ORDER

This appeal has been filed under Section 107 of the Central Goods and Service Tax Act, 2017 by The Assistant  Commissioner(Review), CGST, Commissionerate, Alwar (hereinafter also referred to as “the appellant or department” also) in view of Order-in-Review No.94/Review/2020-21 dated 28.08.2020 passed by the Commissioner, Central Goods and Service Tax Commissionerate, Alwar under Section107(2) of the Central Goods and Service Tax Act, 2017against the Order in Original No.02/GST/Demand/2020 dated  27.01.2020 (hereinafter also referred to as “the impugned order”) passed by The Assistant  Commissioner, CGST, Division-G, Sikar (hereinafter also referred to as “the adjudicating authority”) in the case of M/s Tirupati Plywood Industries, A-54, A-54A, Shree Khatu Shayamji Industrial Area, Reengus, Distt-Sikar-332 404 (Raj) (hereinafter referred to as the respondent).

2.  Brief Facts of the case :-

2.1 The officers of the Directorate General of GST intelligence, Jaipur Zonal Unit, C-62, Sarojani Marg, C-Scheme, Jaipur-302001 (hereinafter referred as “DGGI”) under the authority of Search Warrant dated 27.06.2019, issued by the competent authority conducted the search at M/s Tirupati Plywood Industries, A-54, A-54A, Shree Khatu Shayamji Industrial Area, Reengus, Distt-Sikar-332 404 (Raj) on 27/28.06.2019 in presence of two independent witnesses, namely Sh. Gajendra Singh and Sh. Ramswroop Agarwal, and Sh.Shankar Lal Choudhary, Manager of M/s TPI and Sh. Parveen Goyal, Partner one of the Partners of M/s TPI.  During the course of search the officers, inter alia, carried out the physical stock verification of finished goods i.e. ( Flush Doors and Board),  against stock of finished goods, valued for ₹ 92,94,810/-found inexcess of the recorded stock in violation of Section 35 of the CGST Act,2017 read with Rule 56 of CGST Rules, 2017 and seized the same under Section 67(2) of the CGST Act,2017 read with Rule, 139 of the CGST Rules, 2017, vide Panchnama dated 27/28.06.2019and recorded in Annexure ‘A‘ and ‘B‘ to the Panchnama dated27/28.06.2019. Later on, as the said Annexure ‘A‘ and ‘B‘ to the Panchnama dated 27/28.06.2019, contained some clerical/calculation errors, a revised Annexure ‘A-1‘ and ‘B-1‘ were prepared on 19.12.2019. Sh. Parveen Goyal, Partner of the assessee in his statement dated 19.12.2019 admitted the above mistake in Annexure ‘A‘ and ‘B‘ and endorsed the correctness of revised details of Annexure ‘A-1‘ and ‘B-1‘. Thus the final stock position arrived at as per revised Annexure ‘A-1‘ and ‘B-1‘ which are produced below:-

Annexure	Total quantity of the Annexure	Total value of the Annexure
Annexure ‘A-1‘	4310.28 Sq Mtr	30,57,418/-
Annexure ‘B-1‘	10591.75 Sq Mtr	62,37,392/-
Total	92,94,810/-

2.2 During the Panchnama proceedings conducted on 27/28.06.2019, Shri Praveen Goyal, Partner of the M/s TPI stated that they did not maintain stock position in the factory since the month of March 2019 and did not update the finished stock in their records since April-2019 but they were continuously issuing sale invoices. Further Sh. Makhan Lal, Accountant of the assessee, disclosed that they updated the production and took it on record as per issuance of sale invoices by doing back calculation. The Panchnama proceedings held on 27/28.06.2019 were accepted by Sh. Parveen Goyal, Partner of the assessee in his statement dated 28.06.2019under Section 70/ 174 of the CGST Act, 2017.  

2.3 The value of above seized good was ascertained on the basis of statement tendered voluntary by Shri Shankar Lal Chaudhary, who in his statement dated27.06.2019, while answering to question No.6, stated that as per his knowledge, the value of goods shown on the bills, issued during supply of goods from their factory was approximately 40% of the actual value. Similarly, Sh. Makhan Lal, Accountant of the assessee in his statement dated 27.06.2019, while answering to question No. 5, stated that as per his knowledge, the ratio of the value shown in the bill and the amount charged in cash over and above the value declared in the bill is 40:60, receiving 40% through bill of the actual price while receiving 60% in cash through ‘Kachha System’ in respect of supplies made from the factory premises of the Noticee.

2.4 Since the partner and manager of the assessee could not produce any documents or records related to the finished goods found in the premises, therefore, the visiting officers, on a reasonable belief that the finished goods namely ‘Flush Door’ and ‘Block Board’ of quantity 4310.28 Sq Mtr. and 10591.75Sq. Mtr. valued at ₹ 30,57,418/- and ₹ 62,37,392/- respectively, which were liable to tax under the CGST Act, 2017, and kept unaccounted, with intent to supply the same clandestinely and without payment of tax, to evade payment of CGST/SGST, and hence liable to confiscation under Section 130 of the Central Goods and Services Tax (CGST) Act, 2017, seized the said goods under Section 67of the CGST Act, 2017 vide GST INS-02. The seized goods were given under the order of prohibition to Sh. Parveen Goyal, Partner of M/ s TPI under vide GST INS-03 dated 28.06.2019.

2.5 It has also been alleged in the notice that Shri Parveen Goyal, Partner of M/ s TPI, who also looks after day-to-day affairs of the firm, had consciously and deliberately indulged in activities of clandestine clearance/supply of taxable goods as he was found involved in acquiring, possession, removing, depositing, keeping, concealing, and dealing in goods, which he knew were liable to confiscation, and hence he rendered himself liable to penalty under Section 122(3) of the Act ibid.

2.6 The contention of Shri Parveen Goyal, Partner of the noticee, made vide his letter dated 11.07.2019 &15.07.2019, wherein he submitted the details of updated position of stock of finished goods as on 27.06.2019, requested for release of seized goods and informed the officers of DGGI that the statements of their employees are not correct, as they are not the relevant persons, as the work relating to accounts, value and terms and conditions in respect of sale of goods, are only looked alter by his cousin Sh. Lalit Goyal, and he was out of India, submitted after 14 &18 days of search and recording of his statement on27.06.2019, being an afterthought, was found as non acceptable at that stage, by the DGGI.

3. In view of above, the impugned notice dated 20/23.12.2019, was served upon the assessee and Sh. Parveen Goyal, Partner, calling upon them to show cause as to why:

(i)  the excess found goods valued at ₹ 92,94,810/- as shown in Annexure A-1 and B-1 to the Notice, seized under Section 67(2) of the CGSTAct,2017 read with Rule 139 of the CGST Rule, 2017 as detailed in GST INS-02 to Panchnama dated 27/28.06.2019 should not be confiscated under the provisions of Section 130 of the CGST Act,2017 read with Rule 139 of the CGST Rules,2017,

(ii)  penalty should not be imposed upon M/ s Tirupati Plywood Industries, A-54, A54A, SKS Industrial Area, Reengus, Sikar, Rajasthan, in terms of Section 122 ( 1)(xvi) and (xviii) of the CGST Act,201 7 for contravention of the provisions of the CGST Act,2017 and the Rules made there under with an intent to evade payment of CGST/SGST.

(iii)  Penalty should not be imposed upon Shri Parveen Goyal, Partner of M/s TPI, under Section 122(3) of the CGST Act, 2017 for his act of omissions and commissions as discussed in the notice.

