2014 (12) TMI 1036 - AT - Central Excise

Clandestine removal of goods - manufacture of the fireworks - Search at the alleged secret office of the assessee - presumption regarding documents/computer recovered - department rejected the request for cross examination on the ground that the said persons being employee of M/s Hingora could have been compromising parties. - Held that - The veracity of the statements needs to be always checked and cross checked before relying upon such statement. M/s. Hingora were well within their rights to ask for cross examination of these employees to bring on record that the statements tendered by these employees could not be relied upon for making allegation against the Appellants. In our considered opinion, due to non-granting of the cross examination of above said persons, no reliance can be placed upon these statements and thus the statement of these persons cannot stand test of the law. - Decision of of Hon ble Apex Court in the case of Shalimar Rubber Industries v. Collr. of C.E., Cochin 2002 (11) TMI 91 - SUPREME COURT OF INDIA followed. Records were not recovered from regular business premises. Some of these records related to production were said to be tallying with the records seized from the factory. However in the show cause notice there is nothing stated that the details of goods found were tallying with the details of the clearances on payment of duty or otherwise and to whom. We find that the entire case of the revenue is based upon the dispatch details found from the files and data recovered from the secret office. However except these evidences there is virtually no other evidence to reflect upon the clandestine production and removal by M/s Hingora. Alleged dispatch details and the parallel invoices said to be found from the secret office contained the name of the parties to whom the goods were cleared as well as other details. However no evidence is appearing on record that the officers investigated such recipients, inspite of their details appearing in all such alleged clearance records. In such case, it has to be held that the said evidence is uncorroborated. In all clandestine removals, it has been now well laid that the crux of the issue in respect of clandestine removal is that Revenue cannot proceed solely on the basis of a seized private notebook maintained by a worker unless the entries are corroborated by various other pieces of evidences in as much as that Revenue has to show that appellants have purchased the inputs from market and utilised the same and that the same has been sold to particular persons through invoices or otherwise and the money has flowed back as capital. In this particular case, admittedly the only piece of evidence is a notebook seized from the premises of the appellant. It was brought to the notice of the seizing officers that it was maintained by the Accountant who was very much present during the time of investigation. It was the duty of the investigating officers to have sought explanation from the said Accountant with regard to the entries made therein. Non-examination of the Accountant has rendered the document inadmissible in evidence. Appellants have also brought to the notice of the Revenue that fireworks are required to be insured mandatorily while removing the same and various authorities are required to be informed and permission obtained. Revenue has not examined this point in the correct perspective. The danger of removal and penal consequence of non-insurance is a serious matter and the Commissioner ought to have relied on same evidence to show as to how they could manufacture and remove such controlled explosive commodity without proper protection and insurance. Merely to give finding that such clandestine removal is done secretly and stealthily and they do not follow the law is not acceptable in the peculiar facts and circumstances of this case. There is no other corroborative evidence with regard to the sale and purchase by particular persons and there is no evidence of removal through any transporter and the transporters have not been examined and statements recorded. Each link in the aspect of production and clandestine removal is required to be proved and since this has not been done, the demands are required to be set aside for lack of evidence in the matter. For bringing the charges of clandestine removal the evidences decided by various case laws as above. However in the present case in absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods by M/s Hingora Industries we hold that the charges of clandestine removal against M/s Hingora Industries are not sustainable. Thus, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand against M/s Hingora Industries and imposes penalty on them is not sustainable and is liable to be set aside and we do so. There is no sustainable demand, consequential penalties on various other appellants, who are in appeal before us, would also automatically be set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Alleged clandestine manufacture and removal of goods by M/s Hingora Industries.
2. Denial of cross-examination of key witnesses.
3. Validity of evidence obtained from a purported secret office.
4. Corroboration of evidence for clandestine activities.
5. Imposition of penalties on directors and the company.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Manufacture and Removal of Goods by M/s Hingora Industries:
The case against M/s Hingora Industries was initiated based on documents and data recovered from a purported secret office, which allegedly contained records of clandestine production and removal of goods. The revenue's case relied heavily on files showing dispatches and computer data from this location. However, the tribunal found that there was no corroborative evidence to substantiate the allegations of clandestine activities. The tribunal emphasized that the burden of proof lies with the revenue, which failed to provide sufficient and positive evidence, such as procurement of raw materials, transportation records, or financial transactions, to support the claims of clandestine removal.

2. Denial of Cross-Examination of Key Witnesses:
The appellants requested cross-examination of Shri Indravardhan Champaklal and Shri K.M. Tripathi, whose statements were used to make allegations against them. The adjudicating authority denied this request, citing potential bias as they were employees of M/s Hingora. The tribunal found this approach inconsistent with settled law, stating that the veracity of statements must be ascertained through cross-examination. The denial of cross-examination rendered the statements unreliable, and thus, they could not be used to substantiate the allegations.

3. Validity of Evidence Obtained from a Purported Secret Office:
The tribunal scrutinized the evidence obtained from the alleged secret office. It noted that the premises were not linked to M/s Hingora Industries or its employees. The landlord did not identify any person from M/s Hingora as having rented the space. Furthermore, the documents recovered did not bear any clear indication that they belonged to M/s Hingora. The tribunal concluded that the records from the secret office could not be relied upon without corroboration, as they were not recovered from the regular business premises and lacked authenticity.

4. Corroboration of Evidence for Clandestine Activities:
The tribunal highlighted the absence of corroborative evidence to support the allegations of clandestine removal. There were no records of raw material procurement, no transport documents, no statements from transporters, and no evidence of financial transactions related to the alleged clandestine activities. The tribunal referred to several precedents, emphasizing that serious allegations of clandestine removal must be substantiated by concrete evidence, which was lacking in this case.

5. Imposition of Penalties on Directors and the Company:
Given the lack of substantive evidence to prove clandestine activities, the tribunal held that the penalties imposed on M/s Hingora Industries and its directors were unsustainable. The tribunal set aside the penalties, stating that the charges of clandestine removal were not proven.

Conclusion:
The tribunal allowed the appeals, setting aside the duty demand and penalties imposed on M/s Hingora Industries and its directors. The judgment underscored the necessity of corroborative evidence in cases of alleged clandestine removal and the importance of cross-examination in verifying the reliability of witness statements.