2015 (12) TMI 593 - HC - Central Excise

Clandestine removal of goods - Suppression of production - manufacture of gutka and pan masala under the brand name Vimal - reliance primarily on ambiguous records maintained by transporters and the oral statement of the employees of the transporters - Held that - noticees had sought the cross-examination of 20 persons whose statements had been recorded by the Department in the course of investigation. Some of these persons had retracted their initial statements through affidavits tendered subsequently or resiled from the statements when cross-examined - burden of showing that the confession statement was given under coercion or threat was on the person making such allegation. It was observed that if the confession was voluntary there was no legal bar on the Court relying on it to order a conviction. However where it was retracted and even if the person retracting was unable to show that it was obtained under duress however rule of prudence and practice does require that the Court seek corroboration of the retracted confession from other evidence. It was further observed that each case would therefore require to be examined in the light of the facts and circumstances in which the confession came to be made and whether or not it was voluntary and true. There was no confession as such by any of the noticees as to their involvement in the activities alleged against them in both the SCNs. The Department relied on the statements made by third parties including transporters agents and their employees. Where such statements are subsequently retracted or resiled from it becomes necessary for the Department to produce other evidence which is of an independent nature which corroborates the retracted statements. - none of the witnesses who were cross-examined stood by their earlier statements. It is one thing to overlook this feature on the premise that all of them were under the pressure and control of the noticees. The other approach is to view this with some caution and ask what might be the case if the remaining witnesses were also produced for cross-examination? Importantly what would be the prejudice caused to the noticees in such circumstances by their non-production for cross-examination? Thus a doubt is created in favour of the noticees when such witnesses do not turn up for cross-examination. It is the latter approach that has weighed with the CESTAT. That in the view of this Court was a possible approach and does not render its order perverse on that score. The delivery challans mentioned the registration numbers of trucks and yet no enquiry was made with the drivers or owners of the trucks. Moreover Mr. Rajiv Gupta Managing Director (MD) of RLRC was not available for cross-examination. He submitted an affidavit to the effect that certain quantities of canvas bags bearing Vimal brand had been sold at factory gate also in cash. Regarding the jute bags the panchnama and seized bags from M/s. Shyam Jute Industries did not per se reveal any shortage of jute bags. These documents by themselves were insufficient to conclude that there was shortage of jute bags and menthol thereby permitting an inference that they were used in the unaccounted manufacture of gutka cleared clandestinely. - mere fact that Mr. Dubey accompanied the goods to the transporters offices did not mean that it was VCPL which was removing the goods for despatch. The Department was unable to produce any tangible evidence to link VCPL with the despatches made through the transporters. The CESTAT took note of the fact that VCPL had lodged an FIR much prior to the date of search. Pursuant thereto the police recovered 480 bags of gutka manufactured spuriously. The CESTAT also noted that the Department had not contested the filing of the FIR. Therefore in the absence of other positive evidence the mere fact that the goods seized from the transporters originated at the factory gate of VCPL or from the same source was not sufficient to establish that it was VCPL which was clandestinely clearing such consignments. The Court is not persuaded to hold that the CESTAT erred in the appreciation of evidence or failed to consider any material evidence in coming to the above conclusion - Some of the GRs show that bags of gutka were transported by M/s. Gupta Chemical Works to self at Hubli on 3rd July 2003 and 4th July 2003. Mr. Rajiv Gupta partner of Gupta Chemical Works was not questioned about the said GRs. One general observation in this regard is that the Department does not appear to have carried the investigations to their logical end. The CESTAT examined 17 truck guidance notes and the Court has also been shown a sample of one of them which shows that the consignment was to be sent to Gujarat. It does not show who the consignor is and whether it had anything to do with VCPL. The loading register also showed only some private marks and numbers without any mention of the description of the goods. The Court has also been shown some of the copies of the loading challans/registers. They only describe the goods as pan masala. The persons who wrote the loading registers and the day book were not identified and their statements were not recorded. One employee of GG Carriers Mr. Harjinder Singh was examined. He mentioned the name of the booking clerks as Naresh Kumar and Vishnu but neither of them was examined. In his cross-examination Mr. Harjinder Singh denied transporting gutka of VCPL. It was for the Department to explain why the entries in the documents were not further investigated by them and why someone in a responsible position in GG Carriers was not examined. It was for the Department to establish the link between such evidence and VCPL. If CESTAT was not prepared to rely on the above evidence then certainly its approach could not be faulted. At the relevant time there was no bar against an Assessee having more machines than what was declared as long as the machines that were operational tallied with the number declared. This aspect of the matter was overlooked by the CCE and the fact that there were 120 machines was taken to mean that they ought to have been used in manufacturing excess quantities of gutka which were clandestinely removed without payment of excise duty. - Department has been unable to show that the impugned order of the CESTAT suffers from illegality or is perverse so as to warrant interference in the present appeals. - Decided against Revenue.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Demand of duty and penalties based on alleged clandestine removal of goods.
3. Reliability of evidence, including statements and reports.
4. Confiscation and redemption fines.
5. Jurisdiction and scope of judicial review.

Detailed Analysis:

1. Delay in Filing Appeals:
The court condoned the delay in filing the present appeals for the reasons stated therein and disposed of the applications related to the delay.

2. Demand of Duty and Penalties Based on Alleged Clandestine Removal of Goods:
The appeals under Section 35G of the Central Excise Act, 1944, were directed against the final order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which allowed the respondents' appeals and set aside the orders-in-original dated 9th June 2005 and 21st November 2005 passed by the Commissioner of Central Excise, Delhi-I (CCE). The CCE had confirmed demands of central excise duty and imposed penalties based on allegations of large-scale evasion by Vishnu & Co. Pvt. Ltd. (VCPL) and associated entities. The CESTAT, however, set aside most of these demands and penalties, except for a limited duty demand and penalties related to specific seizures.

3. Reliability of Evidence, Including Statements and Reports:
The CESTAT found the evidence presented by the Department, including ambiguous records maintained by transporters and retracted statements of employees, insufficient to prove the charges of clandestine removal. The CESTAT also questioned the reliability of the Shri Ram Institute of Industrial Research (SIIR) report, noting significant discrepancies and the small sample size used for testing. The court upheld the CESTAT's findings, emphasizing that the Department failed to provide corroborative evidence to support the retracted statements and the alleged clandestine activities.

4. Confiscation and Redemption Fines:
The CESTAT set aside the confiscation of certain goods and vehicles, while upholding others. Specifically, it upheld the confiscation of 210 bags of Vimal gutka seized from Singhal Transport Co. and printed plastic laminates from Pragati International, but set aside the confiscation of other goods and vehicles. The court found no error in the CESTAT's approach and upheld its decision on confiscation and redemption fines.

5. Jurisdiction and Scope of Judicial Review:
The court reiterated that its jurisdiction under Section 35G of the Central Excise Act is limited to substantial questions of law and does not extend to re-evaluating findings of fact unless there is a clear demonstration of perversity or a patent error in appreciation of evidence. The court found that the CESTAT's order was based on a thorough analysis of the evidence and did not suffer from any illegality or perversity. Consequently, the appeals were dismissed.

Conclusion:
The court concluded that the Department failed to show that the CESTAT's order was perverse or suffered from any legal infirmity. The CESTAT's decision was based on a plausible interpretation of the evidence, and no substantial question of law arose for the court's consideration. The appeals were dismissed with no order as to costs.