2014 (4) TMI 378 - AT - Central Excise

Duty demand - Clandestine manufacture and removal of goods - Revenue contends that appellant M/s. Rajesh Enterprises had illicitly processed and clandestinely removed Cotton Fabrics and Manmade Fabrics (MMF) during 1999-2000, 2000-2001 and 2001-2002 by machine printing but actually showing on papers as if the fabrics have been hand screen printed by one M/s. Gayatri Fabrics, which according to Revenue, was a non-existing firm at the relevant period - Assessee contends that no investigation was carried out - Held that - It is amply clear from the cross-examination of the investigating officer that no investigations were done with respect to purchase of raw materials by M/s. Rajesh Enterprise, cash amounts received for clandestine removals or the customers to whom the processed fabrics were delivered. There is also no indication in the Panchnamas and searches that any shortage/ excess of raw materials or finished fabrics were found at the registered factory premises of M/s. Rajesh Enterprise. In view of the above observations and the law laid down by various judicial pronouncements, including the judgment of jurisdictional High Court in the case of Commissioner of Central Excise, Customs & Service Tax vs. Vishwa Traders Pvt. Limited 2013 (4) TMI 55 - GUJARAT HIGH COURT , even if certain suspicion was raised by the statements recorded by the investigation made by the officers of DGCEI but the same are not sufficient to hold clandestine manufacturing and clearance of excisable goods by the appellants

Summary

Issues Involved:
1. Clandestine manufacture and clearance of fabrics by M/s. Rajesh Enterprises.
2. Existence and activities of M/s. Gayatri Fabrics.
3. Validity and reliability of statements recorded during the investigation.
4. Appropriation of duty paid and interest on confirmed duty demand.

Issue-wise Detailed Analysis:

1. Clandestine Manufacture and Clearance of Fabrics by M/s. Rajesh Enterprises:
The Revenue alleged that M/s. Rajesh Enterprises illicitly processed and clandestinely removed Cotton Fabrics and Manmade Fabrics (MMF) during 1999-2000, 2000-2001, and 2001-2002. The fabrics were machine printed but shown on paper as hand screen printed by M/s. Gayatri Fabrics, which the Revenue claimed was a non-existent firm at the relevant period. The Revenue's case was based on the seizure of goods at M/s. Shree Govind Synthetics and M/s. Deluxe Roadlines, along with statements from various individuals. The appellants argued that all fabrics were hand screen printed by M/s. Gayatri Fabrics and underwent exempted processes at Shree Govind Synthetics. The Tribunal found that the Revenue did not conclusively prove clandestine manufacture and clearance, as there was no evidence of excess raw materials, cash transactions, or discrepancies in stock.

2. Existence and Activities of M/s. Gayatri Fabrics:
The appellants contended that M/s. Gayatri Fabrics was operational during the relevant period, supported by cross-examinations and documentary evidence. Statements recorded by HQ (Prev.) indicated that M/s. Gayatri Fabrics purchased raw materials and processed fabrics for merchant manufacturers. The Tribunal noted conflicting statements about the existence of M/s. Gayatri Fabrics and found the fairness of statements recorded by DGCEI officers questionable. The Tribunal concluded that M/s. Gayatri Fabrics was indeed operational, as corroborated by various statements and documents.

3. Validity and Reliability of Statements Recorded During the Investigation:
The appellants argued that statements recorded by DGCEI were under duress, threat, and pressure. Cross-examinations revealed that individuals retracted their statements recorded by DGCEI, asserting that they were coerced. The Tribunal observed that the statements recorded by HQ (Prev.) were consistent with the existence of M/s. Gayatri Fabrics. The Tribunal emphasized that mere statements without corroborative evidence could not establish clandestine manufacture and clearance. The Tribunal referred to case laws, including the jurisdictional High Court's judgment in Commissioner of Central Excise, Customs & Service Tax vs. Vishwa Traders Pvt. Limited, to support this view.

4. Appropriation of Duty Paid and Interest on Confirmed Duty Demand:
The Revenue's appeal argued that the Adjudicating authority did not decide on the demand of duty of Rs. 54,354/- on seized goods and its appropriation, and failed to order interest on the confirmed duty demand of Rs. 85,55,334/-. The Tribunal found that the appropriation of duty was already addressed in OIO No. 36/Additional Commissioner/2003 dated 29.08.2003. Regarding interest on the duty demand, the Tribunal held that since the duty demand was not sustainable on merits, there was no basis for confirming interest on that amount. Consequently, the Revenue's appeal was rejected.

Conclusion:
The Tribunal allowed the appeals filed by the appellants, concluding that the Revenue did not provide sufficient evidence to establish clandestine manufacture and clearance of fabrics by M/s. Rajesh Enterprises. The Tribunal also rejected the Revenue's appeal regarding the appropriation of duty and interest on the confirmed duty demand. The judgment emphasized the need for tangible evidence and corroborative proof in cases of alleged clandestine activities.