2017 (7) TMI 523 - HC - Central Excise

Clandestine manufacture and removal - annual capacity of production - on 10.9.2011 a search was conducted by the Officers of Central Preventive Unit, Bhubaneswar-II acting on some alleged information that the petitioner was also manufacturing and clearing Gutkha of MRP ₹ 5/- per pouch under the brand name Safal , which was not declared by petitioner - natural justice - Held that - the main edifice of the case of the department rests on the statements of Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo, who state that they got the Safal brand Gutkha of MRP ₹ 5/- from the petitioner. Since the petitioner has taken a stand that during course of investigation neither any pouch of MRP ₹ 5/- of Safal brand Gutkha was seized nor any machinery with capacity to manufacture of Safal brand Gutkha pouch of MRP ₹ 5/- was seized and that there was no seizure of any document/diary/note book/computer printout showing manufacture and clearance of Safal brand Gutkha of MRP of ₹ 5/- from the petitioner Unit, in the fitness of things the authorities should have allowed cross-examination of the above two persons to test the veracity of their statements. By not doing so, in our considered view there has been violation of principles of natural justice. While filing the interim show cause under Annexure-25, the petitioner has wanted to cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo before filing their final reply. Since the same was not acceded to, in our considered view, the entire decision making process has been vitiated. This is because in case during cross-examination the petitioner is able to demolish the statements of Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo then the entire foundation of the case of the department would collapse. If the testimony of witnesses is discredited then there would no material for the department on the basis of which they can justify their action and accordingly allowed the appeal. Taking a cue from that, this Court has no hesitation in quashing the impugned order under Annexure-1, which, this Court hereby does. Further, this Court remands the matter back to the opposite party directing him to give opportunity to the petitioner to cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo vis- -vis their statements and conclude the entire proceeding within three months in accordance with law. Writ application allowed.

Issues Involved:
1. Violation of principles of natural justice due to denial of cross-examination.
2. Legitimacy of the impugned order confirming the demand of Central Excise duty and penalties.
3. Adequacy of evidence supporting the manufacturing and clearance of "Safal" brand "Gutkha" of MRP ?5/- by the petitioner.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner contended that the impugned order was passed in violation of the principles of natural justice as they were not allowed to cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo, whose statements were pivotal to the department's case. The petitioner argued that cross-examination was essential to challenge the veracity of these statements. The court found merit in this contention, noting that the statements of these individuals formed the backbone of the department's case. The court emphasized that denying the petitioner the opportunity to cross-examine these witnesses constituted a serious flaw, rendering the order null and void due to the violation of natural justice principles. The court cited the Supreme Court's decision in Andaman Timber Industries, which underscored the necessity of cross-examination when statements form the basis of an adjudicating authority's order.

2. Legitimacy of the Impugned Order:
The impugned order confirmed a demand for Central Excise duty of ?237,92,85,000/-, along with interest and penalties. The petitioner argued that the order was legally vulnerable due to the denial of cross-examination and the lack of concrete evidence directly linking them to the manufacture and clearance of "Safal" brand "Gutkha" of MRP ?5/-. The court agreed that the decision-making process was vitiated by the denial of cross-examination, which was crucial for testing the credibility of the statements relied upon by the department. Consequently, the court quashed the impugned order and remanded the matter back to the adjudicating authority for a fresh decision after allowing the petitioner to cross-examine the witnesses.

3. Adequacy of Evidence:
The petitioner argued that no "Safal" brand "Gutkha" pouches of MRP ?5/- were seized from their factory premises, nor were any machines capable of manufacturing such pouches found. Additionally, no documents or records indicating the manufacture and clearance of these pouches were seized. The petitioner also disputed the statements of Tapan Chandra Dey and Soumendra Kumar Sahoo, asserting that these statements were uncorroborated and insufficient to substantiate the department's case. The court noted that the department's case heavily relied on these statements, and given the petitioner's consistent denial and the lack of physical evidence, cross-examination was necessary to establish the truth. The court highlighted that if the statements were discredited during cross-examination, the department's case would collapse.

Conclusion:
The court quashed the impugned order due to the violation of natural justice principles and remanded the matter back to the adjudicating authority. The authority was directed to allow the petitioner to cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo and to conclude the proceedings afresh within three months. The court clarified that it expressed no opinion on the merits of the case, and the observations made should not influence the fresh decision.

Judgment:
The writ application was allowed, and the matter was remanded for a fresh decision after permitting cross-examination of the key witnesses. No costs were awarded.

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