4. Further, the adjudicating authority vide the impugned Order in Original No.02/GST/Demand/2020 dated 27.01.2020  has passed an order as under:-

(i)  Ordered to release the goods i.e. (i)”Flush Doors & (ii) “Boards” valued ₹ 92,94,810.00 seized under vide GSTINS-02 dated 28.06.2019, under GST INS-05;

(ii)  Confirmed the demand of ₹ 32,686.00 (CGST- ₹ 16,343.00 + SGST- ₹ 16,343.00)under section 73 of the CGST Act 2017, and ordered to recover from M/s Tirupati Plywood Industries, A-54, A54A,SKS Industrial Area, Reengus, Sikar;

(iii)  Ordered for recovery of interest on the tax ₹ 32,686.00 under section 50 of the CGST Act 2017;

(iv)  Imposed penalty of ₹ 32,686.00 i.e. equal to the amount of tax evaded under section 74(1) of the CGST Act 2017 on M/s Tirupati Plywood Industries, A-54, A54A,SKS Industrial Area, Reengus, Sikar. However, given an option to the assessee to pay the penalty fifty percent of the tax determined, under Section 74(11) of CGST Act 2017, if the tax and interest payable thereon along with reduced penalty are paid within stipulated time of 30 days from the date of communication of this order;

(v)Imposed penalty of ₹ 25,000/- upon Sh. Parveen Goyal, partner of M/s Tirupati Plywood Industries, A-54, A54A,SKS Industrial Area, Reengus, Sikar; under Section 122(3)of the CGST Act, 2017.

(vi)Since the goods seized were not liable to confiscation, do not imposed penalty upon M/s Tirupati Plywood Industries, A-54, A54A,SKS Industrial Area, Reengus, Sikar under Section 122(1)((xvi) &(xviii) of the CGST Act.

5. The competent authority i.e. Commissioner, Central Goods and Service Tax Commissionerate, Alwar vide their Order-in-Review No.94/Review/2020-21 dated 28.08.2020 has reviewed the impugned Order in Original No.02/GST/Demand/2020  dated 27.01.2020 and found not proper and legal to the extent of not passing the order under Section 35 of the CGST Act, 2017read with Rule 56(2) of CGST Rules, 2017 and directed the Assistant Commissioner(Review), CGST Commissionerate, Alwar to file Appeal before the Additional Commissioner (Appeals), CGST, Jaipur within the stipulated period for determination of the correctness of the impugned order. The appellant also stated that application is being submitted in accordance with Notification No.55/2020- Central Tax dated 27.06.2020 amending Notification No.35/2020-Central Tax dated 03.04.2020. Accordingly, the appellant department filed this appeal on the following grounds:- 

[A] The adjudicating authority has erred in holding that the unaccounted/excess goods which were seized were not deliberately kept unaccounted to supply the same clandestinely and without payment of tax. Whereas as per Section 35(1)of the CGST Act,2017, every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of (a) production or manufacture of goods; (b) inward and outward supply of goods or services or both; (c) stock of goods; (d) input tax credit availed; (e) output tax payable and paid; and (f) such other particulars as may be prescribed. Further, as per Rule 56 (2) of the CGST Rules, 2017 ‘Every registered person, other than a person paying tax under section 10, shall maintain the accounts of stock in respect of goods received and supplied by him, and such accounts shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample and the balance of stock including raw materials, finished goods, scrap and wastage thereof.” However, the taxpayer has failed to maintain the account of stock in respect of goods received and supplied by him for the long time i.e. period of more than one month. Further, during the Panchnama proceeding Shri Makkhan Lal, Accountant of the firm, disclosed the facts that they update production and take it on record as per issuance of sale invoice by doing back calculation which it selfead to ill-intent of the assessee to remove taxable goods clandestinely. Shri Shankar Lal Choudhary, Manager of M/s TPI in his statement dated 28.06.2019interalia admitted the clandestine clearance from the factory from which the motive to keep the goods un-accounted is made clear. Shri Praveen Goyal, Partner of the firm has stated that they have not maintained stock position in the factory since the month of March, 2019 and have not updated finished stock in their records since April, 2019 but they were continuously issuing sale invoices. From the above statements of Shri Makkhan Lal, Shri Shankar Lal Choudhary and admission of Shri Praveen Goyal, Partner during pachanama proceeding followed by his admission in his statement dated 28.06.2019, it is very clear that the action of non maintenance of record was modus-operandi of the taxpayer for manipulating the accounts/records to evade the GST which itself indicate assessee’s mens-rea.

[B]  The adjudicating authority has erred in holding that the DGGI did not ask any question from Shri Praveen Goyal regarding reducing the value of goods to40% for issuing of invoices to endorse the version of Shri Shankar Lal Choudhary, Manager. In this regard, Shri Praveen Goyal, Partner of the assessee firm in his voluntary statement dated 28.06.2019 has accepted the facts disclosed by Shri Shankar Lal Choudhary, Manager and Shri Makkhan Lal, Accountant both dated27.06.2019. Therefore, it is clear that Shri Praveen Goyal, Partner, in his statement dated 28.06.2019 has admitted and endorsed the version of Shri Shankar Lal Choudhary, Manager and agreed with the facts disclosed by him which involved the fact regarding reducing the value of goods to 40% for issuing of invoices and receiving of remaining 60% in cash through “kaccha System” in respect of supplies made from the factory premise. These evidences were sufficient for the revenue to achieve reasonable belief that the subject goods were liable to confiscation hence deserve for seizure at that moment, hence the same was effected by the department.

[C]  The adjudicating authority has also erred in holding that goods found unaccounted were accounted at different stages of records of the factory of production and supplies but they were merely not formally accounted for in the books of accounts. From the statements of Shri Makkhan Lal, Accountant, it is clear that they manipulated the accounts by doing back calculation. If the DGGI would have not searched the premise of the taxpayer and resumed the documents, the taxpayer could manipulate the accounts in accordance with their mala-fide intention to evade GST by removing the goods clandestinely without paying GST which they appears to do so. However, the contention of Shri Praveen Goyal, Partner made vide his letter dated 11.07.2019 &15.07.2019 i.e. after 14 &18days of search and recording of his statement dated 27.06.2019, was after thought and not acceptable at later stage being made without documentary evidences and legal footings.

[D]  The adjudicating authority has also erred in holding that seizure of the goods was unwarranted, on the preponderance of presumption / probabilities. In this regard, at the time of Search on 27/28.06.2019, the goods so were seized found in excess on the basis of facts disclosed by Shri Makkhan Lal, Accountant & Shri Shakar Lal Choudhary, Manager, and accepted by Shri Praveen Goyal, Partner of the assessee in his statement dated 28.06.2019 tendered under Section70 & 174 of the CGST Act, 201 7. The seizure was correctly made as per situation where all conditions required to seize taxable goods provided under relevant provisions were fulfilled.

[E]  In para 5.14 of the impugned OIO dated 27.01.2020, the Adjudicating Authority has erred in holding the goods deserved to release as the same is not liable to confiscation on the ground that statements of Shri Lalit Goyal were never recorded to find out the pricing pattern of the seized goods. As a matter of fact physical stock verification of the goods was conducted in presence of independent witnesses and Manager, Accountant and Partner of the Firm. Statements were also recorded wherein they all admitted the pricing pattern of the firm in their voluntarily tendered statement. Hence, conclusion drawn by the adjudicating authority that value worked out is unreasonable is not correct. Further, on the basis of valuation, it is incorrect to hold by the adjudicating authority in para 5.14that flush doors & boards valued ₹ 92,94,810/- seized vide GST INS-2 dated28.06.2019 is not liable to confiscation and deserved to be released. Only on the basis of valuation parameters (which is already accepted by the partner of the firm), considering the seized goods not liable to confiscation by the adjudicating authority, appears improper.

