2017 (11) TMI 1502 - AT - Central Excise

Clandestine removal - CENVAT credit - case of the revenue is that the appellant have maintained two sets of invoices bearing same serial numbers in a part of the financial year, having different dates of removal of goods - allegations are based solely on the statement of Shri Lal Singh ex-employee of the appellant company, a letter dated 06 October, 1998, which was served upon the appellant by officers of Godrej, namely, Shri K.N. Modi, General Manager purchase, alleging that appellant had openly started selling cylindrical luggage locks with the packaging in the name and style of Godrej in Delhi market - whether the appellant have indulged in clandestine removal of goods, and whether are required to reverse Cenvat Credit on non-taxable output removed under Rule 57 CC of CER, 1994, which is equivalent to Rule 6 of CCR 2004, and whether the appellants have resorted to undervaluation of their clearances? - principles of natural justice. Held that - there are no such corroborative evidence to support the allegation of clandestine removal - In the facts of the present case it is an admitted fact that no investigation has been conducted as to procurement of raw material to manufacture such huge quantities of excisable goods, no attempt to be made find whether the appellant had the capacity to manufacture such a huge quantity of excisable goods as has been alleged in the SCN, no attempt is made to ascertain as to whether there had been any buyer of excisable goods cleared from the appellant s premises clandestinely, there is no evidence found regarding transportation of such clandestinely removed goods, there is no evidence of any excessive power consumption, which is an important factor for determining clandestine removal. Such a large-scale production and clearance cannot be made without consuming excess power. No attempt has been even made to determine the electricity consumption pattern of the appellant during the relevant period, including the period of dispute. Thus, the allegation of the clandestine removal made by revenue have got no legs to stand and is fit to be set aside. Cross-examination - Held that - in view of the admission of the illegal activity and admission to have made clearances without payment of duty, they cannot escape the liability by throwing the burden of evasion and illegal activity on the employee and on the plea that they were misguided by misplaced advice of their own authorized representative whose cross-examination have been sought. Reliance placed by learned Commissioner on the statement of Shri Lal Singh is not tenable in view of the provisions of Section 9D of the Act read with Section 14 of the Act.There is failure on the part of learned Commissioner in ensuring the attendance of witnesses, the statement of which have been relied upon in the show cause notice. Save and except issue of summons, the learned Commissioner have not done anything else. In spite of all the powers of a civil court vested in the authority for ensuring the attendance of witnesses and production of evidence - also, no study have been made with respect to the capacity of production whether the appellant had such capacity to produce such alleged clandestine quantities. The minutes of the meeting is prepared by Godrej, is prima facie not admissible and further observe that there is no specific allegation and/or admission on the part of the appellants with respect to clandestine manufacture and clearance by the appellant of the Godrej brand products. In the said minutes only doubts have been raised by the officers of Godrej. Further, prior to that meeting appellant have also vide a separate letter informed Godrej regarding availability of spurious locks in the name of Godrej in the market, expressing concern. Thus, the SCN is presumptive and also the impugned order are unsustainable as learned Commissioner have selectively relied on the evidence on record. The allegation of clandestine manufacture and removal is not established - appeal allowed - decided in favor of appellant.

Issues involved:
1. Clandestine removal of goods.
2. Reversal of Cenvat Credit on non-taxable output.
3. Undervaluation of clearances.
4. Non-applicability of exemption notification.

Issue-wise detailed analysis:

1. Clandestine removal of goods:
The Tribunal analyzed whether the appellants engaged in clandestine removal of goods. The revenue alleged that the appellants maintained two sets of invoices with the same serial numbers but different dates, indicating that goods were dispatched without paying excise duty. The investigation revealed discrepancies in the records and physical stock, suggesting unaccounted goods. Statements from employees and documents from Godrej supported these allegations. However, the Tribunal found the reliance on statements without cross-examination and the lack of corroborative evidence, such as excess raw materials, excessive power consumption, or proof of actual transportation and sale, insufficient to establish clandestine removal. The Tribunal emphasized the need for tangible evidence, as outlined in the Arya Fibres case, and concluded that the allegations were not substantiated.

2. Reversal of Cenvat Credit on non-taxable output:
The Tribunal examined whether the appellants were required to reverse Cenvat Credit on non-taxable output removed under Rule 57CC of CER, 1994 (equivalent to Rule 6 of CCR, 2004). The investigation found that the appellants did not maintain separate inventories for raw materials used in taxable and non-taxable goods. The Tribunal did not find sufficient evidence to support the revenue's claim for reversal of Cenvat Credit, as the primary focus was on the issue of clandestine removal and undervaluation.

3. Undervaluation of clearances:
The revenue alleged that the appellants undervalued their clearances, selling goods to fake customers at significantly lower prices than to genuine buyers. The Tribunal noted that the allegations were based on statements and documents indicating lower prices for certain transactions. However, the Tribunal found that the evidence was not corroborated by other factors, such as identification of buyers, transportation records, or excessive power consumption. The Tribunal concluded that the undervaluation allegations were not sufficiently proven.

4. Non-applicability of exemption notification:
The revenue claimed that the appellants wrongly claimed duty exemption under Notification No. 7/97 for Secur brand goods. The Tribunal found that the appellants had not paid duty on clearances of Secur brand goods during the relevant period, as per their records. However, the Tribunal did not find sufficient evidence to support the revenue's claim for non-applicability of the exemption notification, as the primary focus was on the issue of clandestine removal and undervaluation.

Conclusion:
The Tribunal concluded that the allegations of clandestine removal and undervaluation were not substantiated due to the lack of corroborative evidence and failure to ensure cross-examination of key witnesses. The Tribunal set aside the impugned orders, except for imposing a penalty of ?5,000 on the company and its Managing Director for delayed duty payment. The Tribunal directed the appellants to pay a lump sum amount of ?50,000 towards interest for the late payment of duty. The penalty and interest were to be deposited within 30 days, with compliance to be made before the concerned Adjudicating Authority.

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