2019 (1) TMI 429 - AT - Central Excise

Clandestine manufacture and removal - TMT bars - certain documents resumed from the premises of M/s Pahalwan Goods Carrier - on the basis of records resumed from the premises of transporter and the statement of the proprietor of the transport firm - denial of cross-examination of Shri Mahipal Yadav, Proprietor of M/s Pahalwan Goods Carrier - principles of natural justice. Whether the charge of clandestine removal can be made on the basis of documents resumed from the premises of a third party without independent corroboration? Held that - Neither the factory premises of the Appellants has been searched nor any discrepancy in the stocks of finished goods & raw materials has been found by the Central Excise Officers. No investigation has been conducted by the officers at the Appellant s end, as to whether they have the capacity to produce the alleged quantity of TMT bars, electricity consumption, purchase of raw materials, its transportation and payment to the suppliers. There is no investigation about the buyers of goods involving duty of more than ₹ 4.53 Crores. The entire case has been made upon the recovery of some documents from the third party premises. It is well settled law that allegations and findings of clandestine removal are required to be made upon cogent and positive evidence which corroborate unaccounted production and clearance of finished goods - In the present matter, no such evidence is available on record at all, except the third party records which cannot be relied upon as admissible piece of evidence. The allegation of clandestine manufacture and removal of finished goods cannot be proved merely on the basis of third party records without independent corroboration. Cross-examination of statements denied - principles of natural justice - Held that - The impugned Order has been passed in gross violation of the principles of natural justice inasmuch as the cross-examination of Shri Mahipal Yadav, Proprietor of transport firm was not allowed though the statement recorded from him has been relied upon by the learned Adjudicating Authority - demand on this ground also not sustainable. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged evasion of Central Excise duty by M/s Shri Rathi Steel (Dakshin) Ltd.
2. Reliability of third-party documents as evidence.
3. Denial of cross-examination and violation of principles of natural justice.
4. Lack of independent corroboration for allegations of clandestine removal of goods.

Issue-wise Analysis:

1. Alleged evasion of Central Excise duty by M/s Shri Rathi Steel (Dakshin) Ltd.:
The case against M/s Shri Rathi Steel (Dakshin) Ltd. (Appellant No.1) and its Director was based on intelligence suggesting evasion of Central Excise duty through suppression of production and removal of TMT bars without invoices and payment of duty. The Central Excise Officers searched the premises of transporters and resumed certain documents. A show cause notice was issued demanding Central Excise duty amounting to ?4,53,29,015/- and imposing penalties, alleging discrepancies between the documents recovered from the transporters and the sales records of the Appellant.

2. Reliability of third-party documents as evidence:
The Commissioner confirmed the demand and penalties based on the documents recovered from the transporters, holding them as reliable evidence. However, the Appellants contended that the entire case was built on third-party documents without any corroboration from their factory premises or records. They argued that the records from the transporters were not their documents and were not prepared by their employees. The Tribunal observed that no search was conducted at the Appellant’s factory premises, and no discrepancies in stocks or evidence of unaccounted production were found. The Tribunal emphasized that allegations of clandestine removal must be supported by cogent and positive evidence, which was lacking in this case.

3. Denial of cross-examination and violation of principles of natural justice:
The Appellants argued that the denial of cross-examination of the transporter's proprietor, whose statement was relied upon, violated the principles of natural justice. The Tribunal agreed, citing the Supreme Court's judgment in Andman Timber Industries Vs C.C.E., which held that not allowing cross-examination of witnesses whose statements are relied upon constitutes a serious flaw and violates the principles of natural justice.

4. Lack of independent corroboration for allegations of clandestine removal of goods:
The Appellants contended that there was no independent corroboration of the third-party records, such as statements from truck drivers, buyers, or employees. The Tribunal noted that the case was solely based on third-party documents without any independent evidence linking the Appellants to the alleged clandestine removal. The Tribunal referenced several judgments, including CBI Vs V.C. Shukla, which held that entries in books alone are insufficient to charge a person without independent evidence of their trustworthiness. The Tribunal concluded that the absence of independent corroborative evidence rendered the allegations unsustainable.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals, emphasizing the need for independent corroborative evidence to substantiate allegations of clandestine removal and the importance of adhering to principles of natural justice. The Tribunal found that the case against the Appellants was based on uncorroborated third-party documents and statements, and thus, the demand and penalties were not justified.