GROW MORE CERAMICS PVT. LTD.,,GANDHINAGAR vs. THE ACIT, MEHSANA CIRCLE,, MEHSANA

PER MAHAVIR PRASAD, JUDICIAL MEMBER

ITA Nos. 2204 & 2205/Ahd/2017 2 . A.Ys. 2009-10 & 2010-11 1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in reopening the assessment u/s 147 of the Act. On the facts and circumstances of the case, learned CIT(A) ought to have held that the action of reopening is without jurisdiction and not permissible either in law or on facts. 2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in rejecting books of accounts u/s 145 of the Income- tax Act, 1961. 3. The learned CIT(A) has erred in law and on facts of the case in confirming the action of learned AO that the appellant has suppressed sales amounting to Rs.4,83,95,568/-. 4. The learned CIT(A) has erred both in law and on the facts of the case in confirming an addition of Rs.72,59,335/- after applying net profit rate of 15% on alleged suppressed sales. 5. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

ITA Nos. 2204 & 2205/Ahd/2017 3 . A.Ys. 2009-10 & 2010-11 142(1) of the Act issued and served to the appellant and in response to the same assessee and authorised representative attended form time to time and submitted details as called for and produce books of account for verification. However Ld. AO has not considered the submission of the assessee and ignoring various explanations and information submitted by the assessee from time to time and without given any reason rejected books of accounts adopted GP ratio @ 15% on undervaluation and clandestine removal of goods and passed assessment order u/s. 143(3) r.w.s. 147 of the Act with determined total income of Rs.12435878/- as against the return income of Rs.NIL and calculated tax and charged interest U/S.234B/C accordingly. Being aggrieved and dissatisfied by the order of the Ld. Dy. Commissioner of Income Tax, Mehsana Circle, Mehsana, the appellant has preferred an appeal before your honour on following grounds ol appeal. 1. The learned AO has orred both in law and on the facts in issuing notice u/s.148 of the Act for reopening assessment. 2. The learned AO has erred both in law and on the facts and rejected books • of accounts u/s. 145(3) and adopted GP @15 % on suppression of sales, however the Ld. AO has not found anv defect or discrepancy in books of accounts. The rate of Gross Profit is highly exaggerated and excessive and therefore action of the Ld. AO not sustained. It be so held now. 3. -The learned AO has erred in law and on the facts of the case in making addition on Gross Profit @ 15% Rs.798689?./ on accounts of suppression of sales of Rs.48395568/-, no such goods removal by the appellant. It be so held now. 4. ;The learned AO has passed the orders without properly appreciating the . fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the AO is in clear brcach:0f law and Principles of Natural Justice and therefore deserves to be quashed. The appellant craves leave to add. amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. : Your Honour, it is admitted fact that the action of the Ld. AO in respect; of calculated under valuation of frit (Ceramics Glaze Mixture) on the basis; of investigation of Central Excise Department and their show cause. However, the appellant has preferred an appeal before Central Excise and Custom Tribunal West Zonal Bench. Ahmedabad (Appeal No. E/13289/2014 dtd.24.09.2014) and Honorable Tribunal after detailed discuss, allowed the appellant appeal and therefore addition under the Income Tax Act on the basis of Excises not sustained in present case of the appellant : In respect of under valuation of goods, 'The Honorable tribunal observed that;-"9. So far as points mentioned at Para 6(ii) and 6(Hi) are concerned, it has been held by the adjudicating authorities

ITA Nos. 2204 & 2205/Ahd/2017 4 . A.Ys. 2009-10 & 2010-11 that undervaluation and clandestine removal stand provided in view of the pen drives, AJ'IAK XYZ of SANYO, personal ledger of Cornet, private diaries/ writing pads and the statements of ceramic tile manufacturers. Appellants have argued that the print out taken from the pen-drive AJTAK XYZ are not admissible as a piece of evidence as the same are not the documents admissible! as evidence under the relevant Section of the Central Excise Act, 1944. It was also argued by the appellants that the number of Panchnamas recorded and the opening of the said pen-drive clearly suggest that the data recovered from the pen-drive is highly objectionable, suspicious and not acceptable. It is observed from the case records of Wellsuit Glass & Ceramic Pvt. Limited IE/13720/2014] that seizure of the said pen-drive was effected on 17.7.2008 under a Panchnama and it was not stated in this Panchnama that the pen-drive was put inside a sealed cover. It has been admitted by Shri V.N. Thakkar (Superintendent) DCCEI in the cross-examination before the Adjudicating authority that when an article is seized, the same is placed in a sealed cover and mention of the same is made in the Panchnama. It is also admitted by Shri Thakkar that as he remembers the seized pen-drive was placed in a paper cover and sealed with adhesive tapes. It is the claim of the appellants that the way the said pen-drive, was handled: it is possible that the same could be tempered with as the same was kept in the paper cover sealed •with adhesive tapes. A second Ponchnamo was made on 3O.8.2008 where the said pen-drive was mentioned to nave bat>n taken out of a sealed cover when the first Panchnama never mentioned keeping the said pen-drive in a sealed cover. It is also observed that on 30.8.2008 the sealed cover was opened but .contents of the silver pen-drive were not opened on 30.8.3008 but instead another black colour pen-drive was opened. On 06.9.2008 under a Panchnama .the said silver pen-drive taken out of the sealed cover and on opening this pen drive in the Tally Folder, no data wos found to be available. However, under -another Panchnama dated 12.09.2008, when the said silver pen-drive was opened data was found in Tally r-older which is the relied upon as AajtakXYZ. There is a strong force in the arguments made by the appellants that when no data was found in rally folder on 06.9.2O08, how the relied upon documents got generated on 2.09.2008. Shri V.N. Jhakkor, Superintendent in his crossexamina n\on explained the reason for nan retrieval of data on 06.9,2008 to be due to operational lack, but he admitted that no merlon ofl any operational lack is made in the Panchnama dated 06.9.2008. Further,! it is observed that in Panchnama dated 12.OSi.2008, the print out of 'account AJTAKtaken contained 52 pages and account of appellant Wel/suit appeared at page 30 out of 52 pages. Another Panchnama dated 24.09.2008 indicate in Annexure A3 that the number of pages of Account Aajtak were 94 and the name of appellant existed at page 43 as against page 30 mentioned in Panchnama dated 12.09.ZOOS. Appellants have also raised the

ITA Nos. 2204 & 2205/Ahd/2017 5 . A.Ys. 2009-10 & 2010-11 issue regarding discrepancies in the name of the panch witnesses. It is also contended: that Revenue had not followed the procedure as stipulated in Section 36B of the • Central Excise Act, 1944. In view of the above discrepancies the authenticity and veracity of data retrieved by investigation from the silver pen-drive is not reliable and cannot be accepted as a piece of evidence in deciding the case of undervaluation and clandestine removal against the present appellants with respect to point mentioned in Para 6 (ii)." 13. It is not the case of the Revenue that the value of the goods cleared by the appellants is not determinable at the Factory gate and therefore, some other method under the Central Excise Valuation Rules is required to be adopted to arrive at the assessable value. Rather the case of the Revenue on valuation is I that certain additional consideration corning to the appellant^ by way of cash ] flow from the, tile manufacturers to the frit manufacturers is required to be : added to the assessable value. In the present circumstances and factual matrix the exact amount of such additional consideration was required to be determined for addition to the transaction value even if the statements and documents were held to be admissible evidence and satisfied the test of Section 9Dofthe Central Excise Act, 1944. In Appeal Nos. E/11960/2013 and E/12386/2014, the valuation has been enhanced solely based on: the assumption that after booking of the case these appellant enhanced .their prices. In the case of transaction value realm the same product can be sold at different prices as per Section 4 of the Central Excise Act, 1944 unless actual additional consideration has been shown to have flown back to the appellants. Appellants in these appeals and in Appeal Nos. E/13720/2014 and E/534/2011 have also not admitted during investigation that they have received any additional consideration. In other appeals on the issue of ndervaluation investigation attempted to show the flow back of such additional cash, flow through the statements of ceramic tile manufacturer and the statements of Shroffs arid Angadias. The amount so worked out has been worked out to be Rs. 38,95,80O/- as per the statement of Shri Jayesh Patel, Prop. Of M/s. Kevel mentioned in Para 9.3.3 of OIO dated 23.03.2011 in the case of M/s. Belgium Glass & Ceramics. This statement clearly conveys that amount of Rs. 38,95,860/- was paid to various frit manufacturers and at the [same time mentions that the names of the frit manufacturers are not written against each payment in the concerned documents. Under the above factual matrix appellants had the right to cross-examination the witnesses especially Shroffs and Angadias as to what portion such payment belongs to a particular appellant. As mentioned in the definition o/ Transaction Value in Para 11.1 above, only actual price paid or payable has to be added to the transaction value and not a hypothetical value based on averaging of prices or standardizing of frit grades. As already mentioned under the realm of transaction value as per Section 4 even the same product could be sold at different prices depending upon several market factors and these prices will be acceptable as permissible

ITA Nos. 2204 & 2205/Ahd/2017 6 . A.Ys. 2009-10 & 2010-11 transaction value. Present Section 4 does not go by the] concept of Normal Price of the old Section 4 of the Central Excise Act, 1944. In the absence of exact quantification of cash received by individual frit manufacturer, transaction value cannot be enhanced even if there are half cooked circumstantial evidences to the proceedings indicating, suspected undervaluation. It is now we/I understood that suspicion howsoever grave cannot take the place of evidence. Therefore, it may not be correct to hold that preponderance of probability should always be given to the Revenue, as Hon’ble Apex Court in a particular held it to be so. Each case has to be decided in view of the facts of that case. In view of the above observation and the law laid down by the Apex Court in the case of A. Tajudeen vs. UOI (supra.) preponderance of probability cannot always be allowed in favour of the Revenue when there is no independent corroboration of the facts and the case is made only on the basis of statements which were not allowed to be . tested under cross-examination as per Section 9D (l)(b) of the Central Excise Act, 1944. J4. In view of the reasons recorded above, appeals filed by the appellants mentioned in paras 5.1" In respect of under clandestine removal of goods, The Honorable tribunal observed that;- "86 In view of the above observations made by this Bench it has already been held that method adopted by the investigation to estimate clandestine removal of finished goods is hot sound and has to be discarded, however, Revenue was given an opportunity to strengthen their case by corroborating evidence with some more factual data from additional studies. No appeal has been filed by the] Revenue against the above order passed by this Bench. It is also observed from 3.2 of the remand order that appellant has made certain changes in the plant and machinery and other methodologies to reduce gas consumption. Even in the remand proceedings also adjudicating authority has not countered the arguments taken by the appellant as to why the steps taken by them from time to time, does not effect gas consumption. On a specific query from the Bench, the learned Senior Advocate also argued that similar modernization in processes of manufacture, as undertaken by M/s. Wellsuit Glass in the manufacture of frit, have also been undertaken by other appellants. No findings have been given by the Adjudicating authorities in countering the claims of the appellants, justifying the modernization dam-- to reduce consumption of gas from time to time. No expert opinion has been obtained by the Revenue to challenge the gas consumption pattern adopted by the appellants to indicate that claim of the appellants was wrong. 8 In view of the above observations and judicial pronouncements, methodology adopted by the Adjudicating authorities in estimating and demanding duty from the appellants; based on consumption of natural gas, electricity consumed and packing time taken; is not acceptable and is required to be rejected.”

