2019 (3) TMI 517 - AT - Central Excise

Clandestine removal - shortage found in the stock of finished goods - admissibility of statements - opportunity of cross-examination denied - principles of natural justice - Held that - The Hon ble Supreme Court in very clear terms has held in Andaman Timber Industries, 2015 (10) TMI 442 - SUPREME COURT , that denial of cross-examiantion of the witness whose statements were made the basis of the adjudication order is a serious flaw which makes the order a nullity, as it amounts to violation of the principles of natural justice - the provisions of Section 9D of the Central Excise Act have not been followed in the present matter. In view of this, the statements are not admissible in evidence. The learned Commissioner ought to have considered the retractions made by Authorized Signatory and the supervisor of the Company, even if these were made belatedly - It is also settled law that if the statements are retracted, the same should be corroborated by other material particulars - In the present matter, the Revenue has not brought on record any independent evidence to support the retracted statements. Consequently no reliance can be placed on such statements to support the charge of clandestine manufacture and removal of finished goods by the Appellant Company. It is trite law that third party document alone cannot be relied upon as admissible piece of evidence. It has repeatedly been held by the Courts and this Tribunal that clandestine manufacture and clearances cannot be inferred from a few documents and statements unless the allegations are corroborated and established on evidences relatable to or linked with actual manufacturing operation - In the present matter no such evidence is brought on record. Shortage found in the stock of finished goods - Held that - There is nothing on record to show that actually the stock of laminated sheets were physically checked by the officers. The Revenue has not controverted the contention of the Appellant that in the given time of 9-10 hours, the officers were present in the factory premises, it was not feasible to verify the stock of laminated sheets of different sizes physically - the Revenue has not succeeded in establishing that there was any shortage of finished goods in the factory of the appellant. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged clandestine removal of goods.
2. Denial of cross-examination.
3. Basis of demand for Central Excise duty.
4. Reliability of evidence and statements.
5. Physical verification of stock.
6. Admissibility of third-party documents.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Removal of Goods:
The Anti Evasion officers conducted a search and found a shortage in the stock of finished goods worth ?13,90,300/- involving Central Excise duty of ?1,43,201/-. They resumed statutory records, a CPU, a pen drive, and loose papers from the factory premises. From the residential premises of an Authorized Signatory, they resumed a laptop, copies of parallel invoices, bilties (G.R), and loose papers. The Commissioner confirmed the demand for ?96,32,692/- and imposed penalties, holding that there were sufficient evidences of clandestine removal of goods. The clandestine removal was admitted by the involved parties in their statements.

2. Denial of Cross-Examination:
The appellants argued that the cross-examination of Rohit Vasistha was denied, violating the principles of natural justice. They relied on the judgment in Andaman Timber Industries Vs CCE, where the Supreme Court held that not allowing cross-examination of witnesses whose statements were the basis of the order is a serious flaw, making the order a nullity. The Tribunal observed that the provisions of Section 9D of the Central Excise Act were not followed, making the statements inadmissible in evidence.

3. Basis of Demand for Central Excise Duty:
The demand was based on:
- ?1,43,201/- for the shortage of finished goods.
- ?5,35,881/- based on parallel invoices.
- ?53,30,905/- based on loose slips showing production and stock position.
- ?18,38,327/- based on loose slips showing cash receipts.
- ?17,84,378/- based on buyers' orders.

The appellants contended that there was no shortage of finished goods as physical verification was not feasible within the given time. They argued that the department did not corroborate the parallel invoices and loose slips with independent evidence from buyers or transporters. They also argued that the loose slips were not actual production records but notes of production plans or buyer requirements.

4. Reliability of Evidence and Statements:
The appellants argued that the entire case was based on documents recovered from the residence of a third party, without independent corroboration. They cited various decisions, stating that charges of clandestine removal cannot be based solely on third-party documents. The Tribunal found that the statements of the involved parties were retracted and not corroborated by independent evidence, making them unreliable.

5. Physical Verification of Stock:
The appellants contended that physical verification of laminated sheets of different sizes was not possible within 9-10 hours. The Tribunal observed that the Revenue did not provide any document proving physical verification of finished goods, and thus, the alleged shortage was not established.

6. Admissibility of Third-Party Documents:
The Tribunal noted that no corroborative evidence was provided to support the documents recovered from the residence of the third party. It is settled law that third-party documents alone cannot be relied upon as admissible evidence without corroboration. The Tribunal found that the department's findings were based on assumptions and presumptions without tangible evidence.

Conclusion:
The Tribunal concluded that the confirmation of demand and imposition of penalties were not sustainable. The appeals were allowed with consequential benefits, emphasizing the need for strong and corroborative evidence to prove charges of clandestine manufacture and clearance.