2022 (10) TMI 874 - AT - Central Excise

Clandestine manufacture and removal - Flavoured Tobacco - Gutkha under brand name Patidar - evasion of Central Excise Duty - reliability of statements on which reliance placed upon - not permitting cross-examination of the witnesses sought by the appellant - infraction of principles of natural justice - confiscation - penalty - HELD THAT - A statement made and signed by a person before the Investigation Officer during the course of any inquiry or proceedings under the Act shall be relevant for the purposes of proving the truth of the facts which it contains in case other than those covered in clause (a), only when the person who made the statement is examined as witness in the case before the court (in the present case, Adjudicating Authority) and the court (Adjudicating Authority) forms an opinion that having regard to the circumstances of the case, the statement should be admitted in the evidence, in the interest of justice. The legislative scheme, therefore, is to ensure that the statement of any person which has been recorded during search and seizure operations would become relevant only when such person is examined by the adjudicating authority followed by the opinion of the adjudicating authority then the statement should be admitted. Even mere recording of statement is not enough but it has to be with full conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored - there are no hesitation to view that in the present matter Ld. Pr. Commissioner committed illegality in placing reliance upon the statements of persons which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. It is well settled law that clandestine removals cannot be arrived at based upon the confessional statement of persons only. The statements itself are not sufficient for holding so. There is catena of judgments laying down that the inculpatory statements alone cannot be made the basis for arriving at a finding of clandestine removal - Mere doubts, howsoever strong cannot take the place of evidence required to be produced by the Revenue. The onus to establish such clandestine activities, resulting in confirmation of demand is placed heavily on the Revenue and is required to be discharged by production of sufficient evidences. In the instant case, the entire case of the Revenue is based on the Kaccha Chits seized from the residential premises of Shri Kirti Finava and Shri Anil Metaliya. There is considerable force in the contention of the Appellant that the Kacha Chits relied upon by the Revenue cannot be a basis to uphold the serious charge of clandestine clearance. It is settled legal position that charge of clandestine clearance is a serious charge and the onus to prove the same is on the Revenue by adducing concrete and cogent evidence. In the absence of corroborative evidence, the issue of fact i.e. in the present case the charge of clandestine clearance cannot be levelled against the assessee - It has been consistently held that no demand of clandestine manufacture and clearance can be confirmed purely on assumptions and presumptions and the same is required to be proved by the Revenue by direct, affirmative and incontrovertible evidence. There is no justification for confiscation of the seized goods from the premises of M/s Radheshyam Transport Co, Surat. The Revenue has not produced any evidence to reveal that the said goods found from the transport s premises were cleared from the appellant s factory without payment of duty. All the goods available in the market are deemed to be duty paid, unless proved otherwise. In the absence of any evidence to the contrary, the confiscation of the goods is set aside - the demands of duty, corresponding interest and penalty, the confiscation of seized goods and seized cash are not sustainable, consequently, the imposition of penalties on all the co-appellants are also not sustainable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Denial of cross-examination of witnesses.
2. Confiscation of seized Indian currency.
3. Confiscation of goods found in factory premises.
4. Basis of duty demand on alleged clandestine removal of goods.
5. Imposition of penalties on various individuals and entities.

Issue-Wise Detailed Analysis:

1. Denial of Cross-Examination of Witnesses:
The appellants argued that the denial of cross-examination of witnesses by the adjudicating authority violated the principles of natural justice and Section 9D of the Central Excise Act, 1944. The Tribunal found that the adjudicating authority's refusal to permit cross-examination was unreasonable. It was emphasized that the statements made during the investigation should only be considered relevant if the witnesses are examined and the adjudicating authority forms an opinion that their statements should be admitted in the interest of justice. The Tribunal cited various judgments, including those from the Supreme Court and High Courts, affirming that the right to cross-examine is fundamental in quasi-judicial proceedings. Consequently, the Tribunal concluded that the reliance on statements without cross-examination was unjustified and violated the principles of natural justice.

2. Confiscation of Seized Indian Currency:
The Tribunal disagreed with the adjudicating authority's decision to confiscate the cash seized from the residential premises of Shri Anil Govindbhai Metaliya. The adjudicating authority had presumed the cash to be the sale proceeds of clandestinely removed goods. However, the Tribunal noted that there was no evidence to support this presumption, and the burden of proof lay with the Revenue. The Tribunal referenced multiple decisions, including those from the Supreme Court, which held that the onus to prove that the seized currency was the sale proceeds of clandestinely removed goods is on the Revenue. In the absence of affirmative evidence, the confiscation of the cash was deemed unsustainable, and the Tribunal ordered its release.

3. Confiscation of Goods Found in Factory Premises:
The Tribunal found that the confiscation of finished goods and packing materials from the factory premises was unjustified. The goods were still within the premises, and there was no evidence to show that they were to be cleared clandestinely. The Tribunal also noted that the panchanama proceedings were conducted in the absence of responsible personnel from the appellant's side, and the cross-examination of witnesses and panchas was not allowed. As such, the confiscation of the goods was set aside.

4. Basis of Duty Demand on Alleged Clandestine Removal of Goods:
The duty demand was based on entries in Kaccha Chits seized from the residential premises of Shri Kirti Finava and Shri Anil Metaliya, along with statements from various individuals. The Tribunal observed that the Kaccha Chits alone could not substantiate the charge of clandestine removal without corroborative evidence. The Tribunal emphasized that the burden of proof for clandestine removal lies with the Revenue and requires tangible, direct, and affirmative evidence. In this case, the statements were not corroborated by any concrete evidence such as procurement of raw materials, details of clearance, or financial transactions. The Tribunal cited several judgments underscoring that confessional statements alone are insufficient to establish clandestine removal. Therefore, the duty demand was deemed unsustainable.

5. Imposition of Penalties on Various Individuals and Entities:
Given that the duty demand and the confiscation of goods and currency were found to be unsustainable, the imposition of penalties on the appellants and co-appellants was also deemed unjustified. The Tribunal set aside the penalties imposed on all individuals and entities involved.

Conclusion:
The Tribunal concluded that the denial of cross-examination violated natural justice principles, the confiscation of cash and goods was unsupported by evidence, and the duty demand based on uncorroborated statements and Kaccha Chits was unsustainable. Consequently, the impugned order was set aside, and the appeals were allowed with consequential reliefs.

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