2022 (12) TMI 773 - HC - Central Excise

Clandestine Removal - inputs/raw materials as defined under Rule 9(5) of the CENVAT Credit Rules, 2004 - cross-examination of third party witnesses - respondents could not satisfactorily account for the transportation/receipt of such inputs/raw materials to their premises - violation of Section 9D of Central Excise Act - whether there is a vested right on the respondent to seek for cross examination of any of the third party witnesses? - extended period of limitation - HELD THAT - The issue has been well settled and is no longer res integra. The statement recorded from the Director of the respondent is admissible in evidence and the provisions of Section 164 of the Criminal Procedure Code are not applicable. Further it has been held that a confession statement made before the Customs Officer though retracted within the period of 6 days is an admission and binding since the customs officers are not police officers, and also as could be seen from the language of Section 108 of the Customs Act. Further, under the scheme of the Act the right to cross examination is not absolute and denial of cross examination was held to be valid upon sound logic and if the same had been done such orders of adjudication have been upheld. Undoubtedly, the adjudicating authority is not conducting a criminal trial. The decree of proof required in such matters is preponderance of probabilities and not proof beyond the reasonable doubt. Therefore, while examining the correctness of the order of adjudication, the tribunal or the court should not apply the yardstick which a court would apply to a subordinate court which has arrived at a conclusion after a full-fledged trial. The facts of the case clearly shows that sufficient material was available with the adjudicating authority which came to the notice of the authority much later upon such operations being conducted and therefore the invocation of the extended period of limitation for initiating proceedings was fully justified. At no point of time there has been any retraction of the statements recorded under Section 108 of the Customs Act. Therefore, those statements could be relied upon and for the other reasons we have given above, we are inclined to interfere with the order passed by the learned tribunal. Appeal allowed.

Summary

Issues Involved:
1. Eligibility of CENVAT Credit on inputs/raw materials.
2. Consistency of Tribunal's findings with admitted facts.
3. Use of non-transport vehicles for raw material transportation.
4. Evidence of inward movement of raw materials.
5. Tribunal's focus on investigation lacunas.
6. Admissibility of statements recorded from responsible persons.
7. Consideration of Supreme Court judgments by the Tribunal.
8. Deletion of personal penalty on respondent No. 2.

Detailed Analysis:

1. Eligibility of CENVAT Credit on Inputs/Raw Materials:
The revenue challenged the Tribunal's decision allowing CENVAT Credit to the respondent despite the alleged inability to satisfactorily account for the transportation/receipt of inputs/raw materials. The Tribunal found no incriminating documents or discrepancies in raw materials/finished goods during the search. It also held that statements recorded under Section 14 of the Act were inadmissible without following Section 9D procedures, referencing the case of G-Tech Industries Versus Union of India.

2. Consistency of Tribunal's Findings with Admitted Facts:
The Tribunal's findings were deemed inconsistent with the admitted facts, as the adjudicating authority had relied on the Director's statements, which were never retracted. The Tribunal's reliance on procedural technicalities under Section 9D was criticized, as the respondent never raised this issue during the investigation or adjudication stages.

3. Use of Non-Transport Vehicles for Raw Material Transportation:
The Tribunal's conclusion that the vehicles used for transporting raw materials were non-transport vehicles like three-wheelers and mopeds was contested. The adjudicating authority had verified the registration details of approximately 300 vehicles and found them unsuitable for transporting raw materials, supporting the conclusion of fraudulent transactions.

4. Evidence of Inward Movement of Raw Materials:
The Tribunal was criticized for not conclusively deciding on the evidence of inward movement of raw materials. The adjudicating authority had sufficient material to establish that the suppliers were non-existent and the transactions were fraudulent. The respondent failed to authenticate the availment and utilization of CENVAT Credit.

5. Tribunal's Focus on Investigation Lacunas:
The Tribunal's focus on the alleged investigation lacunas was deemed misplaced. The adjudicating authority's role is not akin to a court of law, and the standard of proof required is preponderance of probabilities, not beyond a reasonable doubt. The Tribunal was faulted for applying a higher standard of scrutiny inappropriate for administrative adjudication.

6. Admissibility of Statements Recorded from Responsible Persons:
The Tribunal's rejection of statements recorded from the Director under Section 108 of the Customs Act was challenged. The Director's statements, which admitted the fraudulent nature of transactions, were never retracted and were admissible. The Tribunal's application of Section 9D was criticized as the issue was never raised by the respondent.

7. Consideration of Supreme Court Judgments by the Tribunal:
The Tribunal failed to consider relevant Supreme Court judgments that support the admissibility of statements recorded by Customs officers. The Tribunal's reliance on procedural technicalities was deemed erroneous, as the Director's statements were clear and unchallenged.

8. Deletion of Personal Penalty on Respondent No. 2:
The Tribunal's deletion of the personal penalty imposed on respondent No. 2 was contested. The adjudicating authority had sufficient grounds to impose the penalty based on the fraudulent nature of the transactions and the Director's admissions.

Conclusion:
The High Court allowed the revenue's appeal, setting aside the Tribunal's order and restoring the adjudicating authority's decision. The substantial questions of law were answered in favor of the revenue, emphasizing the admissibility of un-retracted statements and the sufficiency of evidence supporting the fraudulent nature of the transactions.