2007 PT D (Trib (PLP)

MEHMOOD ALAM MEMBER (TECHNICAL).

This appeal was lodged by Messrs WAK Limited, Multan Road, Lahore, against Order-in-Original No. CE.3 of 2005, dated 23-6-2005 passed by the Collector of Customs, Central Excise and Sales Tax (Adjudication), Lahore. Appellants in this case are a private limited company engaged primarily in the marketing and distribution of Liquefied Petroleum Gas (LPG) under the brand name of WAKGAS. The company also manufactures gas cylinders, pressure vessels, LPG tanks, browsers, spheres and bullets for LPG.

2. Brie facts giving rise to this appeal are that Messrs WAKGAS (Pvt.) Limited and Messrs Steel Complex, Multan Road, Lahore were issued show-cause notice by the Additional Collector of competent jurisdiction vide C. No. 276-ADD.C/ADJ/Cont/99/3628, dated 7-9-1999. It was inter alia alleged that Messrs Wakgas, in collaboration with Messrs Steel Complex, had evaded central excise duties amounting to Rs. 13,33,14,790 during the period 1993-94 to 1997-98. This colossal amount of excise duties according to the allegations, was evaded by the delinquents by:-- (a) clandestine manufacture and removal of a large quantity of gas cylinders without payment of the duties leviable thereon; (b) manufacture and removal of as many as 70 bowers without payment of the clue amounts duties; and (c) suppression of the value of cylinders etc. These allegations were based on documents evidence that was procured from several sources.

3. The case in question was initially adjudicated upon by the Additional Collector of Customs, Central Excise and Sales Tax (Adjudication) vide Order-in-Original No.47 of 2000, dated 25-1-2000. Resultantly the liability of central excise duties amounting to Rs. 13,33,14,790 was adjudged against the appellants along with additional duties in terms of section 3-B of he Central Excise Act, 1944. Penalty of Rs. one million was also imposed on them under rule 210 of the Central Excise Rules, 1944. First appeal against the said order did not succeed. Consequently Messrs Wakgas Limited lodged a second appeal before the Customs, Excise and Sales Tax Appellate Tribunal whereupon learned Bench of the Tribunal was pleased to dispose of the appeal vide judgment, dated 4-12-2001 with the following observations:-- "We have examined the arguments of both the sides and perused the case files. During hearing before us the respondents have also moved an application for placing additional evidence and record. Similarly the appellants also moved an application for amendment in the appellant's name. The appellants vehemently contended that they never manufactured cylinders prior to 1998. The respondents alleged that Steel Complex was just a phony person, in the name of one of the employees of the appellants and actually the appellants operated this by using that name. Whether there was any collusion or fraud for purposes of calculating the time limitation of show-cause notice. These are some of the issues which have not been properly sorted out at the original stage of adjudication. During the course of hearing the appellants also challenged the basis of valuation of cylinders for purposes of assessment. In addition to the income tax record an attempt should have been made to collect evidence regarding operation of the unit manufacturing of gas cylinders since 1993-94 on the basis of the documents available for getting electricity connection, the record of Labour Department, Social Security, Old Age Benefit and Municipal Corporation etc., to ascertain as to actually which unit operated at the address given both by Wak Ltd., and Steel Complex. What is the actual relationship between Wak Ltd., and Steel Complex also needs to be sorted out properly. Other sources available for confirming sale of cylinders also needs to be looked into to sort out the issue beyond any doubt. For these reasons both the impugned orders are set aside and the cases are remanded back to the Collector of Customs, Excise and Sales Tax (Adjudication), Lahore for de novo consideration, and passing of a proper speaking order by 30-1-2002. The appellants and respondents shall be given proper opportunity of hearing. The application for amendment moved by the appellants and the application made by the respondent for adducing additional evidence shall be disposed of by he learned officer who shall handle adjudication proceedings after the remand."

