2024 (10) TMI 47 - AT - Central Excise

Clandestine clearances of their finished products - Copper wire/ bare Copper wire -Shortage of goods - demand solely on the basis of the statement of transporters and buyers without providing the opportunity of cross examination and having disregard to the Section 9D of the Central Excise Act 1944 - violation of principles of natural justice - HELD THAT - It is found that the case of the department against the Appellant is that appellant had received inputs without payment of duty and after processing it sold their excisable goods without payment of duty clandestinely without preparation of Central Excise invoices and without accounting the same in daily stock account and without showing the same in their periodical returns from time to time. Revenue in support of above allegation relied upon the statements of Shri Sushil Kumar Agarwal proprietor of M/s. Shivani Metals and M/s. Somain Enterprises Shri Pankaj Agarwal power of attorney Holder of M/s. Shivani Metals and Somian Enterprises Shri Bupendra G. Patel factory manager of M/s Shivani Metal and various buyers and transporter. The entire proceedings have been initiated on the basis of statements of above persons. The appellants have pleaded that the only opportunity of cross-examination of 3 person i.e. Shri Dwarkanath Khajuria Shri Lal Bahdur Yadav and Shri Krishna Kumar (Transporters) was provided but the said witness did not appear. It is the case of the appellant that demand of duty has been confirmed by the Ld. adjudicating authority on the basis of the statements of transporters and other persons whose cross-examination have not been allowed. No other corroborative evidence is available on record but the statements which too have not been allowed to be examined. The reasons assigned by the authorities below to reject cross-examination is clearly unsustainable in legal parlance for the obvious reason that no adverse inference can be drawn against assessee whose statements are to be relied by the Revenue without ascertaining the veracity in the absence of cross-examination. Therefore the said statements cannot be relied upon as admissible evidence in terms of the provisions of Section 9D of the Act. It is also found that the allegation against the appellant in present matter is that they have procured unaccounted raw materials and cleared illicitly the clandestine manufactured finished goods without payment of duty however in the present matter no efforts were made by the Revenue to reveal the truth by examining the manufacturing process to ascertain the raw material consumed and resulted output. Further no raw material supplier was produced by the revenue in the present matter. Therefore the charge of clandestine removal of goods is not sustainable against the appellant. As regard the demand of central excise duty of Rs. 60, 789/- on the goods 2305.430 Kg. found short during the search and admitted by the staff Shri Bhupendra G Patel we find that the admission of shortage by the staff does not conclusively establish the charges of clandestine removal of goods. It is further found that there is no other corroborative evidence brought on record with respect to the allegation of clandestine removal of said goods which is a serious charge and has to be proved beyond doubt as held by the Hon ble High Court in the case of M/S. CONTINENTAL CEMENT COMPANY VERSUS UNION OF INDIA OTHERS 2014 (9) TMI 243 - ALLAHABAD HIGH COURT and COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX LUDHIANA VERSUS M/S ANAND FOUNDERS AND ENGINEERS 2015 (11) TMI 1166 - PUNJAB HARYANA HIGH COURT . The charge of clandestine removal against the appellant could not be established by the revenue beyond doubt. Therefore the impugned order is not sustainable - the impugned order is set aside - Appeal allowed.

Summary

Issues Involved:

1. Allegation of clandestine clearance of finished goods without payment of Central Excise Duty.
2. Demand of Central Excise Duty based on statements without cross-examination.
3. Retracted statements and their admissibility.
4. Jurisdictional issues regarding the demand against M/s. Somain Enterprises.
5. Demand of Central Excise Duty on goods found short during the search.
6. Imposition of penalties under Rule 26 of the Central Excise Rules, 2002.

Detailed Analysis:

1. Allegation of Clandestine Clearance of Finished Goods:

The primary issue revolves around the allegation that the Appellant, engaged in the manufacture of Copper Wire and bare Copper wire, cleared their finished products clandestinely without paying Central Excise Duty. The investigation revealed that the Appellant allegedly cleared goods worth Rs. 1,46,85,771/- without payment of duty. During a search, a shortage of finished goods amounting to 2305.430 Kgs was found, leading to an additional duty liability of Rs. 60,789/-. The demand was confirmed by the Commissioner along with interest, penalty, and fine.

2. Demand Based on Statements Without Cross-Examination:

The Appellant contended that the demand was based on statements from transporters and buyers, but cross-examination of these individuals was not allowed, violating principles of natural justice. The Commissioner provided the opportunity for cross-examination of only three transporters, who did not appear on the scheduled dates. The Tribunal emphasized that without cross-examination, the statements could not be relied upon as admissible evidence under Section 9D of the Central Excise Act, 1944.

3. Retracted Statements and Their Admissibility:

The Appellant argued that the statements of key individuals, including the proprietor and Power of Attorney Holder, were retracted shortly after being made. The Tribunal noted that the adjudicating authority failed to address these retractions adequately. The burden of proving that the confessions were voluntary lies with the department, and the Tribunal found that the department did not meet this burden. Consequently, the retracted statements were not considered reliable evidence.

4. Jurisdictional Issues Regarding Demand Against M/s. Somain Enterprises:

The Appellant also argued that the demand against M/s. Shivani Metals was based on documents pertaining to M/s. Somain Enterprises, over which the Commissioner, Vapi, did not have jurisdiction. The Tribunal did not delve deeply into this issue, as the primary focus was on the admissibility of evidence and the principles of natural justice.

5. Demand on Goods Found Short During Search:

Regarding the duty demand of Rs. 60,789/- for goods found short during the search, the Tribunal found that the admission of shortage by the staff did not conclusively establish clandestine removal. There was no corroborative evidence to support the charge, and the Tribunal held that such serious allegations must be proven beyond doubt.

6. Imposition of Penalties Under Rule 26 of the Central Excise Rules, 2002:

Given that the primary demand was not sustainable, the penalties imposed under Rule 26 on co-appellants were also deemed unsustainable. The Tribunal emphasized that penalties could not be imposed when the foundational demand itself was not established.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeals with consequential relief. The judgment underscored the importance of adhering to principles of natural justice, particularly the right to cross-examine witnesses whose statements are relied upon by the department. The Tribunal also highlighted the necessity of corroborative evidence to support serious allegations of clandestine removal.