[F]  In para 5.15 of the 0I0, the adjudicating authority ignoring the facts of unaccounted stock found during the search, had concluded contrary on the basis of submission dated 10.01.2020 that after completion of the record and after making inventory, goods was found short. Therefore, instead of order of confiscation of goods valued to ₹ 92,94,810/- found unaccounted the adjudicating authority improperly ordered for release of the same and imposed tax and penalty by treating that goods valued to ₹ 1,81,591 /- was short. In other word, it is an admission on the part of assessee that goods valued to ₹ 94,76,401/- (goods valued to ₹ 92,94,810/- found unaccounted during the search + goods valued to ₹ 1,81,591/- unaccounted but already cleared clandestinely as admitted by the assessee vide their letter 10.01.2020 and duty on same has been deposited by them along with interest) were unaccounted at the time of search by DGGI officers. Thus the version of adjudicating authority in para 5.13 is also incorrect wherein adjudicating authority held that “I do not found any evidence which has been adduced in the notice to establish and arrive at a logical conclusion that the unaccounted/excess stock was deliberately kept unaccounted to supply the same clandestinely and without payment of tax”. It is evident from the above facts that in addition of unaccounted stock of ₹ 92,84,810/- found during search, a stock of ₹ 1,81,591/- already been cleared by them clandestinely.

[G]  That finding of the adjudicating authority is self contradictory as in Para5.12 of the OIO Adjudicating authority it is mentioned that “I am of the considered opinion that no doubts at the time of visit DGGI Officers on 27.06.2019, the production records of Flush Doors and Boards were recorded updated in the stock rergisters upto 21.06.2019 and 24.06.2019, respectively. Whereas, in contrary, it was held in para 5.10 of the OIO, that stock of Flush Doors were maintained up to21.05.2019 and that of Boards up to 24.05.2019, which shows that findings of the adjudicating authority is far from the facts and incorrectly recorded.

[H]  That despite of having examined panchnama, GST-INS-02, Statement of Manager, statement of accountant and statement of partner, the adjudicating authority, in the OIO repeatedly mentioned that another partner of TPI, Shri Lalit Goyal have not been examined by the intelligence unit. However, the authority never called officers of DGGI to examine them or to cross check the submission made by the noticee. Therefore, arbitrary findings of the adjudicating authority, despite sufficient evidences narrated by the department in the subject show cause notice, are bad in law.

[I]  That the seizure of goods were made on the basis of reasonable belief that the goods found unaccounted are liable for confiscation and these facts were admitted by the partner, accountant and manager of the firm. Whereas, in para 5.4 of the OIO, the adjudicating authority, in contrary to the law has held that if the department had allowed the assessee to complete its books of accounts it could have been proved at that time only that there was no excess stock of goods as compared to stock as per books of accounts.

[J]  That the adjudicating authority has grossly erred in finding made in para 5.14of the impugned order regarding pricing of the goods which was duly adopted by the revenue on the facts disclosed by Shri Choudhary and Shri Makkhan Lal who were directly dealing with goods so seized and facts contained in their statement were sufficient to ascertain the actual value of the goods which was being suppressed by the assessee and this is a major allegation in this case that the assessee is evading tax by undervaluing their goods as evident from the statements of these persons, hence simply brushing aside this allegation of the department on the basis version of the partner of the assessee is not legal and proper within the purview of law.

[K]  That the adjudicating authority has grossly erred in finding made in para 5.15of the impugned order regarding adopting the price of the seized goods on the basis of the invoices issued by the assessee itself whereas the case of the revenue is also on the basis of evidences of undervaluation of the goods collected and accepted in the statements of Shri Makkhan Lal and Shri Choudhary employees of the assessee who were quite aware of these facts, hence the findings of the adjudicating authority deserves to be set aside being it not legal and proper within the purview of law.

6.   The   respondent   vide   letter   No. APPL/JPR/CGST/AL/75/VIII/2020/3659 dated 24.12.2010 were called upon to file a memorandum of cross objection against the appeal, within 45 days of receipt of this notice, filed by the department. The respondent submitted their memorandum of cross objection on 15.02.2021 which is as under:-

A.  There is no excess unaccounted stock of the goods on the date of search and therefore seizure of goods is invalid.

 A.1.  The assesseeis a manufacturer and supplier of Plywood, Veneered Panels and Flush Doors etc. At the time of search, books of accounts and other records were seizedby the department. The Books of accounts were incomplete as the entries related to the production etc was pending to be made. As on the date of search the entries in books of accounts related to production was made upto 21/24.05.2019. This fact was communicated to the search team and a request was made to allow to complete the books of accounts on the basis of bill vouchers and other documents found in search so that the position of book stock as on the date of search can be ascertained. The Intelligence Team did not acceded to the request of assessee to complete the entries in the books on the basis of bill/vouchers and other documents found in search. Due to nonadherence, the factual position was not taken by the visiting officers as the assessee could not update/complete the books and consequently could not tell the position of stock as on the date of search. Thus, the intelligence team without giving any opportunity to update/complete the books of accounts, seized the entire goods of finished stock treating it as uncounted stock kept for clandestine supply, whereas the same was not un-accounted.

A.2.  The Department in its Appeal has stated that the registered person at his principal place of business shall keep and maintain a true and correct accounts as per Section 35(1) of the CGST Act,2017 and Rule 56(2) of the CGST Rules,2017. However, the taxpayer has failed to maintain the account of stock in respect of goods received and supplied by him for the long time i.e. period of more than one month. That as per  the Panchnama of the accountant of the firm they update production and take it on record as per the issuance of sale invoices by doing back calculation which itself lead to the ill-intent of the assessee to remove taxable goods clandestinely. Hence it is very clear that the action of non-maintenance of records was modus-operandi of the taxpayer for manipulating the accounts/records to evade the GST which itself indicate assessee’s mens-rea.

A.3.  In this connection it is submitted that as on the date of search the entries in books of accounts was made upto21/24.05.2019.  Further the goods found unaccounted during the search was accounted in the form of bills and vouchers but they were merely not formally accounted for in the books of accounts. This fact was communicated to the search team and a request was made to allow to complete the books of accounts on the basis of bill vouchers and other documents found in search so that the position of book stock as on the date of search can be ascertained. It is to be submitted further that the accounts and records was not incomplete for the entire period although the entries related to around one month was pending to be recorded/posted in the books of accounts by the accountant of the assessee. At the time of search also the assessee was having the bills related to its purchase/sale and also having  the details of the production during the period which was seized by the search team at the time of search also. If there has been the intention/ practise of the assessee to remove goods clandestinely, then the assessee would have not even maintained books of accounts upto21/24.05.2019and not have kept the bills and vouchers in relation to the production/purchase. Further the assessee has provided the above facts to the search team also but the Intelligence Team did not acceded to the request of assessee to complete the entries in the books on the basis of bill/vouchers and other documents found in search. Hence, the factual position was not taken by the visiting officers as the assessee could not update/complete the books and consequently could not tell the position of stock as on the date of search. Thus, the intelligence team without giving any opportunity to update/complete the books of accounts, seized the entire goods of finished stock treating it as uncounted stock kept for clandestine supply, whereas the same was not un-accounted.

