2011 (10) TMI 94 - AT - Central Excise

Clandestine removal of goods - fake invoices - confirmation of demand on the basis of statement - Held that - there is nothing on record as to unrecorded purchases or consumption of various other raw material in the manufacture of Frit, there is also nothing on record to indicate that the appellant had purchased the Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite and without accounting them used for the manufacture of Frit for clandestine removal. There is also nothing on record nor there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials. There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil Jadav and whose evidence has been discarded for having not been produced for cross examination; in the absence of any other tangible evidence to show that the appellant had been procuring the other major raw materials required for manufacture of Frit without recording in books of accounts, we are unable to accept the contentions of the ld.AR appearing for the Revenue and the findings of the adjudicating authority, that there was clandestine manufacture and clearance of the finished goods. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s VTPL, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand on the appellant M/s VTPL and imposes penalty on them is not sustainable and is liable to be set aside and we do so. - Decided in favor of assessee.

Issues Involved:
1. Clandestine removal of goods by M/s Vishwa Traders Pvt. Ltd. (VTPL)
2. Adequacy of evidence for proving clandestine removal
3. Cross-examination of witnesses
4. Imposition of penalties on associated parties

Detailed Analysis:

1. Clandestine Removal of Goods by M/s Vishwa Traders Pvt. Ltd. (VTPL):
The factory premises of M/s VTPL were investigated by the officers of DGCEI on suspicion of clandestine removal of goods under fake invoices. The investigation included visits to various premises and the recording of statements from several individuals. The main allegation was that M/s VTPL had engaged in clandestine removal of goods during 1998-1999 to January 2002. The adjudicating authority confirmed the demand of duty amounting to Rs. 89,63,253/- and imposed equivalent penalties on M/s VTPL and its Director, Shri Vivek Maheshwari, under Section 11AC of the Central Excise Act, 1944.

2. Adequacy of Evidence for Proving Clandestine Removal:
The evidence relied upon by the Department included documents recovered from the premises of an employee, Shri Anil Jadav, and statements from various individuals. The appellants contested the sufficiency of this evidence, arguing that it did not meet the standard required to prove charges of clandestine removal. The Tribunal noted that the documents were not official records and were not maintained on a day-to-day basis. The Tribunal also found that the statements of only two customers and one raw material supplier were recorded, which was insufficient to substantiate the charge of clandestine removal.

3. Cross-Examination of Witnesses:
The appellants requested cross-examination of several individuals whose statements were relied upon by the Department. The adjudicating authority denied this request on the grounds that these individuals were co-accused and that the appellants had not provided sufficient justification for cross-examination. The Tribunal found this approach inconsistent with the settled law of evidence, emphasizing the importance of cross-examination to verify the veracity of statements and documents. The Tribunal concluded that the denial of cross-examination rendered the evidence unreliable.

4. Imposition of Penalties on Associated Parties:
Penalties were imposed on M/s VTPL, its Director, and other associated parties under Rule 209A of the Central Excise Rules, 1944, and Rule 26 of the Central Excise Rules, 2002. The Tribunal held that since the demand itself could not be sustained due to insufficient evidence, the penalties imposed on the associated parties were also not justified. The Tribunal referred to various judicial precedents, emphasizing that the burden of proof lies with the Department to establish clandestine removal beyond doubt.

Conclusion:
The Tribunal set aside the impugned order, holding that the evidence on record was insufficient to prove clandestine manufacture and clearance of goods by M/s VTPL. Consequently, the penalties imposed on M/s VTPL and other appellants were also set aside. The appeals were allowed with consequential relief, if any. The Tribunal did not record findings on other submissions made by both sides, as the appeals were disposed of on the merits of the evidence.

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