2019 (4) TMI 931 - AT - Central Excise

Clandestine manufacture and removal - SSI Exemption - want of production of finished goods records - discrepancy in the raw material stocks - Confiscation of finished goods - HELD THAT - Finished goods were seized for want of production of finished goods records, despite the admitted fact that the said records were under resumption by the search team. On perusal and comparing the physical balance of finished goods stocks with the recorded balances in the resumed manually prepared and also soft copies of stocks registers, we do not find any variation - the order justifying the confiscation of the finished goods is not consistent with the facts on records and against the provisions of law. Discrepancy in the raw-material stock - HELD THAT - To arrive at the total quantity and value of procured raw materials, the Revenue had erroneously resorted to double accounting of details of some consignments of raw materials received from two parallel sources, the manufacturing company and its dealer. The data supplied by manufacturer also included the purchases through its dealer. This has resulted in artificial escalation in value of raw material to ₹ 5,06,46,859/- instead of correct amount of ₹ 3,09,08,423/- - there is no force in the findings of procurement and receipt of unaccounted or additional raw materials and use thereof in clandestine manufacture of the finished goods and set aside the findings relating thereto. Rejection of the request of Cross-examination - HELD THAT - The denial of cross-examination of Shri Nirmal Jeet Singh owner of transport namely M/s Krishna Road Lines, Shri Umang Kumar and Ramchandra both ex-employee of the appellant was essential to test the purpose of maintenance of parallel manual records (the relied upon documents) and the contents recorded therein. It was more so in the case of Sh. Umang Kumar, who had explicitly through his written communication denied any linkage of the documents prepared by him without the knowledge of the appellant, and after 7 months of his disassociation from the appellant - also, cross-examination of Shri Nimaljeet Singh was not rejectable even on the grounds that he had not retracted his statement and whether the same was recorded without threat, duress or coercion - the impugned order denying request for cross-examination, is clearly in violation of principles of natural justice and as a consequence, the relied upon statements and the records referred therein have to be eschewed from the proceedings. Further, the Revenue had not conducted investigations at the end of all the buyers for ascertaining the credibility of the Loading Slips/ Enquiry Slips. The Sale Enquiry Slips/ Loading Slips and manually prepared sale registers are not admissible evidences. Thus these two incredible / suspect documents viz Sale Enquiry Slips/ Loading Slips and manually prepared sale register and party ledgers, cannot legally corroborate each other to establish their credibility - the findings of the Court below in the impugned order is set aside and it is held that the reliance on Sale Enquiry Slips/ Loading Slips and manually prepared sale register and party ledgers is misplaced - The Revenue have failed to bring out any concrete, corroborating, reliable and independent evidence even distantly establishing receipt of additional raw-materials, production of finished goods, transportation of goods, transit seizure, seizure/ at the buyers end, of clandestinely removed finished goods consignments, receipt of Sale proceeds including additional consideration in support of alleged under valuation, etc. To substantiate allegations of the clandestine manufacture and removal and undervaluation, etc. corroborative evidence is required. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Denial of SSI exemption.
2. Demand of duty for alleged clandestine manufacture and clearance.
3. Confiscation of seized goods and imposition of penalties.
4. Denial of cross-examination.
5. Credibility and admissibility of evidence.

Issue-Wise Detailed Analysis:

1. Denial of SSI Exemption:
The tribunal examined the appellant's turnover from 2009-10 to 2012-13, based on sales accounts retrieved from the resumed CPU. It was found that the turnover did not exceed ?1.35 crore annually, and the annual receipt of sale proceeds never exceeded ?1.50 crore. Thus, the appellant was eligible for SSI exemption till the date of the search. Consequently, the appellant was not required to discharge duty, and the demand of ?95,69,074/- was deemed unsustainable.

2. Demand of Duty for Alleged Clandestine Manufacture and Clearance:
The tribunal scrutinized the evidence presented by the Revenue, including resumed records, loading slips, and GRs. It was noted that there was no discrepancy in the raw material stocks, and the Revenue had erroneously resorted to double accounting, leading to an artificial escalation in the value of raw materials. The tribunal held that there was no procurement of unaccounted raw materials or clandestine manufacture. Additionally, the tribunal found that the Enquiry/Loading Slips were mere order booking documents and not evidence of actual sales. The demand based on these documents was found to be based on presumption and assumption, making it unsustainable.

3. Confiscation of Seized Goods and Imposition of Penalties:
The tribunal found that the finished goods were seized for want of production records, which were under resumption by the search team. Upon comparing physical balances with recorded balances, no variation was found. Thus, the confiscation of finished goods was deemed unjustified. Similarly, there was no discrepancy in the raw material stocks. The tribunal set aside the findings of procurement and receipt of unaccounted raw materials, and the penalties imposed under Rule 25 of the Central Excise Rules were also set aside.

4. Denial of Cross-Examination:
The tribunal held that the denial of cross-examination was contrary to the principles of natural justice. The cross-examination of key witnesses, such as the owner of the transport company and ex-employees of the appellant, was essential to test the credibility of the evidence. The tribunal cited the Apex Court's decision in Andaman Timber Industries, emphasizing the importance of cross-examination to discredit the testimony of witnesses. The denial of cross-examination rendered the relied-upon statements and records inadmissible.

5. Credibility and Admissibility of Evidence:
The tribunal found that the evidence relied upon by the Revenue, including the statements of witnesses and resumed documents, lacked credibility. The tribunal noted that the resumed GRs bearing transporters' names were from undisclosed sources and thus inadmissible as evidence. The tribunal also considered the retraction of statements by the appellant's partner and found that the retracted statements were not corroborated by independent reliable evidence. The tribunal concluded that the documents adduced by the Revenue were not credible and inadmissible to substantiate the charges of clandestine manufacture and removal.

Conclusion:
The tribunal set aside the impugned order with consequential relief, including the refund of the pre-deposit of ?20 lakhs. The appeal was allowed, and the appellant was found eligible for SSI exemption, not liable to pay duty, and the confiscation of goods and imposition of penalties were deemed unjustified. The tribunal emphasized the importance of cross-examination and credible evidence in adjudication proceedings.

← Previous Next →