A.4.  Further the department‘s contention of ill-intent of the assessee to remove taxable goods clandestinely, updating the stocks on the basis of sales invoice by doing back calculation is concerned, same is incorrect because the accountant and the manager were not aware about the factual position. Hence on the basis of the statement of the accountant and manager of the assessee it can not be alleged that there was illintent of the asssesee in keeping the goods un accountaed for the clandestine removal of such goods. More particularly when the document related to production, purchase and sale were found during search and the assessee requested to allow them to complete the books of accounts on the basis of documents found. Further so far as department‘s contention that the facts disclosed by the accountant and manager of the assessee admitted by the Partner Sh. Parveen Goyal is concerned, it is submitted that Shri Praveen Goyal could not understand the question in correct perspective.It is to be noted that Sh. Parveen Goyal after the search proceedings, vide his letter dated 11.07.2019 has submitted that their books of accounts were incomplete as the entries of  the production was pending to be passed in the books of accounts for certain period but now the entries in the books of accounts have been completed from the available information and also submitted the details of the stock as per the books of accounts which broadly matched with the physical stock found at the time of search on 28.06.2019. Hence the 0I0 releasing the goods is correct and same is to be sustained.

A.5.  It is to be noted that on the same day i.e. 27.06.2019, the same agency i.e. DGGI, JZU searched the premises of M/s Premier Plylam Marketing Co. VKI Area, Jaipur who is the dealer of the goods manufactured by the assessee. As per panchnama prepared in case of M/s Premier Plylam Marketing Co., copy provided by the mit is mentioned that partner of the firm Shri Ashish Gupta could not provide the updated data of stock of goods meant for supply as he stated that he was out of station and could not enter the purchase and sale invoices in their books of accounts/stock register. He also stated that he would update the sale and purchase, stock register and intimate to the department and promised to comply the directive of the department in the matter. The search team on the basis of the statement /assertion ,of the partner of said firm has not seized the goods, though inventory was prepared after counting the physical stock lying at the premises. From the above it can be noted that the Intelligence unit allowed M/s Premier Plylam Marketing Co. to update/complete their books of accounts and submit the stock position as per completed books and did not seize their goods physically counted at the time of search; whereas in the case of assessee the same Intelligence unit has took different stand and seized the entire finished stock found during search without allowing to update/complete the books of accounts and to give the position of stock as per books. Thus, two different yardsticks was adopted by the Intelligence unit in search carried out on the same day which is unacceptable. Such differential treatment/approach of the intelligence team is uncalled for. This is violation of fundamental right of the assessee provided under Article 14 of the Constitution which provides principle of equality before law. This Principle has been grossly ignored by the Intelligence unit. Therefore, the seizure of goods of the assessee was illegal and therefore the 0I0ordering the release of goods is correct.

A.6.  Without prejudice to above, it is submitted that the assessee after the search has requested the Intelligence unit for providing the photocopies of the documents and records seized during search proceedings. After obtaining the photocopies of the documents and records seized, the assessee completed the entries in the books of accounts considering the opening stock, purchases, consumption of raw material during the period, production on the basis of production sheet and sales made of the finished goods during the period 01.04.2019 to 27.06.2019.After completing the books, the assessee submitted the details of the book stock vide letter dated 11-7-19 to the Intelligence unit and requested to release the goods. However, the Intelligence unit did not consider the request and asked to make request for provisional release of the seized goods with the Jurisdictional officer in CGST Commissionerate.

A.7.  After search and after obtaining photocopies of the records seized during search, the assessee completed its books of accounts and supplied the details of the stock as per updated books to the Intelligence unit vide letter dated 11- 7-19.

A.8.  On completion of the books of accounts from the bills, production records found in search, it is noticed that the stock of goods as per books of accounts on the date of search is slightly higher than the physical stock taken by the search team of Intelligence unit.

For verification of above the assessee produced the following documents before the ld. AC, CGST, Sikar with the reply:-

(i)  Audited balance sheet for the year ended 31-3-2019 showing position of closing stock as on 31-3-2019.

(ii)  Item wise ledger account of finished goods i.e. ‘Flush door’ and ‘Block Boards‘  showing details of opening stock, production made and sale made during the period 1-4-2019to 27-6-2019.

(iii)Ledger account of purchase of raw material and consumption thereof with the Consumption-Production Statement of year 2018-19 and for the period 1-4-19 to 27-6-19, which is based on the standard norms.

(iv)  Copy of purchase invoices of various items of raw material for the period1-4-19 to 27-6-19 can be produced for verification.

(v)  Copy of sale invoices of finished goods for the period 1-4-19 to 27-619 can be produced for verification.

(vi)  Copy of ledger account of finished goods i.e. ‘Flush door’ and ‘Block Boards‘ and raw material i.e. Face veneer, Core veneer & Timber as per the books seized during search.

From the above, the book stock worked out by the assessee as on the date of search i.e. 27-6-19 which was verified by the Ld AC, CGST, Sikar. After verification, the ld. AC has passed the OIO for release of the goods seized by the Intelligence unit at the time of search.  

A.9  In view of above it is submitted that the stock found during search is not excess/unaccounted stock as alleged. Rather the stock found is slightly short than the book stock which is due to the reason of inaccurate stock taking/normal manufacturing process loss. The Intelligence team has not considered the updated position of books of accounts. The Ld. AC after verification of books satisfied the position of book stock and then released the goods. Therefore, the OIO is absolutely correct in releasing the goods.

A.10  The department in its Appeal has also contended that in the OIO, the adjudicating authority ignored the fact of unaccounted stock found during the search, concluded contrary on the basis of submission that after completion of the record and after making inventory, goods was found short. Therefore, instead of order of confiscation of goods the adjudicating authority improperly ordered for release of the same and further imposed tax and penalty on the goods found short which was valued at ₹ 1,81,591/-. The version of adjudicating authority is incorrect where in adjudicating authority held that “I do not found any evidence which has been adduced in the notice to establish and arrive at a logical conclusion that the unaccounted/excess stock was deliberately kept unaccounted to supply the same clandestinely and without payment of tax”. It is evident from the above facts that in addition of unaccounted stock of ₹ 92,84,810/- found during search, a stock of₹ 1,81,591/- already been cleared by them clandestinely.

A.11  In this connection it is submitted that due to incomplete books of accounts at the time of search which was, also stated during search and requested to allow to complete the same but not accepted by the intelligence team, the assessee could not submit the actual position of book stock. It does not mean that the assessee has not accounted for the production and stock of the goods with intention to evade payment of GST and for the purpose of clandestine removal of those goods. The assessee at the time of search itself was having all the sales invoices and purchase invoices of the raw material which was resumed vide Annexure C during search. No evidence was found during search to prove that the assessee has made any clandestine removal of goods from its factory premises and supplied any goods without payment of tax. Further no evidence was found that any unaccounted purchases have been made by the assessee. Hence the contention of the department that the assessee has not accounted for the stock with intention to evade payment of GST and kept for clandestine removal is not sustainable.

A.12  The department in its appeal has taken a ground that Shri Parveen Goyal, Partner of the assessee in his voluntary statement dated: 28.06.2019 has accepted the statements made by the manager and accountant and therefore, it is clear that Sh. Parveen Goyal has admitted the version of manager and accountant and agreed with the facts regarding reducing the value of goods to 40% for issuing of invoices and receiving the balance 60% in cash in respect of supplies made from the factory premise. It has also been contended in the appeal that as a matter of fact physical stock verification of the goods was conducted in presence of independent witnesses, manager, accountant and Partner of the Firm. Statement were also recorded wherein they all admitted the pricing pattern of the firm in their voluntary tendered statement and therefore the conclusion drawn by the adjudicating authority that value worked out is unreasonable is not correct.

