2005 (1) TMI 302 - AT - Central Excise

Demand - Clandestine production and removal of coated cotton fabrics without payment of duty - Penalty - HELD THAT - The charge of clandestine removal is sought to be established on the basis of private records whose authenticity is doubted by the appellant. No doubt private records throw some light on the activities of the appellant unit but to sustain the charge of clandestine production and removal revenue should have unearthed corroborative evidences. In this case unfortunately there is no corroborative evidence at all to sustain the charge that the appellants cleared goods for the period from 11/97 to 11/98. In the following case laws it has been held that clandestine production and removal cannot be sustained merely on the basis of private documents seized without any corroborative evidences. The quantity of purported clandestine production and clearance has been arrived at on certain assumptions and presumptions. Moreover the authors of the private documents have not been cross-examined. There is no evidence of excess consumption of electricity. There is also no evidence of unaccounted purchase of raw materials. The revenue has not unearthed any evidence regarding the buyers of the so called unaccounted goods. Thus we have no other option but to allow the appeals. Since the demand of Rs. 46, 893/- is accepted we confirm that part of the OIO demanding the above amount being Modvat on inputs claimed. All the other demands of duty penalty fine and interest are set aside in view of our findings.

Summary

Issues Involved:
The issues involved in the judgment are clandestine production and removal of coated cotton fabrics without payment of duty, duty confirmation, penalties imposed under various sections, fine imposed, and the authenticity of private records used as evidence.

Clandestine Production and Removal of Coated Cotton Fabrics:
The Revenue proceeded against the appellants for clandestine production and removal of coated cotton fabrics without payment of duty. The appellants, manufacturers of coated cotton fabrics, purchased yarn and sent it to job workers for conversion into fabric. The fabric received underwent a coating process using chemicals and release paper before being cleared to dealers in various cities on duty payment. The investigation revealed the recovery of private records, including a Register numbered '12F' and slips numbered '13F,' suspected by the appellants to be planted. Seizures were made from dealers in Hyderabad, Chennai, and Delhi, leading to the issuance of show cause notices culminating in the impugned Order-In-Original (OIO) dated 2-8-2001.

Authenticity of Private Records:
The demand of Rs. 29,48,441/- was based on document '13F,' recovered by the Department, which allegedly indicated total quantities of coated cotton fabric cleared by the appellants to a dealer. The appellants raised doubts regarding the genuineness of '13F' and the credibility of its writer, Shri T. Balakrishna Rao. Lack of corroborative evidence, such as unaccounted fabric or yarn, excess consumption of electricity, or irregular payments, led to challenges in sustaining the demand. Similarly, the demand of Rs. 5,95,776/- based on document '12F' for the period from December 1997 to March 1998 was questioned due to lack of cross-examination of the author, Shri V.V. Damodaran, and incomplete production details in the notebook. Despite conceding to certain demands, the appellants argued for setting aside the entire demand, penalties, fines, and interest.

Judgment and Conclusion:
After careful consideration of the case records, the Tribunal found insufficient corroborative evidence to support the charge of clandestine production and removal based solely on private records. Citing various case laws, the Tribunal emphasized the need for corroborative evidence in such cases. The assumptions and presumptions made in estimating clandestine production lacked substantial evidence, especially with unexamined authors of private documents and absence of proof of excess consumption or unaccounted purchases. Consequently, the appeals were allowed, except for confirming the demand of Rs. 46,893/- as Modvat on inputs claimed. All other duty demands, penalties, fines, and interests were set aside based on the findings.