ITA Nos. 2204 & 2205/Ahd/2017 7 . A.Ys. 2009-10 & 2010-11 Your honour, in income tax point of view, In assessment order Id. AO has not point out any independent remarks for under valuation of goods and clandestine removal of goods and relies on show cause notice only and made high pitch assessment in case of appellant, id- AO has also not justified value adopted by Central Excises is fair and reasonable, i.d. AO has not established that the value determined by the appellant is not fair accordance to the books of accounts and relevant documents produce before him. There is no provision under the Ad to determined actual assessable value and therefore addition made in respect of undervaluation of goods and clandestine removal of goods is not justified and required to be deleted. Your honour, :even on merit the appellant has relied on statement of fact and grounds of appeal and submitted as under. The learned AO has erred both in law and on the facts in issuing notice u/s,148of the Act for reopening assessment. That the appellant has filed original return ol income for Asst. year 2007-08 on 10.09.2007 and declared total income Rs.NIL. The notice u/s.148 of the Act was issued by the Director General of Central Excises Intelligence. Ahmedabad and allegedly found in show cause notice the appellant must have earned some unaccounted income by undervaluation and clandestine removal of goods which means escaped assessment for the year under consideration. : Your honour, section empowers the assessing officer to reopen the assessment proceedings and only if assessing officer, has reason to believe that income chargeable to tax has escaped assessment. In the present case, the Ld. AO has reopen the appellant case on the basis of statement recorded by DGCEI of buyers of the assessee company wherein the allegation is that sales have ibeen made at lower price; however, there is no tangible material on record which can demonstrate that income which is chargeable to tax has escaped assessment. Until and unless there is some material on record which indicates that income chargeable to tax has escaped assessment, assessment cannot be reopened; merely on some suspicious or presumption. Further th;e reasons recorded to reopen the assessment are nothing but only a change of opinion. Having, formed thai opinion, under the other law, it is not open to learned AO to change his opinion and issued the impugned notice under section 148 of the Act. In any case, the assessee has fully and truly disclosed all the material facts are necessary with submitted return of income and therefore, there is no escapement of income, which means escaped assessment so as to issue the impugned notice under section 148 of the Act. It is legally well settled that the' assessment cannot be reopened for re-appreciating the evidence on record or mere change of opinion on the part of the Id. AO. This is a mere change of opinion and time and again various High Courts have taken a view that-mere change of opinion is not sufficient grounds to reopen any completed assessment. It is, therefore, submitted that the entire proceeding u/s. 147 is bad in law and

ITA Nos. 2204 & 2205/Ahd/2017 8 . A.Ys. 2009-10 & 2010-11 deserve to be quashed. In this regard we relies following judicious pronouncement of various courts=- (i) CIT vs. Kelvinator of India 320 ITR 561 (SC) (ii) Birla Vxl Ltd. V. Assistant Commissioner Of Income Tax. (1996) (217ITR1 (Guj)) (iii) Kaira District Co-Operative Milk Producers Union Ltd. V. Assistant Commissioner Of Income Tax. (1996) (220 ITR 194 (iv) Indian And Eastern Newspaper Society V. Commissioner Of Income-Tax, New Delhi. (1979) (119 ITR 996 (Sc)) (v) Garden Silk Mills Ltd. V. Deputy Commissioner Of Income-Tax (No,2). (1996) (222 ITR 68 (Guj)) The Assessee further submits that now the law is settled in the case of Kelvinator India ltd. reported in that to reopen the assessment even within four years from the end of relevant assessment year, the assessing officer should have some tangible material to form an opinion that there is escapement of income and merely the assessing officer cannot execute his power to reopen the assessment for his wrong done in original assessment proceedings and therefore the assessing officer merely on change of opinion cannot reopen the assessment proceedings. Reliance is placed on the Supreme Court's decision in the case of Kelvinator India ltd. reported in 320'ITR 561 (SC). Further, show cause notice issued by the DGCEI was also avoidable because of the DGCEI has issued demand cum show cause notice and accordance to the general principal of law either it is demand notice or it is show cause notice both in one nature can not permissible. It is also well settled position of law that merely relying on inquiry by any other, department or on report of some other authority, no proceedings can be initiated. The authority who desires to initiate any proceedings is supposed to hold inquiry and gather the material and then on framing a definite opinion based on the self inquiry and material gathered the concerned authority can initiate proceedings. In the present case, the Ld. AO has initiate the re assessment proceeding merely relying on the show cause notice issued by DGCEI and himself has not done any inquiry. So the reassessment proceedings are illegal and without jurisdiction. ; In case of Commissioner of Income Tax vs. SHL Stock Broking Limited 325,ITR 285, Honorable Delhi Court held that,- "Mere information received from the Dy. Director of IT (Inv.) and direction of the said office and the Addl. CIT to initiate proceeding u/s.147 can not constitute valid reasons for initiating reassessment proceeding in the absence of anything to show that the AO has independently applied his mind to arrive at a belief that income has escaped assessment"

ITA Nos. 2204 & 2205/Ahd/2017 9 . A.Ys. 2009-10 & 2010-11 In case of Assistant Commissioner of Income Tax vs. Dhariya Constriction Company 328ITR 515 (SC). where in Honorable Supreme Court held that- "The Information for the purpose of reopening assessment u/s. 147 of the IT Act, 1961, the AO has to apply his mind to the information if any collected and myst form a belief thereon. In the circumstances, there is no merit in the civil appeal. The department was not entitled to reopen assessment." In case of M/s. Futura Ceramics Pvt. Ltd. vs. State of Gujarat - SCA No.6500/2012 dtd.20/12/2012, decision of Honorable Gujarat High court squarely covered to the appellant case of the fact and where in Honorable court has set aside the orders of reassessment which were-solely based on the inquiry of Central Excise Authorities without any independent inquiry on the part of the officers of the Commercial Tax Department. In case of Assistant Commissioner of Income Tax vs. Prabhat Oil Mills 52 ITJ 533 (Ahd.) Honorable Tribunal held that - "Without any documentary evidence and conducting independent inquiry, mere entries in the accounts of third party are not sufficient to prove that the assesses has made sales in books particularly when its yield and other allied factors do not indicate suppressed sales" Considering the above legal and factual aspect your appellant hereby requested that the assessment proceeding u/s. 147 of the Act deserved to be quashed and suitable relief, as deemed fit may be given to your appellant. 4.2 I have considered the facts of the case, assessment order and submission made. It is perused that AO was in possession of the an authentic information of Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI) that appellant was engaged in various types of modes and methods of tax Evasion which resulted into escapement of tax for the year under appdal. In view bf the above, the case of the appellant was reopened u/s 147 of the Act after recording; the reasons and notice u/s 148 of the Act was issued to the appellant. Reasons for reopening the assessment was also intimated to the appellant. The assessment has been reopened in this case since the income taxable had escaped assessment. The income which according to AO should have been taxed under the provisions of section 194 C had escaped assessment in the original assessment stage. In these circumstances, it cannot be assumed that the AO in the regular assessment has applied his mind. The decisions of Hon'ble High Courts in the following cases are squarely applicable. 'Material available on returns but failure to take notice will also constitute a new information', PrafulChunilal Patel- 236 ITR 832 ( Guj), KSIDC 116 ITR,158(Ker), ArundhatiBalkrishna Trust 108 ITR 78(Guj). It is also perused that the reasons recorded by the AO are proper and the proceedings u/s 147 of the Act are also valid. Hence, this ground of appeal raised by the appellant is hereby rejected.

ITA Nos. 2204 & 2205/Ahd/2017 10 . A.Ys. 2009-10 & 2010-11 5. Next effective grounds of appeal are against the action of the AO in making addition of Rs.72,59,335/- on account of under valuation & Clandestine removal. 5.1 AO in the assessment order has contended as under: In this case a letter was received from the Deputy Director of Income-tax (Inv.), Unit-11, Ahmedabad bearing no.-DDIT/lnv/Ahd/REIC/12-13 dated 14.02.2013 along with Show Cause Notice (here in-after referred to as SCN) issued to M/s Grow More Ceramics Pvi. Ltd. (here in after referred to as assessee) from Directorate General of Central Excise Intelligence, Ahmedabad (here-in-after referred to as Excise Department). On going through the above mentioned SCN it is noticed that the assessee was engaged in various types of modes & methods of tax evasion which resulted into escapement of huge tax for the yea^r under consideration. 2. i In view of the above, the case was reopened U/s.147 of the I.T. Act after recording the reasons. Notices u/s.148 was issued on 26.03.2013. The assessee vide their written reply dated 9.04.2033 requested to treat the original return filed on 30.09.2008 as return filed in response to notice u/s 148. Reason for issuance of notice u/s 148 is also conveyed to the assessee vide this office letter dated 01.07.2013. A speaking order was passed vide this office letter dated 13.12.2013 in consequence of assessee's objection dated NIL received in this office on 16.08.2013. Further notice u/s 143(2) and u/s 142(1) were issued on 21.06.2013 which were duly served upon the assessee. In response to notices issued the assessee submitted their written reply time to time. : 3. For making addition on the ground of SCN issuod bv the DGCEI following discussion are made: : 3.1 In this case on the basis of intelligence gathered by DGCEI as well as the documentary evidences recovered from several promises during the course of investigation against Tiles manufacturers, d search operation was conducted at the premises of M/s. Gorwmore on 29.08.2008. Investigation conducted by DGCEI against M/s. Growmore, reveals that they have not declared the actual assessable value of goods manufactured and cleared from their registered factory premises. The documentary as well as oral evidences collected by DGCEI from various buyers clearly indicates that M/s. Growmore was declaring in their invoices only a part of the actual transaction value of Frit manufactured and cleared from their factory. Differential value of Frit, over and above the value declared in the invoices, was collected by them from their buyers in cash. The observation and finding given in SCN on the basis of investigations and evidences gathered by the officials of Excise Department clearly indicates that the assessee had suppressed the sale value by way of undervaluation of invoices as well as clandestine removal of goods from their premises. Thq suppression was revealed on the basis of..finding during the course of

ITA Nos. 2204 & 2205/Ahd/2017 11 . A.Ys. 2009-10 & 2010-11 investigations by the DGCEI and as mentioned in detail in the SCN contained letter F. No. DGCEI/AZU/36(4) 134/2009-10 dated 09.02.2010. : 3.2 The SCN issued by the DGCEI revealed that the assessee was showing assessee sale value of Frit at Rs.//-- to Rs. 13/ per kg. whereas the actual price was at Rs.20/-to 307- per kg. The amount shown in the invoices were being collected through cheques whereas the remaining amount was being collected by.cash. Further it is also found that the company was declaring less production than the actual production. The company was showing consumption of 2044.49 SCM of natural gas for manufacturing of 1 MT of frit whereas orj verification based on the physical verification of production done by the officials of Excise Department on 27 & 28.01.2010 and from the statement of Sh, Harshadbhai C. Patel, it was found ; that- 484 SCM of natural gas was consumed for manufacturing of 1 Mt of frit. The illicitly manufactured goods were sold out/cleared by the assessee by making parallel invoices.: 3.3 From the above, this emerges that the assesses was involved in undervaluation of sale invoices, thereby suppressing the sales and also had understated the production and it's unaccounted sale of such clandestine production. For the year under consideration i.e. F.Y. 2006- 07, the amount of under valuation has been worked out at Rs.6,02,56,8207- as mentioned in Annexure D-l (Sr. No. 506 to 1022) of SCN issued by DGCEI and the amount of Clandestine removal goods has been worked out at Rs.60,54,462/- as mentioned in Annexure 0-7 (Apr-07 to Mar-08) of SCN issued by DGCEI. 4. In view of the above and relying on the evidences stated in the SCN of DGCEI, a detailed show cause notice was issued vide this office letter dated 10.03.2014, which is reproduced as under: "......2. In your case a search operation was carried out on 29.08.2008 by DGCEI,Zonal Unit, Ahmedabad. A detail report has been forwarded by Excise Department after carrying out detailed investigation and enquiry. On examining the said report following points are observed: I,Undervaluation: You were showing sale value of Frit at Rs.7/- to 13'/-per kg. whereas the actual price was at Rs.20/- to 30/- per kg. The amount shown in the invoices were being collected through cheques whereas the remaining amount was being collected by cash. The details of undervalued goods sold out/cleared by you has already been conveyed to you vide Annexure 0-1 of Show Cause Notice dated 09.02.2010 issued by The Director General of Central Excise Intelligence, Ahmedabad Zonal Unit. II. Clandestine removal: During the course of investigation on the basis of Month wise production and Gas consumption, it was found that the company was showing less production. The company was showing consumption of 2044.49 SCM of natural gas for manufacturing of 1 Ml of frit whereas on verification based on the physical verification of production done by the officials of

