2010 (6) TMI 403 - AT - Central Excise

Demand Excess and shortage partner admitting offence of illicit clearance - cross examination, one of the panchnama witnesses stated that he entered the premises only on 6-9-97 at 16.00 hrs whereas according to the Panchnama, the search was over at 14.30 hrs - The investigating officer during cross examination could not explain as to how the fabrics received under 3 challans on 4-9-97 could be treated as processed and cleared without payment of duty - Panchnama does not connect the appellants/invoices with grey fabrics found short - merchant manufacturers in response to the show cause notice had stated that no goods were received by them without Central Excise invoices and they were not part of the activity of duty evasion - Panchnama was defective, no proper procedure followed for measuring; no explanation is coming regarding Annexures A and B, result of cross examination of panchnama witness, inability of investigating officer to explain the methodology and their inability to explain how the grey fabrics received under 3 challans on 4-9-97 could be processed and cleared on the very same day Appeal rejected

Summary

Issues:
1. Illicit clearance of processed fabrics and substitution with fresh grey fabrics without payment of Central Excise duty.
2. Confessional statements made during the Panchnama proceedings.
3. Cross-examination of Panchnama witnesses and principles of natural justice.
4. Defective Panchnama and lack of corroborative evidence.
5. Alleged shortages and substituted fabrics.
6. Adjudication proceedings and subsequent appeals.

Detailed Analysis:

Issue 1: Illicit clearance of processed fabrics
The judgment revolves around the case of an assessee engaged in manufacturing activities of processed man-made fabrics. During a search conducted by Central Excise officers, a shortage of processed fabrics was detected, along with an excess of fabrics placed under seizure. The partner of the assessee admitted to the offense of illicit clearance of processed fabrics and substitution with fresh grey fabrics. The investigation extended to other merchant manufacturers who also admitted to receiving processed fabrics without payment of Central Excise duty.

Issue 2: Confessional statements
The partner of the assessee and other merchant manufacturers made confessional statements during the Panchnama proceedings. The Revenue argued that the confessional statements were valid and admissible as per established legal principles, citing previous court judgments. However, the appellant contended that the department failed to make a strong case, pointing out omissions and commissions in the investigation process.

Issue 3: Cross-examination and natural justice
The Revenue submitted that cross-examination of Panchnama witnesses was not necessary when confessional statements were available. The appellant argued that the Panchnama proceedings were defective, with discrepancies in the timeline and lack of proper procedure for measuring fabrics. The inability of investigating officers to explain key aspects weakened the department's case.

Issue 4: Defective Panchnama and lack of evidence
The judgment highlighted various discrepancies in the Panchnama proceedings, including conflicting statements from witnesses and unanswered questions regarding the processing and clearance of fabrics. The lack of proper documentation connecting the fabrics to the appellants raised doubts about the validity of the case presented by the Revenue.

Issue 5: Alleged shortages and substituted fabrics
Annexures detailed alleged shortages and substituted fabrics, but the fate of seized goods was not clear. The judgment noted that some aspects of the investigation were outside the scope of the proceedings, and discrepancies in the evidence weakened the case against the appellant.

Issue 6: Adjudication proceedings and appeals
Adjudication proceedings resulted in the confirmation of duty demand and penalties, which were challenged in subsequent appeals. The Tribunal rejected the Revenue's appeal, citing the lack of merit due to the weaknesses in the department's case and the defective nature of the Panchnama proceedings.

In conclusion, the judgment analyzed the various issues surrounding the illicit clearance of processed fabrics, confessional statements, procedural flaws, and lack of corroborative evidence. The decision to reject the Revenue's appeal was based on the failure to establish a strong case against the appellant due to the deficiencies in the investigation and procedural irregularities.