2017 (12) TMI 606 - AT - Central Excise

Clandestine Removal - main allegation raised against the appellants is that they did not have reeling machines which were fully functional during the disputed period and that they were clearing only cone yarn in the guise of hank yarn to evade payment of central excise duty - Held that - the department has not been able to establish clandestine clearances of the finished products on the part of the appellants - In Continental Cement Company Vs. UOI 2014 (9) TMI 243 - ALLAHABAD HIGH COURT , the Hon ble High Court held that unless there is clinching evidence of the entry and purchase of raw material, use of extra electricity, sale of final products, the mode of flow back of funds, the demand cannot be confirmed solely on the basis of presumptions and assumptions - Clandestine removal is serious charge against the manufacturer, which is required to be discharged by the Revenue by adducing sufficient and tangible evidence. The Tribunal in the case of Rama Spinners Pvt. Ltd. 2016 (11) TMI 156 - CESTAT HYDERABAD , held that allegation based mainly on statements and some records recovered from the third party cannot be basis for the demand alleging clandestine removal. Demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Alleged clandestine clearance of cone yarn as hank yarn.
2. Validity of the evidence used by the department, including documents and statements.
3. Examination of the installation and operation dates of reeling machines.
4. Compliance with Section 9D of the Central Excise Act, 1944 regarding witness statements.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Clearance of Cone Yarn as Hank Yarn:
The main allegation against the appellants was that they cleared cone yarn, which is a dutiable product, under the guise of hank yarn, which is exempted, to evade central excise duty. The department's case was based on the assertion that the appellants did not have reeling machines to convert cone yarn into hank yarn during the disputed period. However, the appellants contended that they had been producing hank yarn since July 2001 and provided documents to support the purchase and installation of reeling machines.

2. Validity of the Evidence Used by the Department:
The department relied on several documents, including the Revised Test Report from the Tamil Nadu Electricity Board (TNEB), the Bag Stock Register seized from M/s. Sri Vinayaga Sizing Mills (SVSM), and statements from customers. The appellant argued that these documents were either misinterpreted or not admissible as evidence. For instance, the Bag Stock Register from SVSM was a third-party document, and statements from customers were retracted and not examined as required by Section 9D of the Central Excise Act, 1944.

3. Examination of the Installation and Operation Dates of Reeling Machines:
The department claimed that the reeling machines were installed in July 2001 but were operational only from November 2001, based on the Revised Test Report from TNEB, which sanctioned additional load in November 2001. The appellants countered that the reeling machines required only 5 HP, which could be operated with the existing load, and provided stock registers showing production and clearance of hank yarn from July 2001. The adjudicating authority noted that the department's claim that 649 kgs of hank yarn found during the visit was from trial runs was not supported by the stock register, which showed consistent production and clearance of hank yarn.

4. Compliance with Section 9D of the Central Excise Act, 1944:
The appellant argued that the statements from customers could not be relied upon as evidence since they were not examined or cross-examined as required by Section 9D of the Central Excise Act, 1944. The Tribunal agreed, citing precedents that emphasized the need for examining witnesses to make their statements admissible in evidence.

Conclusion:
The Tribunal concluded that the department had not established clandestine clearances of cone yarn as hank yarn. The evidence presented, including the stock registers and the operation of reeling machines, contradicted the department's allegations. Additionally, the reliance on third-party documents and unexamined statements did not meet the evidentiary standards required for such serious charges. The demand for duty and penalties was set aside, and the appeals were allowed with consequential relief to the appellants.

Order:
The impugned order was set aside, and the appeals were allowed with consequential relief, if any, to the appellants. The judgment was pronounced in open court on 27.11.2017.

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