ITA Nos. 2204 & 2205/Ahd/2017 12 . A.Ys. 2009-10 & 2010-11 Excise Department on 27 & 28.01.2010 and statement of Sh. Harshadbhai C. Patel, it was found that 484 SCM of natural gas consumed for manufacturing of 1 MT of frit. The illicitly manufactured goods were sold out/cleared by you by making parallel invoices. The details of illicitly manufactured goods has already been conveyed to you vide • Annexure D-2 of Show Cause Notice dated 09.02.2010 issued by The \ Director General of Central Excise Intelligence, Ahmedabad Zonal Unit. 3. During the search and post search investigations, statements of Shri Harshadbhai C. Patel, Director of M/s Growmore Ceramics Pvt. Ltd.l were ' recorded by the Excise Department. In the said statement Shri Harshadbhai C. Patel vide answers to Q. No. 18 & 19 had admitted that company was involved in issuing parallel invoices. Vide answers to Q. No. 9 had admitted that] rates charged were much lower than the actual selling price i.e. you were charging less selling price in the invoices issued from your factory and collecting cash amount over and above the invoice amount. ; 4. After considering the statements of Sh. Harshadbhai c. Patel, Director and Shri Rameshbhai C. Patel, Production /ncharge and various facts, unaccounted production has also been worked out at Rs4,83,95,568/-(for the period F.Y. 2008-09) on the basis of fuel consumption and material 5. It is also relevant to mention here that the assessments u/s. 143(3) r.w.s. 147 of I.T. Act had been finalized in the case ofZirconia Cera Tech Glazes for A.Y.2007-08 and A.Y.2008- 09 involving the identical issue, the Id. OT(A)/GNR/'74 & 73/2014-15 dated 22/01/2016 has decided the issues in favour of the Revenue dismissing the appeals ofZirconia CeralTech Clazes for A.Y.2007-08 and A.Y.2008-09. These orders are self-explanatory as the issues are discussed elaborately and decided the issues rejecting all your pleas. In view of the above glaring discrepancies noticed during the investigation and modus operandi brought out by the Excise Department it is clear that the Books of account maintained by you does not reflect a true affairs of your business and hence the same are not acceptable. You are given final opportunity to produce your books of accounts with all bills and vouchers and in absence. You are hereby requested to show cause why your books should not be rejected u/s 145 of the Act and finalize the assessment. 6. \ You are also show caused as to why the following addition of Rs.4,83,95,568/~ should not be made to your lotal income on account of Undervaluation of sales and on account oj Clandestine Production considering the facts and circumstances of the case and having regard to the findi g and observations contained in the report as discussed above. 7. : You are requested to submit your explanation and attend the office of the undersigned on 23.02,2016 at 11:00 AM. If no reply is furnished or reply furnished is found,

ITA Nos. 2204 & 2205/Ahd/2017 13 . A.Ys. 2009-10 & 2010-11 unsatisfactory/unacceptable necessary adjustment/addition will be made with the material record available to this office and issue will be decided on merits." S. The assessee submitted their written reply dated 23/02/2016. The same is reproduced as under: : "...l..Under the instruction on my above named client and with reference to above subject, we submit herewith as under- 1.Undervaluation On Going through your notice, we have made sales at the rate of Rs.7/. to 13/-as against the actual price adopted by you of Rs.20/- to 30/~ per kg. on the basis of shoe cause notice issued by the D6ECI, Zonal unit, Ahmedabad. However neither in show cause notice issued by the DGCtL zonal unit, Ahmedabad. however neither in show cause notice issued by the DGCEI and in your notice given any documentary/supporting/working evidence in respect of our cost or sales price at the rate of Rs.20/ to 30/- per Kg and therefore your assumption in respect of undervaluation of sales is not [enable with the records. Without prejudice over and above, the show cause notice issued by the DGCEI challenged by the assessee before Central Excise and Custom Tribunal West Zonal Bench, Ahmedabad (Appeal No. E/l 3289/2014 dtd.24.09.2014) ami Honorable Tribunal after detailed discuss, allowed the assessee appeal and The Honorable tribunal observed that: "9. So far as points mentioned at Para 6(0) and G(iii) are concerned, it has been held by the adjudicating authorities that undervaluation and clandestine removal stand provided in view of the pen drives, AJTAK XYZ of SANYO, personal ledger of Comet, private diaries/writing pads and the statements of ceramic tile manufacturers. Appellants have argued that the print-out taken from the pen-drive AJTAK XYZ are not admissible as a piece of evidence as the same are not the documents admissible as evidence under the relevant Section of the Central Excise Act, 1944. It was also argued by the appellants that the number of Panchnamas recorded ana the opening of the said pen drive clearly suggest that the data recovered from the pen drive' is highly objectionable, suspicious and not acceptable. It is observed from the case records of Welhuit Class & Ceramic Pvt. Limited 11/13720/20141 that seisure of the said pen-drive was effected on 17.7.2008 under a Panchnama and .it was not stated in this Panchnamo that the pen-drive was put inside a sealed cover. It has been admitted by Shi V.N. Thakkar (Superintendent) DGCEl in the cross-examination before the Adjudicating authority that when an article is seized, the same is placed in a sealed cover and mention of the same is made in the Panchnama. It is also admitted by ShriThakkar that as he remembers the seized pen-drive was placed in a paper cover and sealed with adhesive tapes. It is the claim of the appellants that the way the said pen-drive was handled, it is possible that the same could be tempered with as the some was kept in the paper cover sealed with adhesive tapes. A second Panchnama was made on 30.8.2008 where the said pen-

ITA Nos. 2204 & 2205/Ahd/2017 14 . A.Ys. 2009-10 & 2010-11 drive was mentioned to have been taken out of a sealed cover when the first Panchnamo never mentioned keeping the said pen-drive in a sealed, cover. It is a/so observed that on 30.8.2008 the sealed cover was opened but contents of the silver pen drive were not opened on 3U.8.30O8 bin instead 'another black colour pen drive was opened. On 06.9.2008 under a Panchnama the said silver pen-drive taken out of the sealed cover and on opening this pen drive in the lolly f-older, no data was found to be available. However, under another Panchnama dated 12.09.2008, when (he said silver pen-drive was opened data was found in Tally Folder which is the relied upon as Aajtakl XYZ. There is a strong force in the arguments made by the appellants that when no data was found in Tally folder on 06.9.2.008 how the relied upon documents got generated on 2.09.2008. Shri V. N. Thakkar, Superintendent in his Icross examination on explained the reason for non retrieval of data on 06.9.2008 to be due to operational lack, but he admitted thai no mention of any operational lack is made in the Panchnama doted 00.9.2008. further, it is observed that in Panchnama dated 12.09.2008, (he print out o] account AJTAK taken contained 52 pages and account of appellant Wellsuit appeared at page 30 out of 52 pages. Another Panchnama dated 24.09.2008 indicate in Annexure A3 that the number of pages of Account Aajtak were 1J4 and the name of appellant existed at page 43 as against page 30 mentioned in Panchnama dated 12 09.2008'. Appellants have also raised the issue regarding discrepancies in the name of the panch witnesses. It is also contended that Revenue had not followed the procedure as stipulated in Section 36/3 of the Centra/ Excise Act, 1944. In view of the above discrepancies the authenticity and veracity of data retrieved by investigation from the silver pen-drive is not reliable and cannot be accepted as a piece of,evidence in deciding the case of undervaluation and clandestine removal against the present appellants with respect to point mentioned in Para 6 (ii)." 13. It is not the case of the Revenue that the value of the goods cleared by the appellants is not determinate at the Factory gate and therefore, some other method under the Central Excise Valuation Rules is required to be adopted to arrive at the assessable value. Rather the case of the Revenue on valuation is that certain additional consideration coming tn the appellant by way of cash flow from the tile manufacturers to the frit manufacturers is required to be added to the assessable value. In the present circumstances and factual matrix the exact amount of such additional consideration was required to be determined for addition to the transaction value even if all the statements and documents were held to be admissible evidence and satisfied the test of Section 9D of the Central Excise Act. 1944. In Appeal Nos. E;1196d/2013 and E/12386/2014 the valuation has been enhanced solely based on the assumption that after booking of the case these appellant enhanced their prices. In the case of transaction value realm the same product can be sold at different prices as per Section 4 of the Central Excise Act, 1944 unless actual additional consideration has been shown to have flown back to the appellants. Appellants in these appeals

ITA Nos. 2204 & 2205/Ahd/2017 15 . A.Ys. 2009-10 & 2010-11 and in Appeal Nos. E/13720/2014 and E/534/2011 have alsonot admitted during investigation that thev have received any additional consideration. in other appeals on the issue of ndervaluation investigation attempted to show the flow back of such additional cash flow through the statements of ceramic tile manufacturer and the statements of Shroffs and Angadias. The amount so worked out has been worked out to be Rs. 38,i95,860/- as per the statement ofShri Jayesh Patel, Prop. Of Ms. Kevel mentioned in Para 9.3.3 of OIO dated 23.03.2011 in the case of M/s. Belgium Glass & Ceramics. This statement clearly conveys that amount ofRs. 38,95,860/-was paid to various frit manufacturers and at the same time mentions that the names of the frit manufacturers are not written against each payment in the concerned documents. Under the above factual matrix appellants had the right to cross-examination the witnesses especially Shroffs and Angadias as to what portion of such payment belongs to a particular appellant. As mentioned in the definition of Transaction Value in Para 11.1 above, only actual price paid or payable has to be added to the transaction value and noil a hypothetical value based on averaging of prices or standardising of frit grades. As already mentioned under the realm of transaction value as per Section 4 even the same product could be sold at different price.-, depending upon several market factors and all these prices will be acceptable as permissible transaction value. Present Section 4 does not go by the concept of Normal Price' of the old Section 4 of the Central Excise Act, 1944. In the absence of exact quantification of cash received by .individual frit manufacturer, transaction value cannot be enhanced even if there are half cooked circumstantial evidences to the proceedings indicating suspected undervaluation. It is now well understood that suspicion howsoever grave cannot take the place of evidence. Therefore, it may not be correct to hold that preponderance of probability should a/ways be given to the Revenue, avl Hon Ue Apex Court in a particular held it to be so. Each case has to be decided in view of the facts of that case. In view of the above observation and the law laid down bv the Apex Court in the case of A. Tajudeen vs. LOI (supra) preponderance of probability cannot always be allowed in favour of the Revenue when there is no independent corroboration of the facts and the case is made only on the basis of statements which were not allowed to be tested under cross- examination as per Section 9D (l)(b) of the Central Excise Act, 1944. 14\ In view of the reasons recorded above, appeals filed by the appellants mentioned in paras 5.1" 2. Clandestine Removal of goods. Further, assessee has showing less production accordance to the show cause notice issued by th DGCEl, assessee company has showing consumption of 2044.49 SCM of natural Gas for the manufacturing OJ Mt production of Ceramics Glaze frit. On verification of show cause notice, the DGCEl has adopted the vasis of Gas consumption for allegingand ascertaining quantities of frit clandestinely produced and removed by the dealer.

