2015 (5) TMI 528 - AT - Central Excise

Clandestine removal of goods - Valuation of goods - enhancement of value of frit based on the pen-drive recovered from SANYO and writing pads recovered - Held that - A precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to being present - reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, once again reiterated the same principles, after considering the entire case-law on the subject Hindustan Machines v. CCE 2013 (5) TMI 543 - CESTAT NEW DELHI . Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. Estimation of quantity of goods manufactured and clandestine removal of goods by the appellants can not be slapped on the basis of averages arrived and calculated based on norms of gas consumption in manufacture of 1 MT of frit. It is rightly contested by the appellants that frit manufactured is not covered by any notification issued under Section 3A of the Central Excise Act, 1944 where Compounded Levy has been prescribed and capacity of the unit is required to be fixed on gas consumption basis, as done by the Revenue. It is observed that Revenue has attempted to adopt an estimation method for demanding duty and proving clandestine removal which is not prescribed by law. It has been admitted by Shri V.N. Thakkar (Superintendent) DGCEI in the cross-examination before the Adjudicating authority that when an article is seized, the same is placed in a sealed cover and mention of the same is made in the Panchnama. It is also admitted by Shri Thakkar that as he remembers the seized pen-drive was placed in a paper cover and sealed with adhesive tapes. It is the claim of the appellants that the way the said pen-drive was handled, it is possible that the same could be tempered with as the same was kept in the paper cover sealed with adhesive tapes. A second Panchnama was made on 30.8.2008 where the said pen-drive was mentioned to have been taken out of a sealed cover when the first Panchnama never mentioned keeping the said pen-drive in a sealed cover. It is also observed that on 30.8.2008 the sealed cover was opened but contents of the silver pen-drive were not opened on 30.8.3008 but instead another black colour pen-drive was opened. On 06.9.2008 under a Panchnama the said silver pen-drive taken out of the sealed cover and on opening this pen drive in the Tally Folder, no data was found to be available. It is observed that in Panchnama dated 12.09.2008, the print out of account AJTAK taken contained 52 pages and account of appellant Wellsuit appeared at page 30 out of 52 pages. Another Panchnama dated 24.09.2008 indicate in Annexure A3 that the number of pages of Account Aajtak were 94 and the name of appellant existed at page 43 as against page 30 mentioned in Panchnama dated 12.09.2008. Appellants have also raised the issue regarding discrepancies in the name of the panch witnesses. It is also contended that Revenue had not followed the procedure as stipulated in Section 36B of the Central Excise Act, 1944. In view of the above discrepancies the authenticity and veracity of data retrieved by investigation from the silver pen-drive is not reliable and can not be accepted as a piece of evidence in deciding the case of undervaluation and clandestine removal against the present appellants. Exact amount of such additional consideration was required to be determined for addition to the transaction value even if all the statements and documents were held to be admissible evidence and satisfied the test of Section 9D of the Central Excise Act, 1944 - valuation has been enhanced solely based on the assumption that after booking of the case these appellant enhanced their prices. In the case of transaction value realm the same product can be sold at different prices as per Section 4 of the Central Excise Act, 1944 unless actual additional consideration has been shown to have flown back to the appellants. In the absence of exact quantification of cash received by individual frit manufacturer, transaction value can not be enhanced even if there are half cooked circumstantial evidences to the proceedings indicating suspected undervaluation. It is now well understood that suspicion howsoever grave can not take the place of an evidence. Therefore, it may not be correct to hold that preponderance of probability should always be given to the Revenue, as Hon'ble Apex Court in a particular held it to be so. - Decided in favour of assessee.

Summary

Issues Involved:
1. Clandestine manufacture and clearance of Ceramic Glazed Mixture (Frit) based on natural gas consumption norms.
2. Undervaluation of frit and clandestine clearance based on personal ledgers, pen-drives, and other private records.
3. Denial of cross-examination of witnesses under Section 9D of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Clandestine Manufacture and Clearance of Frit:
The adjudicating authorities primarily relied on average consumption of natural gas for manufacturing one metric ton (MT) of frit to estimate clandestine manufacture and clearances. Different norms of gas consumption, ranging from 263 Standard Cubic Meters (SCM) to 484 SCM, were considered for various appellants. The method involved comparing the actual gas consumption with the estimated norms to determine the alleged clandestine production.

However, the Tribunal found that using gas consumption as the sole basis for estimating clandestine production was not scientifically sound or legally prescribed. The Tribunal noted discrepancies in the gas consumption data and highlighted that no excess raw materials or finished goods were found during inspections. The Tribunal cited various case laws, such as Arya Fibers Pvt. Limited vs. CCE and Gupta Synthetics Limited vs. CCE, which established that mere inferences or assumptions based on gas consumption cannot substantiate clandestine manufacture and clearance. The Tribunal also referred to the Allahabad High Court's judgment in CCE, Meerut-I vs. RA Castings Pvt. Limited, upheld by the Supreme Court, which emphasized that electricity or gas consumption alone cannot determine duty liability without corroborative evidence.

2. Undervaluation of Frit and Clandestine Clearance:
The undervaluation and clandestine clearance allegations were based on personal ledgers, pen-drives (notably the AJTAK ledger from SANYO), and other private records recovered from tile manufacturers. The Tribunal scrutinized the reliability and admissibility of these documents. It was observed that the pen-drives and other records had discrepancies, such as inconsistent Panchnamas and handling issues, which raised doubts about their authenticity.

The Tribunal emphasized that the evidentiary value of such documents is questionable without proper corroboration. The Tribunal also noted that the exact quantification of additional consideration allegedly received by each appellant was not established. The Tribunal reiterated that under the realm of transaction value as per Section 4 of the Central Excise Act, 1944, only the actual price paid or payable needs to be considered, and hypothetical values based on averaging or standardizing cannot be adopted.

3. Denial of Cross-Examination of Witnesses:
The Tribunal addressed the appellants' contention that the denial of cross-examination of witnesses, whose statements were used to establish undervaluation and clandestine removal, violated Section 9D of the Central Excise Act, 1944. The Tribunal cited several judicial pronouncements, including J.K. Cigarettes Limited vs. CCE and Basudev Garg vs. CC, which mandated that cross-examination should be allowed to test the veracity of statements relied upon by the adjudicating authorities.

The Tribunal concluded that the failure to allow cross-examination of witnesses rendered the statements inadmissible as evidence. The Tribunal emphasized that the principles of natural justice require that the affected party be given an opportunity to cross-examine the witnesses whose statements are being used against them.

Conclusion:
The Tribunal allowed the appeals, rejecting the methodology adopted by the adjudicating authorities for estimating clandestine manufacture and clearance based on natural gas consumption. The Tribunal also found the evidence of undervaluation and clandestine removal, based on personal ledgers and pen-drives, to be unreliable without proper corroboration. The denial of cross-examination of witnesses was held to be a violation of Section 9D of the Central Excise Act, 1944, and the principles of natural justice. Consequently, the demands and penalties imposed on the appellants were set aside.