2014 (12) TMI 621 - AT - Central Excise

Clandestine manufacture and clearance of plywood - Appellant though claimed to have carried out the job work of core veneer drying & tapping of face Veneer , but neither informed the department about the said activity in their statutory RT-12 Returns or Classification declaration filed under relevant Rules, nor followed the laid down procedure for undertaking job-work in its factory premises - whether the Appellant during the period April, 1997 to March, 2001, manufactured and cleared clandestinely excisable goods viz. 24mm thickness plywood against cash memos/challans in the guise of job work of Core Veneer drying and tapping of face Veneer - Held that - Names of these persons are always available on the records seized, i.e. on the job-work cash memos/challans issued by the Appellant, for carrying out job work. There is no need to elucidate that these persons had been examined by the department to ascertain whether in fact job work had been undertaken by the Appellant, in their factory, on the raw materials supplied by these persons as job workers. All these departmental witnesses had declined of having sent the core veneer for job work and one of the witness assigning reason stated that if the veneer is transported for around 500 km for job work of drying, then, it would turn black and become waste. Needless to repeat, the case against the Appellant is clandestine manufacture and clearance of 24 mm thickness plywood in the guise of undertaking job work and not for violation of job-work provisions. There is no other substantive evidence adduced by the Department so as to establish the case of clandestine removal by the appellant. In these circumstances, we re of the opinion that unless the circumstances referred to in paragraph 25 of the aforesaid judgement of the Hon ble Delhi High Court exist, it would be incorrect to accept the statements as relevant evidence. From, the records, we do not find that any attempt has been made by the department to produce these witnesses for cross-examination. - Adjudicating Authority has neither accepted the affidavits of the defence witnesses nor allowed the examination of the said witnesses sought to be produced by the Appellant to establish their case on the ground that the affidavits filed by the Appellant, were not in order and the same had been filed much later during the de novoproceeding. We do not find merit in the said observation of the Ld. Commissioner. The case was remanded for fresh adjudication on the ground of non-supply of documents and the Appellant had not filed their reply to the demand Notice. Thus, filing the affidavits along with the reply cannot thus be considered as belated action and liable for rejection. On the contrary, we are of the view that the Ld. Adjudicating authority ought to have considered the affidavits and allowed the production of these witnesses by the appellant for examination and in the event Department deems it necessary, could have cross-examined the witnesses. - Matter remanded back - Decided in favour of assessee.

Issues Involved:

1. Alleged clandestine manufacture and clearance of plywood without payment of Central Excise duty.
2. Violation of principles of natural justice by denying cross-examination of witnesses.
3. Reliability and evidentiary value of statements and affidavits.
4. Capacity of the appellant's machinery to manufacture the alleged quantity of plywood.
5. Procedural compliance for job work under Notification 214/86-CE.
6. Relevance of statements under Section 9D of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Manufacture and Clearance of Plywood:
The Appellants were accused of clandestinely manufacturing and clearing plywood without paying Central Excise duty, allegedly under the guise of job work. The Department's investigation, initiated by a factory visit and subsequent examination of documents and statements, led to a demand notice for duty evasion amounting to Rs. 1,39,34,430/- for the period from January 1998 to March 2001. The Commissioner confirmed the duty demand and imposed penalties on the Appellant and its Directors.

2. Violation of Principles of Natural Justice:
The Appellants argued that the adjudicating authority violated the principles of natural justice by not allowing the cross-examination of witnesses whose statements were recorded behind their back and relied upon in the show-cause notice. The Tribunal noted that the denial of cross-examination resulted in a gross violation of natural justice principles and emphasized the need to adhere to Section 9D of the Central Excise Act, 1944, which mandates conditions under which such statements can be considered relevant.

3. Reliability and Evidentiary Value of Statements and Affidavits:
The Appellants contended that the affidavits from job-work material suppliers were erroneously disregarded by the Commissioner. The Tribunal observed that these affidavits should not have been dismissed merely because the suppliers were from the unorganized sector. The Tribunal also highlighted that the statements of five job workers, recorded under Section 14 of the Central Excise Act, 1944, were crucial and their veracity needed to be tested through cross-examination.

4. Capacity of the Appellant's Machinery to Manufacture the Alleged Quantity of Plywood:
The Appellants challenged the allegation of clandestine removal by presenting a Chartered Engineer's Certificate, which certified that the installed machinery's capacity was insufficient to produce the alleged quantity of 24 mm thickness plywood. The Tribunal noted that the Department did not conduct any investigation into the manufacturing capacity of the machines installed, thus raising doubts about the feasibility of the alleged clandestine production.

5. Procedural Compliance for Job Work under Notification 214/86-CE:
The Department argued that the Appellants did not follow the procedure for job work as laid down under Notification 214/86-CE, leading to the assumption of clandestine removal. The Tribunal found this assumption to be unsupported by concrete evidence, emphasizing that the Department's case was based on presumptions rather than substantive proof.

6. Relevance of Statements under Section 9D of the Central Excise Act, 1944:
The Tribunal referred to the guidelines laid down by the Hon'ble Delhi High Court in J.K. Cigarettes Ltd.'s case, which stipulate the conditions under which statements recorded under Section 14 of the Central Excise Act, 1944, can be considered relevant. The Tribunal emphasized that the adjudicating authority must examine and record reasons for the relevance of such statements, ensuring compliance with Section 9D.

Conclusion:
The Tribunal set aside the impugned order and remanded the case to the adjudicating authority for fresh adjudication. The authority was directed to allow cross-examination of the Department's witnesses and the production of defense witnesses by the Appellant. The Tribunal also instructed the adjudicating authority to record reasons for considering statements as relevant, in line with Section 9D of the Central Excise Act, 1944, and the guidelines laid down by the Hon'ble Delhi High Court. All issues were left open for re-examination.

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