2008 PTD 1667
1. MUMTAZ HAIDER RIZVI, MEMBER (TECHNICAL).--- This appeal has been filed by Messrs Paper International (Pvt.) Ltd., Amangarh, Nowshera (hereinafter called as the appellants) against Order-in-Original 61 of 2001, dated 11-5-2001 passed by the Collector of Customs, Central Excise and Sales Tax (Adjudication), Rawalpindi.
2. Brief facts of the case are that the staff of the Collectorate of Customs, Central Excise and Sales Tax (hereinafter called as the respondent/department) conducted a stock taking of the Custom's Bonded Warehouse of the appellants unit, which revealed that out of 2080 Bales (weighing 479.761 M.T.) of the imported Softwood Kraft Pulp, 1568 Bales (weighing 357.361 M.T.) were missing. These Bales were alleged by the department to have been clandestinely removed by the appellants from their bonded warehouse without payment of government dues leviable thereon. Subsequently, eight (8) Bales were found lying in the "pulp section" of the unit and were seized by the respondent department. When confronted with the aforementioned (alleged) situation, the Production Manager of the appellants' unit explained to the department that 357.761 MT of imported wood-pulp was utilized in the manufacturing of Paper and Paper Board though the same was not entered into RG-2 Register (inventory of raw material). The appellants further explained that the goods manufactured from this pulp were removed after payment of due central excise duty and sales tax. However, the respondent department did not accept the appellants' version and alleged that the unit utilized the missing wood-pulp to manufacture 474.495 M.T. of Superior Duplex Board valuing Rs.1,42,34,850 and removed the same clandestinely i.e., without payment of duty and taxes.
3. A show-cause notice was issued to the appellants on alleged violation of the provisions contained in section 3 of the Central Excise Act, 1944 (hereinafter called as the Act) read with Rules 9, 52 A, 53, 53-B, 226, 241 and 246 of the Central Excise Rules, 1944 (hereinafter called as the Rules). After hearing the parties, the Additional Collector of Customs, Central Excise and Sales Tax, Peshawar vide his Order-in-Original No.26 of 1999, dated 27-3-1999 upheld the charges levelled in the show-cause notice. In appeal the learned Collector, vide Order-in-Appeal No.145 of 1999, dated 17-12-1999 remanded the case with certain observations, where after the learned Collector (Adjudication), Peshawar vide his Order-in-Original (Remand) No.61 of 2001, dated 16-5-2001, besides ordering recovery of Rs.7,11,743 as Central Excise Duty also imposed a penalty of Rs.5,00,000 upon the appellants under Rule 210 of the Rules..
4. Aggrieved of the said Order-in-Original (in-remand), the appellants have filed the instant appeal, inter alia, on the following grounds: --
(i) that the impugned order is arbitrary and as the learned Collector (Adjudication) has erred both in law and fact, hence, the same is liable to be set aside.
(ii) that the impugned order is against Article 117 of the Qanun-e-Shahadat Order, 1984 as the Department has miserably failed to substantiate their allegation with any kind of evidence;
(iii) that the impugned proceedings before the Collector (Adjudication) were "in-remand", therefore, he was under legal obligation to follow the observations of the learned Collector (Appeals). However, the Collector (Adjudication) ignored these observations completely;
(iv) that the case is based on the pure presumption that since the raw-material was illegally removed from Customs Bonded Warehouse, therefore, the same must have been used in some secret production of dutiable goods removed clandestinely (without payment of Central Excise Duty and Sales Tax). However, this conjecture is not only contrary to fact but also devoid of any corroborative evidence; and
(v) that contrary to the respondent department's allegation, the fact of the matter is that the appellant has actually consumed and also shown this consumption of the illegally removed Wood-Pulp. During this period 458.30 MT of Soft Wood-Pulp of Canadian origin and 461.25 MT hard Wood-Pulp of Indonesian origin were used in the production of 1909.447 MT of various sizes of Paper/Paper Board. The appellants had submitted detail calculations and relevant extracts of Customs-Bond Register relevant Bills of Entry, RG-1s, RG-2s, AR-1 and further details as contained in RI-1s and RT-3s before the lower fora. All these documentary proofs were also seen by the department, but were not considered at all and the matter was, adjudicated in a whimsical and slipshod manner.
