2018 (1) TMI 49 - AT - Central Excise

Clandestine removal - the demand has been mainly raised on the basis of statements of the employees of the Appellant concern and statement of dealers - Held that - the statements of the employees who were not connected with the manufacturing of Coumarin, it cannot be said that the manufacturing process shown by the Appellant firm is false. We find that apart from the statements of above persons there is no records or documents which can show that the production of Coumarin was much more than shown or recorded by the Appellant firm. We find that the revenue after the issue of first show cause notice dt. 16.09.2004 issued five more show cause notice for the subsequent periods by relying upon same investigation but did not conduct any physical test to see as to what is the percentage of production of finished goods. The Hon ble High Court and Tribunal in number of judgments has held that only on the basis of statements which stands resiled in cross examination and in absence of corroborative evidence the demands cannot be confirmed. In absence of any evidence of diversion of good and any other contrary evidence, credit cannot be denied to the Appellant. In case of alleged shortages we find that Ms Hema Lakhpatwala in her statement dt. 27.05.2004 had explained the shortages found during physical verification and the reconciled stock account were also produced before the adjudicating authority which was not denied by him. Further no evidence of non receipt of such alleged short found inputs or their diversion/ clandestine clearance has been brought on record - the allegation of shortages against Appellant is not sustainable and the demands are not sustainable. In case of seizure of 500 kgs of Coumarin the submission of the Appellant is that the same were cleared mistakenly but duty liability , interest, penalty and confiscation on such clearance is sustainable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Alleged misrepresentation by M/s AFC regarding the process loss in the manufacture of Coumarin.
2. Alleged clandestine removal of Coumarin by M/s AFC.
3. Alleged wrongful availing of Cenvat credit by M/s AFC.
4. Validity of statements and evidence relied upon by the Revenue.
5. Penalties imposed on M/s AFC and co-appellants.

Detailed Analysis:

1. Alleged Misrepresentation by M/s AFC Regarding the Process Loss in the Manufacture of Coumarin:
The Revenue alleged that M/s AFC misrepresented the process loss of 17.6% in manufacturing Coumarin from 1,2 Benzopyrone, claiming it should be only 2-3%. M/s AFC argued that the process loss was in line with the DGFT SION Norms (Serial No. A2935) and supported by technical literature and expert opinion. The Tribunal found that the process loss claimed by M/s AFC was consistent with the SION Norms and supported by technical evidence, including a British Patent and an expert report from Professor V. Balasubramanian. The Tribunal held that the process loss of 17.6% was correctly claimed by M/s AFC.

2. Alleged Clandestine Removal of Coumarin by M/s AFC:
The Revenue alleged that M/s AFC clandestinely removed Coumarin under the guise of Sodium Sulphate, relying on statements from brokers and employees, and seizure of 500 kgs of Coumarin. M/s AFC contended that the removal of Coumarin as Sodium Sulphate was a one-time mistake and denied any systematic clandestine removal. The Tribunal noted the inconsistencies in the statements of brokers and employees, who later retracted their statements during cross-examination. The Tribunal concluded that there was no corroborative evidence of clandestine removal, such as records of excess production or actual buyers of the allegedly removed Coumarin. Therefore, the allegations of clandestine removal were not sustainable.

3. Alleged Wrongful Availing of Cenvat Credit by M/s AFC:
The Revenue alleged that M/s AFC availed Cenvat credit without actually receiving the inputs in the factory. M/s AFC provided payment details through banks and statutory records to support their claim. The Tribunal found that the suppliers confirmed the sale of goods to M/s AFC, and there was no evidence of diversion or non-receipt of inputs. Consequently, the Tribunal held that the denial of Cenvat credit was not justified.

4. Validity of Statements and Evidence Relied Upon by the Revenue:
The Tribunal scrutinized the statements of employees and brokers relied upon by the Revenue. Many of these statements were retracted during cross-examination, and the individuals admitted to having no personal knowledge or technical expertise regarding the manufacturing process. The Tribunal emphasized that statements lacking corroborative evidence and given by individuals not connected to the manufacturing process could not be relied upon. Additionally, the Tribunal noted that the opinion of Professor K.D. Deodhar, which was not subject to cross-examination, did not address the process loss and could not be relied upon.

5. Penalties Imposed on M/s AFC and Co-Appellants:
The Tribunal set aside the penalties imposed on M/s AFC and the co-appellants, except for the penalty related to the mistaken clearance of 500 kgs of Coumarin as Sodium Sulphate. The Tribunal found that the penalties were based on uncorroborated statements and assumptions without substantial evidence.

Conclusion:
The Tribunal set aside the demands and penalties imposed on M/s Atlas Fine Chemicals Pvt. Ltd. and the co-appellants, except for the demand related to the mistaken clearance of 500 kgs of Coumarin. The Tribunal emphasized the lack of corroborative evidence and the reliance on retracted statements, concluding that the allegations of misrepresentation, clandestine removal, and wrongful availing of Cenvat credit were not sustainable. The appeals were allowed with consequential reliefs, if any.

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