2014 (12) TMI 1213 - AT - Central Excise

Clandestine manufacture and removal of their final product - Branded Chewing Tobacco, Supari - Paan Masala Gutkha - reliance on the various statement, without offering the deponents of the said statements for cross examination - Held that - Revenue has failed to discharge its burden, so as to come to a finding of clandestine removal. From the notings on the Revenue s file it is clear that the ADG is referring to various lacunas/loop holes in the investigation proceedings and is himself expressing doubt about the admissibility of the evidences produced by them. This shows the Revenue s themselves were not sure of the success of their case. The statements recorded by the Revenue during the course of investigations, without procuring other evidences, so as to substantiate the investigations, cannot be held to be sufficient evidences to uphold the clandestine removal findings and no adverse opinion can be arrived at, on the basis of the same - Demand set aside - Decided in favor of assessee.

Issues Involved:
1. Clandestine manufacture and removal of goods.
2. Reliance on statements without cross-examination.
3. Use of railway receipts and transport documents as evidence.
4. Statements of third parties and their evidentiary value.
5. Allegations of clandestine procurement of raw materials.
6. Previous adjudications and their impact on current proceedings.
7. Capacity to manufacture the alleged quantity of goods.
8. Role of transporters and dealers in alleged clandestine activities.
9. Admissibility of evidence under Section 9D of the Central Excise Act.
10. Legal principles regarding the burden of proof and corroborative evidence.

Detailed Analysis:

1. Clandestine Manufacture and Removal of Goods:
The Tribunal examined the allegations against the appellant for clandestine manufacture and removal of Gutkha and other products during 1995-96 and 1996-97. The Commissioner had confirmed demands of duty and imposed penalties based on these allegations. However, the Tribunal found that the evidence presented by the Revenue was insufficient to substantiate the claims of clandestine activities.

2. Reliance on Statements Without Cross-Examination:
The appellant contended that reliance on statements without offering the deponents for cross-examination violated judicial principles. The Tribunal noted that the adjudicating authority had allowed cross-examination of only a few individuals and denied the rest by citing Section 9D of the Central Excise Act. The Tribunal held that the denial of cross-examination was not justified as the conditions under Section 9D were not met, making the reliance on such statements weak and uncorroborated.

3. Use of Railway Receipts and Transport Documents as Evidence:
A significant portion of the demand was based on railway receipts (RRs) showing consignments booked under fictitious names. The Tribunal found that the Revenue failed to prove that these consignments were related to the appellant. The statements of the booking agent, Raju, did not conclusively link the consignments to the appellant. The Tribunal emphasized that assumptions and presumptions without corroborative evidence could not substantiate the allegations.

4. Statements of Third Parties and Their Evidentiary Value:
The Tribunal scrutinized the statements of various individuals, including transporters and dealers, and found inconsistencies and retractions. The Tribunal reiterated that statements of third parties, especially when retracted or uncorroborated, could not form the sole basis for confirming clandestine activities. The Tribunal cited Supreme Court judgments emphasizing the need for cross-examination to test the veracity of such statements.

5. Allegations of Clandestine Procurement of Raw Materials:
The Tribunal noted that the Revenue's allegations of unaccounted procurement of raw materials, particularly lamination material from M/s. Classic Pouches Pvt. Ltd., were not substantiated with sufficient evidence. The statements of the suppliers were not corroborated, and the Revenue failed to establish the procurement of other essential raw materials required for manufacturing the alleged quantity of goods.

6. Previous Adjudications and Their Impact on Current Proceedings:
The Tribunal referred to a previous adjudication where similar allegations against the appellant were set aside due to insufficient evidence. The Tribunal found that the same set of evidence was used in the current proceedings, and the earlier findings should apply, strengthening the appellant's case.

7. Capacity to Manufacture the Alleged Quantity of Goods:
The appellant argued that they did not have the capacity to manufacture the alleged quantity of goods. The Tribunal noted that the Revenue did not verify the appellant's production capacity, leaving the appellant's claim unrebutted. This lack of verification further weakened the Revenue's case.

8. Role of Transporters and Dealers in Alleged Clandestine Activities:
The Tribunal examined the role of transporters like Verma Roadways and dealers like Vijaya Agencies. The Tribunal found that the evidence from these parties was not sufficient to establish the appellant's involvement in clandestine activities. The statements and documents from these third parties were uncorroborated and could not be solely relied upon.

9. Admissibility of Evidence Under Section 9D of the Central Excise Act:
The Tribunal analyzed the application of Section 9D and concluded that the conditions for admitting statements without cross-examination were not met. The Tribunal emphasized that the statements should be tested through cross-examination to ensure their reliability.

10. Legal Principles Regarding the Burden of Proof and Corroborative Evidence:
The Tribunal reiterated the legal principles that the burden of proof lies with the Revenue to establish clandestine activities with clear, positive evidence. The Tribunal cited various judgments emphasizing the need for corroborative evidence and the inadmissibility of untested statements and third-party documents.

Conclusion:
The Tribunal set aside the impugned order, finding that the Revenue failed to substantiate the allegations of clandestine manufacture and removal with sufficient and corroborative evidence. The appeals were allowed with consequential relief to the appellants.

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