2010 (12) TMI 1015 - AT - Central Excise

Undervaluation - Demand - Search and seizure - Rule 11 of Central Excise Valuation Rules, 2000 - principles of preponderance of probability - Held that - Statements recorded from Shri L.S. Navin cannot be relied on unless it is established by the Revenue that his statement had not been obtained under duress. There is no evidence of coercion adduced by Shri L.S. Navin. Moreover, his initial statement was incriminating since he had paid excess amount towards purchase of plywood which had not suffered duty. He had thus abetted evasion by the BA group of firms. This deposition found corroboration in the slips recovered. Shri Manoj Kumar Amin and Shri J.M. Ashraf are not third parties. They are employees of the assessee. If they were forced to give incriminating statements against the assessee, they should have retracted the same without delay. In the absence of any retraction within a reasonable period of giving the statements, their retraction is not acceptable. Statements rendered under Section 14 are valid evidence and cannot be doubted in the normal course. It would appear that in respect of the invoices covered by the slips which were recovered, evasion to the extent of 67% as found by the Adjudicating Authority is sustainable. Original Authority rightly (relied on the decision of the Larger Bench of the Tribunal in the case of Nizam Sugar Factory (1999 (10) TMI 123 - CEGAT, NEW DELHI) to hold that five year period is available from the relevant date for the Department to raise demand through a show-cause notice. The date of knowledge by the Department did not curtail this period. The Hon ble High Court of Gujarat interpreted the provisions of Section 11A vide its judgment in the case of CCE v. Neminath Fabrics Pvt. Ltd. 2010 (4) TMI 631 - GUJARAT HIGH COURT . Therefore find that the demand is not barred by limitation. The ld. Counsel for the Revenue had argued that the case of evasion of the Revenue is established by the fact that in the case of direct sales of goods to Tata Coffee Ltd., the assessee had raised invoices for the following three varieties of plywood at much higher prices compared to prices invoiced for such goods when sold to others. As regards applying the finding of evasion in respect of clearances other than those covered by the documents recovered, the ld. Counsel for the Revenue sought to apply the principles of preponderance of probability. If we were to apply the above principle, we have to hold that the assessee had evaded duty to the extent of 63.18% in respect of all the clearances during the material period. Even if we were to hold that the assessee had willfully short paid duty on all clearances, the probability of the assessee short paying duty to the extent of 70% or 30% or any other amount in respect of any of these clearances cannot be ruled out. We are not in a position to confirm demand against any assessee ignoring such a probability. By following the preponderance of probability in the manner suggested by the Revenue, we would be passing orders which would contain a definite element of arbitrariness - set aside the impugned order and remand the dispute regarding duty liability of the assessee and its penal liability for a fresh decision by the Original Authority. The penal liability of the individuals shall also be decided in de novo proceedings following principles of natural justice

Issues Involved:
1. Evasion of Central Excise duties by undervaluation.
2. Admissibility and reliability of evidence, including bank statements and retracted statements.
3. Application of the extended period for raising demand.
4. Correctness of the quantification of duty demand.
5. Imposition of penalties on the company and individuals.

Detailed Analysis:

1. Evasion of Central Excise Duties by Undervaluation:
The appellants, manufacturers of plywood and block boards, were accused of evading excise duty by undervaluing their products. The Directorate General of Central Excise Intelligence (DGCEI) conducted searches and recovered incriminating documents indicating that the appellants collected amounts in cash over and above the invoiced value to evade duty. The adjudicating authority concluded that the appellants had shown only 37% of the actual value collected, leading to a demand of Rs. 7,21,568/- along with interest and penalties.

2. Admissibility and Reliability of Evidence:
The appellants argued that the bank statements could not be relied upon as evidence since the provisions of the Bankers Book Evidence Act, 1891, were not followed. They also contended that the statements of the dealers and employees were obtained under coercion and later retracted. The adjudicating authority, however, deemed the retractions as afterthoughts and upheld the initial statements as voluntary and admissible. The Tribunal noted that statements recorded under Section 14 of the Central Excise Act are valid evidence but emphasized the need for corroboration when such statements are retracted.

3. Application of the Extended Period for Raising Demand:
The appellants argued that the show-cause notice was barred by limitation as it was issued 894 days after the initial recovery of documents. The adjudicating authority rejected this argument, citing the Larger Bench decision in Nizam Sugar Factory, which held that the five-year period for raising demand in cases of suppression, fraud, etc., is not curtailed by the date of knowledge. The Tribunal upheld this view, finding the demand not barred by limitation.

4. Correctness of the Quantification of Duty Demand:
The Tribunal found that the demand was based on slips recovered from one dealer and statements from a few others, which were not sufficient to establish undervaluation for all clearances made by the appellants. The Tribunal emphasized that transaction value under Section 4 of the Central Excise Act is peculiar to each removal and cannot be arbitrarily quantified based on limited evidence. The Tribunal remanded the matter to the Original Authority for reworking the demand, considering direct sales to Tata Coffee Ltd. and the need to ascertain transaction value for each removal.

5. Imposition of Penalties:
The penalties imposed on the company and individuals were challenged on the grounds that the guilt was not established and the penalties were imposed mechanically. The Tribunal noted that the penal liability of the individuals should be reassessed in de novo proceedings following principles of natural justice. The Tribunal set aside the impugned order and remanded the matter for fresh adjudication on both the duty liability and penal liabilities.

Conclusion:
The Tribunal found that the evidence presented was insufficient to uphold the entire demand and penalties as quantified by the lower authorities. The case was remanded to the Original Authority for a fresh decision, emphasizing the need for a detailed and justifiable quantification of duty demand and reassessment of penalties following the principles of natural justice.

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