2013 (8) TMI 769 - AT - Central Excise

Shortage of Imported Goods - The appellant had been importing the fabrics which were consumed for the manufacturing of the goods for export - on the verification of the records it was found that there was a shortage of imported fabrics - Held that - The issue in the case had not been properly addressed by the adjudicating authority - there were various submissions which had been made by the appellant before him which remained un-addressed and a summary conclusion had been arrived - The issue needs re-consideration by the adjudicating authority - order set aside and remand the matter back to the adjudicating authority to reconsider the issue afresh, after following the principles of natural justice - nothing incriminating was found in as much as they have never admitted to have procured the imported fabrics which were allegedly diverted by the appellant. The Panchnama witnesses had retracted the statements and cross-examination conducted, indicates that there was something amiss - The Department had not produced the four brokers for cross-examination whose names came up during the recording the statement which was required to substantiate the case of diversion of imported goods - The finding/remarks were unsubstantiated as in the entire case record there was no evidence to claim that the appellant had been resorting to making deliberate entries in RG-1 register. Whether the Removal of the Goods were clandestine Removal - As decided in ASSISTANT COLLECTOR OF CUSTOMS Versus KUNHI KORATH BALAN 1990 (8) TMI 156 - HIGH COURT OF JUDICATURE AT BOMBAY - The Panchnama was faulty, no adverse inference can be drawn and such Panchnama had to be excluded from the consideration of the case against any person - shortage of goods in itself does not mean that clandestine removal and clandestine removal needed to be proved by the Department and also for the proposition that the assessee was entitled to give proper explanation of the difference in stock taking even at the time of the reply to the show cause notice - appeals were allowed by way of remand Decided in favor of Assesse.

Issues Involved:
1. Alleged shortage and clandestine removal of imported fabrics.
2. Validity and reliability of Panchnama and statements.
3. Cross-examination of witnesses and brokers.
4. Evidentiary value of retracted statements.
5. Adjudicating authority's handling of evidence and submissions.

Detailed Analysis:

1. Alleged Shortage and Clandestine Removal of Imported Fabrics:
The main appellant, a 100% EOU, was accused of not using imported fabrics for manufacturing export goods and instead diverting them to the local market. The Customs Department found a shortage of 10,26,762.03 L.Mtrs of imported fabrics during verification. The shortage was calculated based on the total receipt of imported fabrics minus the fabrics cleared for DTA export/DTA sales and the fabrics found in stock. The Department demanded differential duty on the alleged diverted fabrics, along with interest and penalties.

2. Validity and Reliability of Panchnama and Statements:
The appellant contested the Panchnama, claiming it was improper and disputed by Shri Rameshchandra Agarwal, who filed an affidavit of retraction. The appellant argued that the Panchnama was faulty as it did not record the fabrics in process and relied on names from the appellant's telephone directory. The Panchnama witness, Shri Hirabhai Patel, also retracted his statement, stating he was not present during the Panchnama. The appellant cited several legal precedents to argue that a faulty Panchnama should be excluded from consideration.

3. Cross-Examination of Witnesses and Brokers:
The appellant sought cross-examination of brokers and purchasers whose statements were relied upon by the Department. The adjudicating authority provided cross-examination of Panch witnesses but not of the brokers and purchasers. The appellant argued that in the absence of cross-examination, the statements could not be relied upon. The Department countered that the adjudicating authority did not rely on these statements to conclude clandestine removal.

4. Evidentiary Value of Retracted Statements:
The appellant's directors retracted their statements, claiming they were not directors and had retracted their statements soon after they were recorded. The Department argued that the retractions were not brought to their notice timely and were mechanical. The adjudicating authority relied on the retracted statements despite the lack of corroborative evidence. The appellant argued that there was no evidence to show that the imported fabrics were diverted and substituted with inferior indigenous fabrics.

5. Adjudicating Authority's Handling of Evidence and Submissions:
The adjudicating authority was criticized for not addressing the appellant's submissions properly and arriving at a summary conclusion. The appellant argued that the adjudicating authority's findings were unsubstantiated and lacked evidence of deliberate entries in the RG-1 register. The Department's case hinged on the alleged diversion of imported fabrics, but the evidence was deemed insufficient and uncorroborated.

Conclusion:
The Tribunal found that the adjudicating authority did not properly address the issues and submissions raised by the appellant. The case was remanded back to the adjudicating authority for reconsideration, following the principles of natural justice. The adjudicating authority was directed to allow the appellant to present evidence and defenses and to conduct a thorough re-evaluation of the case without being influenced by prior observations. All appeals were allowed by way of remand.

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