2016 (10) TMI 475 - AT - Central Excise

Clandestine manufacture and clearance of excisable goods - investigation - Whether the panchnama drawn during the course of investigation can be relied upon and photocopies of the documents are admissible in the absence of original documents? - Held that - the photocopies of the documents which are not available in original has been relied on by the revenue is not admissible evidence - the decision of the Apex Court in the case of J.Yashoda vs. Shobha Rani 2007 (4) TMI 11 - SUPREME COURT OF INDIA relied upon - panchnama and the photocopies of the documents are not admissible evidence. Clubbing of clearances - Whether the clearances made by the respondents namely M/s.Dirba Pipes Pvt. Ltd. M/s, North India Pipes Pvt. Ltd. M/s.M.A. Pipes Pvt. Ltd. and M/s.Garg Pipes Pvt. Ltd. can be clubbed together and the benefit of SSI exemption can be denied and duty can be demanded? - organisational structure gone through - Held that - on organisational structure it cannot be held that all the units are controlled by one person - decision in the case of M/s. Nova Industries (P) Ltd. Versus CCE- Chandigarh 2015 (5) TMI 99 - CESTAT NEW DELHI relied uponwhere it was held that all the units are having separate machinery separate registration number and dealing separately.There is no financial flow back and there is no mutuality of interest between the units. Therefore all the four units cannot be clubbed together - issue answered in favoe of respondents. Clandestine removal of goods - Held that - in cases of clandestine manufacture and clearances certain fundamental criteria have to be established by Revenue which mainly are the following (i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of (a) raw materials in excess of that contained as per the statutory records; (b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds whether by cheque or by cash of such goods by the manufacturers or persons authorized by him; (f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty; (g) statements of buyers with some details of illicit manufacture and clearance; (h) proof of actual transportation of goods cleared without payment of duty; (i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Any of the charges mentioned above not proved hence the charge of clandestine removal of goods is not sustainable against the respondents. The quantity and value of clearance in respect of each of the manufacturing unit is required to be identified and duty liability is to be determined. No effort has been made to quantify the value and quantity of ERW pipes cleared by each units. Therefore without ascertaining of value of the goods cleared clandestinely the demand is not sustainable - issue answered in favor of respondents. The original documents were not available with revenue. No efforts were made to trace the documents no official was held liable for the said discrepancy which shows the negligent attitude of the investigating agency. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Admissibility of panchnama and photocopies of documents as evidence.
2. Clubbing of clearances and denial of SSI exemption.
3. Allegations of clandestine manufacture and clearance of excisable goods.

Issue-wise Detailed Analysis:

Issue No. 1: Admissibility of Panchnama and Photocopies of Documents as Evidence
The adjudicating authority found grave irregularities in the panchnama, noting that the panch witnesses were taxi drivers who could not read or understand the documents they signed. The records seized during the investigation lacked signatures from panchas or representatives, and some crucial documents were missing. The Revenue did not deny these facts. Consequently, the panchnama and the photocopies of documents were deemed to have no evidentiary value, referencing the Supreme Court decision in J. Yashoda vs. Shobha Rani (2007). Thus, the issue was resolved in favor of the respondents, concluding that the panchnama and photocopies were inadmissible as evidence.

Issue No. 2: Clubbing of Clearances and Denial of SSI Exemption
The organizational structure of the four units (M/s. Dirba Pipes Pvt. Ltd., M/s. North India Pipes Pvt. Ltd., M/s. M.A. Pipes Pvt. Ltd., and M/s. Garg Pipes Pvt. Ltd.) showed that they were separate legal entities with distinct registrations, financial sources, and operational independence. The adjudicating authority referenced the Tribunal's decision in Nova Industries Ltd., which established that separate private limited companies with independent operations could not have their clearances clubbed. The Revenue's argument that common directors indicated control by a single entity was rejected. The Tribunal held that the units were entitled to separate SSI exemptions, and the issue was resolved in favor of the respondents.

Issue No. 3: Allegations of Clandestine Manufacture and Clearance of Excisable Goods
The demand for duty was based on data from the ICC of Punjab Government and alleged sales through three trading firms. However, the Sales Tax assessments for the period in dispute had been finalized, showing no clandestine sales. The demand was also based on assumptions without corroborative evidence. The Tribunal referenced its decision in Arya Fibres Pvt. Ltd., which outlined the need for tangible evidence in cases of clandestine manufacture. The Tribunal found no such evidence in this case and noted that the demand was improperly distributed among the units without specific quantification. Therefore, the allegations of clandestine removal were deemed unsustainable, and the issue was resolved in favor of the respondents.

Conclusion:
The Tribunal upheld the adjudicating authority's decision, finding no infirmity in the impugned orders. The appeals filed by the Revenue were dismissed, and the respondents were granted relief on all issues. The judgment emphasized the importance of proper evidentiary procedures and the distinct legal identities of separate business entities in determining tax liabilities.