2014 (8) TMI 18 - AT - Central Excise

Clandestine manufacture and removal of goods - principle of natural justice - opportunity to cross examine the persons - Held that - despite request from the assessee, no cross examinations of such witnesses were provided by the adjudicating authority and no investigations were carried with respect to the buyers of the traded goods from JBMC. - It is also observed from the sale invoices / bills of JBMC that even truck numbers are also mentioned but no statements of such transporters were recorded to establish the truth as to from where the goods originated and whether these goods were prime or out of retrieved materials. Under the present facts and the extent of clandestine manufacture and clearance activities there ought to have been some indicators in the form of excess / shortages of raw materials and finished goods or seizure the finished goods outside the factory premises after clandestine removals. Recovery of certain challans of JBMC in the factory premises of JBMI and the opinion / statements of third parties can create a strong presumption that appellants were indulging in the clandestine manufacture and clearance of excisable goods. However, creation of a strong suspicion does not establish the charge of clandestine manufacture and clearance of excisable goods. In the present appeals also there is no such evidence on record that appellant JBMI procured extra raw materials or used extra power etc. because on the date of visit of the officers of DGCEI the stocks of raw materials and the finished goods were found tallying. The theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal. - Decided in favor of assessee.

Issues Involved:
1. Allegation of clandestine manufacture and removal of excisable goods.
2. Capability of the trading firm to retrieve copper articles from scrap.
3. Legitimacy of trading documents found in the manufacturing unit.
4. Admissibility and evaluation of evidence, including cross-examination of witnesses.
5. Compliance with procedural requirements during investigation.

Detailed Analysis:

1. Allegation of Clandestine Manufacture and Removal of Excisable Goods:
The main appellant, JBMI, was accused of clandestine manufacture and removal of excisable goods using fabricated sale documents of JBMC. The investigation revealed that certain delivery challans/proforma invoices of JBMC were found at JBMI's factory premises, indicating possible unauthorized clearance of copper rods and other articles. The adjudicating authority confirmed the allegations based on these findings.

2. Capability of the Trading Firm to Retrieve Copper Articles from Scrap:
The appellants argued that JBMC had the capability to segregate and retrieve copper articles from scrap, citing their long-standing experience in the field. They provided evidence of sales tax/VAT payments and income tax returns to support their claim. However, the revenue questioned this capability based on statements from suppliers who asserted that such retrieval was not feasible from the scrap provided.

3. Legitimacy of Trading Documents Found in the Manufacturing Unit:
The presence of JBMC's trading documents at JBMI's factory was explained by the appellants as a temporary measure due to damage to JBMC's premises from torrential rains. The appellants contended that the goods were stored near JBMI's factory for convenience. The adjudicating authority, however, viewed this as indicative of clandestine clearance.

4. Admissibility and Evaluation of Evidence, Including Cross-Examination of Witnesses:
The appellants requested cross-examination of suppliers who provided statements against them and verification of buyers of the traded goods. The adjudicating authority denied these requests, leading to the appellants' contention that the case was built on uncorroborated statements and presumptions. The tribunal noted the lack of cross-examination and corroborative evidence, emphasizing that strong suspicion alone does not constitute legal proof of clandestine activity.

5. Compliance with Procedural Requirements During Investigation:
The tribunal observed that during the search, the physical stock of raw materials and finished goods at JBMI's premises matched the statutory records, contradicting the allegations of clandestine manufacture. The tribunal highlighted the absence of evidence such as unaccounted raw material purchases, excess electricity usage, or transit seizures of finished goods, which are crucial to substantiate claims of clandestine manufacture and clearance.

Conclusion:
The tribunal concluded that the evidence presented by the revenue was insufficient to establish clandestine manufacture and clearance by JBMI. The decision emphasized the necessity of tangible evidence beyond mere suspicion or third-party statements. Consequently, the tribunal set aside the adjudicating authority's order and allowed the appeals, providing consequential relief to the appellants.

Pronouncement:
The judgment was pronounced on 31.07.2014, with the appeals filed by the appellants being allowed.

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