2004 (10) TMI 126 - AT - Central Excise

Manufacture and Clandestine removal of excisable goods without payment of duty - Demand - Statements and their admissibility - Cross-examination of witnesses - Documentary evidence - HELD THAT - The finding of the Commissioner that Shri Siddharth Rattan and Amit Shah had appeared on 9-3-1999 and as Advocate for appellants did not appear on that day and as such full opportunity had been extended to the appellants for cross-examination is without any substance. The Advocate for the appellant had sought adjournment as he had to appear before the Appellate Tribunal in a number of cases. There is no rebuttal of the factual position by the Revenue. Moreover the Adjudicating Authority himself has called the witnesses again for cross-examination on 5-10-2000 which is evident from the letter dated 11-9-2000 intimating the date of personal hearing to the appellants. Further only two persons had appeared on 9-3-1999 and not all the persons whose statements have been relied upon by the Department. In view of these facts and circumstances the Revenue cannot claim that the appellants have been given full opportunity to cross-examine the witnesses. Accordingly the statements of these persons cannot be relied upon against the appellants. There was no evidence of any transporters and/or buyers of the appellants to show that they had received any non-duty finished goods from the appellants; there is no evidence to show there was any unaccounted cash at their premises/depot; no evidence that there was any excess stock of main raw materials for manufacture of their finished products. It is settled law that whenever the charge of clandestine removal is made the Revenue has to prove that the assessee has procured all the raw materials required for the manufacture of final product. In the present matter Revenue has not adduced any evidence to show that the appellants had procured any raw materials in excess of the quantities mentioned in their records. This is evident from the show cause notice itself wherein it is mentioned in para 2 that the officers verified the stock of finished goods however no variation was noticed. The charge of clandestine removal of the goods has to be established by Department by adducing tangible acceptable cogent and convincing evidence as held by the Tribunal in the case of Emmtex Synthetics Ltd. v. CCE 2002 (9) TMI 182 - CEGAT NEW DELHI . Similarly no inference could be legally drawn against the appellants of having manufactured textured yarn out of the said polyester yarn and the clearance thereof in a clandestine manner without the payment of duty. The surmise and conjectures cannot take place of legal proof. As no investigation has been conducted by the Revenue in respect of main raw materials essential for the production of their final products mere fact that the laminates clandestinely cleared by M/s. Sharp Industries Ltd. bore their brand name is not sufficient to establish that the appellants had manufactured their final products clandestinely and removed the same without payment of duty. We also observe that no evidence regarding the removal of the final products said to have been manufactured clandestinely has been brought on record. We therefore set aside the impugned order and allow both the appeals.

Summary

Issues Involved:
1. Manufacture and clearance of excisable goods without payment of duty.
2. Seizure of unaccounted laminates and raw materials.
3. Reliance on statements of third parties without cross-examination.
4. Allegations of clandestine removal based on circumstantial evidence.

Summary:

1. Manufacture and Clearance of Excisable Goods Without Payment of Duty:
The appellants, M/s. Jagatpal Prem Chand Ltd., were accused of manufacturing and clearing Pan Masala and Gutkha without paying duty. The Department's investigation began based on information that M/s. Sharp Industries Ltd. supplied non-duty paid laminates to fictitious entities allegedly used by the appellants for manufacturing and clearing goods without payment of duty. The Commissioner confirmed the demand of duty and imposed penalties based on findings that included the appellants' failure to cross-examine key witnesses and the use of laminates carrying the appellants' brand names.

2. Seizure of Unaccounted Laminates and Raw Materials:
During a search on 2-8-1994, duty-paid laminates found at the appellants' premises were seized on the grounds of being unaccounted for. The appellants argued that their practice was to enter the laminates in the R.G.23A register and issue the entire stock on the same day due to space constraints, a practice known to the Department since the introduction of Modvat. The appellants also contended that no excess raw materials or incriminating documents were found at their premises.

3. Reliance on Statements of Third Parties Without Cross-Examination:
The appellants contended that the case against them was primarily based on statements from employees of Sharp Industries, which were not tested by cross-examination. Only two witnesses appeared for cross-examination, and their statements did not support the Department's allegations. The Tribunal emphasized that duty liability cannot be imposed based on statements without cross-examination, citing several decisions supporting this principle.

4. Allegations of Clandestine Removal Based on Circumstantial Evidence:
The Department relied on circumstantial evidence, including statements from transporters and employees of Sharp Industries, to allege that non-duty paid laminates were used by the appellants for manufacturing and clearing goods clandestinely. However, the Tribunal found that the Department failed to provide tangible, acceptable, cogent, and convincing evidence to support the charge of clandestine removal. The Tribunal noted that no excess stock of finished goods or main raw materials was found, and no evidence of unaccounted cash or transport documents supporting clandestine removal was presented.

Conclusion:
The Tribunal set aside the impugned order, finding that the Department did not establish the charge of clandestine removal with sufficient evidence. The appeals were allowed, and the penalties imposed were overturned.