2017 (1) TMI 652 - AT - Central Excise

Clandestine removal of EDNs, R-cords/Detonator Fuses, Slurry explosives etc - failure to record the finished goods in the RG-1 register - The allegation of duty evasion against the Appellant company and duty demand against them is based on the documents called incentive sheets from 1995-96 to 1997-98 period, recovered from the residential premises of Shri M.L. Agarwal, Dy. General Manager. Held that - The quantity of production is to be recorded in RG-1 register after it has reached the stage of completion of manufacture. The goods cannot be considered as fully manufactured unless the quality control is completed and it is properly packed. Moreover, the goods are in the nature of explosives and the Chief Controller of Explosives had laid down strict conditions for quality control as well as packing - incentive sheets cannot be a true reflection of the quantum of explosives manufactured. No investigation appears to have been conducted at the end of the transporter also. Cross-examination of witnesses - Held that - It is well settled law that cross-examination has to be allowed normally before using such statements for confirmation of demand. If the witnesses do not turn up for cross-examination it is open to the Adjudicating Authority to proceed with the adjudication without relying on those statements. The onus is definitely on the Department to establish manufacture and clearance of such goods and also the receipt of payments. Demand fails - appeal allowed - decided in favor of assessee.

Issues Involved:
1. Clandestine clearances of goods.
2. Authenticity and reliability of incentive sheets.
3. Alleged unaccounted purchases of raw materials.
4. Use of PETN in production.
5. Breach of principles of natural justice.
6. Evidence and corroboration.
7. Imposition of duty, interest, and penalties.

Issue-wise Detailed Analysis:

1. Clandestine Clearances of Goods:
The Appellant company was alleged to have clandestinely cleared Electric Detonators (EDN) and R-Cords/Detonator fuses without accounting for them in the statutory records. The duty demand was based on the production figures in the incentive sheets, which were found to be higher than those recorded in the R.G.I Register. The Tribunal found that the production figures in the incentive sheets were not reliable as they did not account for rejections during quality control.

2. Authenticity and Reliability of Incentive Sheets:
The incentive sheets, recovered from the residence of the Dy. General Manager, were used to determine the production levels. The Appellant argued that these sheets recorded gross production, not the actual production after quality control. The Tribunal agreed, stating that the incentive sheets could not be a true reflection of the actual production since they did not account for rejections and quality control processes.

3. Alleged Unaccounted Purchases of Raw Materials:
The Appellant was accused of purchasing raw materials like OD/SOD/SPD without accounting for them in the statutory records. The Tribunal noted that there was no investigation from the end of the consignees or the transporter to corroborate these allegations. Therefore, the evidence was deemed insufficient to support the claim of unaccounted purchases.

4. Use of PETN in Production:
It was alleged that the Appellant used less PETN than required, and the saved quantity was used for unaccounted production. The Tribunal found merit in the Appellant's argument that the allegation was based on a misinterpreted fax message. The message indicated the production of different types of R-CORDs, and the Tribunal concluded that the evidence was not sufficient to support the allegation.

5. Breach of Principles of Natural Justice:
The Appellant claimed that the cross-examination of key witnesses, including Shri Ganesh Mathur, was not allowed, which breached the principles of natural justice. The Tribunal agreed, stating that cross-examination should have been allowed before using such statements for confirming the demand. The failure to allow cross-examination rendered the statements unreliable.

6. Evidence and Corroboration:
The Tribunal found that significant portions of the demand were based on photocopies of invoices from a third party, without corroborative investigations. There was no evidence of increased raw material procurement, electricity consumption, or transportation records to support the allegations of clandestine clearances. The lack of comprehensive investigation and corroborative evidence led the Tribunal to conclude that the demand was unsustainable.

7. Imposition of Duty, Interest, and Penalties:
Given the lack of reliable evidence and the breaches of natural justice, the Tribunal set aside the impugned order, which included the duty demand of ?51,51,960, interest, and penalties on the Appellant company and individuals involved. The Tribunal emphasized the need for thorough investigation and concrete evidence before imposing such severe penalties.

Conclusion:
The Tribunal concluded that the evidence presented by the Department was insufficient to sustain the allegations of clandestine clearances and duty evasion. The impugned order was set aside, and the appeals were allowed. The Tribunal highlighted the importance of maintaining the principles of natural justice and the need for comprehensive investigations to support such serious allegations.

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