4. In pursuance of remand orders of the Appellate Tribunal, the matter was taken up afresh by the learned Adjudicating Officer and after protracted proceedings of over three years it was again decided against the appellants vide Order-in-Original No.CE-03/2005, dated 23-6-2005. Concluding part of the order impugned; dated 23-6-2005 reads as under:-- "On the basis of foregoing discussion it is amply clear that Messrs Wak Limited had defrauded the government exchequer deliberately and caused a colossal loss to the State revenues. Therefore I find no reason to interfere; with the previous judgment which is ordered to be maintained in its totality." Hence the present appeal.

5. Appellants and the respondent-Department have been heard by us on several dates. Hearings were finally completed on 20-10-2005 and the parties were directed to file written arguments within a week which have since been received. We have perused the records of appeal and connected documents that have been placed before us. Learned counsel of the appellants have argued at length in support of their contentions. Their main arguments are as under: (i) That the impugned order is illegal and violative of the principles of natural justice because hearing was not properly conducted by the Adjudicating Officer. (ii) That, no evidence was available with the respondent-Department about the supply of the alleged numbers of gas cylinders. The appellants manufactured only 4328 cylinders on which the due amount of excise duty was correctly paid. Similarly, no independent evidence was ever produced to show that the market price or wholesale cash price of a cylinder is Rs.1400 and not Rs.650. Therefore the liability worked out on the basis of above assumptions is invalid and unsustainable. (iii) That the earlier adjudication order was remanded back to the original stage by the learned Tribunal with specific directions on specific issues vide its judgment, dated 4-12-2001. None of these issues have however been considered or discussed in the impugned judgment and a non-speaking order has been passed again which, in view of various judgments of the superior Courts, is not sustainable. (iv) That no finding on the issue of limitation was recorded by the learned Adjudicating Officer although the show-cause notice was time-barred. It has been held by the superior Courts that in order to invoke rule 10(3) or 10(2) of the Central Excise Rules, it is imperative that the show-cause notice must contain specific allegations of fraud, misdeclaration, collusion etc. In the present case, no such allegation was levelled against the appellants in the show-cause notice, dated 7-9-1999. In the absence of any such allegation, the case falls in the purview of rule 10(1) where it attracts the bar of limitation. (v) That, on remand from the Appellate Tribunal, when the matter was sub judice before the learned Adjudicating Officer, he issued a corrigendum, dated 18-5-2002 in the show-cause notice replacing "Rule 10" of the Central Excise Rules, 1944 with "Rule 10(3)". Sole purpose of the corrigendum was to fill in the lacunas of Department's case. The corrigendum was therefore totally illegal and without lawful authority. (vi) That the appellants had paid central excise duty on cylinders at the value of Rs.650 per cylinder whereas the open market price of each cylinder was alleged to be between Rs.1400 to Rs.1600 each. This allegation is patently illegal as it is based on figures obtained from the Income Tax Department. It is an established principle of law that the income tax records cannot be used for calculating the liability of central excise duty. (vii) That another evidence relied upon by the learned Adjudicating Officer is the "Information Memorandum" published on behalf of the appellants for private placement of shares. This document was published in May, 1999 and it cannot be used for calculating the liability of the previous period i.e. from 1993 to 1998. That the said document also had a disclaimer on it to the effect that figures printed therein may not be correct and the accurate figures should be verified independently. (viii) That there was no evidence with the Department to prove under-, valuation in the case under reference. That the value of cylinders determined by the Department and relied upon by the Adjudicating Officer is violative of the parameters laid down in section 4(1) of the Central Excise Act. Also that the Department itself had been accepting the value of similar cylinders @ Rs.650 per unit. (ix) That the allegation concerning the manufacture of 70 browsers and clearance thereof without payment of excise duty is without substance. That no evidence in support of this allegation was ever adduced. That the appellants had manufactured 11 browsers only on which the excise duty was duly paid. (x) Lastly that Messrs Steel Complex and Messrs Wak Limited were separate business entities in the past. That they cannot jointly be held responsible for the liability under the central excise law. That findings of the learned Adjudicating Officer in this behalf were misconceived and erroneous. Learned counsel of the appellants thus pleaded that the appeal be accepted and impugned order, dated 23-6-2005 be set aside.

