2023 (10) TMI 111 - AT - Central Excise

Clandestine removal - mild steel ingots - gully - risers - cross-examination sought was denied - breach of statutory mandate of section 9D of Central Excise Act, 1944 - violation of principles of natural justice - HELD THAT - It is no secret that establishing clandestine removal is easier said than done and much latitude, in the form of preponderance of probability and deducing from corroborative evidence affirming testimony in statements, is permissible in determining the outcome. However, the proceedings may not be allowed to draw upon that flexibility for discarding even the most fundamental canon of evidence. Reliance upon a statement, to the exclusion of any material facts, in a show cause notice is, in effect, examination-in-chief and credibility of the contents therein for resort to conclusion of detriment rests upon quicksand except by assertion through challenge of cross-examination ; we are unable to appreciate the notion of lack of bias in such denial that, especially in the light of section 9D of Central Excise Act, 1944, should not have occurred save with detailed justification - A case made out on statements and peripheral records must find corroboration in each other; the validity of statements lies in sustaining through cross-examination and, hence, the significance of section 9D of Central Excise Act, 1944. The request of the appellants for determination of its validity as evidence was not only ignored but the adjudicating authority proceeded to dispose off the notice without placing on record the reason for such denial. That is certainly not in consonance with the principles of natural justice or even in conformity with adherence to testing of evidence. A determination, judicial or quasi-judicial, is application of known law to established facts. The facts are not established here and the adjudication proceedings stand vitiated accordingly. In the light of sanctity of section 9D of Central Excise Act, 1994, the outcome of the notices can rest squarely on statements that comply thereon and any documents, including data repository , that are, substantially, unchallenged - The plea for cross-examination of witnesses were made before the adjudicating authority. Both were willfully and deliberately denied in breach of statutory mandate of section 9D of Central Excise Act, 1944. Nothing remains of the facts upon which the detriments in the impugned order had been erected. Consequently, the impugned order lacks authority of law. Appeal allowed.

Summary

Issues Involved:
1. Determination of clandestine clearance and penal consequences.
2. Violation of principles of natural justice.
3. Denial of cross-examination and forensic analysis.
4. Reliance on statements and informal records.
5. Adherence to Section 9D of the Central Excise Act, 1944.

Summary:

1. Determination of clandestine clearance and penal consequences:
The appellants, M/s Matsyodhari Steel & Alloy Pvt Ltd and M/s Shiv Shakti Rolling Mills Pvt Ltd, challenged the determination of clandestine clearance of 14192.265 MTs of 'mild steel ingots', 'gully' and 'risers', valued at Rs. 31,71,30,516 with penal consequences over and above duty liability of Rs. 5,15,37,265 and 13864.960 MTs of 'mild steel TMT bars', 'misrolls' and 'melting', valued at Rs. 36,27,92,630 with penal consequences over and above duty liability of Rs. 5,87,54,605 respectively.

2. Violation of principles of natural justice:
The appellants contended that the Order-in-Original No. 05-06/CEX/Comm./2012 dated 26th March 2012, passed by the Commissioner of Central Excise, Customs & Service Tax, Aurangabad, was in contravention of the principles of natural justice. They argued that there was hindrance to effective defense due to the denial of cross-examination of several persons whose testimony was relied upon in the notices.

3. Denial of cross-examination and forensic analysis:
The appellants sought cross-examination of witnesses and forensic analysis of a 'pen drive' alleged to have been seized. The cross-examination of 14 persons was permitted, but the forensic analysis request was denied. The appellants argued that the impugned order was passed ex parte without proper consideration of their requests, thereby violating natural justice principles.

4. Reliance on statements and informal records:
The Tribunal found that the impugned order relied on statements and informal records without proper cross-examination, which is not tenable. The Tribunal referenced several decisions, including Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II, and Vishnu & Co Pvt Ltd, emphasizing the importance of cross-examination to establish the credibility of statements.

5. Adherence to Section 9D of the Central Excise Act, 1944:
The Tribunal highlighted the importance of Section 9D of the Central Excise Act, 1944, which mandates that statements made during investigations must be tested through cross-examination to be admissible. The impugned order failed to comply with this requirement, leading to the exclusion of untested statements from consideration.

Conclusion:
The Tribunal concluded that the impugned order lacked authority of law due to the denial of cross-examination and forensic analysis, and the reliance on untested statements and informal records. Consequently, the appeals were allowed, and the impugned order was set aside.

(Order pronounced in the open court on 28/09/2023)