2017 (12) TMI 502 - AT - Central Excise

Clandestine removal - Evidence - whether the papers/ records of third parties can be considered as evidence of clandestine clearance against the Appellant unit? - Held that - it has been alleged that the Appellant Unit were clearing goods under the cover of invoices and once the goods reached the destination the invoices were taken back by the Appellant and were destroyed - there is no evidence to corroborate such allegation. In none of the seized records the reference of such invoices is appearing which can show that initially the goods were cleared under the cover of invoice and were later taken back by the Appellant and destroyed. Cross-examination of witnesses - Held that - The adjudicating authority refused to accept the cross examination on the ground that the same has been given after two and half year and that the panch witness were not examined. The reasoning given by the adjudicating authority towards non acceptance of cross examination is not legal. The cross examination cannot be brushed aside on the ground of having been conducted after some time. The statements or records of the brokers/ agent has to be corroborated with the evidences unearthed from the Appellant unit. However there is no evidence of clandestine clearance has been found from the Appellant Unit. No incriminating records or documents showing removal of goods without payment of duty has been found from the Appellant Unit. Without corroboration of any evidence the third party records and their statements cannot be made basis for upholding the demand. The statement of director of Unit on the basis of third party records cannot be basis of demand as corroborative evidence has been brought on record. Also, the adjudicating authority himself has set aside the demand of ₹ 11, 15,930/- holding that no corroborative evidence of raw material or production has been brought on record. The said evidence would apply equally to all demands as nothing incriminating has been found from the Appellants premises. No duty demand can be made against the Appellant Unit and the impugned order dt. 31.01.2007 in as much as it confirms demands and imposes penalty against M/s Sundar Ispat Ltd. is not sustainable - charges against all the remaining Appellants i.e director of Unit Shri Vinay Agarwal and other co-appellants who are either broker or alleged recipients is also not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of duty based on third-party records and statements.
2. Cross-examination of witnesses and its admissibility.
3. Corroboration of evidence from the appellant's premises.
4. Applicability of legal precedents in central excise cases.
5. Imposition of penalties on co-appellants.

Detailed Analysis:

1. Demand of Duty Based on Third-Party Records and Statements:
The appeals were filed against the Order-in-Original No.2/2006 dated 31.01.2007, which confirmed demands based on records/pads/loose papers of brokers and buyers, and their statements. The adjudicating authority confirmed the demand primarily on the basis that the director of the appellant company accepted that the goods were marketed through brokers. However, the appellant argued that the demands were not corroborated with any document/record from their factory or premises. The tribunal found that no evidence corroborated the allegation that goods were cleared under invoices which were later destroyed. The reliance on third-party records without corroboration from the appellant's end was deemed insufficient to sustain the demand.

2. Cross-Examination of Witnesses and Its Admissibility:
The adjudicating authority refused to accept the cross-examinations of brokers and alleged consignees, stating that the retractions were made after two and a half years. The tribunal found this reasoning incorrect and emphasized that cross-examinations cannot be dismissed solely based on timing. The tribunal referred to the judgment in COMMISSIONER OF CENTRAL EXCISE, DELHI I Vs. VISHNU & CO. PVT. LTD., which held that retracted statements require corroboration by other reliable evidence. The tribunal concluded that the statements of brokers and consignees, who denied dealing with the appellant, could not be relied upon without corroboration.

3. Corroboration of Evidence from the Appellant's Premises:
The tribunal noted that no incriminating records or documents were found from the appellant's premises to support the allegations of clandestine removal. The absence of evidence such as transportation records, receipt of consideration, excess raw material, or production records indicated that the third-party records alone could not substantiate the demand. The tribunal cited several judgments, including CONTINENTAL CEMENT COMPANY Vs. UOI and RAMA SPINNERS PVT. LTD. Vs. CCE & CU, HYD I, which emphasize the need for concrete evidence to prove clandestine removal.

4. Applicability of Legal Precedents in Central Excise Cases:
The adjudicating authority relied on judgments related to the Sea Customs Act, where the onus is on the person caught with contraband goods to prove legality. The tribunal clarified that in central excise cases, the burden of proof lies on the department making the allegations. The tribunal found that the adjudicating authority's reliance on customs cases was misplaced and reiterated that the department must gather substantial evidence to support its claims.

5. Imposition of Penalties on Co-Appellants:
The tribunal held that since the main demand against the appellant unit was not sustainable, the penalties imposed on the co-appellants, including the director and brokers, were also not justified. The tribunal allowed the appeals filed by the co-appellants, providing consequential reliefs.

Conclusion:
The tribunal concluded that the demands and penalties imposed on the appellant and co-appellants were not sustainable due to the lack of corroborative evidence from the appellant's premises and the improper reliance on third-party records. The appeals filed by the appellant and co-appellants were allowed, and the appeal filed by the revenue was dismissed.