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2017 (12) TMI 74 - AT - Central ExciseClandestine Manufacture and Removal - shortage of stock - MS Ingots - CTD bars - Held that - Undisputedly, at the time of physical verification done on 29.07.2003 there was shortage of 624.085 MTs. of Ingots/raw materials. Interestingly, the quantification of duty demand is not based on this shortage of raw materials. Instead, department conducted search operations at the premises of buyers of finished products (M/s. NHS, M/s. Anand Steel, M/s. MMSD) and suppliers of raw materials (M/s. MMSS) and the quantification of duty is based on the evidences like note book, chits etc., recovered from the premises of the above and also the statements. The other evidence relied upon is the power consumption pattern given by a Chartered Engineer on the basis of conduct of trial production. M/s. DSRM has contended that no cross-examination was extended to Shri Natarajan in terms of section 9D of the Central Excise Act, 1944, hence the allegations made in the impugned proceedings would thus not be sustainable. We find merit in this contention. There are any number of decisions by higher appellate courts that adjudication proceedings gets vitiated for not extending cross-examination of concerned persons - clause (9) of section 9D, the person from whom statement have been recorded by the department during an investigation has to be examined by the adjudicating authority before admitting the statement recorded as evidenced against the notice-appellant - the allegation concerning quantity of removal of 1219.80 MTS of CTD bars and the demand confirmed in the impugned order of ₹ 31,96,509/neither do have any sound basis or adequately supported by any corroboratory evidence - demand set aside. An amount of ₹ 11,48,044/- is raised as duty demand for 445.17 MTs of CTD bars clandestiney cleared by M/s. DSRM to M/s. Anand. The evidence in this regard is the chits recovered from the residential premises of Shri M.C. Nagarathinam, Partner of M/s. Anand and also his statement. Shri Nagarathinam was cross-examined. He has identified the chits. Further, M/s. NHS and M/s. Anand are conoticees to these proceedings. Therefore, it cannot be said that they are third parties. Thus, we do not find any ground to interfere with the quantification of duty demand made in respect of M/s. NHS and M/s. Anand - demand upheld. An amount of ₹ 12,90,032/- is demanded as duty on clandestine clearance of 615.24 MTS. of CTD bars for the period 18.06.2001 to 03.10.2003. The search operations were conducted at M/s. DSRM s premises on 29.07.2003 - Held that - On verification, it was found that some of them were non-existant or not registered with commercial taxes for dealing in CTD bars. The verification at the transporters end and Regional Transport Authority revealed that the vehicles mentioned in the purchase bills did not pertain to lorry but to two wheelers and cars. The department recorded statement of various persons like Proprietor of M/s. MSSD, M/s. SSS, Trichy etc., to conclude that M/s. MMSD (the related Unit of the M/s. DSRM) has not purchased CTD bars from M/s. MSSD, M/s. SSS, Trichy etc. Based on this, they arrived at the conclusion that M/S. DSRM had cleared unaccounted CTD bars to M/s. MMSD (the related Unit) through which the said goods were sold to buyers. That M/s. DSRM had obtained bogus bills from M/s. MMSD, M/s. SSS, Trichy etc., showing purchase of CTD bars by M/S. MMSD (the related Unit of M/s. DSRM) and gave cheques to such traders, who would give back the money by cash showing it as for his personal use. Shri A. Jaimulabdeen was cross-examined and he has denied these allegations. Instead, he has stated that M/s. MSSD had purchased CTD bars from M/s. MMSD - Similar retraction is seen to be done by other traders in their cross-examination. The other evidence which department relies upon to demand duty on this count is the electricity consumption pattern. This evidence of electricity consumption cannot be made the basis for establishing clandestine clearance and demand of duty. As the statements given by shri Jaiulabdeen, Shri M. Shajahan of M/s SSS, Trichy are retracted, we have to say that department has not been able to sufficiently establish the basis of duty demand to the tune of ₹ 12,90,032/-. However, we cannot ignore the fact that M/s. MMSD was a related Unit of M/s. DSRM. But merely being a related Unit cannot be the basis for the demand of duty - matter on remand. Appeal allowed in part and part matter on remand.
Issues Involved:
1. Shortage of raw materials and unaccounted manufacture. 2. Evidence and corroboration for duty demand. 3. Statements and cross-examination under Section 9D of the Central Excise Act. 4. Clandestine clearances and third-party transactions. 5. Penalty imposition and quantum. Detailed Analysis: 1. Shortage of Raw Materials and Unaccounted Manufacture: The appellants, M/s. DSRM, were found to have a shortage of 624.855 MTs of MS Ingots, which was admitted by the Managing Director as used for unaccounted production. Despite this, the demand was not based solely on this shortage but on documents recovered from suppliers and buyers. 2. Evidence and Corroboration for Duty Demand: The duty demand of ?56,34,585/- was based on documents like notebooks and chits recovered from various premises and statements recorded. The tribunal noted that the department did not corroborate the authenticity of these documents adequately. For instance, the notebook from M/s. NHS and statements from Shri Natarajan were not substantiated with further evidence. 3. Statements and Cross-Examination under Section 9D: The tribunal emphasized the importance of cross-examination under Section 9D of the Central Excise Act. The lack of cross-examination of Shri Natarajan, whose statement was crucial for the department's case, led to the setting aside of the demand of ?31,96,509/- for 1219.89 MTs of CTD bars allegedly received by M/s. NHS. 4. Clandestine Clearances and Third-Party Transactions: The demand of ?11,48,044/- for 445.17 MTs of CTD bars cleared to M/s. Anand was upheld as the chits recovered were identified by Shri M.C. Nagarathinam, and M/s. NHS and M/s. Anand were co-noticees, not third parties. However, the demand of ?12,90,032/- for 615.24 MTs cleared to M/s. MMSD was remanded for further investigation due to insufficient evidence and retracted statements. 5. Penalty Imposition and Quantum: Penalties were modified based on the revised duty demands. The penalty on M/s. DSRM was to be relative to the final duty liability determined in the de novo proceedings. Penalties on other appellants were reduced, with M/s. New Hindustan Steels' penalty being nullified and the Managing Director's penalty reduced to ?30,000/-. Conclusion: The tribunal set aside the demand of ?31,96,509/- for M/s. NHS, upheld the demand of ?11,48,044/- for M/s. Anand, and remanded the demand of ?12,90,032/- for M/s. MMSD for further examination. Penalties were adjusted accordingly, emphasizing the need for corroborative evidence and proper cross-examination in adjudication proceedings.
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