2012 (10) TMI 166 - AT - Central Excise

Clandestine removal - denial of CENVAT Credit - Held that - As regards the statement of Managing Director, the appellant have taken a categorical stand that Managing Director was around 75 years old and was not keeping good health, the proceedings lasted till 11 hours in the evening and on being told that there was shortages of raw materials, he simplicitor agreed to debit the duty. Learned advocate submits that such statement cannot be held to be of any evidentiary value, in the absence of any evidence to reflect upon the clandestine clearance of raw materials. As no evidence on record indicating any removal of raw materials by the appellant, or their use in the manufacture of final product which does not stand reflected in the statutory records, thus admission of shortages without there being any admission of clandestine removal, cannot be considered to be conclusive evidence to establish the guilt of the assessee - in favour of assessee.

Summary

Issues:
1. Shortages of raw materials detected during a factory visit.
2. Demand of duty, interest, and penalty imposed on the appellant.
3. Reliance on the statement of the Managing Director as evidence.
4. Burden of proof on the revenue to establish clandestine removal.

Analysis:
1. The appellant, engaged in the manufacture of tyres, tubes, and flaps, faced shortages of carbon black and synthetic rubber during a factory visit. The shortages amounted to Rs. 16 lakhs, involving Cenvat credit. The Managing Director agreed to pay the duty by debiting the same in their Cenvat credit, which was done on the same day of the visit. This led to proceedings initiated against the appellant through a show cause notice, culminating in a demand confirmation with interest and penalty.

2. The original adjudicating authority confirmed the demand and imposed a penalty under the Cenvat Credit Rule, 2004. The Commissioner (Appeals) upheld this decision, prompting the appellant to appeal the order. The appellant argued that the revenue's case relied on the panchnama and the Managing Director's statement. The appellant provided detailed records of material transactions to refute the shortages claimed by the revenue.

3. The appellant contended that the Managing Director's statement, obtained under stressful conditions, should not be considered conclusive evidence. The appellant cited legal precedents, including a decision by the Delhi High Court, to support the argument that admissions are not always conclusive and can be challenged. The Tribunal's previous decisions emphasized that admissions of shortages do not automatically prove clandestine removal, putting the burden of proof on the revenue.

4. The absence of evidence indicating the removal of raw materials by the appellant or their unauthorized use in the final product, not reflected in statutory records, led to the conclusion that the impugned orders of the lower authorities were not justified. The Tribunal set aside the orders, allowing the appeal with consequential relief. The judgment highlighted the importance of establishing clandestine removal conclusively, rather than relying solely on shortages as evidence of wrongdoing.