ITA Nos. 2204 & 2205/Ahd/2017 16 . A.Ys. 2009-10 & 2010-11 The DGCEl has adopted 484 SCM Natural Gas consumption foi manufacturing of IMT frit and the quantities of fritalleged/y illicitly manufactured /.•-, worked out a! Annexurc D-2. Sir, Natural Gas. is not the only input or consumable for manufacturing of Ceramic G/axe Mixture and it isconsumoble goods not ingredient with frit. A fere so many row materials required for manufacturing offr'it, natnely Quartz. Feldspar, soda feldspar, potassium, Borax spenta ,Boric Acid, Zinc Qxide, Calcite,China. Clay, Dolomite, Alumina etc. all these raw materials found in equal quality and no variation mproduction and consumption DGCEI has only assumption and presumption and calculated excess production. Respected sir, Natural Gas is as aforesaid not an input or consumable on the basis of which production of frit could have been alleged against us. The DGCEI has also committed a grave error in considering the quantity of gas for which payment was made by us to the supplier, namely ONGC as the quantity of gas actually consumed by us for manufacture of frit. The following facts have not been considered by the DGCLI while raising demand of duly on the basis of GAS consumption and therefore, we request you to considering the following of this case also. By Virtue of an agreement between ONGC and assessee Company, GAS us supplied to us by ONGC to use minimum 80% to 90% of monthly quantity, otherwise company has paid MGO (Minimum Guaranteed Off Take) and your reference assessee has paid MGO for (he year under consideration. In other word the DGCEI has worked out excess consumption of GAS but real fact is that the assessee hot consumed his minimum monthly quota up to 80% to 90% and very huge amounts paid as MGO/penalty, therefore excess consumption of GAS and dealer has achieved excess production offrit and remove without pay duty is not logical. Further, assessee has used 520 SCM (37 M3 Gas per nour) Gas for generated captive power from Generator, however DGCEI has not considered the same and calculated all gas consumed lor manufacturing for frit only, in this regard we enclosed herewith copy of technical data for your reference. Further the Honorable Tribunal in assessee own case ( Central Excise and Custom Tribunal West Zonal Bench, Ahmedabad (Appeal No. E/l 3289/2014 dtd.24.09.2014) observed that; "8.6 In view of the above observations made by this Bench it has already been held that method adopted by the investigation to estimate clandestine removal of finished goods is not sound and has to be discarded. However, Revenue was given an opportunity to strengthen their case by corroborating evidence with some more factual data from additional studies. No appeal has been filed by the Revenue against the above order passed by this Bench. It is also observed from 3.2 of the remand order that appellant has made certain changes in the plant and\machinery and other methodologies to reduce gas consumption. Even in the remand proceedings also adjudicating authority has not countered the arguments taken by the appellant as to why the steps taken by

ITA Nos. 2204 & 2205/Ahd/2017 17 . A.Ys. 2009-10 & 2010-11 them from time to time, does not effect gas consumption. On a specific query from the Bench, the learned Senior Advocote also argued that similar modernization in processes of manufacture, as undertaken by M/s. Wellsuit Gloss in the manufacture of frit, have also been undertaken by other appellants. No findings have been given by the Adjudicating authorities in countering the claims of the appellants, justifying the modernization done to reduce consumption of gas from time to time. No expert opinion has been obtained by the Revenue to challenge the gas consumption pattern adopted by the appellants to indicate that claim of the appellants was wrong. 8 In view of the above observations and judicial pronouncements, methodology adopted by the Adjudicating authorities in estimating and demanding duty from the appellants based on consumption of natural gas, electricity consumed and pocking time taken; is not is not acceptable and is required lo be rejected. " Respected sir it is admitted that entire re assessment proceeding carried on the basis of show cause notice issued by the DGCEI and your goods selves proposed addition on the basis of show cause notice. However show cause notice issued has been dismissed/ the demand of excise duty has been nullified then the basis itself remains no more to make any addition on account of under valuation of goods and clandestine removal of goods. 3. In respect of statement ofShri Harshadbhai C Patel Director of the company and Rameshbhai C Patel, Production manager has retract on very next working day, therefore it is not bound to the assessed in respect of undervaluation of foods and clandestine removal of goods. 4 Further, your goods selves has relied the order of Honorable CIT(A) in case of Zirconia Cera Tech Glaze vide order CIT(A)/GNR/74 & 73/2014-15 dated 22101.2016 for asstt. Year 200/-08 and 2008-09, identical issue involved in case of assesses and the Honorable CIT(A) has decided appeal in favour of revenue and it is not good reasons to make an addition to the total income of the assessee because of in case Supreme Glazes Private Limited, Honorable CIT(A) - II, vide his order C1T(A) - 2/197/OC. S.K. Cir.HMT/2014-lS dtd.22.01.2016 for asst. year 2007-08 decided in favour of Appellant. It is further submitted that the assesses has also filed an appeal for asst. year 2006-07,2007-08 and 2008-09 before Honorable CIT(A), Gandhiangar and same is not adjudicate till date. 5 .Further in respect of rejecting books of accounts, provision of section 145 of the Act not invoking in present case of assessee because of your good selves has proposed addition merely cm the basis of the finding in the show cause notice issued by the DGCEI, without any independent dejects or discrepancies has been pointed out and on the facts when the. original basis of addition i.e. show cause notice issued has been dismissed/ the demand of excise duty has been nullified then no more addition required in case ofassessee under the 1 T Act.

ITA Nos. 2204 & 2205/Ahd/2017 18 . A.Ys. 2009-10 & 2010-11 6. Further your goods self has proposed addition of Rs. 433955681 on account of under valuation of goods and clandestine removal o{ goods. However, we have all ready submitted following details in our previous submission. : [II Copy of Sales Invoice. In respect of sales invoice for the year under consideration,] the DG CEI has impounded all sales and impounded all sales and purchase invoice for further verification during the course of search. [2] Details of Sales A copy of sale register with party- wise, item wise in quantity and value on monthly basis submitted in our previous submission. [3}. Copy of Bonk Statement A copy of Dank statement submitted in our previous submission. [4] Copy of Audit report and Balance Sheet. A copy of audit report with statement of income submitted in our pervious submission. Over and above issue involved for asst year 2006-07, 2007-08 and 2008-09, them. The A.O has made addition on account of GP @ 15'% on undervaluation of goods and clandestine removal of goods, thus addition of Rs.48395568/ not sustain. : 7 Even if your good self oj in view that the assessee has undervaluation of goods and clandestine removal of goods as a/lied in show cause notice issued by the DGCEI, therefore it is our request to you goodself please provide an opportunity for cross examine to the details/documents collected against the assessee except show cause notice issued by DGCEI and provide following details/documents so proper reply can be given. 1 Detail working in respect of under valuation o] goods and clandestine removal of goods ofRs.483 9556S/ for the year under consideration. 2. Complete documentary evidence regarding under valuation or illicit removal of goods and coy of all ledger a/c of buyers in which you are relied that the assessee has escapement of turnover. 3. Detail working of consumption of-GAS for production of Ceramines Glazes Mixutre, frit in which you are relied that the assessee has clandestine removal of goods. : 4. Detail working of under valuation of ceramics glaze frit. 5. Details with contra ledger a/c of buyers in which you are relied that the assessee has clandestine removal of goods. : 6. Details with contra ledger a/c of buyers in which you are relied that the assessee has made sales in under valuation oj goods. : 7. Complete name and address to who collected cash amount on behalf of Assessee Company. 8. Request for cross examination to all buyers /suppliers as mention in notice issued by DGCEI.

ITA Nos. 2204 & 2205/Ahd/2017 19 . A.Ys. 2009-10 & 2010-11 9. Any other details/ documents with regards to the transaction appearing in the name of the assessee company with the dealers as mentioned in Show cause no lice issued bv DGCKI. " 6.0 The assessee was specifically asked to produce that books of accounts with a/I the invoices, vouchers, bills, registers, etc vide the above referred show cause notice dated 12/02/2016. However, it failed to produce the same on given date. For the sake of natural justice, another opportunity was provided vide order sheet entry dated 23/02/20-16 to produce the complete set of books with bills/vouchers & registers. Al-so, as per the request of the assessee, it was provided an opportunity for cross examination of Shri Harshadbhai C Patel, Director whose statements were recorded by the Central Excise Department as we/I as by this office in the re-opening proceeding for A. Ys 2006-07, 2007-08 & 2008-09. However, neither Shri Harshad Patel nor the A.R. or other directors remained present on the given date. One of the staff Shri Manish S. Patel. attended in afternoon session, however, neither any submission filed nor the books of accounts produced. He even denied signing on the order sheet dated 29/02/2016. Thus, the assesses intentionally avoided the opportunity granted for cross examination of the witness. Thereafter on 01/03/2016, the assessee filed a submission containing computerized details of stock & production. '- Therefore insipte of giving sufficient opportunity to the assessee to be present ; along with the books of account the assessee foiled to do so , therefore in the absence of books the photocopy submitted by the assessee cannot be relied upon . 6.1 . However, on careful scrutiny of the submission, it was revealed that the main contentions of the assessee in its submissions dated 23/02/2016 are that: " The Excise Department has arrived at value of frit only on reason that the dealer has increased price and is only a mere assumption. The clandestine production as worked out by the DGCLI is only based on gas consumption. . 6.2 The assessee further stated that if addition ought to be made then it should be restricted to the element of Net Profit. 7. The submission of the assessee is considered and dealt with as under: 7.1 "The contention of the assessee that the computation of suppressed sale and clandestine product by the Excise Department as per Show cause notice dated 09.02.2010 is on conjecture & surmise only is not correct. The DGCEI has unearthed the evidence of such suppression in the invoice value as well as clandestine removal of goods, after conducting a thorough investigation as well as after recorded statement of various persons including that of Director of the assessee company. Based on such investigation DGCEI has issued a detailed Show Cause notice dated 09.02.2010 inter alia detraining the total suppression by the assessee (or the period. The said show cause notice is fully relied upon in this assessment order. The important findings of DGCEI relevant to the assessee are as under:

ITA Nos. 2204 & 2205/Ahd/2017 20 . A.Ys. 2009-10 & 2010-11 7.2 A search operation was conducted at the premises of M/s. Grow More Ceramics pvt.ltd.on 29.08.2008, several documents were seized and statements of Shri Harshadbhai C. Patel, Director of M/s Growrnore Ceramics Pvt. Ltd. were recorded by the Excise Department. In the said statement Shri Harshadbhai C. Patel in which he admitted '-that company was involved in issuing parallel invoices. He also admitted that rates charged were much lower than the actual selling price i.e. the company were charging less selling price in the invoices issued from your factory and collecting cash amount over and above the invoice amount. It has also been confirmed by these buyers of Frit that the amount shown in the Invoice were being paid by them through cheques whereas the remaining amount was being paid by them in cash. During the course of investigation DGCEI has seized documents, some of the documents scanned and findings thereon, given in the said SCN and which are relevant to the case are reproduced below: ".....8.1.Investigation conducted by DGCEI against M/s. Growrnore,,reveais that they have not declaredthe actual assessable value of excisable goods manufactured, and cleared from their registered factory premises, investigation also reveals that M/s. Growrnore had removed quantity of Frit clandestinely without payment of excise duty, under parallel invoices. The documentary as well as oral evidences collected by DGCEI from various premises clearly indicates that M/s. Growrnore was declaring in their central excise invoices only a part of the actual transaction value of Frit manufactured and cleared from their factory. Value of clandestinely cleared Frit as well as the differential value of .undervalued Frits, over and above the value declared in the invoices, were collected by them from their buyers in cash. 8.2.1. M/s. Growmore has gradually started showing higher Assessable Value of Frit in their invoices, after the investigation against Tiles Manufacturers and Frit manufacturers was initiated by DGCEI. M/s. Growmore has started showing Assessable Value of Opaque quality of Frit from Rs. 15/- to Rs. 30 per Kgs. and that of Transparent quality of Frit from ffv l2/» to Rs. 73.30 per Kgs. in the yeor 2008-09 and 2009 10. 8.2.2. Various buyers of Frit from M/s. Growmore, viz........ in their respective statements haveconfirmed that they were getting invoices from the suppliers of Frit by showing the rate of Frit as Rs. 7'/-to Rs. 13/ whereas the actual value of Frit was about Rs. 20/- to Rs. 30/- per Kgs. It has also been confirmed by these buyers of Frit'that the amount shown in the Invoice were being paid by them through cheques whereas the remaining amount was being paid by them in cash. 8.2.3 Shri HarshadbhaiChimanbhai Patel, Director of M/s. Growmore has also confirmed'and admitted that the rates of Opaque and Transparent grade of Frit remain from Rs. 20/- to R:S. 30/- depending upon the quality. The aforesaid documentary evidences as well as oral evidences in the form of statements of authorized persons of Tiles manufacturers who purchased Frit from M/s. Grow/more and statements 'of Shri HarshadbhaiChimanbhai Patel Director of M/s. Growmore

