2016 (10) TMI 858 - AT - Customs

Levy of penalty - Principal of natural justice - demand based on statement of dealers - cross-examine the dealers whose statements were relied upon - 100% EOU - manufacture of readymade garments - duty free material imported and indigenously procured for use in the export of these garments diverted - finished products actually not exported - Held that - during the course of investigation of evasion of Customs as well as Central Excise duty by M/s Dhanlaxmi, the officers also investigated the offence committed by other co-noticees including the present two appellants. On the basis of statements and other documentary evidences, both the appellants have been penalised. It is their common grievance that inspite of their specific request for cross examination of witnesses, whose statements have been relied in the issuance of Notice to them, the same was not allowed by the learned Commissioner during the adjudication proceedings, hence the findings recorded against them and imposition of penalty, is in gross violation of principles of natural justice. - reliance placed on the decision of Andman Timber Industries Vs CCE Kolkata II 2015 (10) TMI 442 - SUPREME COURT where it was held that not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. The Appellants allowed to cross examination of the witnesses requested by them in their respective reply to the Show Cause Notice; whose statements were relied upon in the Notice and used against the Appellants. The question of imposition of penalty would arise only thereafter - Needless to say that reasonable opportunity of hearing be allowed to the Appellant - appeal disposed off.

Summary

Issues:
- Imposition of penalty on appellants based on statements of witnesses without allowing cross-examination.
- Denial of cross-examination leading to violation of principles of natural justice.
- Composite penalty imposed on appellants under Customs Act and Central Excise Act challenged.
- Lack of cooperation by appellant in investigation and denial of personal hearing.
- Request for adjournment not accepted affecting appellant's participation in investigation.

Analysis:
1. Imposition of Penalty based on Witness Statements:
The case involved two appeals against the Order-in-Original (OIO) passed by the Commissioner, alleging evasion of Customs and Central Excise duties by an EOU engaged in garment manufacturing. The appellants challenged the penalty imposed based on witness statements without allowing cross-examination. Both advocates vehemently argued against the reliance on witness statements without the opportunity for cross-examination, citing violation of natural justice principles.

2. Violation of Natural Justice:
The appellants contended that denial of cross-examination of crucial witnesses during adjudication proceedings by the Commissioner resulted in a violation of natural justice. The learned advocates emphasized the importance of cross-examination to establish innocence and challenged the adverse findings based solely on witness statements without the opportunity for rebuttal.

3. Composite Penalty and Legal Precedents:
The appellants argued against the imposition of a composite penalty under the Customs Act and Central Excise Act, citing legal precedents that support their claim. The advocates highlighted errors in the penalty imposition process and referenced relevant judgments to support their arguments, aiming to establish the incorrectness of the penalties imposed on the appellants.

4. Lack of Cooperation and Denial of Personal Hearing:
The Revenue representative reiterated the findings of the Commissioner, emphasizing the lack of cooperation from one of the appellants during the investigation. It was noted that the appellant did not avail the opportunity for personal hearing, leading to the denial of cross-examination rights. The denial of cross-examination was justified based on the appellant's non-cooperation during the investigation.

5. Impact of Adjournment Request on Investigation Participation:
The appellants raised concerns regarding the denial of an adjournment request due to personal difficulties, impacting their participation in the investigation process. Despite submitting a reply to the Show Cause Notice, the appellants highlighted the importance of being granted reasonable adjournments to ensure full participation in the investigation proceedings.

6. Judicial Decision and Directions:
The Tribunal, after considering the arguments presented, emphasized the significance of cross-examination in ensuring a fair adjudication process. Citing a Supreme Court judgment, the Tribunal ruled in favor of allowing cross-examination of witnesses requested by the appellants. It was decided that the question of penalty imposition would be addressed post cross-examination, ensuring the principles of natural justice were upheld. The Tribunal disposed of the appeals with directions for a fair adjudication process, emphasizing the importance of providing a reasonable opportunity for hearing to the appellants.