2014 (4) TMI 376 - AT - Central Excise

Clandestine removal of goods - Manufacture of manmade fabrics - Held that - evidence of only one diary cannot be made the basis of establishing clandestine manufacture and removal of the fabrics. It has been repeatedly held by the courts that clandestine manufacture and clearance cannot be readily inferred from few documents and statements unless the allegations are also corroborated and established on evidences, relatable to or linked with actual manufacturing operations. As far as the present demand is concerned, there is no such evidence forthcoming in the records before us to suggest clandestine manufacture and clearance by the appellants. Mere reliance on note books/ diaries or statements cannot be considered as enough evidence for clandestine manufacture and clearances. Accordingly, duty demand ₹ 30,18,378/- is not sustainable against the appellant Mahesh Silk Mills, and the same is set aside. Consequently, neither any penalty is imposable upon Mahesh Silk Mills nor their land, plant nor machinery are liable to confiscation under Rule 173 Q of the Central Excise Rules, 1944 - Following decision of M/s Arya Fibres Pvt. Ltd., M/s Nova Petrochemicals Ltd. and others Versus CCE Ahmedabad-II 2013 (11) TMI 626 - CESTAT AHMEDABAD - Decided in favour of assessee.

Issues Involved:
1. Alleged clandestine manufacture and removal of man-made fabrics.
2. Validity of evidence based on a seized diary.
3. Reliance on statements of co-accused.
4. Denial of cross-examination.
5. Imposition of penalties and confiscation under Central Excise Rules.
6. Invocation of extended period of limitation.

Detailed Analysis:

1. Alleged Clandestine Manufacture and Removal of Man-Made Fabrics:
The appellants, M/s Mahesh Silk Mills and M/s Chandan Prints, were accused of clandestinely manufacturing and removing man-made fabrics without payment of Additional Duty of Excise. The authorities based their allegations on a diary seized from Mahesh Silk Mills, which purportedly contained details of unaccounted fabric processing and removal.

2. Validity of Evidence Based on a Seized Diary:
The primary evidence against the appellants was a diary seized from Mahesh Silk Mills. The appellants contended that the diary contained rough jottings, and no one from their side admitted ownership or the contents of the diary. The tribunal observed that the diary alone, without corroborative evidence such as excess consumption of raw materials or electricity, transportation records, or corroborative statements from other traders, could not substantiate the allegations of clandestine manufacture and removal.

3. Reliance on Statements of Co-Accused:
The statement of Shri Ramesh Chhipa of Chandan Prints was initially used to support the allegations. However, this statement was retracted during adjudication. The tribunal noted that relying solely on the statement of a co-accused, especially when retracted, was insufficient to prove clandestine activities. The tribunal cited several case laws emphasizing that statements of co-accused should not be the sole basis for such serious charges.

4. Denial of Cross-Examination:
The appellants argued that their request for cross-examination was denied, violating the principles of natural justice. The tribunal agreed, stating that when a third-party statement is relied upon, the assessee has the right to cross-examine the witness. The denial of this right further weakened the case against the appellants.

5. Imposition of Penalties and Confiscation under Central Excise Rules:
Penalties were imposed on Mahesh Silk Mills under Rule 173Q (1) and on Chandan Prints under Rule 209A of the Central Excise Rules, 1944. Additionally, the land, building, plant, and machinery of Mahesh Silk Mills were confiscated. The tribunal found that, given the lack of substantial evidence, the penalties and confiscation were unjustified and set them aside.

6. Invocation of Extended Period of Limitation:
The Revenue invoked the extended period of limitation under Section 11A (1) of the Central Excise Act, 1944, for issuing the second show cause notice. The tribunal noted that the first show cause notice was issued after the completion of investigations, and no new evidence justified the delay in issuing the second notice. Consequently, the tribunal held that the second show cause notice was time-barred.

Conclusion:
The tribunal concluded that the demand for Additional Duty of Excise amounting to Rs. 30,18,378/- was not sustainable due to the lack of corroborative evidence. The penalties and confiscation imposed on Mahesh Silk Mills and Chandan Prints were set aside. The appeals filed by the appellants were allowed, and the Order in Original dated 26.02.1999 was quashed.

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