2015 (9) TMI 462 - AT - Central Excise

Dummy unit - allegation of evasion of duty on manufacture of cigarettes - The Department s allegation is that PTPL, Nasik was nothing but a dummy entity or a front company floated by GTC for the purpose of duty evasion, that it is GTC who were fully controlling the activities of PTPL and that during the period of dispute, PTPL had received huge quantity of cigarette tobacco and other raw materials through GTC, which were used in manufacture of unaccounted cigarettes which were cleared clandestinely. Held that - When the allegation of the Department is that PTPL is a dummy company or front company floated by GTC Ltd. which was being fully controlled by GTC and accordingly it is the GTC which has to be treated as the actual manufacturer, a specific finding in this regard has to be made and once such a finding is given, the demand would have to be confirmed against M/s GTC not against PTPL. If, however, there is no evidence to prove that PTPL is a front company or a dummy company floated by M/s GTC Ltd. but still there is sufficient evidence to prove the allegation of duty evasion against PTPL, the demand would have to be confirmed against PTPL and not GTC Industries Ltd. The matter has not been adjudicated in this manner and, therefore, for this reason the impugned order has to be set aside and the matter has to be remanded for de novo adjudication. - Matter remanded back.

Issues Involved:
1. Allegation of PTPL being a dummy company of GTC.
2. Clandestine clearance of cigarettes without payment of duty.
3. Joint and several liability for duty demand and penalties.
4. Non-supply of relied upon documents.
5. Denial of cross-examination of witnesses.
6. Adjudication process and legal compliance.

Detailed Analysis:

1. Allegation of PTPL being a dummy company of GTC:
The Department alleged that PTPL was a dummy/front company of GTC, fully controlled by GTC. The evidence included majority shares of PTPL held by companies controlled by GTC and GTC's involvement in PTPL's operations, including the unaccounted supply of raw materials. The Tribunal noted that the adjudicating authority must provide a specific finding on whether PTPL was indeed a dummy company controlled by GTC, which would determine the actual manufacturer liable for duty.

2. Clandestine clearance of cigarettes without payment of duty:
The Department claimed that PTPL clandestinely cleared cigarettes without accounting for them, resulting in a duty evasion of Rs. 46,51,87,192/-. The Tribunal emphasized that the allegations were based on seized documents and witness statements. However, the adjudication lacked proper examination of these evidences, and the Tribunal directed a de novo adjudication to reassess the evidence.

3. Joint and several liability for duty demand and penalties:
The impugned order confirmed the duty demand and imposed penalties jointly and severally on GTC and PTPL. The Tribunal referenced previous judgments, stating that duty demand and penalties cannot be confirmed jointly and severally on two or more parties. The adjudicating authority must determine the actual liable party based on evidence.

4. Non-supply of relied upon documents:
The Tribunal noted that the relied upon documents were not supplied to the appellants, violating principles of natural justice. The Department's failure to provide these documents over 19 years was criticized. The Tribunal directed that all relied and non-relied upon documents requested by the appellants must be supplied for a fair adjudication.

5. Denial of cross-examination of witnesses:
The appellants requested cross-examination of 60 out of 116 witnesses, but only a few were allowed. The Tribunal highlighted the importance of cross-examination as per Section 9D of the Central Excise Act, 1944, and the Delhi High Court's judgment in J & K Cigarettes Ltd. v. CCE. The adjudicating authority must decide on the necessity of cross-examination and provide specific findings if relying on witness statements without cross-examination.

6. Adjudication process and legal compliance:
The Tribunal expressed concern over the careless handling of the case, noting the 19-year delay and improper adjudication. The adjudicating authority failed to adhere to legal standards, such as confirming duty demand and imposing penalties jointly and severally. The Tribunal remanded the matter for de novo adjudication, directing the adjudicating authority to comply with legal requirements and complete the process within six months.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter for de novo adjudication, emphasizing the need for proper supply of documents, adherence to cross-examination rights, and specific findings on the actual liable party. The Tribunal also directed the Registry to inform the Chairman, Central Board of Excise and Customs, about the order. The appeals and stay applications were disposed of accordingly.

← Previous Next →