2016 (11) TMI 53 - AT - Central Excise

Demand of duty mainly on the basis of statements of employee - whether demand of duty mainly on the statements justified? - Molasses - N/N. 6/97-CE (NT) dated 01/3/97 issued under Rule 7A of the erstwhile Central Excise Rules - BS-26 register - 750 M.T. of molasses received in the factory with purposes of testing in the laboratory within the factory - Held that - To examine the veracity of the statement made by Shri N.L. Sharma, his cross examination was requested by the appellants at the time of adjudication by the Commissioner. However, this was turned down by him. Under the circumstances, such statement loses its evidentionary value. It has been held time and again by the higher judiciary that cross-examination of the persons giving statements if asked for has to be necessarily given. In the absence of such cross-examination the statement cannot be relied upon by Revenue to demand excise duty - in the present case the requirements of Section 9 (d) (2) of the Central Excise Act has not been satisfied. Even otherwise the statement stands retracted and cannot be relied upon to enforce duty demand - I find that the two main pieces of evidences relied upon by the Revenue to raise the demand against the appellant have been successfully assailed. Consequently the demand made in the show cause notice cannot be upheld - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of Central Excise duty based on BS-26 register.
2. Demand of Central Excise duty based on statements and documents recovered by the Income Tax Department.
3. Imposition of penalties under Section 11AC of the Central Excise Act and Rule 209A of the Central Excise Rules.

Detailed Analysis:

1. Demand of Central Excise Duty Based on BS-26 Register:

The Revenue raised a duty demand of approximately ?3.75 lakhs based on the BS-26 register recovered during an Income Tax raid, which documented around 750 M.T. of molasses purportedly received by the appellant for testing purposes. The appellant contended that the molasses were received only in small quantities for testing and not in the tankers mentioned in the register. They argued that their factory was under the physical control system of the State Government, which supervised all movements of goods, thereby negating any allegations of suppression of facts. The Tribunal noted that the Revenue did not conduct further investigations to corroborate the receipt of molasses in the factory and found no justification to raise the duty demand based solely on the BS-26 register without additional evidence.

2. Demand of Central Excise Duty Based on Statements and Documents Recovered by the Income Tax Department:

The major portion of the demand, approximately ?38 lakhs, was based on details recovered by the Income Tax Department, showing molasses supplies from five Khandsari units to various recipients. The Revenue alleged that these quantities were actually supplied to the appellant, relying on a statement by Shri N.L. Sharma, an employee of one of the Khandsari units. The appellant challenged this evidence, presenting affidavits of retraction by Shri Sharma and arguing that his statement had no evidentiary value without cross-examination. The Tribunal emphasized the necessity of cross-examination for statements to be admissible, citing the Punjab & Haryana High Court's decision in G-Tech Industries vs. Union of India and the Supreme Court's decision in Shalimar Rubber Industries vs. CCE, Cochin. The Tribunal concluded that the retracted statement and lack of cross-examination rendered the evidence insufficient to uphold the duty demand.

3. Imposition of Penalties:

The show cause notice also sought to impose penalties under Section 11AC of the Central Excise Act and Rule 209A of the Central Excise Rules on the appellant and individuals involved. Given the Tribunal's findings that the main pieces of evidence were successfully challenged and the duty demands could not be upheld, the basis for imposing penalties was also negated.

Conclusion:

The Tribunal set aside the impugned order, finding that the evidence relied upon by the Revenue was insufficient to justify the duty demands and penalties. The appeal was allowed, and the demand made in the show cause notice was dismissed.

(Pronounced in open court on 29/09/2016.)