2019 (7) TMI 100 - AT - Central Excise

Clandestine manufacture and removal - Ingots - weighment slips - Third party evidences - Cross-examination of statements of witnesses - the case of the revenue is based on the loose slips recovered during the course of investigation on 18.12.2007 in the premises of M/s V. K. - principles of natural justice - HELD THAT - No discrepancy in statutory records/stocks in the premises of M/s waryam was found. On the basis of these loose slips recovered from M/s V. K. it has been alleged that weighment slips pertains to M/s Waryam on same investigation some of the slips were found by the revenue pertains to M/s V. K. and the case of clandestine clearance of dutiable goods was made out against M/s V. K. and the said show cause notice was adjudicated thereafter the matter travelled up to this Tribunal. All the documents which have been relied upon by the revenue have been recovered from the premises of M/s V. K. the third party - The said documents cannot be relied in the absence of any corroborative evidence. Cross-examination of statements of witnesses - Principles of natural justice - HELD THAT - The two buyers were examined by the revenue with regard to the clandestine clearance of the goods therefore Shri Ajay Jain of M/s Ajar Amar Steel denied that they have not received any goods without invoices. Revenue has failed to appreciate the said statement of Shri Ajay Jain but Shri Kamal Chopra has admitted that they have purchased a meagre quantity of 249.985 Mts of steel ingots but the appellant sought cross examination of Shri Kamal Chopra the same was denied - In terms of Section 9-D of Central Excise Act 1944 the adjudicating authority is required to examine in chief of the witness of the statements have been relied and thereafter to make up his mind that the statement made by the witness is correct and thereafter to offer cross examination of the said witness to the appellants. The said procedure has not been followed therefore there is a gross violation of principal of natural justice. As the revenue has failed to come with tangible evidence to allege the clandestine manufacture and removal of goods therefore the impugned order is set aside and no demand of duty is sustainable - Consequently no penalty is imposable on all the appellants. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of clandestine removal of goods by M/s Waryam Steel Castings Pvt. Ltd.
2. Evidentiary value of documents recovered from third-party premises.
3. Examination and cross-examination of witnesses under Section 9-D of the Central Excise Act, 1944.
4. Establishing clandestine manufacture and removal of goods based on necessary parameters.

Detailed Analysis:

1. Allegation of Clandestine Removal of Goods by M/s Waryam Steel Castings Pvt. Ltd.
The primary issue revolves around the allegation that M/s Waryam Steel Castings Pvt. Ltd. (M/s Waryam) engaged in the clandestine removal of alloy and non-alloy steel ingots. The Revenue's case was based on weighment slips and other documents recovered from M/s V.K. Iron and Steel (M/s V.K.), owned by the father of M/s Waryam's authorized signatory. The Revenue alleged that these documents indicated unrecorded clearance of ingots by M/s Waryam. However, the Tribunal noted that no discrepancies were found in the statutory records or stocks at M/s Waryam's premises during the investigation, thus weakening the Revenue's case.

2. Evidentiary Value of Documents Recovered from Third-Party Premises
The Tribunal emphasized that documents recovered from third-party premises (M/s V.K.) cannot be solely relied upon to establish clandestine removal unless corroborated by independent evidence. This principle was supported by precedents such as Tejwal Dyestuff Industries vs. Commissioner of Central Excise and Trela Footwear Export Pvt. Ltd. vs. Commissioner of Central Excise & Service Tax, Agra. The Tribunal found that the Revenue failed to provide corroborative evidence linking the recovered documents to M/s Waryam's activities.

3. Examination and Cross-Examination of Witnesses under Section 9-D of the Central Excise Act, 1944
The Tribunal highlighted the procedural lapses concerning the examination and cross-examination of witnesses. Specifically, the statement of Shri Kamal Chopra, who admitted to purchasing a small quantity of ingots without invoices, was relied upon without offering him for cross-examination, violating Section 9-D of the Central Excise Act, 1944. The Tribunal referred to the case of Kubber Tobacco India Ltd., which mandates that witnesses must be examined in chief and offered for cross-examination to uphold the principles of natural justice.

4. Establishing Clandestine Manufacture and Removal of Goods Based on Necessary Parameters
The Tribunal reiterated the necessity of proving clandestine manufacture and removal through tangible, direct, affirmative, and incontrovertible evidence. This includes:
- Receipt of raw materials and their non-accountal in statutory records.
- Utilization of raw materials for manufacturing.
- Evidence of manufacturing activities such as electricity consumption, labor employment, and packing material usage.
- Proof of clandestine removal, including vehicle entry records, transport documents, and consignees' statements.
- Financial transactions related to the clandestine activities.

The Tribunal found that the Revenue did not meet these criteria, as there was no substantial evidence of raw material receipt, manufacturing, transportation, or financial transactions linked to clandestine activities by M/s Waryam.

Conclusion
The Tribunal concluded that the Revenue failed to substantiate the charge of clandestine manufacture and removal of goods by M/s Waryam with concrete evidence. Consequently, the impugned order was set aside, and the appeals filed by the appellants were allowed, with no penalties imposed. The Tribunal's decision underscored the importance of adhering to procedural requirements and providing corroborative evidence when alleging clandestine activities.