2009 (12) TMI 838 - AT - Central Excise

Clandestine manufacture and removal - entire case of the Revenue is built on the statements furnished of Shri Hanumantha Rao by the assessee to the bank which had advanced credit to it - Held that - During the cross-examination of Shri Hanumantha Rao when questions were asked about excess granules of 88.76 MTs as indicated in the annexure to the show cause notice he had wanted to see the monthly particulars. On perusing the statements furnished to bank he submitted that during the material time he was not in the branch of the bank. In the circumstances the assessee s plea that the statements of Shri Hanumantha Rao could not have been relied on to find clandestine clearances by the assessee carries considerable force. In a larger number of decisions passed by this Tribunal it was held that clandestine clearance cannot be found without cogent and tangible evidence - In the instant case Commissioner relied on bank statements the correctness of particulars contained in which was disputed and not corroborated by any other evidence. The Commissioner has not been able to effectively rebut the claim of the assessee that it had not manufactured sacks in the absence of machinery yet proceeded to confirm the demand finding that the assessee had been registered for manufacture of sacks - the authorities have not investigated the allegations against VPSL and gathered any evidence. The allegations raised in the show cause notice were not backed by any reliable or positive evidence. The notice was issued without finding a proper prima facie case against VPSL - demand set aside - appeal allowed.

Summary

Issues Involved:
1. Clandestine clearances of excisable goods.
2. Reliance on bank statements for determining clandestine clearances.
3. Verification and cross-examination of evidence.
4. Penalty imposed on the Managing Director.

Detailed Analysis:

1. Clandestine Clearances of Excisable Goods:
The primary issue was whether M/s. Vijay Packaging Systems Ltd. (VPSL) engaged in clandestine manufacture and clearance of laminated HDPE/LDPE fabrics and sacks without maintaining statutory records. The demand for duty and penalties was based on discrepancies between stock statements submitted to the State Bank of India (SBI) and the statutory central excise records.

2. Reliance on Bank Statements for Determining Clandestine Clearances:
The Commissioner relied on statements furnished by VPSL to SBI to determine clandestine clearances. The appellants argued that these statements were inflated to secure higher loans and did not reflect actual stock. The Tribunal noted that the Commissioner's findings were flawed as they were based solely on bank statements without corroborative evidence. The Tribunal emphasized that clandestine clearance could not be established without cogent and tangible evidence, such as physical verification of stocks and other corroborative evidence, which was lacking in this case.

3. Verification and Cross-Examination of Evidence:
The appellants contended that the bank officials did not physically verify the stocks and that the statements were not sworn but merely returns to obtain more finances. The cross-examination of Shri Hanumantha Rao, Chief Manager of SBI, revealed inconsistencies and lack of physical verification of stocks. The Tribunal found that the Commissioner did not adequately consider the affidavit of Shri Ramachandra Reddy, Accounts Officer, who prepared the bank statements, and failed to provide valid reasons for rejecting it.

4. Penalty Imposed on the Managing Director:
The penalty of Rs. 25 lakhs imposed on Shri M. Lakshmikar Reddy, Managing Director of VPSL, was based on the finding that he was responsible for mis-declaration of the actual quantity of sacks. Given the Tribunal's view on the lack of evidence for clandestine production and clearance by VPSL, it concluded that Shri Lakshmikar Reddy was not guilty of the charges and vacated the penalty imposed on him.

Conclusion:
The Tribunal set aside the demand and penalties imposed on VPSL and its Managing Director, emphasizing the need for cogent and tangible evidence to establish clandestine clearances. The reliance on bank statements alone, without corroborative evidence, was deemed insufficient to support the charges. The appeals were allowed, and the penalties vacated.