A.13  In this connection it is submitted that the intelligence unit has valued the stock of finished goods by multiplying the sale price mentioned in the sale invoice by 2.5 for the reason that in the statement given by the Manager Shri Shankar Lal Choudhary and accountant Sh. Makkhan Lal of the assessee they has stated that sale invoice is issued at 40% price. This is not acceptable as the statement were taken under duress and in absence of the Partner of the Firm. The partner of the firm Sh. Praveen Goyal came around 20:45 hrs on 27.06.2019 and whereas the statement of both the employee have already been recorded by the Intelligence team. Further  Sh Parveen Goyal looks after the production and dispatch and was not aware of the sales part. The sale part is being looked after by Sh. Lalit Goyal who finalise sale price and terms and conditions with the parties and he was out of India at the time of search. Shri Shankar Lal who is the manager of the factory is responsible for daily production, quality control and supervises the loading of goods. He prepares the daily production chart and gives it to the accountant of the assessee. He supervises the loading of goods from the factory as per the dispatch directions of partner Shri Parveen Goyal. After loading the goods, he prepares loading details and submits it to partner Shri Parveen Goyal for preparing invoice. The invoice is prepared by Shri Parveen Goyal as per the sale price and terms& Conditions finalised by his brother Shri Lalit Goyal. The accountant Shri Makkhan Lal is responsible for accounting work and he enters the invoice prepared by partner Shri Parveen Goyal in the books of accounts maintained in Tally software. Both these persons narrated these facts in their respective statements recorded at the time of search by the intelligence team. The sale price of the goods and the terms & conditions of sales is finalised by Shri Lalit Goyal who was out of India at the time of search. Therefore neither the partner Shri Parveen Goyal nor the accountant Shri Makkhan Lal nor the Manager Shri Shankar Lal are the relevant person to give any statement in respect of sale price/billing price of the goods. Hence no cognizance be given to the statement given by these persons at the time of search in absence of the main person Shri Lalit Goyal who actually looks after the sale part. The responsibility and work entrusted to both the employees i.e. Shri Shankar Lal and Makhan Lal is recorded in their statements itself; this itself proves that they never dealt with the sale price of the goods and nor were aware of the sale price. Thus, there is no reason to give credence to their statement regarding sale price. More particularly when Shri Praveen Goyal has made clarification in respect of their stand vide letter dated 15-7-19 in which it is clearly mentioned that Shri Lalit Goyal looks after the sale price and deals with the parties. Further the statement of Shri Lalit Goyal who actually looks after the sale of goods has not been recorded so far by the Intelligence Unit. Hence simply on the basis of statement of two employees, that too at the back of partner, stock was valued by multiplying the invoice price by 2.5. This is ab-initio void: No credence was given to the letter submitted to the Intelligence unit on 15.07.2019 in this regard.

A.14  In view of above the valuation made by the Intelligence unit was not correct. The valuation should have been made on the basis of cost price of the goods. The Intelligence unit has valued the goods by multiplying the sale price by 2.5 by treating that the invoice price is 40% of the actual price, which is incorrect. There is no basis for treating the invoice price at 40% of the actual sale price. No evidence in this respect was found in search. Merely relying on the statement given during search of Manager Sh. Shankar Lal and accountant Shri Makkhan Lal, who do not know about sale value of the goods and also not concerned with the sale value and more particularly the statement was taken at the back of the partner Shri Lalit Goyal, is incorrect and unjustified. No opportunity was given for the cross examination and no statement was recorded on Shri Lalit Goyal even after pointing out of the above fact. The Intelligence unit has neither considered the clarification given by letter dated; 15 .07.2019 in this regard nor interrogated the main person Shri Lalit Goyal who looks after. the sale nor made any independent enquiry in the market. The market rate of the goods manufactured by assessee can be enquired and actual sale price can be ascertained. If the Intelligence unit has made any such enquiry, it should have been mentioned and if no enquiry is made then they should first make such enquiry from the market of the trade. The assessee is ready to furnish the cost price of the goods manufactured by them based on the standard of the industry and comparative market price of such goods manufactured by similar type of manufacturers. However, in the present proceedings  the valuation part may not be so relevant since the goods found during search is verifiable with the stock as per books and there is no excess stock.

A.15  In view of above, the release of goods vide OIO dated: 27.01.2020 by stating that statement of Shri Lalit Goyal who is in-charge of the supply and pricing of the goods were never recorded to find out the pricing pattern of the seized good sis correct. Further the Ld. A.C. has verified the updated books of accounts and considered the position of book stock as on the date of search before passing the OIO. Therefore, the order in review holding that the OIO dated 27-1-2020 is not proper and legal is incorrect.

A.16  The department in its appeal has further contended that despite of having examined panchnama, GST-INS-02, statement of Manager, statement of accountant and statement of partner, the adjudicating authority, in the OIO repeatedly mentioned  that another partner of assesse i.e. Shri Lalit Goyal have not been examined by the intelligence unit. The authority never called officers of DGGI to examine them or to cross check the submission made by the Noticee. Therefore, arbitrary findings of the adjudicating authority despite sufficient evidences narrated by the department in the subject show cause notice are bad in law.

A.17  In this connection it is submitted that onus to prove the facts of keeping the goods for clandestine removal without the payment of GST is upon the Intelligence team of DGGI who has searched the premise of the assesse. The allegation made by the Intelligence unit that the goods found unaccounted at the time of search was kept unaccounted for the purpose of clandestine removal is incorrect and baseless. It was their responsibility to properly examine and record the statement of all the persons which are related to the business of the assessee. The Intelligence unit should have allowed the opportunity to complete the books of accounts based on documents found during search as has been allowed in case of M/s Premier Plylam Marketing Co.. Further they should have recorded the statement of main partner of the assessee Shri Lalit Goyal in this regard when it was specifically pointed out vide letter dated 15.07.2019 that the work of sales and dealing with the parties is made by him (Shri Lalit Goyal) only. Further it is also a fact on record that after the search proceedings, Shri Lalit Goyal has visited number of time to the office of intelligence unit and clarified the matter but the Intelligence unit chosen not to record his statement and issued the SCN solely based on the statement of accountant and manager of the assessee who are not aware about the actual facts. Hence the departmental appeal is not sustainable and liable to be quashed.

A.18  It has also been contended by the department in its appeal that the findings of the adjudicating authority is itself contradictory as in para 5 .12 of the 010, it is mentioned that at the time of visit of DGGI officers, the production records of Flush Doors and Boards were recorded updated in the stock register upto 21.06.2019 and24.06.2019 respectively. Whereas, in contrary, in para 5.10 of the OIO, it was held that stock of Flush Doors were maintained up to 21.05.2019 and that of Board up to24.05.2019, which shows that findings by the adjudicating authority is far from the facts and incorrectly recorded.

A.19  In this connection it is submitted that the assessee during the search was having all the relevant documents of the purchases and details of the production for the period under consideration and has requested the search team to allow them to complete the records. The search team did not allow the request of the assesse. Therefore the search proceedings the assesse submitted the details of the updated stock on the basis of the photocopies of documents seized by the Intelligence team at the time of search. As per the updated position, the stock was almost matched with the quantity found physically at the time of search.

Considering above the adjudicating authority in its para 5 .12 has mentioned that the stock records were updated upto 21/24.06.2019. Therefore, there is no contradiction in the findings of the adjudicating authority and the ground of appeal is in correct and therefore the appeal is liable to be quashed.

A.20  In view of above, the grounds in the departmental appeal that the goods found during search was excess unaccounted goods, kept with mala fide intention to, remove the same clandestinely is incorrect and contrary to above submissions. There was no excess or unaccounted goods found and therefore the seizure of goods at the time of search was invalid. Hence the goods were released correctly vide OIO dated: 27.01.2020. Hence the appeal of the department is therefore liable to be quashed.