5. The respondent-Department strongly contested the above-mentioned grounds of appeals. Syed Yousaf Shah, Senior Intelligence Officer (who appeared for the respondent) also presented a written report, which contained tables made out of central excise prescribed record in support of allegations levelled against the appellants. He concluded his arguments as under:
(i) that the appellants not only illegally removed 357 MT of Soft Wood-Pulp but the finished product (made out of it) were also not declared and clandestinely removed without payment of central excise duty. Hence, the demanded amount was recoverable;
(ii) that the RG-2 Register and R.T.3 returns confirm that there is no entry regarding receipt of 357.761 M. Tons of imported soft Wood Pulp. The record only shows that a total quantity -of 564.953 M. Tons of important Wood Pulp' was issued for use in the manufacturing of a quantity of 1909.447 M Tons of Paper and Paper Board during to period from 7/98 to 12/98.
(iii) that perusal of the factory record reveals that a. quantity of 564 M. Tons of Wood Pulp has been shown as consumed during the period, which according to the formula (provided by the management) should not be more than 458 M. Tons, meaning thereby that the production made from 106 M. Tons wood plups (564-458 =106) has not been accounted for the RG01 (Register) and RT-1 (Monthly Statement); and
(iv) that in view of the aforesaid factual position, the appeal is liable to be dismissed.
6. The appellants emphatically contested the report and analysis made by the SIO Syed Yousaf Shah. Their principal plea of defence is that the goods produced out of the illegally removed imported Soft Wood Pulp were included in their declared production of 1909.447 MT of various kinds of Paper and Paper Boards for which 458.3 MT of Soft Wood Pulp and 461.25 MT of Hard Wood Pulp was used along with indigenous Grass and Waste Paper Pulp. The appellants' counsel further submitted that actually "three" imported consignments of Wood Pulps constitute the subject-mater of this case and not "one" (as has been presumed by the department) i.e. two consignments of 3000 Metric Tons of Hard-Wood-Pulp" (Indonesian origin) cleared for home consumption at Karachi vide two Bills of Entry Nos.3118 and 3119, dated 20-5-1998 (ii) and the other of 479.361 Metric Tons of Soft-Wood-Pulp (Canadian-origin) imported vide into Bond Bill of Entry No.ST 4136, dated 25-5-1998. As the consignments of these two different kinds of Wood Pulps were unloaded in the Mills at the same time and due to the panic caused by sudden rains, the illiterate labors instead of Warehousing 479.036 MT Soft Wood Pulp related to Bill of Entry No.ST 4136, dated 25-5-1998 in the Bond, sent only part of it to the Customs Warehouse. When the mistake was detected, that 357.761 MT of Canadian origin Soft Wood Pulp was short, the appellants, without waiting of the formal demand, paid the due customs duty Rs.8,12,473, sales tax Rs.11,17,137 and advance income tax Rs.5,03,712 on 6-8-1998 immediately. Yet, the learned Collector Customs issued a show-cause notice. He subsequently, acknowledged payment of the aforesaid import duties and taxes in his Order-in-Original, but imposed a penalty of Rs.30,00,000. In appeal, that penalty was reduced to Rs.10,00,000 by this Tribunal and was further reduced/modified by the Honourable Peshawar High Court, Peshawar. The order of the Honourable Peshawar High Court was upheld by the august Supreme Court of Pakistan (Civil Petition No.173 of 2002 16-8-2006).
7. I have heard the parties at length to determine whether the appellants actually used the illegally removed imported Soft Wood Pulp within their declared production or not. The moot point involved in the case is a question of fact. It is, therefore, essential to take into account the framework in which the appellants' unit was operating. The appellants, being dependent upon imported raw materials (wood pulp etc). acquired a license of Customs Warehouse under section 13 of the Customs Act, 1969, where non-duty paid goods were stored against a `Bond' till clearance on payment of duty and taxes. Further, as the appellants' finished products were subject to Central Excise Duty, they being a licensee under the Central Excise Rules, 1944, were also required to maintain a RG-2 (a Godown Register for inventory of raw materials), and RG-1 (a Godown/Register where finished products are stored). Besides, their finished products were cleared under supervised (Central Excise) clearance system vide AR-1 (an application' form for , removal or excisable goods) after 'payment of Central Excise Duty and they were also under obligation to submit monthly statement of clearance of finished goods known as RT-1 and quarterly statement of raw materials called as RT-3.
8. The respondent-Department has admitted that the appellants were maintaining the aforementioned record as prescribed under the Customs Act, Central Excises Act and the Rules made thereunder. Similarly, the appellants have admitted that 357.361 MT of imported Soft Wood Pulp was removed from Customs Bonded Warehouse without payment of customs duty and taxes which on detection were paid and for that unlawful removal the appellants also paid the personal penalty as provided under the law. It has been also admitted by the two parties that during the period subject (i.e. July, 1998 to December, 1998) the unit produced 1909.447 MT of various kinds of Paper and Paper Board for the production of which 458.3 MT Soft Wood Pulp had to be used in any case (in accordance with the agreed formula i.e.', input/output ratio). The parties are also in agreement that the declared production of 1909.447 MT of Paper and Paper Board had been cleared after payment of due central excise duties and sales tax. However, inspite of all these agreements and admitted positions, the vital question still remains to be answered i.e., whether this 458.3 MT Soft Wood Pulp included the unlawfully removed 357.447 MT or not.
