2020 (1) TMI 997 - AT - Central Excise

SSI exemption - use of brand name of others - demand has been made against M/s JSFPL on the ground that they have shown their own clearances as being manufactured and cleared by other units as well as sold own manufactured goods under resale invoices by showing the same as traded goods - reliance placed upon the statements of partners/proprietors of units and statement of director of M/s JSFPL. HELD THAT - The Appellant during adjudication proceedings have contended that all the partners/ proprietors cannot read/ write English being only 7th or 9 th standard pass in vernacular language and even signed the statements in Gujarati Language. Thus in view of the fact that the evidences found during search are just contrary to the allegations, no adverse inferences can be drawn against Appellant and its associate manufacturing unit. When against the actual situation of associate concerns engaged in manufacturing furniture was manifest from the panchnamas and the show cause notice relied upon the statements to allege otherwise, the adjudicating authority should have allowed the cross examination - when the Appellant unit has not been granted the opportunity to cross examination of persons whose statements have been relied upon to make allegation against the Appellant, the demand cannot be confirmed based upon such statements. Only on the basis of statement without any corroborative evidence, no allegation can be made against the Appellant. It is undisputed fact that the Appellant unit was doing trading of goods also and even if assumed that the goods were delivered to their firm, it cannot be said that the goods so delivered were manufactured by M/s JSFPL. Even Shri Hemnani in his statement has not stated that the said furniture was manufactured by M/s JSFPL. Thus the statement of Shri Hemnani cannot be made ground to hold that M/s JSFPL has cleared goods manufactured by them under the cover of estimate chits - as long as the associate units were found to be engaged in manufacturing of furniture, it cannot be said that the said furniture was manufactured by M/s JSFPL. In such case when the demand has been issued by overlooking the actual facts cannot be permitted to sustain. The charges against M/s JSFPL of removing goods without payment of duty are not sustainable - the demand and penalty imposed against M/s JSFPL set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged evasion of central excise duty by M/s JSFPL and its associate firms.
2. Validity of statements recorded and reliance on them without corroborative evidence.
3. Denial of cross-examination of witnesses.
4. Capacity and capability of M/s JSFPL to manufacture the alleged goods.
5. Legitimacy of the demand based on data retrieved from seized pen drives and computers.
6. Applicability of penalties under Section 11AC and Rule 26 of Central Excise Rules, 2002.

Detailed Analysis:

1. Alleged Evasion of Central Excise Duty:
The primary allegation against M/s Jalaram Steel Furniture Pvt. Ltd. (JSFPL) was that they cleared goods under the brand name "Jalaram" without paying central excise duty, by showing their own manufactured goods as traded items. The investigation included searches at various premises, seizure of documents, and recording of statements. The Commissioner confirmed the demand of ?1,64,42,851/- along with interest and penalties.

2. Validity of Statements Recorded:
The appellants argued that the statements of partners and proprietors of the associate firms were recorded under duress and without corroborative evidence. The Tribunal noted that many statements were recorded in English, while the individuals were not proficient in the language, suggesting the statements were not voluntary. The Tribunal emphasized that statements alone, without supporting evidence, cannot substantiate the allegations.

3. Denial of Cross-Examination:
The Tribunal highlighted that the adjudicating authority did not allow the cross-examination of the individuals whose statements were relied upon. This was deemed a significant procedural lapse, as cross-examination is crucial for ensuring the reliability of the statements. The Tribunal cited precedents where the denial of cross-examination led to the dismissal of similar cases.

4. Capacity and Capability of M/s JSFPL:
Evidence presented by the appellants included photographs of machinery, audited balance sheets, wage registers, and certificates from chartered engineers indicating that M/s JSFPL did not have the capacity to manufacture the alleged quantity of goods, particularly wooden furniture. The Tribunal found that the evidence supported the claim that M/s JSFPL was engaged in trading activities and not manufacturing the disputed items.

5. Legitimacy of Demand Based on Seized Data:
The demand was partly based on data retrieved from pen drives and computers seized during the search. The Tribunal found that the data alone, without corroborative evidence such as excess raw material purchases or dispatch records, was insufficient to prove the allegations. The Tribunal noted that the appellants were engaged in trading activities and the data could pertain to traded goods.

6. Applicability of Penalties:
Since the Tribunal set aside the demand of duty against M/s JSFPL, the penalties under Section 11AC and Rule 26 of the Central Excise Rules, 2002, were also set aside. The Tribunal ruled that the penalties were not sustainable as the primary demand itself was not upheld.

Conclusion:
The Tribunal concluded that the charges against M/s JSFPL of removing goods without payment of duty were not sustainable due to the lack of corroborative evidence and procedural lapses, such as the denial of cross-examination. Consequently, the demand and penalties imposed against M/s JSFPL and the co-appellants were set aside. The Revenue's appeal was also dismissed as it was consequential to the confirmation of the demand, which was not upheld. The appeals were allowed with consequential reliefs in accordance with the law.