2014 (4) TMI 13 - AT - Central Excise

Duty demand - equivalent penalty u/s 11AC - Undervaluation of Frit manufactured - No opportunity for cross examination granted - clandestine removal of frit - gas consumption of the main appellant - Held that - Adjudicating authority has written eleven pages from Para 10.1 to 10.3 on the aspect as to why appellants request for cross-examination is not justified, however, one fails to understand as to how one entry of Transparent -2 quality Frit, in a pen drive maintained by an employee of Sanyo can be applied to the entire period for determining undervaluation during which different varieties of frit are manufactured. There could be variation in the sale prices of the same product as per the transaction price and market negotiations. To test this piece of the evidence, it is perfectly justified on the part of the appellant to seek cross-examination of the persons who maintained the record in the pen-drives. Further, there are factual irregularities in the Panchnamas prepared by the investigation justifying cross-examination of the panchas. Gas consumption varied from season to season, from one quality of frit to other quality of frit, use of better technology etc. It has also been brought on record that after change in the management in Oct 2007 and installation of new furnaces and new refractories, the gas consumption has reduced. Further appellant has also brought on record that due to expert consultations and use of certain fluxes also the gas consumptions per MT of frit have come down. Evidences were also brought on record during the course of hearing regarding installation of an Electricity Generator and replacement of better quality refractories in the kilns by the main appellant. Under the above factual matrix, the method used by the investigation cannot be a sound method to demand duty on assuming 318 SCM of gas required for manufacturing one MT of any quality of frit. The improper method adopted by the Revenue for calculating duty was agitated by the appellants before the adjudicating authority. During conducting of gas consumption studies on 23/ 24.02.2010 by investigation only frit product code OP 202 was being manufactured. It has been contested by the appellant that different frit product codes may consume different quantities of gas. As the appellant is not undertaking the manufacture of one standard product, in the interest of justice, it will be appropriate to conduct a few more representative studies of different frit product codes in order to arrive at a more realistic gas consumption PMT of frit manufactured - matter is required to be remanded back to the adjudicating authority to extend the opportunity of cross-examination of the persons - and also to conduct a few more representative studies on the gas consumption on the pre-dominant frit codes manufactured by the appellant during the relevant period - Following decision of Basudev Garg vs. Commissioner of Customs 2013 (5) TMI 350 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Undervaluation of frit.
2. Clandestine removal of frit based on gas consumption.
3. Denial of cross-examination rights.

Detailed Analysis:

1. Undervaluation of Frit:
The main appellant, M/s. Wellsuit Glass & Ceramic Pvt. Limited, was accused of undervaluing frit based on evidence from a pen drive seized during a DGCEI investigation at Sanyo Cera Tiles Pvt. Limited. The pen drive contained a document titled "Ajtak," which indicated that frit was sold at Rs. 24.00 per kg, while the invoice showed Rs. 7.00 per kg. The appellant argued that this evidence was based on third-party records and that cross-examination of the individuals maintaining these records was not allowed. The court noted that the adjudicating authority had written extensively on why cross-examination was not justified but found that relying on a single entry from a third-party document to determine undervaluation for an entire period was not appropriate. The court emphasized the necessity of cross-examination to test the veracity of such evidence, citing Section 9D of the Central Excise Act, 1944, and relevant case law, including Basudev Garg vs. Commissioner of Customs.

2. Clandestine Removal of Frit Based on Gas Consumption:
The adjudicating authority had calculated the duty based on gas consumption records, assuming 318 SCM of gas was required to manufacture one MT of frit. The appellant contested this method, arguing that gas consumption varied due to factors like season, quality of frit, technology improvements, and installation of new equipment. The court observed that the appellant had provided evidence of reduced gas consumption due to these factors and found the method used by the investigation to be unsound. The court suggested conducting more representative studies on gas consumption for different frit product codes to arrive at a realistic figure.

3. Denial of Cross-Examination Rights:
The appellant argued that their right to cross-examine the individuals whose statements were relied upon by the Revenue was denied. The court cited Section 9D of the Central Excise Act, 1944, and the Delhi High Court's decision in Basudev Garg vs. Commissioner of Customs, which underscores the importance of cross-examination in quasi-judicial proceedings. The court found that the adjudicating authority's refusal to allow cross-examination was incorrect, except in cases covered by Section 9D.

Conclusion:
The court remanded the matter back to the adjudicating authority to allow cross-examination of the specified individuals and to conduct additional representative studies on gas consumption for different frit product codes. The appeals were allowed by way of remand, and the appellants were directed not to seek a refund of the pre-deposit until the remand proceedings were completed. The adjudicating authority was instructed to provide a personal hearing and pass a speaking order.