B.  Since there was no excess stock found, no penalty is leviable.

B.l. The department in its appeal has requested to quash the OIO dated:27.01.2020 which drops the penalty stating that since the goods seized are not liable to confiscation, no penalty is to be imposed upon assessee under section 122(1) (xvi)and (xviii) of the CGST Act,2017.

B.2. In this connection it is submitted that the section in which penalty is proposed relates to failure to keep, maintain or retain books of accounts and other document sin accordance with the provisions of the Act and for supply, transport or the goods which are liable to be confiscated. The relevant provisions of the CGST Act are reproduced here in below for ready reference:

Section 122 of the CGST Act, 2017; Penalty for certain offences:

122.(1) Where a taxable person who-

(xvi) fails to keep, maintain or retain books of accounts and other documents in accordance with the provisions of this Act or the rules made thereunder;

(xviii) supplies, transports or stores any goods which he has reasons to believe are liable toconfiscation under this Act;

B.3 As per the above provisions of the Section 122(1) of the CGST Act, the penalty is leviable if the assessee fails to keep, maintain and retain books of accounts as per the provisions of the Act and supply, transport or store the goods which are liable to be confiscated. As per the facts and submissions made in detail in the preceding paras, it can be noted that the assessee has maintained the required books of accounts as per the provisions of the CGST Act which was found and seize during search proceedings. Further the stock records are duly maintained in the tally system where in the production entries were updated upto24.05.2019 and the sale entries were posted upto the date of search. Hence the allegation that the finished goods found were unaccounted which was kept with intent to remove clandestinely is incorrect and contrary to above facts. The only lapse was that books of accounts was incomplete for around one month in relation to production entries but the details of the production was found in search. This cannot be viewed as failure to keep, maintain or retain the books of accounts. Had the search team would have provided opportunity to update/complete books of accounts, there would not have been any seizure of goods as the stock found during search is as per books of accounts. The assessee at the time of search was having all the purchase files containing all the relevant purchase invoices of the Raw Material, sales file containing all the sales Invoices of the finished goods and all the GST return filed during the period from 01.04.2019 to 27.06.2019. The law nowhere provides that all the entries should be posted in the books of accounts on the same day. Mere delay in posting the entries related to production in the books of accounts when all the relevant bill/vouchers and production details were available at the time of search, cannot be said to be failure to keep, maintain or retain books of accounts and other documents in accordance with provisions of the CGST Act. After the search the assessee has completed its books of accounts on the basis of documents/details found during search and available with them and submitted the detail of the book stock to the Intelligence unit vide letter dated: 11.07.2019. Had the assessee not maintained such details he could not have complete the books. Thus, there is no failure on the part of assessee in maintaining/keeping the books of accounts and other documents in accordance with the provisions of CGST Act. Therefore, the penalty proposed under Section 122 (1) (xvi) is not imposable on the assessee. Hence the OIO dated: 27.01.2020 dropping the penalty under section 122(1)(xvi) is to be sustained.

B.4 Further the penalty under clause (xviii) of section 122(1) is also not imposable on the assessee because the stock found during search is not excess as alleged in the Show Cause Notice/Departmental Appeal. Rather the stock found is slightly short than the book stock which is due to the reason of inaccurate stock taking / normal manufacturing loss. When there is no excess stock found in search no question of confiscation of goods arises. Even the seizure of the goods was not valid. Therefore, no penalty under clause (xviii) for supplying, transporting and storing goods liable to confiscation is imposable upon the assessee. Hence the OIO dated 27.01.2020 dropping the penalty under section 122(1)(xviii) is correct and to be sustained and consequently the departmental appeal is to be dismissed.

B.5 It is further submitted that section 122 provides levy of penalty in case of certain offences. In the case of assessee, no offence is proved/established. Mere delay in completing the books is not an offence liable for penalty. The assessee has not evaded any tax. There is no intention of tax evasion. The assessee has maintained the proper books of accounts required as per the CGST Act & Rules. The stock records are duly maintained in the tally system where in the production entries were updated upto24.05.2019 and the sale entries were posted upto the date of search. The books of accounts was incomplete/ not updated for around one month period only in relation to production entries. Further there was no excess or unaccounted goods stored at the premise of assessee liable for confiscation. In view of above the allegation that the penalty should be imposed for not retaining, maintaining books of accounts and other documents as per the CGST Act, and for transporting, supplying and storing the goods which are liable to confiscation is incorrect and contrary to the provisions of the Act. Therefore, the OIO dated: 27.01.2020 dropping the penalty is correct and the same be sustained.

B.6 Rule 61 of the CGST Rules, provides the form and manner of the monthly return to be filed by the registered person. As per this rule monthly return in form GSTR-3Bwhich was brought by the legislature in lieu of GSTR-3 which is being filed regularly by the registered person. The details required as per the format of formGSTR-3B is being submitted regularly by the assessee. There is no requirement of form to submit the details of monthly production. The details of outward made by the assessee is regularly submitted in GSTR-3B. Thus, there is no violation of the provisions of Rule 61 of the CGST Rules.

C.  Statutory procedure prescribed for communication of Show-Cause Notice under

Rule 142(1) of CGST Rules have not been followed.

C.1.  Without prejudice to above, it is submitted that the foundational show cause notice dated 23.12.2019 proposing seizure of the goods and alleging that the goods have been kept un-accounted for the purpose of clandestine removal of goods without payment of GST, was never communicated to the petitioner as per the prescribed provisions of the COST Rules.

C.2.  In this connection it is submitted that Rule 142(1) of the CGST Rules, provides that the show-cause notice to be communicated electronically on the portal. Rule 142(1) of the COST rules is reproduced here in below for ready reference:

142. Notice and order for demand of amounts payable under the Act.-(])

The proper officer shall serve, along with the

(a)  notice issued under section 52 or section 73 or section 74 or section 76 or section 122or section 123 or section 124 or section 125 or section 127 or section 129 or section 130,a summary thereof electronically in FORMGST DRC-01,

(b)  statement under sub-section (3) of section 73 or sub-section (3) of section 74, a summary thereof electronically in FORM GST DRC-02, specifying therein the details of the amount payable.

C.3  In the present case the department has not uploaded the Show Cause Notice dated: 23.12.2019 on the electronic portal but communicated to the assessee via Post. Hence the prescribed procedure has not been followed. Therefore, the Show Cause Notice issued without following the provisions of Rule 142(1) of the COST Rules is void ab-initio and consequently the departmental appeal is liable to be quashed.

C.4  The respondent has cited case law in their defence:-

Hon’ble High Court of Madhya Pradesh dated: 19.11.2020 in writ petition No. 16117/2020  in case of Akash Garg Vs State of M.P.  

6.  Personal hearing in the instant case in virtual mode through video conference was held on 22.03.2021. Sh. Virendra Porwal, Authorized Representative of the  respondent appeared. During personal hearing he reiterated the submission of cross objections and explained in details. 

7.  From appellant/department side, none appeared for personal hearing and in this regard a letter dated 23.03.2021 has been received from Asstt Commissioner, CGST Division-Sikar therein it has been stated that due to technical reasons, this office was not able to attend the virtual hearing hosted on 22.03.2021 though link via Webex. It is further requested that the submission of this office may please be considered as submitted in appeal memo.

8.  I have gone through the facts of the case as inscribed in the departmental appeal, the oral iteration offered by the department appellant in their appeal memo. Accordingly, I proceeded to decide the case envisioning the facts submitted by the appellant department as well as respondent.

On going through the appeal memo, submission of cross objections and relevant records of the case, I find that the following issues to be decided in the instant case:-

1)  Whether excess stock were found during the physical stocks verification against entries made in stock register and whether seized excess stocks are liable to be confiscated in terms of Section 130 of CGST Act, 2017 and Rule 139 of CGSGT Rules,2017 or not ?