ITA Nos. 2204 & 2205/Ahd/2017 21 . A.Ys. 2009-10 & 2010-11 appear to establish that the Assessable Value shown in the Central Excise invoices do not reflect the correct value of Frit being charged and recovered by M/s. Growmore from.its different buyers. 7.3 Ascertainment of Correct value of frit 9.1.2 M/s. Growmore has started showing Assessable Value of Opaque quality of Frit from Rs. IS/- to Rs. 30/- per Kgs. and that of Transparent quality of Frit from Rs. 12/- to Rs. 23.30 per Kgs. in the year 2008-09 and 2009-10 i.e. after initiation of investigation against Tiles manufacturers and Frit manufacturers by the DGCEI. However, to misled the department, they also started suffixing different codes with the "Opaque"or"JR" grades of frit. 9.1.3 Various buyers of Frit from M/s. Growmore in their respective statements have confirmed that actual value of Frit was about Rs. 20/- to Rs. 30/- per Kgs. 9.1.5 During the course of investigations, it is found that from 2008-09, M/s Growmore, started gradually increasing the prices of above-mentioned "Opaque" and "TR" grades of frit. On the basis of the classification of different suffix codes under different qualities of frit submitted by the Director of M/s Growmore, it is found that in the Central excise issued by M/s Growmore, the prices were increased from Rs. IS/ per Kg of "Opaque grade" in the beginning of 2008-09 to the highest price of Rs. 30/~ and the prices varied in invoice to invoice as well as per the codes. Similarly, under the "TR" grade also, the prices were increased from Rs. 12/- to Rs. 23.30 per kg. in the Central Excise invoices issued by them. The price for the new quality of "Opaque for fast firing application" has also varied from Rs. 25.30 to Rs. 30/- per kg in the Central Excise invoices issued by them. The prices for the new "TR for Fast firing application" also fluctuated from Rs. 22.50 to Rs. 27/- per kg from invoice to invoice and buyer to buyer. Finally, regarding the last grade i.e. "TR for engobe application", Shri HarshadbhaiChimanbhai Patel, the Director of M/s Growmore in his statement dtd. 30-01 2010, explained that though the rate shown in the Central Excise invoices issued by them has been Rs. 12.50 per kg, but the actual rate collected by them was same as like the "TR" quality only. From the copies of invoices and the data submitted by M/s Gromore, it is found that similar pattern has been followed by M/s Growmore during the financial year 2009-10 also. Therefore, as the rates charged by M/s Growmore, under different invoices varied und.er invoice to invoice and buyer to buyer, the highest rates at which M/s Growmore has cleared the particular quality, the same has been considered as the Assessable Value for working out the Central Excise duty leviable thereon. 9.1.6 In view of the investigations and the evidences discussed hereinabove, the- correct Value of Opaque grade and "77?" (Transparent) grade of Frit manufactured and cleared by M/s. Growmore can be taken as Rs. 30/- per kg and Rs. 23.30 per kg respectively. Similarly, the correct value of "Opaque grade for'- Fast Firing process" has also been Rs. 30/-, while for "TRforEngobe application" has been similar as to "TH" i.e. Rs. 23.30 and the correct value of "TR" for Fast Firing

ITA Nos. 2204 & 2205/Ahd/2017 22 . A.Ys. 2009-10 & 2010-11 application has been Hs. 27/~.

9.1.7 Accordingly, on the basis of the details of clearances of Frit submitted by M/s. Growmore during the course of investigation, the officers of DGCEI prepared a chart to work out the central excise duly short-paid by them during the period from January'2005 to 2009-10 [Till October' 2009], which is attached to this notice as Annexure-D-1 7.4 Clandestine removal of Frit by M/s. Growmore 10.1.1 The details of the paralled invoices detected during the course of investigation and discussed under above-mentioned Para 5 to this show cause notice, has revealed that during the period from 2005-06 to 2007-08, M/s Growmore, has been engaged in the removal of "Opaque" and "Transparent" grades of frit under the parallel invoices mentioned in the above para. On comparing details shown in the parallel invoices and corresponding official Central Excise invoices and withdrawn from M/s Growmore and the facts narrated by Shri HarshadbhaiChimanbhai Patcl, the Director of the said company, it was found that they are cleared the quantity and quality of frit mentioned in the paralled invoices to the buyers mentioned therein the paralledinvoices, which was not accounted for in their books of accounts. This indicates that M/s. Growmore was also indulging in clandestine removal of Frit manufactured by them. 10.1.2. As the parallel invoices mentioned in the para 5 above, belonged to different financial years and having various Serial numbers, corresponding to the Serial number of invoices issued on or after the dates of issuance of official Central Excise invoices bearing the same Serial numbers, it appears that the clandestine clearance made under the above-mentioned parallel invoices were only a quantum cleared the buyers mentioned in the parallel invoices and the total quantum of clandestine manufacture and clearance of Frit manufactured by M/s. Growmore is required to be ascertained. 7.5 Investigation on the basis of Month-wise production and Gas Consumption:- 11.1.1. During the investigation, the Director of M/s. Growmore had stated that their factory is using Natural Gas as fuel and that they use electricity for operating electric motors, installed in their factory, it was also ascertained that M/s. Growmore was procuring such Natural Gas from M/s Oil and Natural Gas Commission of India Ltd. (ONGC) as per their allotted quota. Therefore, details of consumption of Natural Gas and the corresponding quantity of Frit manufactured by M/s. Growmore was called for under summons dated 17-09-2009. Accordingly, on 24.12.2009, M/s. Growmore submitted data containing details of gas consumption and total quantity of Frit manufactured during the period from January'2005 to October'2009. The. officers of DGCEI prepared a chart which indicates the summary of the data furnished by M/s. Growmore, which is attached to this notice as 'Annexure- B.

ITA Nos. 2204 & 2205/Ahd/2017 23 . A.Ys. 2009-10 & 2010-11 11.1.2. Col. No. 2 of the chart indicates the total quantity of Frit shown to have been manufactured by M/s. Grow/more in each month alongwith total quantity for each financial year. Col. Ato. 3 shows the total quantity of natural gas consumed in Standard Cubic Meters during each month. Col. No. 4 has been worked out to ascertain the quantum of gas consumed each month for manufacturing one MT of Frit. 11.1.3 During the course of recording his statement on 24.12.2009, Shri HarshadbhaiChimanbhai Patel, the Director of M/s. Growmore, who also looks after production work, had explained the details regarding actual gas consumption required for manufacturing one MT of Frit in his factory. He stated that they are having 3 Kilns, out which they generally use two kilns and one is kept as standby, on an average, 500 SCM natural gas is used to manufacture 1 MT of Frit .11.1.4 The analysis of month wise consumption of Natural Gas and corresponding quantity of I rit manufactured by M/s. Growmore reveal that M/s. Growmore can manufacture 1 MT of Frit by consuming as low as 374.65 SCM of natural gas in the month of April'2008. In fact, during the month of February 2005, M/s. Growmore has manufactured 111.0 MT of Frit by consuming 226894 SCM of natural gas, which works out to 2044.49 SCM of natural gas for 1 MT of Frit. .11.1.5 .1 Therefore, in order to physically ascertain the consumption of : Natural gas in the day-today production of frit carried out by M/s Growmore, a .study of continuous four batches of production during the day was carried out by the officers of DGCEI under Panchnamadtd. 27 & 28-01-2010 drawn in presence of two independent Panchas, Shri HarshadbhaiChimanbhai Patel, the •Director of M/s Growmore Ceramics Pvt. Ltd. and Shri RameshbhaiChhaganbhai Patel, the Production incharge of M/s Growmore. It was noticed that. M/s Growmore had total three Rotary Kilns, out of which two were in the working condition in which production batches were under process and the third kilns was not working, kept as stand- by, as explained by Shri HarshadbhaiChimanbhai Patel, the Director of M/s Growmore. The entire production process was observed by the officers of DGCEI and simultaneous consumption of Natural Gas was recorded from the nearby ONGC gas station. During the course of said Panchnama, the "TR for Fast Firing" grade was under production and the details of production in the four batches observed during the course of above-mentioned Panchnama are as under:

ITA Nos. 2204 & 2205/Ahd/2017 24 . A.Ys. 2009-10 & 2010-11 Batch Production In lost Rotary Kiln Production in first Rotary Kiln

Batch Batch dis- No. of Quantity of frit Batch charging Batch ; dis- No. of Quantity of frit charging charging tirna bags produced (kgs) time charging time bogs produced (kgs) time filled filled

1st 430 hrs 9. 15hrs 3'/ 1850 05. 45 hrs 10. 30 Hrs 36 1800

llnd 10.30 hrs IS. 15 hrs 36 1800 11. 30 hrs 16.30 hrs 36 1800

llIrd 16.05 hrs 2 1.00 hrs 36 1800 1 7. 30 hrs 22. 15 hrs 36 1800

IV th 21.45 hrs 02. 30 hrs 36 1800 23.15 hrs 04.00 hrs 37 1850 :

TOTAL 145 7250 TOTAL 7250

11.1.5.2During the course of above-mentioned production in four batches, the reading at ONGC, GGS station, showed the recording of 7017 SCM of Natural Gas. Thus, the total Gas consumed obtained from M/s ONGC, GGS, Paliyad, was 7017 SCM from 06.00 of 27 01-2010 to 04.00 hrs. of 28-01-2010 and the quantity of frit manufactured and packed was 14500 Ml, as per the production carried out in the above eight batches (four botches each of two Rotary machines). Shri Harshadbhai Patel, the Director of M/s GrowmoreCeramics .Pvt. Ltd., agreed with the figures of gas consumption recorded from M/s ONGC and the production obtained. llil.5.3 Considering the consumption of /017 SCM of Natural Gas and production of 14.500 MT of "TR for gast firing grade" frit, it was noticed that, against the average consumption of 500 SCM gas as stated by Shri HarshadbhaiChimanbhai Patel, the Director of M/s Growmore; 483.93 i.e. 484 SCM of Gas consumption has been worked out. The same has been applied in working out the exact production by M/s Growmore, during the period from January'2005 to October'2009, the details of which are given under Annexure-D-2 to this show cause notice. 7.6 Investigation regarding the actual production capacity of M/s. Growmore:- 12.1.1. Investigation revealed that the crucial machinery which is required for manufacturing Frit is the furnace [Kiln/. Therefore, investigation was extended to ascertain the details regarding such Kilns installed in the factory of M/s. Growmore. In pursuance of a summons dated 14-12-2009, Shri HarshadbhaiChimanbhai Patel, Director of M/s. Growmore submitted the details of all items of plant and machinery installed in his factory in his statement dtd. 24-12 2009.

