2024 (12) TMI 1357 - AT - Central Excise

Clandestine removal of polished vitrified tiles - evasion of duty - allegations primarily based upon the private documents/records recovered from the premises of M/s K.N. Brothers/ Shree Ambaji Enterprises, Shroff and office premises of Shri Pravin Shirvi, Morbi, Broker/middlemen - opprotunity of cross-examination not provided - reliability of statements - violation of principles of natural justice. HELD THAT - On going through the relied upon documents and documents scanned in impugned show cause notice it is found that in the said documents mentioned the words PS but in the table prepared by the DGGI, they have mentioned name of Shri Pravinbhai R. Shirvi and in total amount of cash paid to Shri Pravinbhai R. Shirvi aggregates to Rs. 18,21,600/- only whereas on the other hand vide show cause notice it is alleged that total amount of cash aggregating to Rs. 15,62,92,335/- was paid to the Authorized person of Appellant, the same is completely unbelievable. It is also found that in present matter to find out the truth, appellant requested the cross-examination of Shri Jayesh Mohanlal Solanki, Proprietor of M/s. K.N. Brothers, Rajkot, Shri Suresh Girdharbhai Gangwani, Proprietor of M/s. Shree Siddhnath Agency, Rajkot, Shri Lalit Ansumal Gangwani, actual owner of M/s KN Brother and also other persons. However despite such request, cross-examination was not afforded by the Ld. Lower Adjudicating Authority. When statement of a third party is relied upon against an assessee, the assessee has a right to cross-examine such witness otherwise, statement of the concerned person, and in any case, statement of a said persons, could not have been relied upon for holding anything against the appellant. In the circumstances, it was incumbent upon adjudicating authority to follow the mandate of section 9D of the Act by way of examining the witness and thereafter giving opportunity to the appellant to cross-examine them. Having disregarded this mandate of section 9D, results is to giving up on the said statements for proving the truth contained therein. It is well settled law that though the statements carry good persuasive value but such untested statements of third parties cannot be made stand-alone basis for arriving at an adverse conclusion against the assessee. Though an admission or a statement is extremely important piece of evidence but the same has to bear the test of veracity through the tool of cross examination - In the case of NU Trend Business Machine Pvt Ltd v. Commissioner of Central Excise, Chennai, 2001 (11) TMI 134 - CEGAT, CHENNAI , it was held that the demand based on the statements of persons who have not turned up for cross-examination, is unsustainable. The entire evidence referred to by both the adjudicating authority in the present matter stand on a doubtful platform and cannot be made the basis for confirming huge demands on the ground of clandestine activity. Similarly, in the case of CCE, Chandigarh-1 v. Shingar Lamps Pvt. Limited 2010 (3) TMI 277 - PUNJAB HARYANA HIGH COURT , the Hon ble High Court held that the private records which have been discovered during the raid may not be sufficient for holding clandestine production and removal but there should be some positive evidence suggesting clandestine production and removal. Conclusion - The allegations of clandestine removal are required to be established by production of positive and tangible evidences and should not be arrived at on the basis of assumptions and presumptions - Case of the Revenue in the present matter is only based upon the records of Shroff and Broker/middleman which even do not contain the name of the appellant and statements which are not supported by any independent corroborative evidence. The whole demand is theoretical. The impugned order cannot be sustained and accordingly the same is set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the appellant engaged in the clandestine removal of polished vitrified tiles, resulting in the evasion of Central Excise Duty.
• Whether the evidence presented by the Department, primarily based on third-party statements and documents, is sufficient to sustain the allegations of duty evasion.
• Whether the procedural requirements, such as the right to cross-examination, were adhered to during the adjudication process.
• Whether the calculation of duty was appropriately based on Section 4A of the Central Excise Act, 1944, concerning the valuation of goods.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Alleged Clandestine Removal and Duty Evasion

• Relevant legal framework and precedents: The case revolves around the Central Excise Act, particularly Sections 4 and 4A concerning the valuation of goods and the imposition of penalties under Section 11AC and Rule 26.
• Court's interpretation and reasoning: The Tribunal found that the evidence presented was insufficient to prove clandestine removal. The reliance on third-party records and statements without corroboration was deemed inadequate.
• Key evidence and findings: The Department's evidence included private documents from Shroffs and brokers, which allegedly indicated cash transactions linked to the appellant. However, these documents did not directly mention the appellant's name.
• Application of law to facts: The Tribunal emphasized the need for concrete evidence, such as direct proof of excess production, raw material procurement, and identification of buyers, none of which were provided.
• Treatment of competing arguments: The appellant argued that the evidence was speculative and lacked direct linkage to their operations. The Tribunal agreed, noting the absence of cross-examination and the speculative nature of the evidence.
• Conclusions: The Tribunal concluded that the allegations were not substantiated by reliable evidence, leading to the dismissal of the Department's claims.

Issue 2: Procedural Adherence and Right to Cross-Examination

• Relevant legal framework and precedents: Section 9D of the Central Excise Act mandates the right to cross-examine witnesses whose statements are relied upon.
• Court's interpretation and reasoning: The Tribunal held that the failure to allow cross-examination of key witnesses undermined the credibility of the evidence presented by the Department.
• Key evidence and findings: The appellant's request for cross-examination of Shroffs and brokers was denied, which the Tribunal found to be a procedural lapse.
• Application of law to facts: The Tribunal applied the principle that untested statements cannot form the sole basis for adverse findings against an assessee.
• Treatment of competing arguments: The Department argued that the evidence was sufficient without cross-examination, but the Tribunal disagreed, citing legal precedents requiring such procedural rights.
• Conclusions: The Tribunal concluded that the denial of cross-examination rights invalidated the reliance on the statements, contributing to the dismissal of the case.

Issue 3: Calculation of Duty

• Relevant legal framework and precedents: The duty calculation was contested under Sections 4 and 4A of the Central Excise Act, concerning the valuation of goods for duty purposes.
• Court's interpretation and reasoning: The Tribunal found that the Department incorrectly calculated duty based on transaction value rather than the MRP, as required under Section 4A.
• Key evidence and findings: The Department's calculation was based on alleged cash transactions rather than the declared MRP, which was not investigated.
• Application of law to facts: The Tribunal emphasized the requirement to follow the correct valuation method, which was not adhered to by the Department.
• Treatment of competing arguments: The appellant argued that the duty should be based on the MRP, and the Tribunal agreed, finding the Department's approach flawed.
• Conclusions: The Tribunal concluded that the duty demand was unsustainable due to incorrect valuation methodology.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The entire evidence referred to by both the adjudicating authority in the present matter stand on a doubtful platform and cannot be made the basis for confirming huge demands on the ground of clandestine activity."
• Core principles established: The necessity of corroborative evidence in cases of alleged clandestine removal, the right to cross-examination, and adherence to proper duty valuation methods.
• Final determinations on each issue: The Tribunal set aside the impugned order, finding no merit in the Department's case due to lack of substantial evidence and procedural lapses, granting consequential relief to the appellant.