2018 (8) TMI 1564 - AT - Central Excise

Clandestine removal - shortages of raw material - the main edifice of the notice rests on the statement of Shri P. Nallendra Kumar, the authorized signatory of the appellant - Held that - The entire case has been largely up on the statements of the authorized signatory of the appellant, which was retracted by that person, proximate to the recording of his statements. The case is also built up on statements of only a few suppliers of the impugned raw material, and a few buyers of lead ingots; almost all these persons have retracted their initial statements during cross-examination - Such unfounded and unsubstantiated charges made in the show cause notice have been mechanically upheld by the adjudicating authority without any application of mid and without taking cognizance of the counter arguments made by the appellants by discarding the retractions and statements made by key persons and in cross-examination, and, to top it all, relying upon the statement of a buyer whose cross-examination was refused by him. The case attempted to be built up against the appellants, does not have any legs to stand on. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged non-reversal of CENVAT credit on removal of raw materials.
2. Alleged shortage of raw materials during stock-taking.
3. Refusal of cross-examination of key witnesses.
4. Lack of scientific testing and evidence to support allegations.
5. Reliability of statements given by factory staff and buyers.

Detailed Analysis:

1. Alleged Non-Reversal of CENVAT Credit on Removal of Raw Materials:
The department alleged that the appellant removed inputs (aluminum, lead, zinc ingots) without reversing the proportionate CENVAT credit, resulting in a duty liability of ?2,89,14,030/-. The appellant argued that they used recovered metals from rejected batteries and provided technical certificates from an independent Chartered Engineer to substantiate the composition of the alloys. However, the adjudicating authority dismissed these reports without countering them with any data.

2. Alleged Shortage of Raw Materials During Stock-Taking:
During stock-taking, a shortage of 1291.875 MTs of raw materials was noted. The department inferred that the appellant did not use aluminum, tin, and zinc ingots in manufacturing but removed them as such without reversing the CENVAT credit. The appellant contended that the department ignored the stock position of zinc scrap and lead scrap/ingots and did not conduct any scientific tests to determine the composition of the alloys.

3. Refusal of Cross-Examination of Key Witnesses:
The appellant requested cross-examination of all persons whose statements were recorded, but the adjudicating authority allowed only some of them. The refusal to allow cross-examination of M.S. Ayyappan, a buyer of lead ingots, was particularly noted. The refusal was deemed contrary to legal requirements and statutory provisions.

4. Lack of Scientific Testing and Evidence to Support Allegations:
The department did not conduct any scientific tests to ascertain the percentage of lead content in the ingots. The case was built on statements from a few buyers and factory staff, which were later retracted. The department also failed to trace any buyers of the allegedly removed raw materials or provide evidence of transportation or money flow related to such sales. The tribunal noted that presumptions and assumptions cannot replace concrete evidence.

5. Reliability of Statements Given by Factory Staff and Buyers:
The statements from factory staff and buyers were crucial to the department's case. However, these statements were retracted during cross-examination. The tribunal found it suspicious that the few buyers interrogated had uniform knowledge of the lead percentage in the ingots. The adjudicating authority's reliance on these retracted statements without considering the retractions and counter-arguments from the appellants was criticized.

Conclusion:
The tribunal concluded that the case against the appellant lacked substantial evidence and relied heavily on retracted statements. The refusal to allow cross-examination of key witnesses and the absence of scientific testing further weakened the department's case. The impugned order was set aside, and the appeal was allowed with consequential reliefs as per law.