6. These averments were however opposed by the counsel of respondent-Department and the DR. Both of them argued that the quantity of cylinders manufactured and sold by the appellant-Company was correctly determined by the Adjudicating Officer on the basis of concrete information which had been gathered from several sources. That the excisable value of cylinders was also correctly assessed within the parameters laid down in section 4(1) of the Central Excise Act on the basis of open market prices and sale vouchers. They asserted that the appellant-Company had been indulging in phenomenal evasion of excise duties and sales tax by manipulating the prescribed records, returns and statements etc. involving misdeclaration and tax fraud. Therefore the show-cause notice was correctly issued within the period of limitation. That the corrigendum issued by the learned Adjudicating Officer was of a clarificatory nature and it had no bearing on legality of the case in question. It was further argued that Messrs Steel Complex was a phony entity whereas Messrs Steel Complex and Messrs Wak Limited were factually owned by the same person.

7. They further argued that the "Information Memorandum" was a reliable source of information as it was published on behalf of Messrs Wak Limited and contained a profile of the business of appellants. It was also emphasized that the primary evidence as had been used against the appellants consisted of more than one source whereas the income tax records were only referred to as an additional source of information. That the quantity of cylinders and value thereof was determined on the basis of other sources which are not linked to the income tax returns of the appellants. Also that adequate opportunity of hearing was provided to the appellants by the learned Adjudicating Officer but they could not defend the allegations; nor did they produce their own records in support of their contentions. That the entire amount of liability had been worked out on the basis of authentic and documented information. That, findings of the Adjudicating Officer were correct and in order. It was thus urged that the impugned order, dated 23-6-2005 be maintained and the appeal be rejected.

8. We have looked into the arguments of the contesting parties. Their averments primarily focus on the following issues:-- (a) Authenticity of the evidence relied upon; (b) Use of Income Tax records for computation of the liability; (c) The question of limitation; (d) Application of section 4(1) of the Central Excise Act for determination of the value of cylinders; and (e) The nature of relationship between Messrs Wak Limited and Messrs Steel Complex. We record our observations and finding oil these contested issues in the following paras.

9. The respondent-Department has produced before us copies of several documents which had been relied upon by the Adjudicating Officer for computing the evaded amounts. These records include:-- "Information Memorandum" published by Sidat Hyder Morshed Associates on behalf of Messrs Wak Limited, dated May, 1999. A list of the distributors of Messrs Wak Limited. Some of the Receivable Accounts of the appellant-Company. A full page advertisement edition printed in Daily Jang, Lahore on 14-9-2001. Some of the purchase receipts/sale vouchers in respect of the sale of cylinders. Income Tax Assessment Orders in respect of Messrs Wak Limited for the years 1994-95, 1995-96, 1996-97 and 1997-98. Respective portions or the "Information Memorandum" read together with the list of distributors and other related records vividly show that by 1999 the appellant-Company had appointed 800 distributors. That each of the distributor was catering to the requirements of about 1000 households. Accordingly the number of households in Pakistan being catered through this network were over 800,

000. Details of the cylinders in circulation were specifically indicated in para. 2.33 of the Information Memorandum as follows:-- Base Stock 19,000 With distributors 248,500 With households 600,000 Total 867,500 Respective portions of the "Information Memorandum" further showed that the appellant-Company owned 70 bowers each having a capacity of 20 m. tons for the transportation of LPG. This information has primarily been used by the Adjudicating Officer for determination of the quantity of cylinders in circulation in the supply network of Messrs Wak Limited. Part of this information corresponds to the income tax record of the company and that is the reason that the Income Tax Assessment Orders in respect of the appellants for the year, .1994-95, 1995-96, 1996-97 and 1997-98 were referred to in the show-cause notice as well as in the impugned order. As such the income tax records of the company do not figure in as the primary sources of evidence.

