2012 (2) TMI 473 - AT - Central Excise

Clandestine removal - it was alleged that appellant were indulged and clearing part of their finished products by issuing private challans and without issuing proper invoices - entire allegation of Revenue is based uopn statements of various persons, pen drive, production reports of lab assistants and Challans and party-wise statements. Held that - the directors have accepted their role and that there was a clandestine clearances, the said statement should be considered from the point of the factual matrix of whether the said clandestine removal could be proved from the evidences on record or not. Retracted statement cannot be relied upon for establishing charge of clandestine manufacture and clearances against the assessee - Hence the statements of buyers and suppliers need to be discarded as evidences. Evidences relied upon by the Adjudicating Authority on the production reports of the lab assistants, challans and party-wise statements - Held that - the said challans and production reports of the lab assistants could have no effect on the face of fact that the appellants manufacturing capacity was far less as recorded - when there is no evidence of clandestine manufacture, acknowledgment of the receipt of the goods from the appellants by the buyers, we find that evidences on record do not support the case of Revenue. The impugned order is not able to establish that there was a clandestine manufacture and clearance of the finished goods from the factory premises of M/s. FPML - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegation of clandestine removal of finished products by M/s. FPML.
2. Reliability of evidence including retracted statements, production capacity, and other documentary evidence.
3. Denial of cross-examination of witnesses.

Detailed Analysis:

1. Allegation of Clandestine Removal:
The case revolves around the allegation that M/s. FPML was involved in the clandestine removal of finished products without issuing proper invoices. During a search on 2-10-2005, various incriminating documents were seized, leading to a show cause notice issued on 8-11-2006. The Adjudicating Authority confirmed the demands and imposed penalties based on these documents and statements.

2. Reliability of Evidence:
The appellant argued that there was no shortage or excess of raw materials or final products during the search. They contended that the Department's reliance on data from a pen drive was misplaced as it contained details of duty-paid clearances. They also highlighted discrepancies in the production reports and the Department's methodology of calculating average production. The Adjudicating Authority's reliance on selected pages instead of the entire production period was criticized.

The appellant further argued that the statements of the Director and other individuals were retracted and should not be relied upon. The retractions were made before a notary public and submitted to the Adjudicating Authority, who failed to address these retractions. The appellant also pointed out contradictions in the Department's evidence, including the pen drive data and the statements of buyers and suppliers, which were also retracted.

The appellant emphasized that the production capacity of their machinery was certified to be 20 MTPD, contradicting the Department's claim of 33 to 35 MTPD. They also noted that the electricity consumption records supported their claim of lower production. The case law cited by the appellant, including decisions from the Hon'ble High Court of Gujarat and the Tribunal, supported their arguments against the charge of clandestine removal.

3. Denial of Cross-Examination:
The appellant argued that the denial of cross-examination of buyers, suppliers, and transporters violated their rights. The Adjudicating Authority did not provide reasons for this denial. The appellant cited the Supreme Court's decision in Shalimar Rubber Industries, which held that retracted statements require cross-examination to be reliable.

Judgment:
The Tribunal found that the Adjudicating Authority did not consider the entire case properly. The retracted statements of the Directors and other individuals were not adequately addressed. The production capacity of the appellant's machinery, certified to be 20 MTPD, contradicted the Department's calculations. The Tribunal also noted the absence of corroborative evidence for the alleged clandestine removal.

The Tribunal held that the retracted statements of buyers and suppliers could not be relied upon without cross-examination, as established by the Supreme Court. The evidence from the pen drive and production reports did not support the Department's case. The Tribunal concluded that the Department failed to establish clandestine manufacture and clearance of finished goods.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals with consequential relief. The judgment emphasized the importance of considering retracted statements, production capacity, and the right to cross-examination in cases of alleged clandestine removal.

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