2016 (9) TMI 1099 - AT - Central Excise

Clandestine manufacture - 7072.978 MT iron and steel products without payment of duty - private records recovered from the residence of the appellants - licit clearances made by the main Appellant also find mention in the private records, indicating the correctness of the private records - Held that - argument made by appellant that the quantities at Sl.No.18,19,24,25 & 26 of the same page which show marked differences between quantities shown in the private records and the Central Excise invoices has force. Accordingly it is held that private records recovered from the residential premises by the investigation is not the correct representation of the manufacture and clearance of the main Appellant even if accepted to be admissible evidences. Appellants have also argued that maximum capacity of their furnace/month is 1200 MT. No efforts were made by the department to know whether the recipient of finished goods indicated in the private records or those claimed by the main Appellant in their reply were actually existing or not. Similarly for manufacturing such huge quantities of finished goods, as alleged to be clandestinely manufactured and cleared by the main Appellant, there must be procurement of substantial quantities of raw materials. The entire investigation conducted does not throw any light as to how main Appellant clandestinely procured huge quantities of raw materials for manufacturing finished goods. There are allegations of not receiving of the raw materials, but no evidence of excess procuring raw materials without duty paying documents has been brought on record by the department. It is difficult to appreciate that on one hand Appellant will clandestinely divert the duty paid raw materials and on the other hand procure non-duty paid raw materials for clandestine manufacturing and clearances of finished goods when no stock variation either in the raw material stock or finished goods stock was detected during the course of investigation. The maximum capacity of manufacture of 1200 MT/month was not refuted by the department by carrying out any study that actual production per month could be more than 1200 MT . It was clear during the investigation that Appellants were not giving the correct picture in explaining the private records recovered from their residence. Under the circumstances it was incumbent upon the department to find out evidences for corroborating private records with other independent evidences to pin down such smart operators and not resort to presumption and surmises. Clandestine removal - Held that - in the present case there is no indicator of clandestine removal. Though in the present proceedings a seizure of ₹ 2.00 Lakh was made during the investigation but the same has not been confiscated as sale proceeds of the alleged clandestinely removed finished goods. Therefore, in view of the above observations and the settled proposition of law in the relied upon case law, offence of clandestine removal of finished goods and duty demand against the main Appellant, is not sustainable and Appeal filed by the main Appellant is required to be allowed on this account. Cenvat credit - allowabilty - cross-examination of certain persons was sought by the main Appellant who confirmed duty paid raw materials to have been received by them - Held that - Adjudicating authority while framing issues of the Order-in-Original neither made cross-examination of witnesses as the issue nor gave any findings as to why cross-examination of witnesses can not be allowed. It is now a well accepted legal principle that cross-examination of the witnesses, whose statements etc. are relied upon, has to be provided to the aggrieved party. On this ground the issue of rejection of credit is remanded to the Adjudicating authority to make efforts to provide the cross-examination of the relevant relied upon witnesses and decide this aspect afresh in denovo proceedings. Imposition of penalties - no findings have been given at all in the Order-in-Original as to why penalties are required to be imposed - Held that - in the absence of any findings by the Adjudicating authority in this regard penalties imposed upon the Appellants are set aside. - Appeal partly allowed and partly remanded back

Issues Involved:
1. Whether the main Appellant has indulged in clandestine manufacture and removal of 7072.978 MT iron and steel products without payment of duty.
2. Whether credit of ?17,50,694/- has been correctly denied to the main Appellant.

Detailed Analysis:

Issue 1: Clandestine Manufacture and Removal of Iron and Steel Products

Arguments by the Appellant:
- The main Appellant (ASPL) and its Directors were accused of clandestine removal based on private records recovered from their residence.
- The Appellant argued that the private records were not corroborated by any other evidence such as statements from recipients, drivers, or vehicle owners.
- No excess/shortage of raw materials or finished goods was recorded, nor were any goods seized in transit.
- The Appellant’s manufacturing capacity was only 1200 MT per month, making the alleged clandestine removal of 7072.978 MT implausible.
- The Appellant contended that the demands cannot be based solely on private records without corroborating evidence.
- The cross-examination of certain witnesses was not allowed, and no findings were recorded regarding the imposition of penalties.

Arguments by the Revenue:
- The Revenue argued that the private records recovered from the Appellants’ residence accurately reflected the manufacture and clearances.
- The Appellants gave evasive replies and did not cooperate during the investigation.
- The Revenue relied on Section 36A of the Central Excise Act, 1944, and case laws to support their argument that private records can be admissible evidence.

Tribunal’s Findings:
- The Tribunal found discrepancies between the quantities shown in the private records and the Central Excise invoices, indicating that the private records were not a correct representation.
- The investigation did not provide evidence of how the Appellant procured substantial quantities of raw materials for alleged clandestine manufacturing.
- No efforts were made by the department to verify the existence of recipients or the procurement of raw materials.
- The Tribunal held that the private records alone could not substantiate the allegations of clandestine removal.
- The Tribunal cited case laws emphasizing that suspicion, however grave, cannot replace proof.

Conclusion on Issue 1:
- The Tribunal concluded that the offence of clandestine removal and the duty demand of ?1,08,05,030/- were not sustainable. The appeal filed by the main Appellant was allowed on this account.

Issue 2: Denial of Credit of ?17,50,694/-

Arguments by the Appellant:
- The Appellant argued that no evidence was provided that the inputs, on which credit was denied, were sold to trading concerns.
- The cross-examination of witnesses, whose statements were relied upon, was not allowed.

Arguments by the Revenue:
- The Revenue relied on statements from recipients of raw materials to argue that raw materials were diverted to other concerns.

Tribunal’s Findings:
- The Tribunal observed that cross-examination of witnesses was not provided, which is a well-accepted legal principle.
- The Adjudicating authority did not address the issue of cross-examination in the Order-in-Original.

Conclusion on Issue 2:
- The Tribunal remanded the issue of rejection of ?17,50,694/- credit to the Adjudicating authority for denovo proceedings, emphasizing the need for cross-examination of relevant witnesses and an opportunity for the Appellant to be heard.

Penalties on Directors:
- No findings were recorded regarding the imposition of penalties on the Directors.
- The Tribunal set aside the penalties of ?10.00 Lakh each imposed on the Directors due to the absence of any findings by the Adjudicating authority.

Final Order:
- Appeals filed by the Appellants were allowed to the extent indicated.
- The issue of Modvat Credit of ?17,50,694/- was remanded to the Adjudicating authority for further proceedings.
- Pronounced in the open court on 23.09.2016.

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