2017 (11) TMI 257 - AT - Central Excise

Clandestine manufacture and removal - auto parts for two wheelers and three wheelers - scope of SCN - parties to the SCN - corroborative evidences. Held that - the documents were recovered from the custody of Shri Naveen Sharma of M/s.Lakhanpal Auto who is also dealer of auto parts and no statement of Shri Naveen Sharma was recorded which shows that the department was having some interest in Shri Naveen Sharma. As he was not the party to the show cause notice. Further Shri Sanjay Sharma, authorized representative of M/s.Vira has admitted that he had prepared all the documents. Interestingly, Shri Sanjay Sharma was not the party to the show cause notice as he was involved in the activity of clandestine removal of the goods on the basis of investigation. Further, M/s.Shanu whose invoices were recovered for the live consignments was not made party to the show cause notice. The department was having lenient view towards M/s.Shanu which shows that the whole of the investigation was conducted by the Revenue was to drag M/s.Vira in litigation to allege clandestine removal of the goods. There is positive observations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the impugned order that the appellants were given many opportunities but never explained the sources of large amount of cash that was recovered in the house. The explanation is coming at a late stage, therefore the same is afterthought - the adjudicating authority has made observations on the basis of documentary evidence, the documentary evidence cannot be denied by merely saying that it is an afterthought. Therefore, the said finding of the adjudicating authority is not tenable. Reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. Although the adjudicating authority has touched certain points for consideration of charge of clandestine removal and held that the Revenue has failed to prove the sources of procurement of raw materials, consumption of raw material, consumption of consumables, production capacity and transportation of the goods, etc. Therefore, the charge of clandestine removal of the goods is not sustainable against M/s.Vira and co-noticees. No documents have been recovered from M/s.Vira and a case has been made out on the basis of the statement of Shri Sanjay Sharma and the documents recovered from him and there is inculpatory statement of Shri Ravinder Jain, in the absence of any positive evidence, the charge clandestine removal is not sustainable on the basis of the third party evidence. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegation of clandestine manufacture and clearance of auto parts by M/s. Vira Industries.
2. Validity of the evidence used to support the allegations.
3. Assessment of penalties imposed on appellants.
4. Appeal by Revenue against the dropped demand.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Manufacture and Clearance:
The appellants, M/s. Vira Industries, were accused of clandestinely manufacturing and clearing auto parts without payment of duty. The basis for this allegation stemmed from documents recovered from the premises of M/s. Lakhanpal Auto, which were prepared by Sanjay Sharma, an employee of Shanu Auto Traders (Shanu). The documents indicated significant discrepancies between the actual goods cleared and those invoiced. The adjudicating authority initially confirmed the clandestine clearance of goods worth ?9.53 crores based on documents marked "VI."

2. Validity of the Evidence Used:
The appellants contested the validity of the evidence, arguing that no incriminating documents were found at M/s. Vira’s premises and that the documents in question were seized from a third party (M/s. Lakhanpal Auto). The appellants emphasized that the show cause notice did not propose clubbing clearances of M/s. Vira and Shanu, and no live consignment was seized under M/s. Vira’s invoices. Additionally, the dealers retracted their statements, and the technical reports supporting the appellants' case were not questioned by the department. The Tribunal noted the absence of evidence regarding the procurement of raw materials, consumption, production capacity, and transportation of the alleged clandestinely cleared goods, thus weakening the department's case.

3. Assessment of Penalties:
The appellants argued that the penalties imposed were unsustainable due to the lack of specific roles assigned to co-noticees in the show cause notice and the impugned order. The Tribunal agreed, noting that without corroborative evidence of clandestine removal, the penalties could not be imposed. The Tribunal highlighted that the investigation did not adequately address critical aspects such as the procurement of raw materials, consumption, and transportation, making the charge of clandestine removal unsustainable.

4. Appeal by Revenue Against Dropped Demand:
The Revenue appealed against the adjudicating authority's decision to drop part of the demand based on documents marked "SAT" and those without any reference. The Tribunal found that the adjudicating authority's observations were not adequately challenged by the Revenue. The Tribunal emphasized that the investigation was biased and incomplete, failing to involve key parties like Naveen Sharma (M/s. Lakhanpal Auto) and Shanu, who were central to the case. The Tribunal reiterated that the charge of clandestine removal must be substantiated with tangible evidence, which was lacking in this case.

Conclusion:
The Tribunal concluded that the department failed to prove the clandestine manufacture and clearance of goods by M/s. Vira Industries. The impugned order confirming the demand of duty along with interest and imposing penalties on the appellants was set aside. The appeals filed by M/s. Vira and co-noticees were allowed, and the appeal filed by the Revenue was dismissed.

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