2024 (5) TMI 1051 - AT - Central Excise

Clandestine removal - demand based on the finding that weight of physical stock of grey fabrics ( finished goods) less than the weight recorded - clandestinely removal of duty free raw material by manufacturing and clearing grey fabric (finish goods) showing the excess weight than the actual weight of grey fabrics - invocation of extended period of limitation - confiscation - levy of redemption fine and penalty - Cross-examination of witnesses - admissible evidences or not - violation of principles of natural justice. Principles of natural justice - HELD THAT - It is found that in this matter earlier the matter was remanded by this Tribunal vide order dated 26.11.2014 with a direction to comply with the principles of Natural Justice. In the remand proceedings the appellant have specifically requested for cross-examination of the witnesses who have given the statements including the 3 buyers of the alleged clandestinely purchased goods. However, Learned Adjudicating Authority has not granted the cross examination. Cross-examination of witnesses - admissible evidences or not - HELD THAT - From the statutory provision of Section 9D, it is settled that the statements which have not passed the test of examination-in-chief and/ or cross-examination of witnesses, are not admissible in evidence. Therefore, the case based on the statements will not stand. As regard other evidence that there is a difference in weight since, it is also based on statement, the allegation majority stand diluted on this account also. Demand based on the finding that weight of physical stock of grey fabrics ( finished goods) less by 7156.720 Kgs since the recorded stock was 13257 Kgs admeasuring 66426 linear meters - HELD THAT - It is admitted fact that there is no difference in the length of the fabrics. Moreover, the officer also found that even length in linear meter matching there is different recorded weight of 6100 Kgs. In this position, the allegation is clearly based on assumption that 7156.720 Kgs of raw material (PFY) used in these finished goods ( grey fabrics) was removed clandestinely - the weight of the finished goods (grey fabric) cannot be assumed or counted to be the same as the imported raw material PFY to allege such illicit removal of PFY. Admittedly the raw material used in manufacturing process would be much less than weight of finished goods. Hence mererly by taking statements which are not admissible, the clandestine removal is not established - there is no evidence that due to difference in weight as stated by these buyers whose statements have already been discarded, there is no financial flow on this account. This further reinforced that the buyer s statements are not correct. It is found that the department could not establish clandestinely removal of goods. Therefore, the entire demands including penalties are not sustainable - appeal allowed.

Summary

Issues Involved:
1. Demand of Customs Duty u/s 72 read with proviso to sub-section (1) of section 28 of Customs Act, 1962.
2. Demand of Central Excise Duty u/s 3 of CEA 1944 / Customs Duty u/s 72 read with proviso to Section 28(1) of Customs Act, 1962.
3. Interest on evaded duty u/s 72 read with Section 28AB of Customs Act, 1962 and u/s 11AB of Central Excise Act, 1944.
4. Imposition of penalties under various sections of Central Excise Act, 1944 and Customs Act, 1962.
5. Confiscation of goods and imposition of redemption fine under Section 34 of Central Excise Act, 1944 / Section 125 of Customs Act, 1962.
6. Cross-examination of witnesses and compliance with principles of Natural Justice.

Summary:

Demand of Customs Duty:
The demand of Rs. 3,43,597/- was based on the finding that the weight of physical stock of grey fabrics was less by 7156.720 Kgs compared to the recorded stock. However, the length in linear meters matched, suggesting the allegation was based on an assumption that 7156.720 Kgs of raw material (PFY) was removed clandestinely. The Tribunal found this assumption without evidence and thus unsustainable.

Demand of Central Excise Duty:
The demands of Rs. 54,10,612/- and Rs. 2,42,867/- were based on the assumption that duty-free raw material was clandestinely removed by showing excess weight of grey fabrics in records. This was supported by statements from three buyers, who were not cross-examined, and a test report from a single lot of rejected goods. The Tribunal found these bases insufficient, emphasizing the lack of tangible evidence such as buyer identification, transportation records, or financial transactions.

Interest on Evaded Duty:
Interest demands were confirmed under Section 72 read with Section 28AB of Customs Act, 1962 and Section 11AB of Central Excise Act, 1944. However, since the primary demands were found unsustainable, the interest demands also could not stand.

Imposition of Penalties:
Penalties imposed under various sections of the Central Excise Act, 1944 and Customs Act, 1962 were based on the same assumptions and unsupported statements. Given the lack of admissible evidence, the Tribunal found the penalties unsustainable.

Confiscation of Goods and Redemption Fine:
The Tribunal found the confiscation and redemption fines imposed under Section 34 of Central Excise Act, 1944 / Section 125 of Customs Act, 1962 to be based on assumptions and lacking evidence. Hence, these orders were also set aside.

Cross-examination of Witnesses:
The Tribunal highlighted the failure to comply with Section 9D of the Central Excise Act, 1944, which mandates cross-examination of witnesses. The adjudicating authority's refusal to allow cross-examination rendered the statements inadmissible as evidence, leading to the dismissal of the case based on those statements.

Conclusion:
The Tribunal found that the department could not establish the clandestine removal of goods. Therefore, the entire demands, including penalties, were not sustainable. The impugned order was set aside, and the appeals were allowed. The issue of limitation was left open as the case was decided on merits.