10. It was particularly observed that the appellants claim to have manufactured and sold only 3468 cylinders on payment of excise duty amounting to Rs.562710 up to 15-4-1997. Accuracy of their claim is however questionable for the obvious reasons. It is not understandable as to how a network of 800 distributors and over 800000 household consumers can possibly be supplied the LPG by circulation of merely 3468 cylinders. The appellants have not been able to provide any plausible explanation in this behalf. Nor have they been able to provide any information about the source of supply of a very large quantity of cylinders which are in circulation for maintaining the regular supply of LPG. Plea of the appellant-Company on this account is decidedly devoid of merits whereas version of the respondent-Department appears logical.

11. Our attention was also drawn to the "disclaimer" that is printed at page-6 of the Information Memorandum. Statement of the disclaimer confirms that the material contained in Information Memorandum had been complied from information provided by Messrs Wak Limited and Messrs Sidat Hyder Morshed Associates were not responsible for its accuracy or validity. Statement made in the disclaimer cannot be used by Messrs Wak Limited to their advantage because the information contained in the Information Memorandum was primarily supplied by them to Messrs Sidat Hyder Morshed Associates for compiling the document. There is nothing on records to suggest that Messrs Wak Limited ever disowned the information contained in this document. Nor did they proceed against Messrs Sidat Hyder Morshed Associates for printing wrong or inaccurate information. As a matter of fact this information was supplied by Messrs Wak Limited it was printed on their behalf and it was never disowned by them at a subsequent stage before any other forum. Both of us therefore agree that the information contained in the Information Memorandum was correctly and validly relied upon by the Adjudicating Officer for assessment of the evaded amount of excise duties.

12. Learned counsel of the appellants had cited judgment of the Hnourable High Court of Azad Jammu and Kashmir (in Muhammad Siddique and others v. Deputy Collector Excise and Taxation and others) reported in 1990 PTD 1088 in support of the proposition that income tax records cannot be taken as a valid evidence for the purposes of assessment of sales tax and central excise duties. Facts of the matter before us are however distinguishable from the case reported in 1990 PTD 1088. Income tax records in the present case, as already noted at para. 9, are not the primary source of evidence. The learned Adjudicating Officer has primarily relied upon the Information Memorandum and other sources of documentary evidence for working out the liability whereas the income tax records support his conclusions. In the given situation, the judgment of the Honourable High Court of Azad Jummu and Kashmir cannot successfully be pressed into service for reversal of impugned order.

13. The question of limitation vis-a-vis Rule 10 of the Central Excise Rules, 1944 was also examined by us at length. Rule 10 ibid consists of three sub-rules i.e. sub-rules (1), (2) and (3). Moot point of the question of limitation is the interpretation and application of sub-rule (3) of rule 10 that was in force until 14-6-2002 but was omitted from the Central Excise Rules vide Notification S.R.O. 328(1)/2002, dated 15-6-2002. Text of the said sub-rule (3) as was in force then, is reproduced below: "Where by reason of any false document, counterfeit seal or impression, fraud or any other heinous offence any duty or charge has (not) been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within ten years of the relevant date by the competent Adjudicating Authority, requiring him to show cause why he should not pay the amount specified in the notice and be penalized under the rules."

14. The intention and scope of rule 10(3) is too obvious. It could be invoked by the appropriate authority when the offence involved was "heinous". The word heinous used in this context could only mean a massive and phenomenal evasion of revenues which is done intentionally by employing fraudulent methods such as misdeclaration and mani pulation of documents or records. The expression "false document" similarly refers to untrue declarations, wrong statements or returns and incorrect maintenance of prescribed records with the intention to evade revenues. On perusal of the impugned show-cause notice, dated 7-9-1999, it was observed that allegations of "large scale malpractices, misuse of the facilities of Chapter XV of the Central Excise Rules, massive evasion of excise duties and violation of rules 7, 9, 52, 52-A, 53-B, 53BB, 226, 237, 238, 241, 243, 244 and 226 of the Central Excise Rules" were specifically alleged against the appellants. Most of the aforesaid rules warrant the correct maintenance of the prescribed central excise records and submission of correct returns and statements to the Central Excise/Department. When violation of these rules is alleged, it obviously means a reference to the maintenance of incorrect records and submission of incorrect or false returns or statements. The show cause, therefore, in our considered opinion, sufficiently conveys the allegations of massive evasion of duties by employing the fraudulent methods and it appears to have validly been issued within the parameters of rule 10(3).