SI. [No. Item description No. machines of 1 Rotary Kiln (14 feet in length) 3 Nos. 2 Mixture (2 MT capacity) 1 Nos 3 Generator (Natural Gas based capacity) 1 Nos

ITA Nos. 2204 & 2205/Ahd/2017 25 . A.Ys. 2009-10 & 2010-11

4 Silo 2 Nos. ' 5 Bucket (1 MT) 2 Nos. 6 Trolley 1 Nos . 7 2 Nos. Overhead crane (1 MT) 8 Electric motors 3 Nos. :

12.1.4. The aforesaid analysis of the production capacity of the kilns vis-a-vis the recorded quantity of production as well as the actual gas consumption, thu$ appears to substantiates the fact that M/s. Growmore was not accounting-far the entire quantity of Frit manufactured in their factory, and was clearing the same surreptitiously without issuance of central excise invoices and without payment of central excise duty 12.1.5. However, the aforesaid investigation conducted by DGCEI from different angles, i.e. consumption of natural gas, production capacity as well as the actual production quantity which was verified under proper panchnamg, etc. conclusively establishes large scale suppression of production and clandestine removal of Frit by M/s. Growmore. Although, the analysis conducted from these different angles also corroborated to each other, it appears that the consumption of natural gas is the best parameter for quantifying the actual production carried out by M/s. Growmore, as the entire quantity of gas procured by them were through ONGC and which are totally accounted for in their bfficial records. 12.1.6. Investigation conducted on the basis of the consumption of natural gas as well as the actual production capacity of M/s. Growmore, as discussed above incontroverlib/y establish that M/s. Growmore had Manufactured Frit far in'excess-of the quantity recorded by them in their statutory records on which excise duty was paid by them. The monthly analysis of gas consumption by M/s. Growmore, as discussed above is fully corroborative to the above fact. The consumption of natural gas was found in excess of their normal requirements during each month, if the quantity of frit manufactured shown in official records alone is considered. 12.1.7. Consequent upon the investigations initiated by.DGCEI against most of the tile manufacturers as well as Frit manufacturers, these frit manufacturers have started showing higher assessable value of their frit in the invoices land higher production of frit in their statutory records as compared to! the assessable value and production being shown by them prior to the investigation by DGCEI. Analysis of the monthly production quantity declared by M/s. Growmore in their official records vis-a-vis their consumption of natural! gas during the period from

ITA Nos. 2204 & 2205/Ahd/2017 26 . A.Ys. 2009-10 & 2010-11 January'2005 to October, 2009, conclusively establishes suppression of production and clandestine removal during the preceding period. Thus, investigation regarding clandestine removal conducted by DGCEI is fully substantiated from the documentary evidences recovered from the various premises as well as the oral evidences recorded from various witnesses....." { 8.0 On going through above findings of the Excise department it is clearkhat the rate taken for valuation of frit by the Excise department is not based on mere assumption, as claimed by the assessee in his reply. The Ekcise department h;is arrived at the price by virtue of a deep investigation and the facts accepted by the director of the assessee and various buyers of the assessee. Further it is also revealed that after the search proceedings the assessee, suddenly started showing sale value of frit on invoices upto Rs.23.30/- per kgs. which was previously shown al Rs.7/- to 15/-per kgs. The value of the frit as taken by the F.xciso Department, for working undervaluation, is very near or less to the value as shown in the invoices by the assessee itself after the investigation. The quantum of clandestine goods worked out by the : Excise Department is also based on facts and findings during the investigation, which is well accepted by the director and production in-charge of the assessee company. The Excise Department, before arriving at the quantum of clandestine goods, has gone through the capacity of production of the firm, consumption of raw material as well as natural gas and electricity. The Excise Department has done a physical verification of production viz-a-viz gas consumption on 27 & 78.01.20.10. The excise department also found parallel invoices issued by the assessee to two buyers for two different quantity of product. \ 9.0 The above findings of undervaluation and clandestine removal of goods has been accepted in the statements given before the Excise Department on oath, of the Director, Production In charge and various buyers of the firm. The relevant portions of the statements are reproduced as under: i "13.5Statement dated 30-0.1-2010 of Shri Harshadbhai Chimanbhai Patel, Director of M/s. Growmore :- Q. 6; How much is the consumption of natural gas per unit production of glaze frit? A.6: Sir, as stated in my earlier statement dtd. 24-12-2009, to manufacture one MT of glaze frit, average 500 Cu Mtr gas is consumed. So, on consumption of 500 Cu. Mtr. Gas, 1000 Kgs glaze frit isproduced. Q.9: On scrutiny of the invoices withdrawn under Panchnamadtd. 29-08-2008 and furnished by you on 24-12-2009, it is found that during the year 2008-09 and 2009-10, in the invoices issued by you; you have mentioned the quality of frit with different product codes as suffix to either "Opaque" or "Transparent" quality Please explain the details of the different product codes allotted by you during the year 2008-09 and 2009-10? A.9: Sir, as stated in my earlier statement dtd. 24-12-2009, during the period from 2004-05 to 2007-08, in our factory, we. were manufacturing only two different grades of Glaze frit i.e.

ITA Nos. 2204 & 2205/Ahd/2017 27 . A.Ys. 2009-10 & 2010-11 "Opaque" & -'Transparent" and we were clearing the same mentioning our product description as "Ceramic Glaze Mixture" and quality as either "Opaque" or "77?" in accordance with the quality cleared. So, during the above period, we were not allotting any codes at that time and rates charged were much lower than the actual selling price i.e..we were charging less selling price in the invoices issued from our factory and collecting cash amount over and above the invoice amount. Thereafter, in the months ofJanuary'08 and February'08, DGCCI initiated investigations against the Ceramic tile manufacturers, in 2008-09, we introduced different codes like "R", "Std", "H", "I" and "L" to our product and also increased the selling rates. Then in 2009-10, we again changed the codes and introduced new codes like 111, 0022, 2118, 222, GFO, GFT, GFT-, etc. This act was carried by us in order to mislead the investigating agencies. ... Q.16: Please peruse the statements dtd. 14 09-2009 and 24-12-2009 of Shri BimalChandrakantChandibhamar, the Director of M/s Akash Ceramic Pvt. Ltd., Mqrbi and explain the details mentioned therein ? A. \16: After perusal of the above-mentioned statements dtd. .14-09-2009 and 24-12-2009 of Shri Bimal Chandiakant Chondibhumar, the Director of M/s Akash Ceramic Pvt. Ltd., Morbi, in token of my agreement with it, I put my dated signature on it. Further, I state that from our factory, we use to clear "Opaque" grade frit to M/s Akash Ceramics Pvl. Ltd. during the financial years 2006- 07 and 2007-08. I further confirm that as stated by. Shri Bimalbhai Chandrakant Chandibhamar, the Director of M/s Akash Ceramics Pvt. Ltd., we use to undervalue the frit cleared by us, by showing lower prices in the invoices issued by our company and the remaining amount in cash was collected by me. This act was carried out by us as per the understanding between us. Q.I 8.: Shri Harshadbhai Pate/, you are being shown the 'Original for Buyer' copy furnished by Shri AshokbhaiJayrambhaiSoviani, Partner of M/s Uday Industries and M/s Uday Gold Ceramics, of Invoice No. 132 dtd. 08 08-2007 issued by your company in favour M/s uday Industries for supply of 200 bags i.e. 10000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "77?", at the rate ofRs. 7/- per kg., having value ofRs. 70,000/-, showing Central Excise duty as Nil in view of benefit of Exemption under Notifn. No. 8/2003-C.E. dtd. 01-03-2003 and VAT @ 4 % as Rs. 2,800/-, showing the total value of Rs. 72,800/-. Further, you are also been shown the official ledger of M/s Uday Industries in your favour for the year 2007-08, wherein on left hand side, showing the details of value, date of purchase and Invoice/bill No. of supplier i.e. M/s Growmore Ceramics .P. Ltd. and on Right-hand-side, showing the payments, the date of payment made. Cheque NOS.& date, for the purchases made by you. Alongwith this, you are showing the Invoice No. .1.32 dtd. 10 08-2007 of M/s Growmore 'Ceramics Pvt. Ltd., issued in the name of M/s Seron Ceramics Pvt. Ltd. for 6000 kgs of Ceramic Glaze Mixture Chemicals "Opaque " grade @ Rs. 9/-, having Assessable value of Rs. S4,000/, and 4000 kgs Ceramic Glaze Mixture Chemicals "77?" grade, @> Rs. If per kgs., having assessable value of\ Rs. 28,000/-, total value as Rs. 82,000/- and

ITA Nos. 2204 & 2205/Ahd/2017 28 . A.Ys. 2009-10 & 2010-11 showing Central Excise duty as Nil claiming the benefit of Notifn. No. 8/2003-S.T. (ltd. 01-03- 2003. a/ongwith VAT @ 4 % amounting to Rs. 3.280/, total amount of Rs. 85.280/-. Copies of both the invoices are scanned herein-below. Please explain the same in detail? \ A. 18: Sir. after carefully going through the above two documents, I putl my dated signature on each of it. I state that vide the 'Triplicate copy of assessee' copy of Invoice No. 132 dtd. 10-08-2007 of M/s Crowmore Ceramics Pvt. Ltd., issued in the name of M/s Seron Ceramics Pvt. Ltd. for 6000 kgs of Ceramic Glaze Mixture Chemicals "Opaque" grade @ Rs. <?/-, having Assessable value ofRs. 54,000/-/ land 4000 Kgs Ceramic Glaze Mixture Chemicals - "TV?" grade, (5) Rs.7/- per kgs., having assessable value of Rs. 28,000/-, total value as Rs.82,000/- and showing Central Excise duty as Nil claiming the benefit '•ofNotifn. No. 8/2003-S.T. dtd. 01-03-2003, a/ongwith VAT@4 % amounting to Rs. 3,280/-, total amount ofRs. 85.280/-, we have cleared the above-mentioned quantities of "Opaque " and "77V" grade to M/s Seron Ceramics Pvt. Ltd. and received the total value of Rs. 8S,280/. I further state the above invoices have been shown in the official invoices issued by our company during the financial year 2007-08 and received the payment of the total value mentioned in the above invoice. Further, as regards the "Original of Buyer copy of Invoice No. 132 dtd. 08-08-2007 issued by my company in favour M/s Uday industries for supply of 200 bags i.e. 10000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "77?" of the rate of Rs. 71- per kg., having value of Rs. 70,000/-, showing Central Excise duty as Nil in view of benefit of Exemption under Notifn.. No. 8/2003-C.E. dtd. 01-03-2003 and VAT @ 4 % as Rs. 2.800/-. showing the total value ofRs. 72,800/~, I state that the above quantity of "77?" grade frit from our company has been sold to M/s Uday Industries under the above invoice, however, the said invoice has been a "Parallel invoice" issued by our company, which has issued by our company, alongwith the original invoice No. 132 dtd. 10-08-2007 and we have not considered the same in our official records. .1 further state that the above-mentioned Parallel invoice No. 132 dtd. 08-08-2007 in favour of M/s Uday Industries has been issued by our company for supply of 10000 kgs of "77?" Quality of Ceramic Glaze Mixture i. e. frit from our company to M/s Uday Industries, however, we have not accounted for the above quantity of "77? " grade frit in our books of account and Daily Stock Account register, during t-he material time. I state that as like the official invoices issued by us, we issue in case of parallel invoice also, we issue three copies, out of which the "Original" and 'Duplicate' copies were sent to the buyer a/ongwith the.goods and 'Triplicate copy was retained by us. Further, "Triplicate for assessee" copy of the Parallel invoice No.132 dtd. 08-08-2007, which we retained with us as per routine procedure, I confirm that after dispatch and receipt of the frit cleared under Parallel invoice, we have destroyed the same and we have not kept any records.

