2019 (4) TMI 1334 - AT - Central Excise

Clandestine manufacture and removal - discrepancy of stock - corroborative evidence or not - whether the evidences, other than the retracted oral evidences, are capable of being used as corroborative evidence? - HELD THAT - In the entire records of proceedings, there is no evidence to indicate that there was clandestine manufacturing. There is no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory. In the entire notice and the order, there is no satisfactory and reliable independent evidence as regards the unaccounted manufacture and/or receipt of the huge quantities of raw materials. The quantities of the alleged bags dispatched from the factory would require some transportation arrangement for delivery from the factory. However, any reliable evidence about any vehicle coming in or going out of the factory without proper entries is not forthcoming. There is also no cogent evidence about any freight payment for any such movement. There is no cogent evidence of disproportionate and unaccounted receipt and consumption of the basic raw materials and packing material, required for manufacturing alleged quantity of unaccounted finished goods - also, unaccounted production in the factory of the appellant-company has not been established. There is no dispute on the fact that in adjudication proceedings, the charge of clandestine removal and undervaluation is definitely to be established on the basis of preponderance of probabilities. However, it cannot be merely on the basis of presumptions and assumptions - Revenue failed to substantiate the findings recorded in the impugned Order regarding production capacity to persuade us to reject the contention of the appellant that there is failure on the part of respondent to collect any evidence in relation to either procurement of raw materials by the appellant or production of huge quantity of final goods alleged as removed clandestinely to sustain the charge of clandestine removal. Once unaccounted production is not established, even otherwise, there can be no clandestine removal thereof. Unaccounted removals have in any case not been established on the basis of the evidence available on record. The ratio laid down by the Hon ble Apex Court in OUDH SUGAR MILLS LTD. VERSUS UNION OF INDIA 1962 (3) TMI 75 - SUPREME COURT OF INDIA , is clearly applicable in the peculiar facts of the instant case inasmuch as the demand cannot be sustained without any tangible evidence, based only on inferences involving unwarranted assumptions. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Validity of evidence based on loose sheets and documents seized from third parties.
2. Credibility of statements made by individuals and their subsequent retractions.
3. Allegations of clandestine manufacture and removal of goods.
4. Refusal of cross-examination requests.
5. Adequacy of corroborative evidence.

Detailed Analysis:

1. Validity of Evidence Based on Loose Sheets and Documents Seized from Third Parties:
The appellant's factory and premises were searched, and a few loose sheets were found, leading to a show cause notice. The adjudicating authority confirmed the demand based on documents seized from Bajrangbali Re-Rollers Pvt. Ltd. (BRPL), a third party. However, these documents were rejected in BRPL's adjudication process as unreliable. The Tribunal noted that the same documents could not be used against the appellant since they were already deemed unreliable in the case of BRPL. The Tribunal emphasized that no liability could be fastened on the appellant based on documents seized from a third party, especially when those documents had been previously rejected.

2. Credibility of Statements Made by Individuals and Their Subsequent Retractions:
Statements were recorded from various individuals, including Mr. Amit Kumar Agarwal, who retracted his statement the next day. The Tribunal observed that the retraction was not considered by the adjudicating authority, which erroneously held that the retraction was made after two and a half years. The Tribunal found that the statements of Mr. Sish Pal Solanki, who denied the documents' relevance to the appellant, were accepted without exception and thus became conclusive. The Tribunal held that the statements of Mr. Baidya and Mr. Manish Sharma lost credibility due to the contradictory statements of Mr. Solanki and the retraction of Mr. Agarwal's statement.

3. Allegations of Clandestine Manufacture and Removal of Goods:
The Tribunal found no material evidence to support the allegations of clandestine manufacture and removal of goods. The adjudicating authority's demand was based on conjecture and surmise, as there was no evidence of procurement of raw materials, movement of goods, or identification of purchasers. The Tribunal highlighted that the appellant lacked the capacity and infrastructure to manufacture the alleged quantity of sponge iron. The Tribunal also noted that there was no evidence of disproportionate receipt and consumption of raw materials, power consumption, or labor employed for the alleged clandestine manufacture.

4. Refusal of Cross-Examination Requests:
The appellant's request for cross-examination of Mr. Baidya and Mr. Manish Sharma was refused, which the Tribunal found to be bad in law. The Tribunal held that the refusal of cross-examination rendered the statements of these individuals unreliable, especially in light of the contradictory statements made by Mr. Solanki and the retraction by Mr. Agarwal.

5. Adequacy of Corroborative Evidence:
The Tribunal emphasized the need for corroborative evidence to support the allegations. It found that the loose sheets and documents seized from BRPL lacked credibility and could not be used as corroborative evidence. The Tribunal cited various legal precedents to underline that suspicion, however grave, cannot replace proof. The Tribunal concluded that the Revenue failed to provide credible evidence of unaccounted production, procurement of raw materials, or removal of goods from the factory.

Conclusion:
The Tribunal set aside the impugned order, finding that the adjudicating authority's conclusions were based on unreliable evidence and assumptions. The appeals filed by the appellants were allowed, with consequential relief. The Tribunal reiterated the importance of tangible evidence in establishing allegations of clandestine manufacture and removal.