15. It is correct that an amendment in the impugned show-cause notice was made by the learned Adjudicating Officer by substituting the words "rule 10" with rule 10(3) through an order, dated 18-5-2002. Respondent-Department has adequately explained that the amendment was made only for the purpose of clarity and for correction of a clerical error. This amendment was made by the learned Adjudicating Officer when the matter was sub judice before him and hearings were in progress. The appellants (then respondents) were duly informed-about the amendment. Such rectification of record is otherwise permissible under section 36-A of the Central Excise Act, 1944. As such we do not see any illegality in the aforesaid action either.

16. Next major issue of the appeal under reference relates to the value of cylinders. Perusal of the records of appeal indicates that the learned Adjudicating Officer had relied upon sales vouchers (or purchase receipts). These vouchers/receipts were respectively issued by Messrs S.A. Enterprizes, Messrs Mehmood Traders, Messrs Sohail Traders and Messrs Siddique Gas Agency. All four of them were the distributors of Messrs Wak Gas Limited having separate business locations respectively at Green Town, Joher Town and Multan Road in Lahore. Names of the buyers of cylinders are specifically indicated on each of the vouchers. Records further show that at least two of the buyers of cylinders were also produced for cross-examination during the adjudication proceedings. Sale/purchase price as shown in these vouchers varies in the range of Rs.1500 per cylinder to Rs.1750. We are therefore, convinced that the learned Adjudicating Officer has objectively applied his mind for determination of the fair and normal value of cylinders on the basis of reliable documentary evidence. It was also noted that the incidence of excise duty and sales tax was deducted from the aforesaid price in order to work out the assessable value. This mode of assessment is in line with the parameters as are prescribed in section 4(1) of the Central Excise Act of 1944. For the aforesaid reasons we have no hesitation in holding that the assessable value of cylinders was correctly determined at the original stage.

17. The nature of relationship between Messrs Steel Complex and Messrs Wak Limited has been illustrated in impugned order. There is sufficient evidence on records to prove that:-- (a) Messrs Wak Limited and Messrs Steel Complex were located on H the same premises at 17 K.M. Multan Road, Lahore. (b) Both of business had consolidated income tax returns; (c) One, Mohammad Rafiq purported to be the owner of Messrs Steel Complex, was actually an employee of Messrs Wak Limited; and (d) Messrs Steel Complex were merged into Messrs Wak Limited in 1997. Plea of the appellant-Company that Messrs Steel Complex was an independent business entity is not tenable for the aforesaid reasons and this ground of their appeal does not merit any further consideration.

18. This case has been lingering on before the learned Adjudicating Officer since January, 2002 and it was finally concluded in June, 2005. Records indicate that hearings of this case were fixed at the original stage on numerous dates and were mostly adjourned on request of the appellants or their counsel. Meanwhile compliance of the remand orders of the. Appellate Tribunal, dated 4-12-2001 was largely accomplished. Under these circumstances it is not worthwhile to assert that the matter was decided at the original stage without conducting a proper hearing. We are satisfied that the appellants were appropriately heard at the original stage and were provided adequate opportunity to defend the allegation of evasion of duties. We are further satisfied that the liability of central excise duty and that of the additional duty under section 3-B of the Act of 1944 has been correctly and judiciously determined against the appellants. Also that the penalty was rightly imposed.

19. Consequently we are of' the view that the order impugned, dated 23-6-2005 does not call for interference. The appeal under reference, in our considered opinion, is devoid of merits. It is, therefore, rejected and accordingly disposed of whereas the order impugned, dated 23-6-2005 is upheld. C.M.A./53/Tax (Trib.) Appeal rejected.