2017 (12) TMI 1224 - AT - Central Excise

Clandestine removal - 2031.421 MT of Sponge Iron - It is pleaded that at the time of visit of the officers to the factory on 04.09.2008, though the stock of finished goods. i.e. Sponge Iron has been checked, no discrepancy were found; that the Department s case is based mainly on the quantity of Iron Ore fed into the kiln, as determined from the entries in the production log registers and the assumption that the Sponge Iron yield of the plant is uniform @ 61% - Held that - during the course of search proceedings, at the appellant s factory, the department has recovered various documents related to the manufacture of sponge iron i.e. production log register in which the details of feeding of raw material had been recorded. We find that there is no dispute about the fact that such records are recovered from the factory as well as the contents. On the basis of such production log register, the adjudicating authority has determined the total quantum of raw materials which have been used in the manufacture of sponge iron. On the basis of the statements recorded from Production Manager of the appellant, it has been inferred that the normal yield of sponge iron in the manufacturing process is in the range of 57% to 61% of the ore fed into the kiln. Taking the yield to be 61%, the Revenue has estimated the production and demanded duty on the same after deducting the quantity already accounted. During the course of search of the factory, the department has recovered several documents such as transporters bills, consignment receipt, weighment slips etc. showing receipt of sponge iron despatched from the appellant s factory as well as records in loose sheets showing the despatch of the finished product to various customers. In some of these cases Central Excise invoices were found to have been issued but in many other cases no Central Excise invoices have been issued indicating, that a large number of consignments have been cleared without payment of duty. On the basis of these incriminating documents recovered by the Department, it is evident that large scale evasion of duty has been done by the appellant. Opportunity of cross-examination - section 9D of the Central Excise Act, 1944 - Held that - For satisfying the requirements prescribed in Section 9D ibid, an opportunity for examination and cross examination of witnesses may be extended through an effective hearing to all connected parties. Additional evidence may also be admitted as per law. The impugned order needs to be set aside and matter remanded to the adjudicating authority - appeal allowed by way of remand.

Summary

Issues Involved:
1. Alleged evasion of Central Excise duty by underreporting production and clandestine removal of Sponge Iron.
2. Estimation of production based on production log registers and assumed yield.
3. Denial of cross-examination of witnesses and violation of natural justice principles.

Issue-wise Detailed Analysis:

1. Alleged Evasion of Central Excise Duty:
The appellants, manufacturers of Sponge Iron, were accused of evading Central Excise duty by underreporting production and clandestinely removing goods without payment of duty. The jurisdictional Central Excise officers, upon visiting the factory, scrutinized production log registers and determined that the actual production was higher than recorded. The discrepancy amounted to 2031.421 MT of Sponge Iron, valued at ?4,59,10,724/-, with a duty evasion of ?66,20,326/-. Additionally, documents such as transporter bills and consignment receipts indicated further unrecorded dispatches of 998.89 MT of Sponge Iron, leading to an additional duty evasion of ?31,00,615/-. Consequently, a show cause notice was issued for recovery of duty and imposition of penalties.

2. Estimation of Production:
The Department's case was primarily based on the quantity of Iron Ore fed into the kiln, as recorded in the production log registers, and the assumption that the yield of Sponge Iron was uniformly 61%. The appellants contested this, arguing that yield could vary between 57% to 61%, and reliance on a fixed yield percentage was erroneous. They cited the Supreme Court's decision in Oudh Sugar Mills Ltd. Vs. Union of India, which set aside similar allegations based on average yield assumptions. The Tribunal acknowledged that while production could be estimated based on yield, the range provided by the production manager (57% to 61%) should be considered, and not a fixed percentage.

3. Denial of Cross-Examination and Natural Justice:
The appellants argued that the adjudicating authority violated principles of natural justice by denying cross-examination of key witnesses whose statements were relied upon in the show cause notice. They cited several case laws, emphasizing the importance of cross-examination as per Section 9D of the Central Excise Act, 1944. The Tribunal concurred, referencing the Hon'ble Punjab and Haryana High Court's decision in G Tech Industries, which underscored the necessity of adhering to Section 9D procedures in adjudication proceedings. The Tribunal found that the adjudicating authority's reliance on statements without cross-examination was legally untenable.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for denovo proceedings. The adjudicating authority was directed to:
1. Provide an opportunity for examination and cross-examination of witnesses.
2. Recompute the total production after considering the correct yield range.
3. Admit additional evidence as per law and ensure proper hearing opportunities.

Result:
The appeal was allowed by way of remand, with instructions for the adjudicating authority to pass fresh orders after complying with the principles of natural justice and reappraising the evidence.