ITA Nos. 2204 & 2205/Ahd/2017 29 . A.Ys. 2009-10 & 2010-11 Further, on being asked the raw materials purchase and consumption of it, in the production of above-mentioned WOOD kgs of "77?" grade frit, I state that we had purchased the required raw materials in cash for manufacture of above quantity of "77?" grade frit and that we had not accounted for the said raw materials in our books of account. Regarding the invoices of raw material purchase or its copies, I state that we have purchased the required raw materials in cash and after receipt of the raw materials purchase in cash at our factory premises, we use to destroy the said invoices...." "7.4. Statement dated 23-01-2010 of Shri RameshbhaiChhaganbhai Patel, Production incharge of M/s. Growmore :- : Q.3 lam showing you the statements doted 01-09-2008 and 24-12-2009 ofShriHarshadbhai Patel, the Director of M/s Growmore Ceramic .P. Ltd. , Please go through the same and state as to whether you confirm the same as true and factual? A.3 After care fully going through the facts narrated by Shri Harshadbhai Patel in hisstatements did. 01-09-2008 and 24-12-2009, in token of having seen and confirmed the same, I put my dated signature thereon. Q.4 : Please again specify the details regarding the business activities of M/s. Growmore i.e.product manufactured raw materials consumed, manufacturing process, the machinery installed, etc. ? A.4 : M/s. Growmore is engaged in the manufacture of Ceramic glaze mixture i.e. Glaze Frit. The raw materials which are required for manufacturing glaze frit are Quartz, Feldspar, Dolomite, Calcite, Zinc Oxide, Zinc Floor, Borax, Boric Acid, Soda Ash, etc. We are mainly manufacturing two types of frit, i.e. Opaque and Transparent. The aforesaid raw materials are mixed in the Mixer Machine in the required proportions. When the raw materials are properly mixed, we keep the mix in the furnace for about 5-6 hours at a temperature of about 1400°C to 1500°C. The mixture gets molten in the furnace and thereafter, cold water is poured on such molten liquid wherein the liquid transforms into crystal form. Such crystals are known as glaze frit. As regards the machinery installed in our factory, I state that our factory has 1 Mixers, 3 Smelters i.e.. Furnaces (rotary type), one DG Set and one Cooling Tower. Q.5 ' Please state what type of furnace installed in your factory for manufacture glaze frit andHow many furnaces are installed in the factory premises? Which fuel is used in the furnaces installed? A.5 Sir, our factory has three rotary {urnaces installed, out of which two are usedcontinuously and one is standby. In rotary furnace, a lot of mixture is fed at a time and then mixture is heated, as part of our manufacturing process. Natural Gas is used as fuel in the

ITA Nos. 2204 & 2205/Ahd/2017 30 . A.Ys. 2009-10 & 2010-11 furnace, which is supplied by ONGC. Alongwith Natural gas, we a/so consume Electricity for operation of Electric Motor. Q.6 Please state what is the consumption of natural gas per unit production of glaze frit? . A.6 : To manufacture one MT of glaze frit, average 500 Cu Mtr gas is consumed. In otherwords, from 500 Cu. Mtr. Gas, 1000 Kgs glaze frit is produced. The details of month- wise gas consumption has a/ready been submitted by us. Q-; 7 ;What is the batch size of glaze frit? What is the output of glaze frit in a batch. A. 7 The batch size is generally 2000 Kgs of raw materials. The output of glaze frit in a batchof 2000 Kgs raw material is 2000 kgs. approximately....." The Excise Department has taken statement of 12 buyers, the relevant portion of statement of two buyers is reproduced hereunder for ready reference : "S.1.4.further Statement dated 25-01-2010 of Shri Ashokbhai Jayrambhai Sen, Partner ofM/s Uday Industries and M/s Uday Cold Industries, Morbi:- Q.4 : Can you be specific as to whether there is any change in the cost or qualities of frit supplied by the same manufacturer? For example, is there any change in the different frits supplied by M/s. Growmore Ceramics .P. Ltd, with different product codes during 2008-09 and before it? ' A.4 : As far as M/s. Growmore are concerned, I can confirm that during the period 2006-07 lo2007-08, as well as in 2008-09, we received the same quality of "Opaque" & "Transparent" frit. There has been no change in the quality received by us during the entire period. Thereafter, from 2008-09, M/s Growmore, introduced different does under Opaque and Transparent grades, as well as they considerably increased the price of frit supplied by them, with different suffixed codes. \ Q.5.. Mr. Ashokbhai, you are being shown the 'Original for Buyer1 copy furnished by you, of Invoice No. 132 did. 08 08-2007 issued by M/s Growmore Ceramics\P. Ltd., Kalol in your favour for supply of 200 bags i.e. 10000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "77?", at the rate ofRs.7/- per kg., having value of Rs.70,000/-, showing Central Excise duty as Nil in view of benefit of Exemption under Notifn. No. 8/2003-C.E. dtd. 01- 03-2003 and VAT @ 4 % as Rs. 2.800/, showing the total value of Rs. 72,800/-. Further you are also been shown the official ledger of your firm for M/s Growmore Ceramics Pvt: Ltd., Village Kotha, Kalol for the year 2007-08, wherein on left hand side, showing the details of value, date of purchase and Invoice/bill No. of supplier i.e. M/s Growmore Ceramics .P. Lid. and on Right-hand- side, showing the payments, the date of payment made, Cheque Nos. & date, for the purchases made by you. Alongwith this, you are showing the Invoice No. 132 dtd. 10-08-2007 of M/s Growmore Ceramics Pvt. Ltd., issued In the name of M/s Seron Ceramics Pvt. Ltd. for '6000 kgs of Ceramic Glaze Mixture Chemicals -"Opaque" grade @ Rs. 9/-, having Assessable value of Rs. 54,000/-. and 4000 kgs Ceramic Glaze Mixture Chemicals "77?" grade, @ Rs. 7/- per kgs., having

ITA Nos. 2204 & 2205/Ahd/2017 31 . A.Ys. 2009-10 & 2010-11 assessable value of Rs. 28,000/. total value as Rs.82,000/- and showing Central Excise duty as Nil claiming the benefit of Notifn. No. 8/2003-S.T. dtd. 01-03-2003, alongwith VAT (a) 4 % amounting to Rs. 3,280/-. total amount of Rs. 85,280/-. Copies of both the invoices are scanned herein- below. Please explain the same in detail? A 5 ;Sirk, after carefully going through the above two, documents, I put my dated signature on each of it. I state that vide the. Invoice No. 132 dtd, 08-08-2007 issued by M/s Growmore Ceramics P. Ltd., Kalol in our favour for supply of 200 bags i.e. 10000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "77?", at the rate of Rs. //per kg., having value of Rs. 70,000/-, showing Central Excise duty as Nil in view of benefit of Exemption under Notifn. No.8/2003-C.E. dtd. 01 03-2003 and VAT @ 4% as Rs. 2,800/-, showing the total value of Rs. 72,800/-, we have received the above quantity of "TR" grade frit from M/s Growmore, and we have made the payment to M/s Growmore as shown in the copy of Account ledger of M/s Growmore submitted by us. Regarding the "Triplicate for assessee" copy of Invoice bearing the same No.132 dtd 10-08 2007 of Growmore issued in the name oj M/s Seron Ceramics Pvt Ltd, I do not know anything so I cannot comment on it. 5.1^3.Further statement ofShrl Ashokbhai Jayrambhai Savsani, the Partner of M/s Uday Industries and M/s Uday Cold Ceramics, Morbi was recorded on 24-12-2009, in question answer format. The questions asked and the answers given by him are as under: Q.12 : In your earlier statement dtd 16 09-2009, you had staled'that there was undervaluation on ceramic frit by the frit manufacturers, as the manufacturers including M/s Growmore Ceramics .P. Ltd., Kolol were showing the rate of frit as Rs. 7/- to Rs. 9/- kg. and said amount was paid through cheques and frit manufactures were collecting the same proportion of amount in cash, over & above invoice amount, as the actual value of frit was about the Rs. 20/- to Rs. 26/- per kgs. PI confirm. A. 12 : Yes, I again confirm. As regards to M/s Growmore Ceramics Pvt. Ltd, I slate that the differential amount was to be given over and above the invoice declared rate in cash to Shri Harshadbhai, the Director of Ihe Company...." "5.7.Statement dated 07-01-2010 of Shri NileshbhaiMaganbhaiGhodasara, the Director ofM/s Seron Ceramics Pvt. Ltd., Morbi:- Q.14 : Mr. Nileshbhai, DGCEI has initiated investigation against a large number of fritmanufacturers and tile manufacturers and accordingly, it is revealed that the frit manufacturers ware not issuing their invoices by showing the actual value. DGCEI observed thai the frit manufacturers were collecting the different value of frit, over and above the value declared in the invoices, in cash. DGCEI has also initiated investigation against, your manufacturing unit, as a result of which, Show cause notice was issued to you and during the course of which, you had paid Rs. 18 lacs towards Central Lxcisc duty. It appears that in order to

ITA Nos. 2204 & 2205/Ahd/2017 32 . A.Ys. 2009-10 & 2010-11 suppress the actual cost of production, so as to tally the same with the undervalued cost of your ceramic tiles, you have also purchased ceramic frit by undervaluation. Your statement is recorded under the provisions of Section 14 of CEA, 1944 and you are expected to give correct answers to the questions asked to you. Keeping in mind these facts, please explain the nature of dealings undertaken by you with the aforesaid frit manufacturers? A. 14 : I confirm that result of the Investigation against tiles &frit manufacturers as well as ourown firm by DGCEI. Further, I state that during the period from 2004-05 to 200/-08, the frit manufacturers were issuing their invoices by showing about Rs. //- to Rs. 12/ per kg in their invoices. Thereafter, from 2008-09, they have increased the prices from Rs. 20/ to Rs. 307- per kg, which were the actual values. So, in the past period, over and above the invoice amount, we were paying remaining amount in cash directly to the frit manufacturers. Q. 18. : Mr. Nileshbhai, you are being shown 'Duplicate for Transporter' copy of Invoice No. 348dtd. 04-02 2007 (bill Book No. 07j. issued by M/s Growmore Ceramics P. Ltd., Kalol in your favour for supply of 60 bags i.e. 3000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "Opaque ", at the rate ofRs. 9/- per kg. and 40 bags i.e. 2000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "TR", at the F.ate of Rs. 7/- per kg., having total value of Rs. 41,000/~, showing applicable Central Excise duty @ 16% ofRs. . 6,560/- and Edn. Cess @2 % amounting to Rs. 131/~ also showing the levy of VAT @ 4 % amounting lo Rs. 1,908/-, thus showing the total value of Rs. 49,599/-. Further you are also been shown the official ledger of your firm for M/s Growmore Ceramics Pvt. Ltd., Village-Kolha, Kalol for the year 2006-07, wherein on left hand side, showing the details of value, date of purchase and Invoice/bill No. of supplier i.e. M/s Growmore Ceramics .P. Ltd. and on Right-hand-side, showing the payments, the date of made, Cheque Nos. & date, for the purchases made by yo'u. Alnngwith this, you arc showing the Invoice No. 348. dtd: 07-02-2007, in Invoice book No. 07 of MsGrowmore Ceramics Pvt. Ltd., issued in the name of M/s Uday Industries, Morbi, for 10000 kgs of Ceramic Glaze Mixture Chemicals - "Opaque " grade @ /fo. 9/-. having Assessable value of Rs. 90000/, Central Excise duty as Rs. 14.400/- @ 16% adv. And Educn.Cess as Rs. 2881, VAT @4 % amounting to Rs. 4,188/- total amount ojRs. 1,08,876/. Copies of both the invoices are scanned herein-below. Please explain the same in detail? SCANNED COPY REPRODUCED. A. 18- Sir, after carefully going through the above documents, I put my dated signature on each of it. I state that vide the ' 'Duplicate for Transporter' copy of Invoice No. 348 dtd. 04-02-2007 (bill Book No. 07) issued by M/s Growmore Ceramics P. Ltd., Kalol in your favour for supply of 60 bags i.e. 3000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "Opaque", at the rate of Rs. 91- per kg. and 40 bags i.e. 2000 kgs of Ceramic glaze mixture Chemicals, describing the

