2024 (12) TMI 738 - AT - Central Excise

Clandestine manufacture and removal of goods without keeping record - whole case has been made out on the basis of certain documents recovered from the possession of third party who claims to be accountant at the residence of the co-appellant - Admissibility of evidence without cross-examination of witnesses - violation of the provisions of Section 9 D of the erstwhile Central Excise Act, 1944. Whether in the absence of giving cross-examination to the witnesses, whose statements have been relied upon to implicate the appellants in the proceedings, is admissible or not? - HELD THAT - The statements recorded during the course of investigation in the absence of any examination in Chief, thereafter, cross examination to the appellants are not sustainable. Therefore, on the basis of the statements, which have been relied upon by the authorities below, the demand cannot be raised. Whether the documents recovered from the possession of the third party and without any corroboration thereof, can the demand be raised against the appellants? - HELD THAT - Whole of the demand raised against the appellant is without proper investigation and without any corroborative evidence/documents or otherwise, the allegation against the appellants on the clandestine manufacture and clearance of the goods, is not sustainable. Whether the investigation done is not proper and having lacuna and as any suppliers/buyers/transporters or any documents, which could have been visited easily from the name and address and available on record, the demand can be raised against the appellants or not? - HELD THAT - Although the Revenue was having every documents which were recovered from the possession of Shri Sati Ram to allege clandestine manufacture and removal of goods, but the investigation did not bother to corroborate the evidence by way of verifying the veracity of the documents from supplier of the raw materials, buyer of the finished goods, transporter or commission agent etc. or other, whose details were available in those documents - whole of the investigation is faulty and on the basis of the faulty investigation, it cannot be alleged that the appellants were engaged in the activities of clandestine manufacture and clearance of excisable goods. There are no merit in the impugned order, therefore, the proceedings against the appellants are not sustainable and no demand can be raised against the appellants. Consequently, no penalties are imposable on the appellants. The impugned order set aside - appeal allowed.

Summary

Issues Involved:

1. Admissibility of evidence without cross-examination of witnesses.
2. Validity of demand based on documents recovered from a third party without corroboration.
3. Adequacy and thoroughness of the investigation conducted.

Detailed Analysis:

Issue (a): Admissibility of Evidence Without Cross-Examination

The primary issue was whether the statements relied upon by the Revenue, without allowing cross-examination, could be used to implicate the appellants. The Tribunal emphasized that under Section 9D of the Central Excise Act, 1944, any statement recorded during the investigation must be first examined in chief, followed by an opportunity for cross-examination. The failure to provide such an opportunity was deemed a violation of the principles of natural justice. The Tribunal referenced the Supreme Court's decision in Andaman Timber Industries, which held that denying cross-examination when statements are the basis of an order renders the order a nullity. Similarly, the Delhi High Court in Flevel International underscored that denying cross-examination without exceptional circumstances invalidates the adjudication order. The Tribunal concluded that the statements used in this case, without cross-examination, could not sustain the demand.

Issue (b): Validity of Demand Based on Third-Party Documents

The second issue addressed whether documents seized from a third party, without corroborative evidence, could justify the demand against the appellants. The Tribunal noted that the documents recovered from Shri Sati Ram required further investigation to verify their authenticity, such as tracing the suppliers, buyers, and transporters mentioned in the documents. The Tribunal referred to the Arya Fibres Pvt. Limited case, which established that clandestine manufacture and clearance must be supported by tangible evidence, not mere assumptions. The Tribunal found that none of the criteria for proving clandestine activity were met, and the lack of corroborative evidence rendered the demand unsustainable.

Issue (c): Adequacy and Thoroughness of the Investigation

The final issue was whether the investigation was conducted properly and thoroughly. The Tribunal observed that the Revenue had access to documents allegedly indicating clandestine activities but failed to verify the details with suppliers, buyers, or transporters. This lack of corroboration and verification was seen as a significant flaw in the investigation. The Tribunal held that the investigation was faulty and could not substantiate the allegations of clandestine manufacture and clearance. As a result, the demand based on such an investigation was deemed unsustainable.

Conclusion:

The Tribunal found no merit in the impugned order due to procedural lapses, lack of corroborative evidence, and inadequate investigation. Consequently, the proceedings against the appellants were not sustainable, and no demands or penalties could be imposed. The appeals were allowed, and the impugned order was set aside, granting consequential relief to the appellants.