2013 (11) TMI 626 - AT - Central Excise

Clandestine manufacture and removal of goods - Request for cross examination rejected by the Adjudicatory authority - Witnesses whose statements have been relied upon in the Show Cause Notice Held that - Following Swadeshi Polytex Ltd v CCE, Meerut 2000 (7) TMI 85 - SUPREME COURT OF INDIA if the Adjudicating Authority intends to rely upon the statement of any such persons, the Adjudicating Authority should give an opportunity of cross examination to the appellant - The decision made by the Adjudicating Authority in his letter dated 10.10.08 and in the order, denying Nova s request for cross examination of witnesses, and subsequently recounted in the order is clearly in violation of principles of natural justice in the matter of the need to permit cross examination of witnesses on whose statements reliance has been placed. Establishment of Charge of Clandestine Removal of Goods Held that - Charge of clandestine manufacture of the dutiable goods and removal without discharging the duty liable by an assessee, cannot be established on assumptions and presumptions - Such a charge has to be based on concrete and tangible evidence - Relying upon Oudh Sugar Mills Ltd. v. Union of India 1962 (3) TMI 75 - SUPREME COURT OF INDIA - demand of duty cannot be raised on the strength of assumptions and presumptions - There should be sufficient evidence of the removal of the goods alleged to have been manufactured and cleared without payment of duty - The charge of clandestine removal must be based on tangible evidence and not on inferences involving unwarranted assumptions. Duty demand on documents seized from premises Held that - Mere admission of a document in evidence does not amount to its proof - The demand which has been confirmed against Nova by the order is not based on evidence which, as the Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance, would justify a finding against the appellant - Inferential or conjectural conclusions cannot be arrived at in such cases as has been done in the present demand, merely based on what GSL did with the POY allegedly sold to them by Nova - there is no tangible evidence produced by the department to establish that Nova has clandestinely manufactured and cleared POY on which the present demand has been made - the demand set aside being illegal and unjustified. Demand on the basis of statements made by the employees Held that - It is totally a different thing to assess the probative value of the contents of the document - They have to be established on evidence, relatable to or linked with actual manufacturing operations - there is no such evidence forthcoming in the record before us - Mere reliance on note books/diaries or statements cannot justify a finding of clandestine manufacture and/or clearance - Apparently, no efforts seem to have been made in this behalf by the investigating authorities - In the absence of all such evidence, a finding that excisable goods have been clandestinely manufactured and cleared by Nova cannot justifiably be arrived at - The present demand is unjustified. Demand on Degraded Chips/Polymer Waste arising from factory - Held that - There were 9 vehicles out of 130 but the entire duty in respect of all the 130 vehicles has been confirmed. In any event, this being a case of clandestine clearance, evidence thereof cannot be the mere incapacity of 9 vehicles (inferred from only the Vehicle No. indicated) out of 130 to carry the goods - Corroborative evidence of actual manufacture of POY and clearance to identified person or places and of payments made are some of the required conditions, which are not there in the case of the present demand, as in the earlier two demands - the demand has been made without any concrete or tangible evidence, and for the sole reason that no goods were sent out because the vehicle no. indicated was wrong - No attempt was made to find out from the parties to whom 130 consignments had been sent as to whether or not they received the goods - the duty demand confirmed against Nova, as being not substantiated is liable to be set aside Decided in favour of Assessee.

Issues Involved:
1. Rejection of request for cross-examination of witnesses.
2. Duty demand of Rs. 56,52,945/- for alleged clandestine clearance of POY from Nova to GSL.
3. Duty demand of Rs. 3,93,20,685/- for alleged evasion of duty on POY by Nova by suppressing the quantity of Polyester Chips.
4. Duty demand of Rs. 2,82,64,613/- for alleged evasion of duty on POY by mis-declaring the same as degraded Polyester Chips/Polymer Waste.
5. Duty demand of Rs. 9,77,62,573/- for alleged diversion of EOU clearances effected by Nova.

Issue-wise Detailed Analysis:

1. Rejection of Request for Cross-examination of Witnesses:
The adjudicating authority rejected Nova's request for cross-examination of witnesses on the grounds that no specific reasons were provided. The Tribunal found this to be a violation of principles of natural justice, as cross-examination is essential to test the veracity of statements and documents relied upon by the department. The Tribunal cited several judgments, including the Supreme Court's decisions in Bareilly Electricity Supply v Workmen and Swadeshi Polytex Ltd v CCE, which emphasize the necessity of cross-examination when statements are used against an assessee.

2. Duty Demand of Rs. 56,52,945/- for Alleged Clandestine Clearance of POY:
The demand was based on documents seized from GSL and statements from employees of GSL. The Tribunal found no tangible evidence of Nova manufacturing and clearing POY clandestinely. There was no proof of purchase of raw materials, transportation of POY, or payments made for such transactions. The Tribunal emphasized that mere entries in note books or diaries cannot establish clandestine manufacture and clearance without corroborative evidence. The demand was set aside as it was based on inferences and assumptions rather than concrete evidence.

3. Duty Demand of Rs. 3,93,20,685/- for Alleged Evasion of Duty on POY:
This demand was based on diaries maintained by Ashok Chiripal and statements from Nova's employees. The Tribunal found no evidence of procurement of raw materials, actual production of POY, or transportation and sale of such goods. The entries in the diaries were not corroborated by any tangible evidence. The Tribunal reiterated that clandestine manufacture and clearance must be established with concrete evidence, which was lacking in this case. The demand was set aside.

4. Duty Demand of Rs. 2,82,64,613/- for Alleged Evasion of Duty by Mis-declaring Degraded Polyester Chips/Polymer Waste:
The demand was based on the RTO's report and statements from Nova's employees. The Tribunal found no evidence of actual production of POY, transportation, or sale of such goods. The allegation that no degraded chips or polymer waste were produced was not substantiated by any evidence. The Tribunal held that the demand was based on assumptions and lacked concrete evidence. The demand was set aside.

5. Duty Demand of Rs. 9,77,62,573/- for Alleged Diversion of EOU Clearances:
The demand was based on allegations that POY was illicitly cleared to EOUs and sold in the domestic market. The Tribunal found that re-warehousing certificates and statutory documents were in order, and there was no evidence of goods being sold in the domestic market. The presence of dealers' names on the reverse of Delivery Challans was not sufficient to prove clandestine clearance. The Tribunal held that the demand was based on conjectures and lacked concrete evidence. The demand was set aside.

Conclusion:
All four demands were set aside due to lack of concrete evidence and reliance on assumptions and inferences. The Tribunal emphasized the need for tangible evidence to establish clandestine manufacture and clearance. The imposition of penalties on Nova and its directors, as well as on the EOUs, was also set aside. The Tribunal highlighted the importance of adhering to principles of natural justice, including the right to cross-examine witnesses.

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