2006 (9) TMI 72 - AT - Central Excise

Clandestine Removal Alleged that appellant is confiscation of the seized goods and accordingly demanded for duty alongwith penalty After considering all the detail authority made decision in favour of appellant.

Issues Involved:
1. Confirmation of duty demand of Rs. 4,30,85,194.84
2. Confiscation of seized goods
3. Imposition of personal penalties on appellants
4. Denial of cross-examination of the transporter
5. Reliability of transporter's records
6. Penalty on the Director of the firm

Issue-Wise Detailed Analysis:

1. Confirmation of Duty Demand of Rs. 4,30,85,194.84:

The demand was raised in respect of:
- Processed fabrics found short in the factory (Rs. 11,94,219.20)
- Processed fabrics seized from the premises of Merchant Manufacturers and transporter (Rs. 2,17,004.64)
- Processed fabrics clandestinely cleared by M/s. Indo Green (Rs. 4,16,73,971.00)

The appellant did not contest the demand of Rs. 11,94,219.20. However, they argued that the demand of Rs. 2,17,004.64 was already included in the former amount, as the fabrics found short in the factory were seized from the Merchant Manufacturer and the transporter. The tribunal agreed and set aside the demand of Rs. 2,17,004.64.

For the main duty demand of Rs. 4,16,73,971.00, the tribunal found that the demand was primarily based on the records maintained by the transporter, M/s. SPTT. The tribunal noted that the transporter's records were not corroborated by other evidence and that the cross-examination of the transporter was denied, which was crucial for testing the veracity of the statement. Consequently, the tribunal set aside the demand of Rs. 4,16,73,971.00 due to insufficient evidence.

2. Confiscation of Seized Goods:

The tribunal found that the excess goods in the factory were not intended for clandestine removal, and thus set aside the confiscation and redemption fine of Rs. 8,00,000. However, the goods found at the Merchant Manufacturers' premises were admitted to be clandestinely removed and were thus liable to confiscation. The tribunal upheld the confiscation and the quantum of redemption fines fixed by the Commissioner for these goods.

3. Imposition of Personal Penalties on Appellants:

The tribunal reduced the penalty imposed under Section 11AC on M/s. Indo Green Textile Pvt. Ltd. from Rs. 4,30,85,192 to Rs. 3,00,000, given that the main demand of Rs. 4.16 crores was set aside. Similarly, the penalty of Rs. 4,28,68,130 under Section 34 of the Central Excise Act read with Rule 25 and Rule 173Q was set aside. The penalty of Rs. 40 lakhs on the transporter was also set aside. The penalty of Rs. 1 crore on Mr. Kamal K Singhania, Director of the firm, was set aside as well.

4. Denial of Cross-Examination of the Transporter:

The tribunal highlighted the importance of cross-examination for testing the veracity of the transporter's statement, which was the sole basis for the main duty demand. The denial of cross-examination was deemed to have significantly weakened the case against the appellants, leading to the setting aside of the main duty demand.

5. Reliability of Transporter's Records:

The transporter's records were found to be unreliable and uncorroborated by other evidence. The tribunal noted that the records did not directly link the code name "S One Tex/S One Dyeing" to the appellants and that similar records for other manufacturers were not investigated. This lack of corroborative evidence led to the setting aside of the main duty demand.

6. Penalty on the Director of the Firm:

The penalty on the Director, Mr. Kamal K Singhania, was set aside. The tribunal found no evidence that the Director had physically dealt with any excisable goods in a manner specified or contemplated under Rule 26 of the Central Excise Rules, 2002. Therefore, the penalty could not be sustained.

Final Order:

1. Duty of Rs. 4,16,73,971 and Rs. 2,17,005 is set aside.
2. Duty of Rs. 11,94,219.20 is upheld.
3. Penalty under Section 11AC on M/s. Indo Green Textiles Pvt. Ltd. is reduced to Rs. 3 lakhs.
4. Penalty under Rule 25 and Rule 173Q is set aside.
5. Penalty of Rs. 40 lakhs on the transporter is set aside.
6. Penalty of Rs. 1 crore on the Director is set aside.
7. Confiscation of excess found goods and redemption fine of Rs. 8 lakhs is set aside.
8. Confiscation of goods found at the Merchant Manufacturer's premises with an option to redeem is upheld.
9. Penalties on Merchant Manufacturers are confirmed.
10. Penalty of Rs. 3 lakhs on M/s. Indo Green Textiles Pvt. Ltd. and Rs. 5 lakhs on the Director, in terms of the show cause notice dated 15-11-2002, are set aside.

All appeals are disposed of in the above terms.

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