2024 (10) TMI 447 - AT - Central Excise

Clandestine manufacture and removal - Gutka under the brand name GOA 1000 - incorrect mention of names of buyer in the invoices - contravention of Rule 11(2) of CER - denial of cross-examination of witnesses by the Commissioner - violation of principles of natural justice - penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002. The case of Revenue is significantly based on the statements of various persons involved in one way or other with Yogesh, and Commissioner has given cross-examination of only 9 persons out of about 25 persons whose cross-examination was sought by Yogesh and out of 9 persons, cross-examination of only 2 deponents was conducted. HELD THAT - It is noticed that the goods by all these appellants are admittedly cleared on payment of duty. Non-mentioning name of buyers in the invoice is at best a procedural lapse in respect of the duty paid goods. In our view the goods which are alleged to have been removed by Yogesh without payment of duty can only be held liable for confiscation if it is established so, and not the goods in respect of which applicable duties are paid by these units as duty paid goods cannot be held liable to confiscation under Rule 25 of the Rules. It can be seen that Rule 25 is subject to non-payment of duty which is recoverable and subject to the provisions of section 11AC which is neither invoked or applicable in respect of goods cleared by the these units. It has been held in the following judgements that Rule 25 is subject to section 11AC and ingredients of Section 11AC have to be established first. In the case of COMMISSIONER OF C. EX. CUSTOMS VERSUS SAURASHTRA CEMENT LTD. 2010 (9) TMI 422 - GUJARAT HIGH COURT the Hon ble Gujarat High Court has interpreted provisions of Rule 25 and held that ' For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.' Since goods were cleared on payment of duty, the first condition of section 11AC which is non-payment of duty itself is not fulfilled and hence section 11AC is not invocable, consequently, goods are not liable to confiscation under Rule 25. In that view penalty under Rule 25(1) cannot be sustained on these appellants namely Balaji, Montage, Arihant and Sachin. Further, since the goods cleared by these units are not liable for confiscation under Rule 25, penalty under Rule 26 upon the partner/director/authorized person of these units namely Arun Joshi and Sushil kumar Upadhyay in the capacity of erstwhile partners of Balaji, Sunil Trivedi, partner of Balaji, Ramnivas Pareek authorized signatory of Balaji, Sunit Jain, partner of Arihant and Arvind Gupta, promoter/director of Montage of the above units are also liable to be set aside. The impugned order is modified, as a result appeals of Montage, Balaji, Arihant and Sachin and their directors/partners/authorised persons namely Arun Joshi, Sushil Kumar Upadhyay, Sunil Trivedi, Ramnivas Pareek, and Sunit Jain are allowed and appeals of Yogesh and rest of the appellants are remanded.

Issues Involved:

1. Alleged clandestine manufacture and clearance of Gutka by Yogesh.
2. Denial of cross-examination of witnesses by the Commissioner.
3. Imposition of penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002.
4. Procedural lapses in invoicing by suppliers.
5. Applicability of Section 11AC in relation to penalties under Rule 25.

Detailed Analysis:

1. Alleged Clandestine Manufacture and Clearance of Gutka by Yogesh:

The primary issue revolves around the alleged clandestine manufacture and clearance of Gutka by Yogesh under the brand name "GOA 1000." The department issued a Show Cause Notice alleging that Yogesh clandestinely manufactured and cleared Gutka without payment of duty, based on the procurement of laminate packing pouches from Montage and Balaji. The demand for Central Excise Duty was substantial, amounting to Rs.156,80,70,098/- on 467,30,49,420 pouches of Gutka. The appellants argued that the receipt of such a large quantity of lamination packing pouches was not established, and the case for clandestine removal was not made out merely on the basis of alleged procurement of one raw material, without evidence of other raw materials, excess electricity consumption, transport, or receipt of payment.

2. Denial of Cross-Examination of Witnesses by the Commissioner:

A significant procedural issue was the denial of cross-examination of witnesses by the Commissioner. The appellants contended that the Commissioner allowed cross-examination of only 9 out of about 25 persons whose statements were relied upon, and only 2 deponents were actually cross-examined. The Commissioner justified this by stating that the allegations were based on documentary evidence and that none of the statements were retracted. However, the Tribunal found this approach to be in violation of the principles of natural justice, citing the Supreme Court judgment in Andaman Timber Industries v CCE, which emphasized the importance of allowing cross-examination when statements form the basis of the order.

3. Imposition of Penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002:

Penalties were imposed on various parties under Rule 25 and Rule 26 for procedural lapses and alleged involvement in the clandestine activities of Yogesh. The Tribunal noted that the goods cleared by the appellants were on payment of duty, and the non-mentioning of buyers' names in invoices was considered a procedural lapse. It was held that duty-paid goods cannot be confiscated under Rule 25, and penalties under Rule 25 and Rule 26 could not be sustained on these grounds.

4. Procedural Lapses in Invoicing by Suppliers:

The Commissioner imposed penalties on suppliers like Balaji, Montage, Arihant, and Sachin for not mentioning the actual recipient's name in the invoices, which was seen as a contravention of Rule 11(2) of the Central Excise Rules. The Tribunal found that since the goods were cleared on payment of duty, this was a procedural lapse and not sufficient grounds for penalties under Rule 25, which requires non-payment of duty as a condition.

5. Applicability of Section 11AC in Relation to Penalties under Rule 25:

The Tribunal highlighted that Rule 25 is subject to the provisions of Section 11AC, which deals with penalties for non-payment of duty due to fraud or suppression of facts. Since the goods were cleared on payment of duty, the conditions of Section 11AC were not met, and therefore, penalties under Rule 25 could not be imposed. This interpretation was supported by judgments from the Gujarat High Court and Delhi High Court, which emphasized that the ingredients of Section 11AC must be satisfied for penalties under Rule 25.

Conclusion:

The Tribunal modified the impugned order, allowing the appeals of Montage, Balaji, Arihant, and Sachin and their directors/partners/authorized persons, while remanding the appeals of Yogesh and the rest of the appellants for fresh consideration. The decision underscored the importance of adhering to principles of natural justice, particularly the right to cross-examination, and clarified the conditions under which penalties under Rule 25 and Rule 26 can be imposed.

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