2)  Whether penalty is imposable upon the Firm/Assessee under Section 122(1)(xvi) and (xviii) of CGST Act, 2017 or not ?

3)  Whether penalty is imposable upon Partner of the Firm under Section 122(3) of CGST Act,2017 or not ?

Before embarking upon the issue it would be appropriate to reproduce the relevant provisions of Act and Rules made thereunder:-

SECTION 130. Confiscation of goods or conveyances and levy of penalty. – (1) Notwithstanding anything contained in this Act, if any person –

(i)  supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(ii)  does not account for any goods on which he is liable to pay tax under this Act; or

(iii)  supplies any goods liable to tax under this Act without having applied for registration; or

(iv)  contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(v)  uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance,

then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.

(2)  Whenever confiscation of any goods or conveyance is authorised by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit:

Provided that such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon :

Provided further that the aggregate of such fine and penalty leviable shall not be less than the amount of penalty leviable under sub-section (1) of section 129 :

Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

(3)  Where any fine in lieu of confiscation of goods or conveyance is imposed under sub-section (2), the owner of such goods or conveyance or the person referred to in sub-section (1), shall, in addition, be liable to any tax, penalty and charges payable in respect of such goods or conveyance.

(4)  No order for confiscation of goods or conveyance or for imposition of penalty shall be issued without giving the person an opportunity of being heard.

(5)  Where any goods or conveyance are confiscated under this Act, the title of such goods or conveyance shall thereupon vest in the Government.

SECTION 122. Penalty for certain offences. -(1) Where a taxable person who –

(i)   …….

(ii)   …….

(iii)   ……

(xvi) fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;

 (xviii) supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;

(2)……….

(3) Any person who ––

(a)  aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);

(b)  acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;

(c)  receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;

(d)  fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;

(e)  fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account,

shall be liable to a penalty which may extend to twenty-five thousand rupees.

SECTION 123. Penalty for failure to furnish information return. – If a person who is required to furnish an information return under section 150 fails to do so within the period specified in the notice issued under sub-section (3) thereof, the proper officer may direct that such person shall be liable to pay a penalty of one hundred rupees for each day of the period during which the failure to furnish such return continues :

Provided that the penalty imposed under this section shall not exceed five thousand rupees

SECTION 35. Accounts and other records. -(1)Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of-

(a)  production or manufacture of goods;

(b)  inward and outward supply of goods or services or both;

(c)  stock of goods;

(d)  input tax credit availed;

(e)  output tax payable and paid; and

(f)  such other particulars as may be prescribed :

Provided that where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business :

Provided further that the registered person may keep and maintain such accounts and other particulars in electronic form in such manner as may be prescribed.

RULE 139. Inspection, search and seizure. – (1) Where the proper officer not below the rank of a Joint Commissioner has reasons to believe that a place of business or any other place is to be visited for the purposes of inspection or search or, as the case may be, seizure in accordance with the provisions of section 67, he shall issue an authorisation in FORM GST INS-01authorising any other officer subordinate to him to conduct the inspection or search or, as the case may be, seizure of goods, documents, books or things liable to confiscation.

(2) Where any goods, documents, books or things are liable for seizure under sub-section (2) of section 67, the proper officer or an authorised officer shall make an order of seizure in FORM GST INS-02.

RULE 56. Maintenance of accounts by registered persons. –

(1)  Every registered person shall keep and maintain, in addition to the particulars mentioned in sub-section (1) of section 35, a true and correct account of the goods or services imported or exported or of supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers and refund vouchers.

(2)  Every registered person, other than a person paying tax under section 10, shall maintain the accounts of stock in respect of goods received and supplied by him, and such accounts shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample and the balance of stock including raw materials, finished goods, scrap and wastage thereof.

     Now, I am taking up the issues one by one for discussion.

 Point No.(1) – With regard to issue involved at Point No.1, appellant/department has contended that adjudicating authority has erred in holding the seized goods deserved to release as the same is not liable to confiscation. Further, submitted that the adjudicating authority has also erred in holding that the unaccounted excess goods which were seized were not deliberately kept unaccounted to supply the same clandestinely and without payment of tax. The appellant emphasized that the taxpayer/assessee has failed to maintain the accounts of stocks in respect of goods received and supplied by him for long time i.e. period of more than one month and it is in violation of Section 35 of CGST Act and Rule 56 of CGST Rules, 2017. This fact of non maintenance of records has been disclosed during Panchnama proceedings by the Accountant of the Firm and he stated that they update production and take it on record after issuance of sale invoices by doing back calculation and Manager of the Firm also admitted in his statement clandestine clearance from the factory. The same facts has been admitted by the Partner of the Firm. He admitted that they have not maintained stock position in the factory since month of March-2019 and have not updated finish stock in their records since April 2019. But they were continuously issuing sale invoices. Further, appellant stated that action of non maintenance of records were modus operandi of the tax payer/assessee for manipulating the accounts records to evade the GST which indicate mens rea of the assessee.

 Contrary to the appellant plea, the respondent/ assessee submitted that the stock found during search were not excess/unaccounted stock as alleged. Rather the stock found was slightly short than the book stock which was due to the reason of inaccurate stock taking/manufacturing process loss. Further, he added that at the time of search proceedings merely his books of account were incomplete as the entry related to the production etc., were pending to be made. This fact was communicated at the time of search and respondent requested to complete the books of account on the basis of Bill Voucher and other documents found in search proceedings. However, the intelligence team did not allow to update/complete the books of accounts and seized the entire goods of finished stocks treating it as unaccounted stock kept for clandestine supply. 

 Further, he pleaded that after obtaining photocopies of the seized documents and records from the investigating authority he completed the entries in the books of accounts considering the opening stock, purchase and consumption of raw material during the period and opening stock, production on the basis of production sheet and sales made of the finished goods during the period. After completing the books of accounts he submitted the details of books stock in writing to the investigating authority and requested to release the goods. However, investigating authority did not consider his request. Whereas, the adjudicating authority after verification of books of accounts and satisfied with the position of books of stock he released the goods. Hence the order in original releasing the goods is correct and same is to be sustained.

 On going through the both sides of submission, I observed that respondent no where raised any objection of search proceedings as well as Panchnama proceedings conducted by the investigating team from which it may be inferred that the entire proceedings were conducted in transparent and fair manner. During the proceedings the physical stock was also verified and it was found excess against the entries of stock register/books of accounts. The whole proceedings were done in the presence of two independent witnesses and in the presence of employees of the respondent/assessee and on later period the Partner of the Firm had also joined the search proceedings. During the proceedings, the statement of Accountant, Manager and Partner of the Firm were recorded under Section 70 of CGST Act before the proper officer. The Accountant of the Firm disclosed in his statement that they updated the production and took it on records after issuance of sale invoices by doing back calculation and Manager of the Firm inter alia admitted the clandestine clearance from the factory. The partner of the Firm has also admitted non maintenance of records and he also accepted the statements of his Accountant and Manager during the proceedings.