9. Examination of the unit's record reveals that only 103 M Ton of Soft Wood Pulp was issued from the RG-2 godown for the production of Paper and Paper Board, which left a balance of 34.240 M.T. in the said godown on 30-11-1998 (this again is an admitted position). As a total of 458.3 M. Ton of Soft Wood Pulp was, admittedly, used in the production of Paper and Paper Board (Including 103 M. Ton issued from RG-2 godown), the appellants' claim that the rest was from 357.761 M. Ton, which was (illegally) removed from the Customs Bonded Warehouse.
10. The appellants were asked to explain as to how a huge quantity of 1909.447 M. Ton of Paper and Paper Board could be produced from only 458.3 M. Ton of Soft Wood Pulp. The appellants, in response, submitted the following input/output analysis of their production to explain the raw-materials said to have been used in the manufacturing of 1909.447 M. Ton of Paper and Paper Board.
2. Sr. No.
3. Paper & Paper Board
4. Soft Wood Pulp
5. Hard Wood Pulp
6. Grass and Waste Paper Pulp
7. Description / Quality
8. Qty. Produced
9. % Ratio
10. Soft Wood Pulp used
11. % Ratio of Hard Wood Pulp
12. Qty. of Hard Wood Pulp used
13. % Ratio of Grass Pulp W/P Pulp
14. Qty. Consumed
15. 1.
16. Regular Paper
17. 485.7684 MT
18. 15
19. 73 MT
20. 30
21. 145.730
22. 55
23. 26.172
24. 2.
25. Superior Paper
26. 29.9790 MT
27. 55
28. 16.5 MT
29. 45
30. 13.490
31. =
32. ==
33. 3.
34. Special Paper
35. 39.9890 MT
36. 55
37. 22 MT
38. 45
39. 17.995
40. =
41. 4.
42. Regular Board
43. 1168.5346 MT
44. 17
45. 198.7 MT
46. 22.5
47. 262.920
48. 60.5
49. 706.963
50. 5.
51. Superior Board
52. 142.6490 MT
53. 80
54. 114.1 MT
55. 20
56. 28.592
57. 6.
58. Special Board
59. 42.5270 MT
60. 80
61. 34 MT
62. 20
63. 8.505
64. Total
65. 1909.447 MT
66. 458.3 MT
67. 477.169
68. 94.135
11. Though the above analysis accounted for the missing 357.447 M.T. on of imported Soft Wood Pulp, it brought into picture two more raw-materials i.e., foreign-origin Hard Wood Pulp and local Grass and Waste Paper Pulp. The respondents, particularly questioned the availability of "Hard Wood Pulp". However, this was explained by the appellants by producing two Bills of Entry (Nos.3118 and 3119 both, dated 25-5-1998), which showed import of 3000 M. Ton of Hard Wood Pulp from Indonisia and corresponding entries of the same in appellants' RGO-2 Register.
12. Having been satisfied with the above explanation, I am inclined to accept that the appellants have accounted for the Soft Wood Pulp, which was illegally removed from Customs Bonded Warehouse as having been consumed in appellants declared production. Contrary to this, the respondents have failed to show any other source of Soft Wood Pulp without which the appellants' declared production would not have been possible at all. This situation rules out the possibility of any additional production, which is the main cause (allegation) of this case. The respondents have also failed to contest abovementioned input/output analysis. The respondent-Department's case, under these circumstances appears to have been built on the presumption that since the appellants have removed the raw material from the Customs Bonded Warehouse clandestinely, so the goods produced out of that must also had been removed without payment of Central Excise Duty and Sales Tax. This presumption, however, has not been substantiated by the respondent department (as also noted by the learned Collector (Appeals) in his remanding order, dated 17-12-1999).
13. Appellants' act of illegal removal of goods from the Customs Bonded Warehouse was cognizable under the Customs Act, 1969 and the concerned authorities not only took due notice of the offence but also punished the appellants in accordance with the law. However, this case, which has been made under the Central Excises Act, 1944 ought to be proved, independently, which the respondent department has failed to do in a convincing manner.
14. In this view of the mater, I accept this appeal and set aside the impugned Order-in-Original No.61 of 2001, dated 11-5-2001, accordingly.
15. Announced.
69. M.H./69/Tax (Trib.) Appeal allowed.