2019 (7) TMI 952 - AT - Central Excise

Clandestine manufacture and removal - shortage of goods - shortage of 5.060 MTs of Sodium Bichromate Mother Liquor (SBML) - period March 1997 to June 1998 - demand based on statements private records etc - HELD THAT - The demand was raised based on the Panchanama statements and the private records seized from the premises of the appellant as well as statements of the alleged buyers of the clandestinely removed products. All these have been summarized into Annexures-A to E enclosed to the SCN giving cross reference to Pg.Nos. File Nos. and Note book Nos. etc. As far as Annexure-A B C are concerned learned counsel for the appellants fairly submits that these have been agreed to by the officers of the company in their statements and which have not been retracted so far. This is a case of alleged clandestine removal of goods. Therefore it is unthinkable that there will be official records of the clandestine manufacture and clandestine clearance. If these were recorded they will no longer be clandestine. By their very nature unrecorded production and clearance of goods can only be found based on evidence gathered during investigation such as stock taking private records private notebooks statements of persons concerned their examination and cross-examination which will lead to conclusion whether there was a clandestine removal of goods and if so to what extent. Private note books seized from the factory under panchanama during the course of investigation and their analysis as supported by the statements of various persons in the factory form a fairly sound basis for demanding duty on such clearance. These statements can be supported by the statements of alleged recipients of the clandestinely removed goods. Such statements were recorded in this case. After a gap of eight years during cross-examination four of them have retracted their statements. However this can at best be said to be an afterthought. Any person who makes statement under duress or coercion will at the earliest opportunity retract the statement so made. The conduct of these persons does not instil confidence that they have not voluntarily given the statements. Alleged clandestine production of goods - HELD THAT - Even if the assessee is clandestinely manufacturing and removing the goods without accounting for the same in their Central Excise returns and registers duty cannot be demanded first alleging that they have clandestinely manufactured the goods and again alleging that they have clandestinely removed the same. In fact I find in the initial order of the adjudicating authority in 2002 that this set off was allowed and accordingly the demand was confirmed for a much lower amount than was indicated in the SCN. There is no quantification of the demand in this annexure. For these reasons the demand in Annexure- E is not sustainable and needs to be set aside. In conclusion the demands raised under Annexure-A B C to the SCN are upheld; demand under Annexure-D is upheld but the same needs to be set off against any demand on the ground of clandestine clearance in Annexure-A B C for the same period; demand based on the alleged clandestine production based on labour contractor reports in Annexure-E are not sustainable and are set aside. The appeals are remanded to original authority for the limited purpose - appeal allowed by way of remand.

Summary

Issues Involved:
1. Duty liability on unrecorded clearances.
2. Validity of evidence from private records and statements.
3. Cross-examination rights.
4. Calculation and confirmation of duty demands.
5. Imposition and reduction of penalties.

Detailed Analysis:

1. Duty Liability on Unrecorded Clearances:
The appellant, M/s Vishnu Chemicals Ltd (VCL), engaged in manufacturing various chemicals, was found to have a shortage of 5.060 MTs of Sodium Bichromate Mother Liquor (SBML), leading to a duty liability of Rs. 28,567/-. Further investigations revealed unrecorded clearances of goods, leading to a total duty demand of Rs. 21,91,131/-.

2. Validity of Evidence from Private Records and Statements:
The Show Cause Notice (SCN) was based on private records and statements of various individuals, including factory employees and alleged recipients of clandestinely removed goods. Statements from factory employees supported the evidence of unrecorded clearances, which were not retracted. The Tribunal upheld the validity of these records and statements as substantial evidence for demanding duty on clandestine removals.

3. Cross-Examination Rights:
The appellants were initially denied cross-examination, but the Tribunal remanded the matter, directing the adjudicating authority to allow cross-examination. Following this, cross-examinations were conducted, and some individuals retracted their statements. However, the Tribunal considered these retractions as afterthoughts, given the significant delay in retracting.

4. Calculation and Confirmation of Duty Demands:
The SCN detailed various annexures summarizing the duty demands:
- Annexure-A: Rs. 2,16,007/- for excess SBML clearances.
- Annexure-B: Rs. 3,87,351/- for SB clearances disguised as YSS.
- Annexure-C: Rs. 1,36,750/- for BCS clearances without payment of duty.
- Annexure-D: Rs. 1,52,824/- for differential quantities based on private notebooks.
- Annexure-E: Rs. 12,69,832/- based on labour contractor reports, which was not upheld due to lack of clear evidence.

The Tribunal upheld the demands in Annexures A, B, and C, and confirmed the demand in Annexure-D, but allowed a set-off against the demands in Annexures A, B, and C for the same period. The demand in Annexure-E was set aside due to insufficient evidence.

5. Imposition and Reduction of Penalties:
Penalties were initially imposed under various rules:
- Equal to the duty amount under section 11AC on VCL.
- Rs. 10,00,000/- under Rule 173Q on VCL.
- Rs. 1,00,000/- under Rule 209A on the Managing Director.
- Rs. 10,000/- on the Marketing Manager.
- Rs. 5,000/- on the Central Excise Incharge.

Considering the reduction in the duty demand, the Tribunal recalculated and reduced the penalties:
- Penalty under Rule 173Q on VCL reduced to Rs. 2,00,000/-.
- Penalty on the Managing Director reduced to Rs. 50,000/-.
- Penalty on the Marketing Manager reduced to Rs. 8,000/-.
- Penalty on the Central Excise Incharge reduced to Rs. 2,000/-.

Conclusion:
The appeals were remanded to the original authority for recalculating the duty and penalties as per the Tribunal's directions. The demand on shortage of SBML and the demands under Annexures A, B, and C were upheld, while the demand under Annexure-E was set aside. The penalties were significantly reduced in line with the revised duty demands.