ITA Nos. 2204 & 2205/Ahd/2017 33 . A.Ys. 2009-10 & 2010-11 quality as "77?", at the rate ofRs, I/- per kg., having total value ofRs. 41.000/, showing applicable Central Excise duty @ 16 % of Rs. 6.560/- and Edn. Cess (a) 2 % amounting to Rs. 131/ also showing the levy of VAT @ 4 % amounting in Rs. 1.S108/-, thus showing the total value of Rs. 49,599/-, we have purchased 60 bags i.e. 3000 kgs of Ceramic glaze mixture Chemicals, describing the quality as "Opaque", at the rate ofRs. 91-per kg.and ; 40 bags i. e. 2000 kgs of Ceramic glaze mixture Chemicals of "Transparent" quality of frit from M/s Growmore, and vide Cheque. Nos. 1461329 dtd 26-02-2007 and Cheque No. 1461348 dtd 13-03-2007 of HDFC Bank, as shown in the Account ledger of M/s Growmore furnished by us, we have made the payment to M/s Growmore, Regarding the Invoice bearing the same No. 348 dtd. 07-02- 2007, of bill book No. 07 of M/s Growmore, I do not know anything, so I cannot comment on it.... " 10.0 From above, it is crystal clear that the assessee was indulged in ; undervaluation of its sale bills and clandestine removal of goods produced, which was subsequently sold out of Books. The fact also gets support from the assessee itself for the reason that the assessee has in it's reply accepted and submitted that the additions on this issues may be restricted to N.P. rate only, lit is also pertinent to mention here that the assessee had also paid Excise Duty of Rs.30.00 lacs as Excise Duty against the suppressed value and clandestine removal of goods as determined by UK? DGCEI. In other words the assessee has already admitted the suppression of sales and clandestine removal of goods. 11.0 Now the question is whether the whole amount is to be taxed or only the Net Profit, as requested by the assessee in its written reply dated NIL received in this office on 19.03.2014. The assessee's contention to make addition to the extent of the Net Profit worked out on undervaluation! and clandestine removal of goods is not acceptable. However, Having regard to the Hon'ble High Court of Gujarat in the case of CIT Vs President Industries, 258 ITR 654, the element of G.P. is considered on these issues. 12.0 Apart from this it is also pertinent to mention here that vide this office letter dated 08/05/2015, the assessee was asked to furnish the details relative to the comparative figures of G.P. for the F.Y. 2008-09, F.Y. 2007-08, F.Y. 2006-07,: along with the justification of any variation, if any along with supporting documents, and the date of compliance was fixed on 03/06/2015. However in response, the assessee didn't submitted the details as called for, hence once again vide this office letter dated 08/07/2015 asked the assessee to submit the details called for as above. The date of compliance was given on 20/07/2015. In response to the above mentioned letter the assessee didn't furnish the details with respect to the G.P. ratio and variation if any, however filled objection with . respect to the reasons recorded, therefore vide this office letter dated 04/08/2015 , order disposing objections to re opening of the cdse were passed duly send to

ITA Nos. 2204 & 2205/Ahd/2017 34 . A.Ys. 2009-10 & 2010-11 the assessee through RPAD.. As the assessee was not complying with the assessment proceedings vide this office letter dated 17/11/2015 the following details were called for to examine the issue. (a) Sale invoice for A.Y.2009-10. (b) Party wise sales in terms of money and quality for A.Y. 2009-10. (c) Item wi'se monthly sales details for the above mentioned period. (d)i Statement of all bank accounts maintained for the period mentioned above. : 13.0 And the date of compliance was fixed on 30/1 1/2015. In response the assessee vide its letter dated 30/11/2015 received on 14/12/2015 just furnished the incomplete details as called for without any supporting bills and vouchers which were called for verification, with respect to the sale made in this year under consideration. The assessee filed the computerized details of sales without the sales invoice. Also filed the ITR, computation, Audit Report & photocopies of bank accounts. No other documents made available by the assessee. Finally looking to the level of compliance from the assessee side vide this office letter dated 12/02/2016, the assessee was asked to produce the books as in view of the above glaring discrepancies noticed during the investigation and modus operand! brought out by the excise department . And the assessee was asked to furnish the books along with all the supporting documents and the assesee was also asked to show cause why your books should not be rejected u/s 145 (3) of I hi; income lax Act 1961 and finalize the assessment on the basis of the facts and material on record and the date of compliance was fixed on 23/02/2016. 14.0 However, on 23/03/2016 Shri Daxesh M. Thakkar. Advocate attended the office of the undersigned and in spite of specifically asked to produce the books, the AR did not produce the books. And in its submission dated 23/02/2016. related to the show cause for A.V.2009 10, A. r.2010-1 1. the AK expressed, its inability to produce the books of account, as the same has been lying with the Central Excise Department as seized at the time of search conducted in its premises on 2CJ/08/?008 by DGCEI. Zonal Unit, Ahmedabad. ; 15.0 However, since the appellant has demanded the same before the Hon'bl-e C1T(A), vide its rejoinder/rebuttal dated 12/01/2016, in which they claim before the Hon'ble CIT(A) that no cross examination opportunity was given by the ACIT, Mehsana. In this regard, it is to state that the decision of A.Y.2006-07, 2007-08, 2008-09 was not only on the basis of information received from the Excise Department, but also on the basis of the statement recorded at the time of assessment proceeding by then AO of one of the Director Shri Harshad Patel, which is also formed part of the assessment order. Therefore, before finalizing the issue, it consider essential to impart justice by providing opportunity of cross examination of Shri Harshad Patel, Director for all the years i.e. A.Y.2006-07, 2007-08, 2008-09, 2009-10 and the date of compliance was fixed on 29/02/2016.

ITA Nos. 2204 & 2205/Ahd/2017 35 . A.Ys. 2009-10 & 2010-11 16.0 However on 29/02/2016, Shri Hnrshad Patnl was not produced before the undersigned. The AR attended-the office of the. undersigned at around 4:30 P.M., with incomplete sets of books/when he was asked to produce production register, stock registe'r which form one ol the essential eleme'nt of addition in all thgse y'e'ar. He informed the undersigned that, he will brought the same from the factory premise. However for that undersigned waited till 6:30 P.M. but nothing produced till that time and when one of his staff Shri Manish S. Patel who was present was asked to sign the order sheet, he refused to do the same after taking with the C.A. Shri Daxesh M. Thakkar, Advocate on phone. Later on next day on 01/03/2016. Neither, no body attended the office, just they submit the photocopy of the various document through Oak. In the absence of verification ns given to the assessor1, the genuinely of the books cannot be determined. 17.0 Thus, in the light of the discussion mado above it is very clear that the assessee is intentionally trying to delay the assessment proceedings and is not producing its books the book result as shown by the assessee cannot be determined and in view of the same the books books of the assessee could not be relied upon as the assessee was engaged in suppression ot sales by way of unde'r valuation of sales invoices as well as clandestine removal of unaccounted production and its consequent unaccounted sales as proved by the Central Excise Department on the basis of investigation of material impounded at the time of search. Apart frorn this before finalizing the assessment proceedings on various occasions original bills/vouchers were called from the assessee, however in response the assessee didn't produce anything before the undersigned. Therefore,: it is presumed that the assessee do not have any material evidence on record which it can rely : 18.0 It is very significant to mention here that the additions of identical nature had been made by the then assessing officer in the case of assessee itself for A.Ys. 2006-07, 2007 08 & 2008-09 relying upon the information and docurhents received from Central Excise Department as well as the statements recorded on oath of one of the Directors of the assessee company by the Central Excise and subsequently by the then assessing officer. On aggrieved the assessee preferred first appeals in all the three years and recently the Ld. Clt(A) has decided these appeals vide its orders dated 11/03/2016, 14/03/2016 & 15/03/2016 for A.Y 2006- 07, 2007-08, 2008 09 in favour of the Revenue dismissing the appeals of the assessee. The Ld. CIT(A) has elaborately discussed the facts & figures therein rebutting the arguments put forth by the assessee before him which are the similar arguments placed during the present proceedings, it is also relevant to add here that the Ld. CIT(A) has reached to the conduction considering the remand reports submitted by this office which also co-relate; with the facts as discussed in the preceding paras of this order. Taking into account the latest order of the appeals in this case itself, no further discussion required further.

ITA Nos. 2204 & 2205/Ahd/2017 36 . A.Ys. 2009-10 & 2010-11 19.0 As discussed above and looking into the modus operand! of the assessee, the books result of the assessee could not be relied upon. It should be a: case where assessee has not claimed substantial part of expenses with respect to the suppressed sales also to keep the GP at a lower rate. The G.P. element as per the books shall not reflect the correct profit on the suppressed value of invoices and clandestinely removed goods. The AO kept the G.P. ratio for A.Y. 2006-07, 2007-08 and 2008-09 at the rate 15% and the same G.P. ratio was also confirmed by the Hon'ble CIT(A) in his order dated 11/03/2016, 14/03/2016 & 15/03/2016 for A.Y 2006-07, 2007-08. 2008 09 , therefore the same is applied for this year also as in the earlier years other companies doing similar business has shown G.P. at a rate of 15% which form the base for assessment order subsequently. Therefore it would be justifiable to take G.P. at a rate of 15%.for the purpose of determining the profit of the assessee. Keeping in Mew of the above and also considering the facts and circumstances of the case and submissions made by the assessee. the G.P. rate is adopted at 15%. Accordingly. 15% of total undervalued sales and the value of clandestine removal goods for the year under consideration which comes to Rs.72,59,335/-(15% of Rs 4,83,95,568/-) is added to total income of the assessee.

ITA Nos. 2204 & 2205/Ahd/2017 37 . A.Ys. 2009-10 & 2010-11 record that it has applied it's mind over and above the contents of show-cause notice in question thus there is lack of independent application of mind on behalf of revenue in these matters. 12. Without prejudice to above, we find that in Excise proceedings, concerned authorities passed order against assessee and matter was carried up to concerned Hon'ble CESTAT. Hon'ble CESTAT vide its order dated 12/02/2015 as discussed above, has decided the issue in favour of the assessee holding that Excise Department could not estimate value of alleged suppression of sales as well as clandestine removal of goods merely on the basis of assumption and surmises. The CESTAT having considered the relevant facts of the case as well as relevant material i.e. Pen drive and statement recorded by the Excise Department has decided the matter in favour of the assessee as discussed above. In these circumstances Ld. CIT(A) was not justified in observing that relief granted by Hon'ble CESTAT was highly technical. 13. We also find that Excise Department carried matter before Hon'ble Apex Court wherein same was dismissed as withdrawn as mentioned above. Nothing contrary was brought to our knowledge on behalf of Revenue in this regard. 14. We also find that Tax Appeal being Tax Appeal No.733 and 734 of 2016 preferred by the Ld. Excise Department before Hon'ble Gujarat High Court came to be dismissed vide order dated 07/12/2016, as mentioned above. Again nothing contrary was brought to our knowledge on behalf of Revenue in this regard as well. In this background, we find that the order passed by Hon'ble CESTAT has achieved the finality against the revenue. As we have observed earlier that only Excise Department action was basis of additions before us in both the years which does not survive for the reasons discussed above, so the basis of additions made by the Revenue does not survive. 15. In view of the above additions made on account as alleged valuation of sales and clandestine removal of goods do not survive and same are directed to be deleted in both the assessment years. In the result both the appeals filed by the assessee are allowed.

ITA Nos. 2204 & 2205/Ahd/2017 38 . A.Ys. 2009-10 & 2010-11 6. In the result, appeals filed by the Assessee are allowed.

Order pronounced in Open Court on 21- 05- 2019

Sd/- Sd/- (AMARJIT SINGH) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 21/05/2019 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad