2018 (6) TMI 770 - AT - Central Excise

Clandestine removal - suppression of facts - excesses of finished goods - shortages of raw materials - admissibility of statement - Section 9D of CEA - Held that - The average daily production of the appellant plant is 30 32 MT have not been disputed by revenue. For the disputed period under consideration from 03/01/2009 to 19th February 2009 there are 48 working days or days multiplied by said 32 MT per day the maximum production during the said period works out to (48x32) or 1536 MT. Thus the calculation of revenue of production of 2214.434 during the said period is erroneous and excessive and needs to be reworked. Further the appellant will be entitled to set of as regards shortage of raw material M.S. Ingots from the excess stock of finished goods as on the date of inspection. Accordingly the appellant shall be liable for duty towards clandestine removal as recalculated as per dirdections. The penalty amount on the appellants company shall be worked out accordingly - the penalty imposed on the appellant-Director appears to be excessive and the same is reduced to 2 lakhs. Even by the rule of thumb and the production reworked out on the basis of admitted average production there exists element of clandestine production and removal. Appeal allowed in part.

Issues Involved:
1. Suppression of production and clandestine removal of finished goods.
2. Discrepancies in stock of raw materials and finished goods.
3. Validity of evidence and denial of cross-examination.
4. Calculation of duty and penalties.

Detailed Analysis:

1. Suppression of Production and Clandestine Removal of Finished Goods:
The primary issue revolves around whether the appellants suppressed production and clandestinely removed 1443.588 MT of MS Rods. The investigation was based on the Dispatch Register and other records seized from the appellant's factory. The Tribunal noted that the alleged quantity was not accounted for in the specified records and was removed without issuing Central Excise invoices or paying the duty amounting to ?35,23,943/-. The Tribunal found that the maintenance of the production and dispatch registers by the staff was within the knowledge of the Director/management, making the contents reliable for drawing adverse inferences against the appellants.

2. Discrepancies in Stock of Raw Materials and Finished Goods:
During the factory inspection on 20/02/2009, Central Excise officers found an excess of 6.379 MT of finished goods and a shortage of 84.295 MT of raw materials (MS ingots). The Director initially accepted these discrepancies but later disputed the raw material stock difference, claiming the stock in the furnace was 80MT instead of 35MT. However, the Tribunal noted that the average daily production of the plant was about 30-32 MT, which was not disputed by the revenue. The Tribunal recalculated the production during the disputed period, finding the revenue's calculation of 2214.434 MT as erroneous and excessive.

3. Validity of Evidence and Denial of Cross-Examination:
The appellants argued that the denial of cross-examination violated the Principles of Natural Justice. The Tribunal acknowledged that the appellants had requested cross-examination in their reply to the show cause notice, contrary to the Commissioner (Appeals)'s observation. The Tribunal held that the statements recorded by the revenue from the transporters were not admissible evidence under Section 9D of the Act and noted that leading questions had been asked to the transporters. The Tribunal emphasized that cross-examination is integral to the principles of natural justice, citing several rulings supporting this view.

4. Calculation of Duty and Penalties:
The Tribunal directed the recalculation of duty and penalties based on the revised production figures. The penalty on the appellant company was to be adjusted accordingly, and the penalty on the Director was reduced to ?2 lakhs. The Tribunal found that the clandestine removal was evident even by the rule of thumb and the reworked average production.

Conclusion:
The Tribunal allowed the appeals in part, directing the adjudicating authority to recalculate the duty payable and penalties on the company as per the revised directions. The penalties on the Director were reduced, and the Tribunal upheld the reliability of the production and dispatch registers maintained by the appellant's staff. The judgment emphasized the importance of cross-examination in ensuring the principles of natural justice.

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