2013 (11) TMI 1525 - AT - Central Excise

Clandestine manufacture and removal of goods - denial of request for cross-examination - Held that - Precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances would not be possible. As held by this Tribunal and Superior Courts it would depend on the facts of each case. What one could however say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined as in the present case without one or more of the evidences referred being present. There should be corroborative evidence by way of statements of purchasers distributors or dealers record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. In yet another decision of a co-ordinate Bench of the Tribunal Pan Parag India v. CCE 2012 (6) TMI 100 - CESTAT NEW DELHI it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials there should be some evidence of huge quantities of raw materials being purchased. No evidence has been produced by the Revenue to show that GSL has effected sale of such huge quantities of 91929.140 Kgs of DT Polyester Yarn. There is no tangible evidence of GSL having actually produced all the DTY or Twisted Yarn from out of non-duty paid POY supplied by Nova. No transporters documents have been seized or produced by the Department to show transport and sale of such huge quantities of POY from Nova to GSL or even for that matter from GSL to the buyers of DTY produced by GSL. No evidence has been forthcoming of purchase of raw materials by Nova for production of POY in such huge quantities or of payments effected by GSL to Nova for the excess quantities of POY clandestinely manufactured and cleared by Nova and sold to GSL or even of payments made by the buyers of DTY from GSL made out of quantities alleged to have been purchased by GSL from Nova. Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance would justify a finding against the appellant (GSL). Unless there is conclusive evidence that Nova did actually manufacture DTY and clandestinely clear them without payment of duty liability cannot be placed on GSL on the basis of conjectures and surmises as the Hon ble Supreme Court emphatically declared in the Oudh Sugar Mills case (supra). We are of the view that there is no tangible evidence produced by the department to establish that GSL has clandestinely manufactured and cleared DTY on which the present demand has been made. In the absence of all such evidence a finding that excisable goods have been clandestinely manufactured and cleared by GSL cannot justifiably be arrived at. The probative value of the entries needs to be established by independent corroboration which is lacking in the present case. The long line of decisions referred to and relied upon by the ld. Senior advocate appearing for Nova have laid down the parameters for a charge of clandestine manufacture and clearance to be established which have not been satisfied in the present case. The present demand of 73, 00, 168/- is therefore unjustified and deserves to be set aside. Imposition of penalty has been justified by the Adjudicating Authority on the basis that there has been suppression of facts with an intention to evade duty. Since we have allowed GSL s appeal and set aside the demand for duty to sustain imposition of penalty on GSL on the ground of suppression and intention to evade duty does not arise. The penalty imposed upon GSL and its director Mohan Lal N. Gupta and also on Sunil N. Gupta is accordingly set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Duty demand of Rs. 32,07,422/- for clandestinely manufactured and cleared DTY.
2. Duty demand of Rs. 73,00,168/- for clandestinely manufactured and cleared DTY.
3. Imposition of penalties on GSL and its directors.

Issue-wise Detailed Analysis:

1. Duty Demand of Rs. 32,07,422/-:
The demand of Rs. 32,07,422/- was based on documents A-19, A-20, A-21, A-22, and A-23, and statements from V.N. Parab and Mohan Lal Gupta. The show cause notice alleged that GSL, in collusion with Nova, clandestinely cleared 91,929.140 Kgs of DTY without payment of duty. The adjudicating authority relied on the average production figures derived from these documents and statements. However, the Tribunal found no tangible evidence of actual production or sale of such quantities, no transport documents, no evidence of raw material procurement, or payments to Nova. The Tribunal emphasized that mere entries in note books or statements without corroborative evidence could not substantiate the demand. Consequently, the demand of Rs. 32,07,422/- was set aside as illegal and unjustified.

2. Duty Demand of Rs. 73,00,168/-:
This demand was based on document A-23 and statements from Mohan Lal Gupta, which indicated an average daily production of 1560 Kgs of DTY. The Tribunal noted that the author of A-23 was unidentified, and the purpose of the entries was unclear. No corroborative evidence was provided to show actual production, transportation, or sale of the alleged quantities. The Tribunal reiterated that clandestine manufacture and clearance must be established with concrete evidence, which was lacking in this case. Therefore, the demand of Rs. 73,00,168/- was deemed unjustified and set aside.

3. Imposition of Penalties:
Penalties were imposed on GSL and its directors based on alleged suppression of facts and intention to evade duty. Since the demands for duty were set aside due to lack of evidence, the basis for imposing penalties was also invalidated. The Tribunal concluded that without substantiated duty evasion, penalties could not be justified. Consequently, the penalties imposed on GSL and its directors were set aside.

Conclusion:
The Tribunal found that the demands of Rs. 32,07,422/- and Rs. 73,00,168/- were based on assumptions and lacked concrete evidence of clandestine manufacture and clearance. The penalties imposed were also unjustified. The appeals were allowed, and the impugned orders were set aside.