2019 (4) TMI 175 - AT - Central Excise

Penalty u/r 26 of Central Excise Rules, 2002 - clandestine removal of cigarettes - fictitious firms - cross-examination not carried out properly - reliability on the statements - Held that - The main objection raised by the Ld. AR this Tribunal is functus officio as the appeals have already been dismissed by this Tribunal for non compliance of the stay order and the order of this Tribunal have been merged with the order of the Hon ble High Court. the appeals of the appellants have already been restored by this Tribunal vide its order dt.27.8.2018 and the said order has not been challenged by the Revenue. Therefore, the objection raised by the ld.AR is not sustainable and accordingly, the same is discarded. During the relevant period in terms of Rule 6 of Central Excise Rules, 2002, the factory of the appellants was under physical control of the Superintendent or Inspector of Central Excise, wo were required to assess the duty payable before removal by M/s. Pelcan. However, as per Chapter 4, cigarettes would have been removed only on invoice which shall be countersigned by the Central Excise Superintendent. When the department itself is controlling manufacturing process of the appellant, in that circumstance, without hand in gloves with the Central Excise officers, the clandestine removal cannot take place - Moreover, in this case, no incriminating documents received from the possession of the appellants. Moreover, no extra amount has been received from the custody of the appellants which can be presumed the sale of clandestine removed goods. he whole case of the Revenue is based on the third party document and the statements of various persons whose cross examination has not been granted in terms of Section 9D of the Central Excise Act,1944. The allegation based on the third party document without any corroborative evidence cannot be the basis to allege clandestine removal of the goods. In the absence of examination-in-chief, allowing the cross-examination, the adjudication is a futile exercise. As the said procedure has not been followed by the authority below and the appeal of M/s. Pelican has already been dismissed. In that circumstance, the statements of witnesses on the basis it has been alleged that the appellants are engaged in the activity of clandestine removal without payment of duty are not admissible. Nod corroborative evidence have been brought on record to support the statement of witnesses and the whole case is based on third party documents, the penalties on the appellants are not imposable. Penalties set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Imposition of penalties on the appellants.
2. Allegations of clandestine removal of cigarettes without payment of duty.
3. Creation of fictitious firms for unaccounted transactions.
4. Admissibility of third-party documents and statements.
5. Physical control of manufacturing by Central Excise officers.
6. Compliance with procedural requirements under Section 9D of the Central Excise Act, 1944.

Detailed Analysis:

1. Imposition of Penalties on the Appellants:
The appellants contested the penalties of ?10 crore each imposed under Rule 26 of Central Excise Rules, 2002. The penalties were based on allegations of clandestine removal of cigarettes and the creation of fictitious firms to facilitate unaccounted transactions.

2. Allegations of Clandestine Removal of Cigarettes Without Payment of Duty:
The appellants were directors of a tobacco company accused of removing cigarettes clandestinely without paying duty. The factory was under the physical control of Central Excise officers, and the production and clearance activities were supervised by them. The appellants argued that there was no evidence to support the allegations, and the entire case was based on assumptions and statements from third parties.

3. Creation of Fictitious Firms for Unaccounted Transactions:
It was alleged that the appellants created fictitious firms to procure cut tobacco without proper accounting and records. The firms involved were M/s. J.S. Enterprises, Surya Tobacco Products, and M/s. Imperial Tobacco. The appellants contended that there was no documentary evidence to prove these allegations, and the entire case relied on statements from the owners of these firms.

4. Admissibility of Third-Party Documents and Statements:
The appellants argued that the entire case was based on third-party documents and statements obtained without their knowledge. They were not allowed to cross-examine the individuals whose statements were relied upon by the Revenue, which violated Section 9D of the Central Excise Act, 1944. The Tribunal noted that the statements of witnesses and third-party documents could not be the sole basis for alleging clandestine removal without corroborative evidence.

5. Physical Control of Manufacturing by Central Excise Officers:
The appellants highlighted that their factory was under the physical control of Central Excise officers, who were responsible for assessing duty before the removal of goods. They argued that clandestine removal could not occur without the involvement of these officers. The Tribunal agreed, stating that without collusion with Central Excise officers, clandestine removal was not possible, especially since no incriminating documents or extra amounts were found in the appellants' possession.

6. Compliance with Procedural Requirements Under Section 9D of the Central Excise Act, 1944:
The Tribunal emphasized the need for compliance with procedural requirements under Section 9D, which mandates the examination of witnesses in chief and the opportunity for cross-examination. The adjudicating authority failed to follow this procedure, rendering the statements of witnesses inadmissible. The Tribunal cited the case of Kuber Tobacco India Ltd., which reinforced the need for proper examination and cross-examination of witnesses.

Conclusion:
The Tribunal found that the Revenue's case was based on assumptions, third-party documents, and statements without corroborative evidence. The physical control of the factory by Central Excise officers further weakened the allegations of clandestine removal. The procedural lapses in not allowing cross-examination of witnesses under Section 9D were also highlighted. Consequently, the penalties imposed on the appellants were set aside, and the appeals were allowed.

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