2010 (4) TMI 680 - AT - Central Excise

Clandestine manufacture and removal - Revenue claimed that Supervisor has stated that miscellaneous outward register was maintained by security and it contained details of materials sent out - investigating officers not recorded statement of any of the security personnel, to bring on record that such register was maintained by them either in their capacity as the employees of the company or otherwise - In the absence of author of the miscellaneous outward register and in the absence of any such statement from the persons who has written the entries in the miscellaneous outward register, clandestine removal cannot be proved. On perusal of the panchnama, we find that the shortage has not been worked out in any scientific manner. To our mind the said shortage has just worked out based upon the arithmetic calculation of the book stock and physical stock (as informed by the employees of the company). At the most such shortages can be said as of eye estimation. It is settled law that any stock which recorded as shortage based upon only arithmetic calculation and without any scientific process, is fraught with inconsistencies. In the absence of any statement of the General Manager, who was present during the recording of panchnama, is definitely as shoddy piece of investigation, which is detrimental to the Revenue s case.

Issues Involved:
1. Violation of Principles of Natural Justice
2. Shortage of 37.490 Mts. of Alloy Steel Rods
3. Private Records Seized on 10-4-97
4. Non-consideration of Submissions by the Commissioner
5. Limitation on Duty Demands
6. Clandestine Removal of Goods Based on Miscellaneous Outward Register
7. Clandestine Clearances Based on Monthly Production Report and Documents from Director's Office
8. Double Invoicing and Shortage of Duty-Paid Inputs
9. Imposition of Penalties

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellants argued that the principles of natural justice were violated as the witnesses whose statements were relied upon by the department were not produced for cross-examination despite repeated requests. The appellants cited several judicial precedents, including *Gyan Chand Sant Lal Jain v. Union of India* and *Arsh Castings Pvt. Ltd. v. CCE, Chandigarh*, to support their claim that the failure to allow cross-examination of witnesses invalidated the reliance on their statements.

2. Shortage of 37.490 Mts. of Alloy Steel Rods:
The appellants contested the shortage of 37.490 Mts. of alloy steel rods noted during the physical verification on 10-4-1997, arguing that the panchanama did not provide details on how the physical stock was calculated. They claimed that the verification process was not thorough and could not have been completed within the time frame mentioned. The adjudicating authority's reliance on the statements of company employees, who allegedly accepted the shortage, was also challenged.

3. Private Records Seized on 10-4-97:
The appellants argued that the private records seized during the search, which were used to establish clandestine removal, were not corroborated by independent evidence. They emphasized that the author of these records was not identified, and no statements were recorded from buyers or transporters to verify the alleged transactions. Judicial precedents, such as *Arti Steel Ltd. v. CCE, Chandigarh*, were cited to argue that charges of clandestine removal based solely on private records were unsustainable.

4. Non-consideration of Submissions by the Commissioner:
The appellants claimed that the Commissioner did not consider their submissions and evidence, leading to non-application of mind. They cited the Supreme Court's decisions in *Dhirajlal Girdharilal v. Commissioner of Income-Tax, Bombay* and *Omar Salay Mohammed Sait v. Commissioner of Income Tax, Madras*, which held that decisions based on irrelevant material or conjectures constituted an issue of law.

5. Limitation on Duty Demands:
The appellants argued that the demands for duty were time-barred as the show cause notice was issued on 10-1-2000, more than two years after the department had knowledge of the alleged evasion on 10-4-1997. They cited several judicial precedents, including *Shree Renuka Sugars Ltd. v. CCE, Bangalore*, to support their claim that the demands were barred by limitation.

6. Clandestine Removal of Goods Based on Miscellaneous Outward Register:
The Tribunal found that the miscellaneous outward register, which was recovered during the search, could not be relied upon to establish clandestine removal as the author of the register was not identified. The absence of statements from security personnel or other employees who maintained the register weakened the department's case.

7. Clandestine Clearances Based on Monthly Production Report and Documents from Director's Office:
The Tribunal upheld the demand for duty based on the monthly production report and chits recovered from the cabin of the Director (Technical), Mr. GVN Rao. Despite Rao's retraction of his initial statement, the Tribunal found the evidence sufficient to establish clandestine removal of goods mentioned in the documents.

8. Double Invoicing and Shortage of Duty-Paid Inputs:
The Tribunal found that the issue of double invoicing under invoice No. 576 dated 17-2-1996 was not substantiated and set aside the related demand. Regarding the shortage of 37.490 Mts. of alloy steel rods, the Tribunal found the verification process flawed and the shortage not scientifically established, leading to the setting aside of the demand.

9. Imposition of Penalties:
The Tribunal remanded the matter to the adjudicating authority for the limited purpose of quantifying the demand related to clandestine clearances established through the monthly production report and chits. Consequently, proportionate penalties were to be imposed on the appellants based on the quantified demand.

Conclusion:
The appeals were disposed of with the Tribunal setting aside demands based on the miscellaneous outward register and the alleged shortage of alloy steel rods while upholding the demands related to clandestine clearances evidenced by the monthly production report and chits. The matter was remanded for quantification of the demand and imposition of proportionate penalties.

← Previous Next →