2023 (8) TMI 55 - AT - Central Excise

Principles of Natural Justice - demand confirmed merely on the basis of statements of witnesses without the same being corroborated with documentary evidence - opportunity for cross-examination not provided - levy of penalty u/r 209A of Central Excise Rules, 1944 and Rule 173Q of Central Excise Rules, 1944 - HELD THAT - Admittedly it is second round of litigation before this Tribunal and in the first round of litigation vide order dated 11.08.1998 matter was remanded back to the original authority with a direction to provide copies of all the documents relied upon and seized by the Department and also to pass the order on merit but only few documents could be supplied to the Appellant and complete attendance of only one witness could be procured. However, learned Commissioner (Appeals) had passed his order only on the basis of the documents supplied and the statement of the witness who was cross examined. On close scrutiny of the above observation made by the Commissioner, it goes without saying that (i) some of the duty demand were mistakenly made on the goods traded by the Appellant; (ii) duty was also demanded on Monitors, Key-Boards, other peripherals and data security packages; (iii) alongwith the computer system, duty was also charged on the printers though those where accessories; (iv) his ultimate observation is that confirmation of demand would require necessary scrutinisation of each invoices mentioned in the show-cause notice; (v) confirming demand solely on the basis of statement of witnesses would be inconsistent with the principle of natural justice. Going by the evidentiary value of the statement of witnesses concerning their silence during evidence, if could amount to admission, the settled position of law is that such silence can be treated as acceptance in favour of a defence primarily made under the Laws of Contract but not against a third person and can never be taken as admission of proof of guilty of another person. Furthermore, as could be observed from the Order-in-Original, denial of witness Amit Patel concerning any second sale being made by the Appellant, it can be said that the Order-in-Original is silent about his rebutting back from his statements. On the other hand, discarding the description made in the invoice as second sale on the ground that primary sale or first sale invoices were not available cannot be said to be logical in view of the fact that only scanty documents were available at the time of second adjudication and not the wholly relied upon documents referred in the show-cause notice. Therefore, it would also be erroneous to accept the argument of the learned AR that at some point of time, those documents were available for which their existence and evidentiary value could not be discarded in unacceptable proposition. The proposition available in the findings of Commissioner in absolving M/s Compac Computers from its liability would squarely made applied to the present Appellants for the reason that from the invoices copy supplied to the Appellant, that form part of the record, no sale of new computers are noticeable, to justify taxability against them. Further, it would not be out of place to record that even if taxability would have been justified, direction for payment of interest on the duty demand that was made much prior to the introduction of Section 11AB in 1996 is hit by its sub-Section 2, as was available then and also the same would be contrary to the judicial precedent set by the Tribunal and by various High Courts including in the case of SHRI UKAI PRADESH SAHKARI KHAND UDYOG MANDLI LTD. VERSUS CCE., SURAT 2009 (6) TMI 800 - CESTAT, AHMEDABAD . The order passed by the Commissioner of Central Excise, Central Excise Bhawan, 115, Maharishi Karve Marg, Mumbai-I vide Order-in-Original No. 25/MI/ 2008 dated 31.12.2008 is hereby set aside - appeal allowed.

Summary

Issues Involved:
1. Confirmation of duty demand and penalties.
2. Non-availability of documents and cross-examination of witnesses.
3. Allegation based on witness statements without corroboration.
4. Penalty imposition under Rule 209A and Rule 173Q of Central Excise Rules, 1944.
5. Retrospective application of interest under Section 11AB.

Summary:

Issue 1: Confirmation of Duty Demand and Penalties
In the second round of litigation, the confirmation of duty demand of Rs. 2,63,171/- on Fifth Generation Electro Systems Pvt. Ltd., Rs. 4,53,742/- on M/s. Midpoint Software & Electro Systems Pvt. Ltd., along with equal penalties under Rule 173Q of Central Excise Rules, and a penalty of Rs. 1,75,000/- on Shri Mehul Gandhi, Managing Director of both companies under Rule 209A of Central Excise Rules, 1944, was challenged. The duty demands were based on the assembly of computer systems for in-house use and software development purposes.

Issue 2: Non-availability of Documents and Cross-examination of Witnesses
The appellants contended that the demands were confirmed based on witness statements without corroborating documentary evidence. Despite repeated requests, the necessary documents were not provided by the department, and only partial records were received in December 2006. The appellants argued that the confirmation of demands without cross-examining key witnesses violated the principles of natural justice.

Issue 3: Allegation Based on Witness Statements Without Corroboration
The appellants relied on various judicial precedents to argue that allegations based purely on witness statements without documentary evidence are unsustainable. The Commissioner had dropped demands against another assessee, M/s. Compac Computer, due to the lack of documentary evidence but erroneously confirmed demands against the appellants.

Issue 4: Penalty Imposition Under Rule 209A and Rule 173Q of Central Excise Rules, 1944
The appellants contended that the penalty imposed under Rule 209A and Rule 173Q was unsustainable in the absence of specific grounds for confiscation and without reference to the specific sub-rule contravened. They argued that the penalty on Shri Mehul Gandhi was unjustified as there was no observation that the goods were liable for confiscation.

Issue 5: Retrospective Application of Interest Under Section 11AB
The appellants argued that the provisions for the realization of interest, introduced in 1996, could not be applied retrospectively to demands for the period 1994-95. They cited judicial decisions to support their claim that the retrospective application of interest was unsupported by statutory provisions.

Conclusion:
The Tribunal observed that the confirmation of demands based solely on witness statements without corroborating documentary evidence was inconsistent with the principles of natural justice. The Commissioner had erroneously confirmed demands against the appellants while dropping demands against M/s. Compac Computer under similar circumstances. The Tribunal set aside the order passed by the Commissioner of Central Excise, Mumbai-I, and allowed the appeals, noting that the direction for payment of interest on duty demand prior to the introduction of Section 11AB in 1996 was contrary to judicial precedents.