2003 (11) TMI 188 - AT - Central Excise

Appeal - Demand - Clandestine removal of processed fabrics without payment of central excise duty - Evidence and statements - HELD THAT - In the impugned order, there is also a reference to 2 hundies against which the customer has stated that he has not received the goods and he admitted that hundies have been signed in respect of sale bills presented by the Bank as these were only accommodation bills and that they have not made any payment against these bills to the Bank. Even the Bank Manager states that they had not received payment but he further stated that since hundies had been accepted by the consignee party, the goods covered by the outstanding bills should have been received by the consignee as normally acceptance of hundies is given only after they receive the goods. This is merely an interpretation of the Bank Manager of the transactions. However, there is clear admission of the party (appellants) that no payment has been received and admission also of the customers that no goods has been received. Hence there cannot be any duty liability based on the hundies in question. While we agree that the department is not to prove the case with mathematical precision, it has to make out a case at least on the basis of preponderance of probabilities . As analysised by us above, the figures of evasion as alleged in the show cause notice suggest that illicit manufacture and clandestine removal were far in excess than legally recorded production and clearances (1 Sq. Mtr. legal 4 Sq. Mtrs. illegal). Probability of detection of such a massive evasion, if it were to be happening for over the years, would have been certain and yet the fact is that in none of the 640 surprise visits to the manufacturing premises, even a single Sq. Mtrs. of excess finished goods or raw material has been found or any transportation of clandestine nature noticed. The collected evidence cannot be considered even of a circumstantial nature . The law in respect of acceptance of circumstantial evidence is very clear. The circumstantial evidence must be of a conclusive nature and cannot be capable of duality and form a complete chain so as to rule out all probabilities and lead to an inescapable conclusion. The analysis we have made out clearly rules out the probability of existence of alleged evasion. Therefore, we have no hesitation in holding that, the allegations in the show cause notice are baseless. Accordingly, we hold that the impugned order is not sustainable and the same is, therefore, set aside. The appeals of the appellants are allowed with consequential relief in accordance with law.

Summary

Issues Involved:
1. Allegations of clandestine removal of processed fabrics without payment of central excise duty.
2. Validity of evidence and statements used to support the allegations.
3. Applicability of Chapter Note 4 u/s Chapter 60 of the Central Excise Tariff.
4. Manufacturing capacity and capability of the appellants.
5. Reliability of surprise checks and inspections conducted by the department.
6. Legal standards for proving clandestine removal and evasion of duty.

Summary:

1. Allegations of Clandestine Removal:
The Commissioner confirmed duty demands and imposed penalties on various appellants for allegedly removing large quantities of processed fabrics without paying central excise duty. The allegations were based on documentary evidence from searches at customers' premises and statements from buyers claiming to have purchased processed fabrics from the appellants.

2. Validity of Evidence and Statements:
The appellants argued that the bills collected did not pertain to processed fabrics but to trading activities of unprocessed fabrics. They also contended that the persons who gave statements against them were not made available for cross-examination, rendering the statements unreliable. The Tribunal noted that no unaccounted printed and knitted fabrics were found during raids, and the statements lacked evidential value without corroborative evidence.

3. Applicability of Chapter Note 4 u/s Chapter 60:
The appellants relied on Chapter Note 4, effective from 16-3-1995, which deemed the processing of knitted fabric as manufacturing, subject to excise duty. They argued that duty could not be collected on processed knitted fabrics allegedly cleared clandestinely before this date. The Tribunal rejected this plea, noting that the appellants had paid duty during the relevant period without raising any protest.

4. Manufacturing Capacity and Capability:
The appellants claimed that their manufacturing units did not have the capacity to produce the alleged excess quantities. They provided a Chartered Engineer's certificate to support this claim. The Tribunal found that the department's allegations of massive evasion were not supported by any seizure of excess raw materials or finished goods.

5. Reliability of Surprise Checks:
The appellants highlighted that their factories were subjected to 640 surprise checks, none of which revealed any irregularities. The Tribunal noted that the department's version of massive clandestine removal was improbable, given the absence of detection during numerous inspections.

6. Legal Standards for Proving Evasion:
The Tribunal emphasized that while the department is not required to prove its case with mathematical precision, it must establish a case based on the "preponderance of probabilities." The Tribunal found that the evidence presented by the department did not meet this standard. The circumstantial evidence was not conclusive and did not form a complete chain to rule out all probabilities of legal transactions.

Conclusion:
The Tribunal set aside the impugned order, holding that the allegations in the show cause notice were baseless. The appeals of the appellants were allowed with consequential relief in accordance with law.