts of the case were
that the appellant cleared tyres on the sale price declared
by them. Later on price revisions were effected upwards
but they did not discharge the additional duty liability on
the enhanced prices collected from the customers. In the
context of duty demand on the enhanced price, that is, 48 E/42,43/2009 the revised price collected minus the original price on
which the duty was raised, the question of cum-duty
liability was considered. In that context it was held that
the consideration should be treated cum tax. It is worth
noting that in all these decisions, the appellants were
discharging duty liability on some price and the demand
for differential duty arose an account of price revision. It
was in that context it was held the consideration received
should be treated as cum tax. In the facts of the case
before us, the appellant had not discharged any excise
duty liability on the clearances effected in excess of Rs.
30 lakhs and it is a pure case of tax evasion. Therefore,
the facts of the present case are distinguishable from
these obtaining in Srichakra Tyres and Maruti Udyog
case cited supra. It is a settled position in law facts of a
decision relied upon have to be shown to fit the factual
situation of a given case. Without such discussion
reliance could not be placed on a decision. Circumstantial
flexibility one additional or different fact may make a
world by difference between conclusions in two cases, as
held by the Apex Court in Alnoori Tobacco Products [2004
(170) E.L.T. 135 (S.C.)]”
5.16 Appellants have contended that in view of Section 132 of Finance Act, 2001, no penalty is imposable on them. For ease of reference the said Section is reproduced below:

Section 132. Validation of certain action taken. Any
action taken or anything done or omitted to be done or
purporting to have been taken or done or omitted to be
done under any rule, notification, or order made or issued
under the Central Excise Act, or any notification or order
issued under such rule at any time during the period 49 E/42,43/2009 commencing on and from the 28th day of February, 1944
and ending with the day, the Finance Bill, 2001 receives
the assent of the President shall be deemed to be and to
always have been, for all purposes, as validly and
effectively taken or done or omitted to be done as if the
amendment made by section 125 of the Finance Act,
2001 had been in force at all material times and,
accordingly, notwithstanding anything contained in any
judgment, decree or order of any court, tribunal or other
authority,–

a. any action taken or anything done or omitted to be done, during the said period in respect of any excisable goods under any of such rule, notification or order, shall be deemed to be and shall be deemed to always have been, as validly taken or done or omitted to be done as if the amendment made by section 125 of the Finance Act, 2001 had been in force at all material times;

b. no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for any action taken or anything done or omitted to be done, in respect of any excisable goods under any of such rule, notification or order, and no enforcement shall be made by any court, of any decree or order relating to such action taken or anything done or omitted to be done as if the amendment made by section 125 of the Finance Act, 2001 had been in force at all material times;

c. recovery shall be made of all such amounts of duty or interest or penalty or fine or credit of duty in respect of inputs or capital goods or other charges which have not been collected or, as the case may be, which have been refunded, as if the 50 E/42,43/2009 amendment made by section 125 of the Finance Act, 2001 had been in force at all material times.

Explanation.—For the removal of doubts, it is hereby
declared that no act or omission on the part of any
person shall be punishable as an offence which would
not have been so punishable if this section had not come
into force.
The issue in this respect also is covered by the decision of Apex Court in case of Chandpaklal Ramanlal Shah Vs Reliance Industries [2017 (354) ELT 289 (SC)] “4. Learned Solicitor General appearing for the appellant
submitted that the view taken by the High Court is
erroneous. The charge against the respondent was of
evasion of excise duty under Section 9(1)(b) which
remains unamended. The evasion was on account of the
respondent having taken credit without following the
procedure under Rule 56A. By omission of the said Rule,
the charge did not suffer from any legal infirmity.
Alternatively, it was submitted that Section 6 of the
General Clauses Act applied to omission which was also
repeal. It also applies to a Rule. In this regard, reliance
has been placed on Fibre Boards Pvt. Ltd. Bangalore
versus Commissioner of Income Tax, Bangalore, Shree
Bhagwati Steel Rolling Mills versus Commissioner of
Central Excise.

It was also submitted that retrospective amendment has
been made to the Act by the Finance Act, 2001 making it
clear that actions taken under a rule will not lapse even if
the rule is omitted. The Explanation applied only to future
action and not to continuing action. Reliance has been
placed on a full Bench Judgment of the Allahabad High 51 E/42,43/2009 Court in Simholi Sugar Mills Ltd. versus Union of India It
was also submitted that penalty for wrongly taking credit
was upheld by the Tribunal in Reliance Industries Ltd.
versus CCE6, which has attained finality.

5. Opposing the above submissions, learned senior
counsel for the respondent submitted that Section 6 of the
General Clauses Act did not apply omission and applied
only to repeal. It did not apply to a rule and applied only
to an Act or Regulation as held in Kohlapur Cane Sugar
Works Ltd. (supra). He further submitted that in view of
Explanation to Section 132 of the Finance Act, 2001,
prosecution could not continue as there was no
retrospective validation of the prosecution.

6. It is not necessary to go into all the rival contentions. In
our view, the matter can be decided on a short point. The
charge against the respondent is of evasion of duty. The
ingredient of the offence is the evasion. The omission of a
procedural rule for availing the credit cannot in any
manner affect the said charge. The prosecution cannot be
deprived of opportunity to prove evasion which by itself is
an offence. In this view of the matter, there was no
justification for the High Court to quash the charge
merely on the ground of Rule 56A having been omitted.”
Hence we reject the said argument advanced by the appellant. Hence the penalty imposed by the adjudicating authority under rule 173Q of the erstwhile Central Excise Rules, 1944 is upheld.

5.17 It has been urged that no penalty could have been imposed on Shri Ashok Mane, Director of the Company.

In the present case we find that Shri Ashok Mane was 52 E/42,43/2009 main actor responsible for commission of fraud leading to evasion of Central Excise Duty. Commissioner has in para 38 of his order brought out the role of Shri Ashok Mane stating “It is seen that Shri Ashok Mane who was looking after the marketing operations of SRSPL and also the person who was defacto controlling the affairs of the two fictitious societies has been responsible for selling the clandestinely removed goods is liable to penalty under Rule 209A of the Central Excise Rules, 1944 which was in force when the duty evasion took place.” In view of the fact that Shri Ashok Mane was responsible for causing the duty evasion by resorting to the fraud through fictitious cooperative societies we do not find any merits in such a submission made on behalf of Shri Ashok Mane.
6.1 In view of above we do not find any merits in the appeals filed by the Appellants and reject the same.
(Pronounced in court 12.03.2019) (Dr. D.M. Misra) (Sanjiv Srivastava)
Member (Judicial) Member (Technical) tvu

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