2018 (12) TMI 369 - AT - Central Excise

Clandestine manufacture and removal - undervaluation - clubbing of clearances - imposition of penalties - suppression of facts and not accounting for actual production to remain within exemption limit as provided in the SSI exemption notifications - Held that - The evidence brought on record recovered from Shri Mahadev Goel in the nature of private records, cash book, ledger, challans and various files and the statements. Shri Mahadev Goel has retracted his statement and lodged a complaint with Police, these facts have not been contraverted by the Revenue and no further statement has been recorded of Shri Mahadev Goel, therefore, the statement of Sh.Mahadev Goel cannot be relied upon and cannot be the basis of alleged clandestine manufacture and removal of goods. Cross-examination not allowed - Held that - The statements of the suppliers and buyers which have been relied upon by the adjudicating authority have never been examined in chief and denied cross examination of witness whose statement has been relied without any lawful reason - also the provisions of section 9D have not been followed by the adjudicating authority, therefore, on this sole ground, the impugned order is not sustainable. The statements of various buyers and suppliers have been relied upon by the adjudicating authority and in their statements they have stated they have supplied the goods without cover of invoices or they have purchased the goods from the appellant without cover invoices which means they were involved in the evasion of payment of excise duty but they were not made party to the show cause notice which shows that investigating team adopted pick and choose method as the persons who were involved in evasion of duty were not made party to the show cause notice creates doubt on the statements of these witnesses. Therefore, the statements of these witnesses cannot be relied upon to allege clandestine manufacture and clearance of the goods. Clubbing of clearances - Held that - Both units are located at a distance of about 60 KM having independent ownership and infrastructure. Each units have its own manufacturing set up and machinery to manufacture heir finished goods independently. In that instant case, their clearances cannot be clubbed to alleged clandestine manufacture and removal of the goods. The adjudicating authority has not given its independent finding on the issue how he arrived on the conclusion that the appellants were engaged in the clandestine manufacture and clearance by undervaluing the same and why cross examination cannot be granted - no corroborative evidence has been brought on record to allege that the clandestine removal of the goods. The demands confirmed against the appellants are not sustainable without any corroborative evidence - Penalties also set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Clandestine removal and undervaluation of goods.
2. Clubbing of clearances of M/s. SSP and M/s. JKP.
3. Imposition of penalties on M/s. SSP, M/s. JKP, and associated individuals.
4. Denial of cross-examination of witnesses.
5. Reliance on retracted statements and third-party documents.

Issue-wise Detailed Analysis:

1. Clandestine Removal and Undervaluation of Goods:
The appellants, M/s. SSP and M/s. JKP, were alleged to have engaged in the clandestine manufacture and removal of plywood to evade duty. The investigation, based on intelligence gathered by the DGCEI, led to searches and the recovery of documents from various premises, including the residences of key individuals. The show cause notice demanded duty and imposed penalties based on these findings. However, the appellants argued that the evidence was insufficient and relied heavily on retracted statements and documents recovered from third parties, specifically Shri Mahadev Goel, who retracted his statement and filed a police complaint alleging coercion.

2. Clubbing of Clearances of M/s. SSP and M/s. JKP:
The duty demand of ?75,21,297 was made jointly and severally against both M/s. SSP and M/s. JKP. The appellants contended that both entities operated independently, with separate setups and no interlinked manufacturing processes. They argued that their clearances should not be clubbed as they were located 60 km apart and maintained independent records. The tribunal noted the lack of evidence supporting the clubbing of clearances and found the joint demand unsustainable.

3. Imposition of Penalties on M/s. SSP, M/s. JKP, and Associated Individuals:
Penalties were imposed on both companies and individuals associated with them. M/s. SSP and M/s. JKP were penalized under Section 11AC of the Central Excise Act, 1944, while penalties were also imposed on key individuals under Rule 26 of the Central Excise Rules, 2002. The appellants argued that the penalties were based on uncorroborated evidence and retracted statements. The tribunal found that the adjudicating authority had not provided a clear basis for the penalties, especially given the retraction of statements and the lack of corroborative evidence.

4. Denial of Cross-Examination of Witnesses:
The appellants sought cross-examination of various suppliers and buyers whose statements were relied upon by the adjudicating authority. However, this request was denied without lawful reasons. The tribunal emphasized that the principles of natural justice were violated by denying cross-examination and noted that the adjudicating authority failed to follow the procedure laid down under Section 9D of the Central Excise Act.

5. Reliance on Retracted Statements and Third-Party Documents:
The case against the appellants relied heavily on the statements and documents recovered from Shri Mahadev Goel, who retracted his statements and filed a police complaint. The tribunal observed that the retraction and the lack of further statements from Shri Goel weakened the case. Additionally, the tribunal noted that the evidence from third-party documents was insufficient to substantiate the allegations of clandestine removal and undervaluation.

Conclusion:
The tribunal found that the demands and penalties imposed on the appellants were not sustainable due to the lack of corroborative evidence and the reliance on retracted statements and third-party documents. The denial of cross-examination further weakened the case. Consequently, the tribunal set aside the impugned order and allowed the appeals with consequential relief.

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