2018 (7) TMI 762 - AT - Central Excise

Clandestine removal - The main allegation levelled against the appellant is that they cleared cheese/cone yarn in the guise of hank yarn and thus evaded payment of duty - statements of buyers relied upon - Held that - The procedure contemplated for removal for the purpose of conversion is self contained. The consequence of not adhering to the procedure is laid down in 156 B. The department has no case that any action was taken against appellant for not complying the procedure. To get the yarn converted into hank the appellant dispatches the dutiable cheese yarn without payment of duty under cover of statutory Form AR 3A with permission of concerned Range Officer and the yarn will get re-warehoused with the job worker concerned under the control of the jurisdictional Range Officer who records the fact of such re-warehousing. After conversion the hank yarn is returned to the appellants who receives them under cover of statutory documents under intimation to the Range Officer in Form D3. Thus the removal for conversion and receipt of converted hank yarn is intimated to and acknowledged by the department - the department cannot give a go by of such documents by relying on the statement of Range Officer that he was merely endorsing upon the document without physically verifying whether yarn was received by appellants after conversion. The evidences including the ARA-3s and D3s indicate the strong probability that appellant has send yarn for conversion. Another reason for rejection of these documents of conversion is that the vehicle numbers noted there in are fictitious. The Ld.Counsel has pointed out that out of the 400 AR-3As only 14 numbers have incorrect vehicle number. Out of these 8 documents were prepared by them. He has submitted that it happened only due to error in noting the vehicle number. We find no reason not to accept this contention of the appellant. Out of 400 AR3-As when the vehicle numbers mentioned only in 14 documents showed variation or incorrectness. The strong inference that can be made is that it was merely human error. This cannot in our view be a ground to reject all 400 documents as bogus. The main evidence relied is the statement of buyers of yarn from the appellant. The Partner/director of M/s. Peeyelyes International and Sansons Exports M/s.JaisarSpintex (P) Limited M/s. Peeyelcee Tex Exports (P) Limited and M/s. Anitha Traders had stated that they purchased only cone/cheese yarn and that they use only minimum quantity of hank yarn etc. Out of these Sh.A.Chandrasekar Partner of Anitha Traders has stated in cross examination that they purchased hank yarn from appellant. Surprisingly although documents recovered from Sh. Muthu Industries (sizing Mill run by and for Peeyelyes International) was heavily used by department for investigation as well as to base the allegations in the SCN it is seen that no statement was obtained from any person connected with M/s.Muthu Industries. The department has failed to establish that the appellant has not cleared hank yarn. The evidences such as AR3-As and related documents alongwith the deposition of job workers made during cross examination strongly indicate that during the disputed period appellant though did not have reeling machine was sending cone yarn for conversion into hank yarn and clearing the same without payment of duty. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegations of suppression of actual value of clearances and failure to account for raw materials.
2. Allegations of clearing cheese yarn/cone yarn as hank yarn without payment of duty.
3. Reliability of statements obtained from buyers and job workers.
4. Compliance with procedural requirements under Central Excise Rules.
5. Admissibility of evidence under Section 9D of the Central Excise Act.
6. Revenue neutrality and identical show cause notices.
7. Allegations of clandestine clearance.
8. Limitation period for demand.
9. Imposition of penalty on the Director.

Detailed Analysis:

1. Allegations of Suppression and Failure to Account for Raw Materials:
The appellant is accused of suppressing the actual value of clearances of cotton cone yarn and failing to account for raw materials in their books. The department issued a Show Cause Notice demanding duty for the period 1998-99 to 2001-02 and proposed penalties. The original authority confirmed the demand, interest, and imposed penalties under Section 11AC, which was upheld by the Commissioner (Appeals).

2. Allegations of Clearing Cheese Yarn/Cone Yarn as Hank Yarn Without Payment of Duty:
The main allegation is that the appellant cleared cheese/cone yarn in the guise of hank yarn to evade duty. The appellant argued that they were getting the cheese yarn converted into hank yarn at job workers' premises and clearing hank yarn without payment of duty. The appellant followed the procedures under Rule 96E of Central Excise Rules, 1944, and maintained proper records, which were acknowledged by the department.

3. Reliability of Statements Obtained from Buyers and Job Workers:
The statements of buyers and job workers were crucial for the department's case. However, out of the four buyers, only one was cross-examined, who confirmed purchasing hank yarn. The other three buyers did not appear for cross-examination, making their statements inadmissible under Section 9D of the Central Excise Act. Job workers retracted their statements during cross-examination, stating they were coerced by the department.

4. Compliance with Procedural Requirements Under Central Excise Rules:
The appellant complied with the procedures under Rule 96E for removing yarn for conversion and receiving it back after conversion. The department rejected the documents based on a Range Officer's statement that he did not physically verify the goods. However, the Tribunal found that the endorsements by the Range Officer could not be brushed aside and that the appellant followed the prescribed procedures.

5. Admissibility of Evidence Under Section 9D of the Central Excise Act:
The Tribunal emphasized the necessity to follow the procedure under Section 9D before admitting statements as evidence. Since the buyers who did not appear for cross-examination could not have their statements admitted, the department's reliance on these statements was misplaced.

6. Revenue Neutrality and Identical Show Cause Notices:
The appellant argued that the issue was revenue neutral as their customers were export units eligible for duty-free procurement or rebate. Identical show cause notices issued to other manufacturers were dropped, supporting the appellant's case.

7. Allegations of Clandestine Clearance:
The department alleged clandestine clearance, but the Tribunal found no evidence of surreptitious clearance without records. The appellant maintained proper records and followed the AR3-A procedure for conversion, which was acknowledged by the department.

8. Limitation Period for Demand:
The appellant contended that the demand was barred by limitation as they were filing regular returns and the movement of goods was under intimation to the department. The Tribunal did not find evidence of suppression of facts to justify the extended period of limitation.

9. Imposition of Penalty on the Director:
The appellant argued that there was no evidence of the Director's direct involvement in the alleged violations, making the penalty on the Director unwarranted. The Tribunal's decision to set aside the demand implicitly supports this argument.

Conclusion:
The Tribunal found that the department failed to establish that the appellant cleared cheese yarn in the guise of hank yarn. The evidence, including AR3-As and related documents, along with the job workers' deposition during cross-examination, indicated that the appellant sent yarn for conversion and cleared hank yarn without payment of duty. Consequently, the demand was set aside, and the appeal was allowed with consequential reliefs.

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