2018 (2) TMI 1021 - AT - Central Excise

Clandestine removal - demand based on the chemist diary as per the panchnama drawn in the factory premises of the appellant - case of appellant is that panchnama is totally silent in respect of the original records. It is not possible to ascertain the writer/author of such photocopies. Held that - the charge of clandestine of removal of the goods has been made against the appellant on the basis of chemist diaries recovered from the Chief Chemist, the main evidence and on the basis of statements recorded thereof - the Chief Chemist diaries showed that the raw material issued for manufacturing of the goods. The document does not reveal that the fact that the raw material issued for manufacturing has actually been manufactured whereas central excise duty to be paid by the assessee on manufacture of goods. Admittedly, the evidence of manufacturing of the goods has not been coming out from the diaries maintained by Shri Y.K.Bhargava. The contents of the diaries, merely showing issuance of raw materials, in that circumstance, cross examination of Shri Y.K.Bhargava was required to ascertain the truth. During the adjudication, the statement of Shri Y.K.Bhargava was not examined in chief and thereafter no opportunity for of cross examination of Shri Y.K.Bhargava is afforded to the appellant, therefore, there is gross violation of principle of natural justice In terms of Section 9D of the Central Excise Act. The sole basis is the diary maintained by Shri Y.K.Bhargava and prior to June, 2005, Mr. Duggal was maintaining the diaries. Admittedly, the statement of Shri Duggal has not been recorded. Therefore, the contents of the diaries cannot be examined. Moreover, the contents of the diaries maintained by Shri Y.K.Bhargava which is the fact on record are not with the regard to the clandestine removal, in that circumstance, the statement of Shri Y.K.Bhargava cannot be the basis to allege clandestine removal. Te demands on the basis of diaries recovered and other documents recovered from the appellant cannot be the basis to allege clandestine manufacture of the goods - the demands are on the basis of assumptions and presumptions, the charge of clandestine removal of the goods is not sustainable, in the absence of positive evidence or corroborative evidence. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Admissibility of photocopies as evidence.
2. Validity of chemist diaries as evidence of clandestine removal.
3. Credibility of statements and cross-examination rights.
4. Reliability of kachha slips and loose papers.
5. Confiscation and redemption of goods.
6. Applicability of penalties under Central Excise Rules.

Issue-wise Detailed Analysis:

1. Admissibility of Photocopies as Evidence:
The appellants argued that the panchnama drawn at the factory revealed that the documents resumed were photocopies and uncertified, making them inadmissible under Section 65 of the Evidence Act. The Tribunal agreed, stating that the absence of original records and the inability to ascertain the writer/author of the photocopies rendered them unreliable as evidence.

2. Validity of Chemist Diaries as Evidence of Clandestine Removal:
The Tribunal examined the chemist diaries maintained by the Chief Chemist, which showed raw material issuance but did not confirm actual manufacturing of goods. It was noted that the Chief Chemist, Shri Y.K. Bhargava, joined the firm in June 2005, and prior to that, the diaries were maintained by one Mr. Duggal, whose statement was not recorded. The Tribunal emphasized that the diaries could not be relied upon without cross-examination of Shri Y.K. Bhargava, thus violating principles of natural justice as per Section 9D of the Central Excise Act. Consequently, the diaries and associated statements could not substantiate the charge of clandestine removal.

3. Credibility of Statements and Cross-Examination Rights:
The Tribunal highlighted that the statements of key individuals, including Shri Y.K. Bhargava, were not cross-examined, violating natural justice principles. The Tribunal referenced the case of Jindal Drugs Pvt. Ltd., where it was held that statements not subjected to cross-examination are inadmissible. The Tribunal found that the statements alone, without corroborative evidence, could not establish clandestine removal.

4. Reliability of Kachha Slips and Loose Papers:
The Tribunal scrutinized the kachha slips and loose papers recovered from various premises. It was noted that the panchnama did not confirm the credibility of these documents, and there were discrepancies in handwriting and print, raising doubts about their reliability. The Tribunal concluded that these documents could not form the basis for adverse inference against the appellants, as they lacked credibility and did not provide concrete evidence of clandestine removal.

5. Confiscation and Redemption of Goods:
The Tribunal addressed the confiscation of goods found at various premises, including those of M/s. Dynamic Laboratories. It was argued that the goods were covered by Central Excise invoices, and discrepancies in batch numbers alone were insufficient to disregard these invoices. The Tribunal found no justification for confiscation in the absence of proof that the goods were non-duty paid. Consequently, the confiscation and associated redemption fines were deemed unjustified.

6. Applicability of Penalties under Central Excise Rules:
The Tribunal examined the imposition of penalties under Section 11AC of the Central Excise Act and Rule 26 of the Central Excise Rules. It was argued that there was no contravention of Central Excise Rules by the appellants. The Tribunal agreed, noting that the demands were based on assumptions and presumptions without concrete evidence. As a result, the penalties imposed were set aside.

Conclusion:
The Tribunal concluded that the demands and penalties imposed on the appellants were based on assumptions and lacked concrete evidence. The chemist diaries, photocopies, and kachha slips were found to be unreliable, and the statements were inadmissible without cross-examination. The confiscation of goods was deemed unjustified, and the penalties were set aside. The appeals were allowed with consequential relief.

← Previous Next →