2023 (7) TMI 1112 - AT - Central Excise

Seeking to recover CENVAT Credit fraudulently availed by the appellant - allegation is that goods were removed from the appellant No.1 on job-work challans and sold in the open market - Third party documents sufficient evidence or not - Documentary proof of correctness of quantification - Charge made on assumptions and presumptions - Apprehension can take place of evidence or not - cross examination not allowed (violation of principles of natural justice or not) - violation of provisions of Section 9D of the Central Excise Act 1944 - Penalty on Director of Company. The main contention of the appellants is that the allegations in the show cause notice are mainly based upon statements of the persons stray and partial un-official records. HELD THAT - The Counsel for appellant No.1 submits that the Department has built up the case on the basis of the raw material purchased by the appellant No.1 from M/s GAIL which was found in the premises of R.K. Trading Company; on this basis it was alleged that the appellant No.1 has diverted the prime purchase from M/s GAIL and purchased seconds material from open market and availed CENVAT credit fraudulently on the strength of invoices issued by M/s GAIL; however the Department has not bothered to compare the Batch/ Lot numbers of the raw materials; the Batch/ Lot numbers of the materials seized from M/s/ R.K. Trading do not match with that of the material purchased from M/s GAIL and therefore the entire argument of the Department falls flat. The appellants also contend that a show cause notice has been issued to M/s R.K. Trading (Appeal No. E/1159/2008) on the same set of investigation and has been dropped by the Adjudicating Authority and the Department has accepted the said order by not preferring to make any further appeal. Under the circumstances it is not open for the Department to substantiate a case against the appellants on the same set of evidence. The Department has also not considered the fact that the appellant No.1 have been supplying the material to telecom companies which have high quality standards; Department has also ignored the fact that a representative of the telecom companies was always present in the premises of the appellant No.1 to supervise the quality of production. It was not possible for the appellant No.1 to produce the sheathing compound required by the telecom companies using low standard raw material. During the course of arguments learned Counsel for the appellants submits that the statement of Shri Ajay Kumar operator of M/s Ajay Plastics India dated 10.01.2002 was relied upon and requests for cross-examination of Shri Ajay Kumar was not granted; this is in clear violation of the provisions of Section 9D of Central Excise Act 1944 - However it is found that there is no finding given in the impugned order regarding the request for cross-examination and as to why the same has been denied. Hon ble Punjab Haryana High Court observed in the case of M/S JINDAL DRUGS PVT. LTD. AND ANOTHER VERSUS UNION OF INDIA AND ANOTHER 2016 (6) TMI 956 - PUNJAB HARYANA HIGH COURT that (i) after the person whose statement has already been recorded before a Gazetted Central Excise Officer is examined as a witness before the adjudicating authority and (ii) the adjudicating authority arrives at a conclusion for reasons to be recorded in writing that the statement deserves to be admitted in evidence that the question of offering the witness to the assessee for cross-examination can arise. Hon ble Supreme Court in the case of ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE KOLKATA-II 2015 (10) TMI 442 - SUPREME COURT held that it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. With due difference to the Hon ble Supreme Court and Hon ble High Court of (Punjab Haryana) it is found that not allowing the cross-examination of key witnesses vitiates the proceedings even under the quasi-judicial proceedings. Therefore as requested by the learned Counsel for the appellants we are inclined to accept the contention and the request of learned Counsel for the appellants that the interest of justice would be properly served if the case goes back to the Adjudicating Authority to adjudicate the case afresh after giving the opportunity to the appellants to cross-examine the key witnesses whose statements have been relied upon by the impugned order. Matter remanded to the Adjudicating Authority for a fresh re-consideration of the issue involved after duly allowing the appellant No.1 to cross-examine key witnesses Shri Parmeshwar Lal Sharma Munim of M/s R.K Trading and Shri Ajay Kumar operator of M/s Ajay Plastics India - appeal allowed by way of remand.

Summary

Issues Involved:
1. Confiscation of seized goods.
2. Recovery of CENVAT credit.
3. Imposition of penalties on the appellant and associated parties.
4. Allegations of fraudulent availment of CENVAT credit.
5. Violation of principles of natural justice.

Summary of Judgment:

Confiscation of Seized Goods:
The Adjudicating Authority confiscated seized goods valued at Rs.55,46,830 under Rule 25 (1) (b) of Central Excise Rules, 2001, read with Rule 13 of CENVAT Credit Rules, 2001. The goods were permitted to be redeemed on payment of a redemption fine of Rs.5 Lakhs. Additionally, a penalty of Rs.10 Lakhs was imposed on the appellant.

Recovery of CENVAT Credit:
The authority ordered the recovery of CENVAT credit amounting to Rs.55,29,455 under Section 11A of the Central Excise Act, 1944, read with Rule 57AH (1) of Central Excise Rules, 1944, and Rule 12 of CENVAT Credit Rules, 2001/2002, along with interest from the appellant.

Imposition of Penalties:
Equal penalties were imposed on the appellant under Section 11AC of the Central Excise Act, 1944, read with Rule 57AH (2), Rule 173Q of Central Excise Rules, 1944, Rule 13(2) of CENVAT Credit Rules, 2001/2002, and Rule 25 of Central Excise Rules, 2001/2002. Additionally, penalties of Rs.10 Lakhs each were imposed on Shri Anil Kumar Tibrewala, Director of the appellant, and R.K. Trading Company.

Allegations of Fraudulent Availment of CENVAT Credit:
The Department alleged that the appellant diverted plastic granules purchased from M/s GAIL through M/s R.K. Trading Company and fraudulently availed CENVAT credit. The appellant argued that the Department's case was based on statements and non-correlated documents, and that the seized goods' batch numbers did not match those issued by M/s GAIL. The appellant also contended that the Department failed to provide evidence to support its allegations and did not allow cross-examination of key witnesses, violating principles of natural justice.

Violation of Principles of Natural Justice:
The Tribunal found that the Department violated the principles of natural justice by not allowing the cross-examination of key witnesses, which is a serious flaw that nullifies the order. The Tribunal cited various case laws, including the Supreme Court's decision in Andaman Timber Industries, emphasizing the necessity of cross-examination to ensure fair proceedings.

Conclusion:
The Tribunal set aside the impugned order and remanded the case back to the Adjudicating Authority for fresh consideration. The Adjudicating Authority was directed to allow the appellant to cross-examine key witnesses and decide the case within sixteen weeks. The Tribunal did not express any opinion on the merits of the case.