 From the above facts, it is emerged that during the search proceedings the excess stock were found against the entries of stocks register and this fact have not been objected neither by the employees of the Firm nor by the Partner of the Firm himself. This fact has also been accepted by the adjudicating authority in his findings. Further, I find that the adjudicating authority has observed that unaccounted goods were allegedly seized on the basis of the statement of two employees but to corroborate this new affirmative tangible and reliable documents were unearthed by the investigating team and as such in the absence of essential ingredient/ concrete evidence proving the unaccounted goods were with intent to evade payment of Tax would not be justified. He also find that there is no evidence which has been adduced in the notice to establish and arrive at logical conclusion that the excess stock was deliberately kept unaccounted to supply the same clandestinely without payment of tax and ultimately he opined that the seizure was unwarranted as it is on the preponderance of presumption/probabilities. In this regard, I find that the adjudicating authority‘s finding is based are on the submission of respondent/assessee only and he grossly ignored the statement of employees of the Firm which had endorsed rather admitted by the Partner of Firm himself and in the tax matter the statement has the evidential value under the evidence Act. In the various Supreme Court judgments it has been pronounced that the statement recorded before Tax Authority is merely not a statement recorded before Police Officer but it is a piece of evidence. The relevant portion of the same Supreme Court judgment is as under:-

In this regard, the Hon‘ble Supreme Court in case of Surjeet Singh Chhabra Vs. U.O.I. reported in 1997 (89) E.L.T. 646 (S.C.) held that evidence – confession statement made before Customs officer though retracted within six days is an admission and binding since Customs Officers are not Police Officers – Section 108 of the Customs Act and FERA.

 Further, the Hon‘ble Supreme Court in the case of Naresh J. Sukhawani v. Union of India reported in 1996 (83) E.L.T. 258 has also held that the statement recorded under Section 108 of the Customs Act, 1962 made before the Customs officials, is not a statement recorded under Section 161 of Cr.P.C. Therefore, it is a material piece of evidence collected by the Customs officials under Section 108 of the Customs Act, 1962 and it can be used as substantive evidence connecting the petitioners with the contravention of Customs Act.

Since similar provisions has been provided in Section 70 of CGST Act, 2017 hence in view of above judicial pronouncement it may be concluded that statement recorded under the said provisions constitute substantive piece of evidence and can be relied in adjudication proceedings – Even if such statement is retracted or diluted in subsequent statement, it can be appreciated in light of other circumstances and evidence .  

In view of above, I do not agree with the contention of respondent and hold the plea of the appellant/department accordingly.  

Further, I find that adjudicating authority has accepted the shortage of stock merely on the basis of submission of respondent/assessee but I observed that he has not examined the whole case records i.e. Balance Sheet, Ledgers, Purchase Invoices and Sale Invoices and production register/stock register etc., to establish his findings and arriving the conclusion that excess goods were on accounts of merely non updation of stock register/books of accounts. Further, the adjudicating authority should have also examined the genuineness of the records submitted by the assessee but I do not find any observation/findings in this regard. Therefore, I do not agree with the findings of the adjudicating authority and submissions of the respondent. Further, the respondent/assessee contended that the Accountant, Manager and Partner of the Firm are not the relevant person to give any statement in respect of sale prices, billing prices hence, no cognizance be given to the statements given by the persons. As the main person in this regard is Sh. Lalit Goyal who actually look after the sale part but I do not agree with the contention of the respondent/assessee as the Accountant, Manager and the Partner of Firm is also a keys persons who are looking after all the affairs with regard to production, purchase, sale etc. Hence, the statement of these persons can not be discarded and the plea taken by the respondent/assessee is clearly misleading.

 I find that adjudicating authority has held that the seized goods deserved to be released as same is not liable to be confiscated on account of that the statement of Sh.Lalit Goyal never recorded to find out the pricing pattern of the seized goods and respondent also raised this objection in their cross objection. In this regard, I find that the value of seized goods arrived by the investigating authority on the basis of statement of the Accountant of the Firm wherein, he stated that the value shown in the Bill and the amount charged in the cash over and above the value declared in the Bill is 40 : 60, receiving 40% through Bill of the actual price while receiving 60% in cash through Kachha System in respect of supply made from the factory premises of the assessee. I find that the value arrived by the Investigating Authority by multiple the sale price mentioned in the sale invoices by 2.5 times is justified and proper. In view of the pattern of the Kachha System adopted by the Firm which has been admitted by the Accountant himself. Further, I am of the opinion that the value of the said excess goods can not be arrived on the basis of sale invoice issued by the respondent/assessee. From the statement of the Accountant it is clear that the price mentioned on sale invoices are undervalued upto 60% of the actual value price of sale. Therefore, value arrived by the Investigating Authority is correct and proper.

 Further, I also opined that recording of statement of the one of the Partner Sh.Lalit Goyal would have not served any purpose for arriving the value as it is very much clear that Kachha System were in place rather the proper recording of accounting systems to arrive the actual price of the goods.

 Thus, adjudicating authority has erred by holding that the seized goods is not liable for confiscation and release the same contrary to this view I find that the respondent assessee has contravened the provisions of Section 35 of CGST Act read with Rule 56 of CGST Rules,2017. Therefore, seized goods is liable to confiscation in terms of Section 130 (1), (ii) & (iv) of CGST Act and rules made thereunder. However, since the goods has already been ordered to release the said seized goods by the adjudicating authority therefore I have no option but to impose the fine under Section 130 (2) in lieu of confiscation of the said released goods.

Point No.(2)-

In respect of the issue mentioned at point No.2 the respondent submitted that since no excess stock found hence no penalty is leviable under Section 122(1) (xvi) and (xviii) of CGST Act, 2017. Further, he added that he has maintained the books of accounts as per provisions of the CGST Act. In this regard, I find that the detailed discussion on the issue of excess stock has already been pointed out at point No.1. In view of above discussions and findings it has established that the assessee did not maintained the proper books of account at the time of search proceedings hence he violated the provisions of Section 35 of CGST Act and Rules made thereunder. Accordingly, I find that the penalty under Section 122(1) (xvi) and (xviii) of CGST Act, 2017 upon the assessee is very well attracted in the instant case.

Point No.(3)

In respect of point No.3 the respondent submitted that in respect of penalty imposed under Section 122(3) of CGST Act, 2017 he submitted that none of the clause of Section 122(3) are applicable in the instant case. Further he added that since penalty under Section 122(1) and Section 125 of CGST Act has been imposed on the firm thus imposing penalty on the partner of the Firm is not justified. In this context, on going through the section 122(3) of CGST Act it may be seen that this particular penalty is imposable on the person who aids or abets any of the offences specified in clause (i) to (xxi) of sub section 1 of Section 122 of CGST Act. From the above discussion and findings and perusal of records it has been established that the Partner of the firm is the key person who deals all the affairs of the Assessee firm. Therefore, he can not be escaped from any offence of the firm and it can not be imagined that without his involvement such kind of violations of the provisions of the act or rules made thereunder would be happened. Further, the Partner has himself admitted the said offence in his statement recorded under the provisions of law.

In view of the above findings and discussions, I set aside the order in original passed by the adjudicating authority and pass the following order accordingly:-

1-  I order to confiscation the seized goods amounting to ₹ 92,94,810/- under Section 130 (1) (ii) & (iv) of CGST Act read with Rule 139 of CGST Rules, 2017. Since goods has already been released vide the OIO No.02/GST/Demand/2020 dated 27.01.2020 hence I impose a fine of ₹ 8,00,000/-(Rupees Eight Lakhs only) in lieu of confiscation of goods under Section 130(2) of CGST Act,2017.

2-  I impose a penalty amounting to ₹ 16,73,066/- (Rs. Sixteen Lakhs Seventy Three Thousand Sixty Six only) under Section 122(1) (xvi) and (xviii) of CGST Act upon M/s Tirupati Plywood Industries,A-54, -54A, Shri Khatu Shyamji Industrial Area, Reengus, Distt-Sikar.

3-  I also impose a penalty of ₹ 8,000/- (Rs. Eight Thousand only) on partner of the firm i.e. Sh. Praveen Goyal under Section 122(3) of CGST Act,2017.

9. The appeal is disposed off in above manner.