2002 (6) TMI 115 - AT - Central Excise

Issues Involved:
1. Allegations of fictitious transactions and invoices.
2. Demand of excise duty and imposition of penalties.
3. Reliability of statements and evidence.
4. Burden of proof and establishment of clandestine manufacture.
5. Cross-examination of witnesses.
6. Calculation and justification of duty demands.
7. Discrepancies in trading and manufacturing activities.

Issue-Wise Detailed Analysis:

1. Allegations of Fictitious Transactions and Invoices:
The Show Cause Notice alleged that the appellant engaged in fictitious transactions with several firms, including M/s. B.S.C., M/s. C.E., M/s. M.T.C., M/s. M.I.S., and M/s. B.T.C. These firms purportedly issued invoices without actual supply of goods, facilitating the appellant's clandestine clearance of excisable goods without payment of duty. Investigations revealed that these firms either did not exist or were not operating from their registered addresses. However, the Sales Tax Department had assessed turnovers for some of these firms, indicating actual sales, which contradicted the allegations of fictitious transactions.

2. Demand of Excise Duty and Imposition of Penalties:
The Commissioner of Central Excise demanded Rs. 85,32,259.00 in excise duty from the appellant and imposed penalties of Rs. 10,00,000.00 each on the appellant and its Managing Director. The Commissioner refrained from penalizing the 3rd and 4th Noticees despite finding that they abetted the contraventions. The duty demand was based on the assumption that the appellant's trading activities were a facade for clearing clandestinely manufactured goods.

3. Reliability of Statements and Evidence:
The Commissioner relied on statements from representatives of the alleged fictitious firms and letters from Sales Tax and Commercial Tax officials. These statements were not retracted, but the individuals were not available for cross-examination. The Tribunal found that reliance on these statements without cross-examination was improper. The Tribunal emphasized that statements from co-accused require strict corroboration and cannot be used as primary evidence if the witnesses fail to appear for cross-examination.

4. Burden of Proof and Establishment of Clandestine Manufacture:
The Tribunal held that the burden of proving clandestine manufacture and clearance lies with the Department. The Department failed to provide concrete evidence of clandestine production, such as discrepancies in raw material procurement, excess power consumption, or unaccounted input-output ratios. The Tribunal noted that the appellant maintained proper records and filed regular returns, and no evidence was presented to show that the goods sold under the trading account were actually manufactured by the appellant.

5. Cross-Examination of Witnesses:
The Tribunal criticized the Department for not allowing the cross-examination of witnesses whose statements were relied upon. It cited legal precedents that require the adjudicating authority to refrain from relying on statements if the witnesses do not appear for cross-examination. The failure to produce witnesses for cross-examination undermined the credibility of the evidence against the appellant.

6. Calculation and Justification of Duty Demands:
The Tribunal found inconsistencies in the duty calculations and the basis for the demands. The Show Cause Notice quantified sale proceeds based on alleged fictitious transactions but also acknowledged higher turnovers declared by the same firms in their Sales Tax returns. This discrepancy indicated that the trading activity was genuine and not merely a cover for clandestine manufacture. The Tribunal also noted that the Department did not dispute the appellant's production figures or input-output ratios.

7. Discrepancies in Trading and Manufacturing Activities:
The Tribunal observed that the appellant's trading and manufacturing activities were conducted separately and recognized by the Department. The appellant's records were regularly scrutinized, and no evidence of clandestine manufacture was found. The Tribunal emphasized that excise duty can only be levied on goods that are proven to be manufactured by the appellant, which was not established in this case.

Conclusion:
The Tribunal set aside the Commissioner's order, finding that the Department failed to prove clandestine manufacture and clearance of goods by the appellant. The reliance on uncorroborated statements, failure to allow cross-examination, and inconsistencies in duty calculations led to the conclusion that the duty demands and penalties were unjustified. The appeals were allowed with consequential benefits as per law.

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