2018 (3) TMI 487 - AT - Central Excise

Clandestine removal of final product - SS flats - assessee's main contention is that the Revenue's case is primarily and mainly based upon the statements recorded during the course of investigations - rejection of cross-examination - principles of Natural Justice - Held that - As there are contrary views and difference of opinion between the Members, therefore, the matter be placed before the Hon ble president to refer the matter to the third member to resolve the following issues - Whether in view of the gross violation of principles of natural justice and lack of adherence to the procedure under Section 9D, the matter be remanded back to the adjudicating authority for de no adjudication, as held by member (Technical). Matter referred to Third Member.

Summary

Issues Involved:

1. Confirmation of duty demand against M/s. BSPL.
2. Non-receipt of inputs and availing of CENVAT credit based on invoices only.
3. Denial of cross-examination of witnesses by the adjudicating authority.
4. Allegations of clandestine removal of goods by M/s. HSAL.
5. Imposition of penalties on M/s. BSPL and associated parties.
6. Revenue's appeal against non-imposition of penalty on M/s. A.G. International.

Detailed Analysis:

1. Confirmation of Duty Demand Against M/s. BSPL:
The Commissioner confirmed the duty demand of ?1,35,58,394 against M/s. BSPL, along with interest and an identical amount of penalty under Rule 13 of CCR, 2002, Rule 15 of CCR, 2004, read with Rule 25 of CER 2002, and section 11AC of the Central Excise Act, 1944. The demand pertained to allegations that M/s. BSPL availed CENVAT credit based on invoices issued by M/s. HSAL without the actual receipt of inputs.

2. Non-Receipt of Inputs and Availing CENVAT Credit Based on Invoices Only:
Investigations revealed that M/s. HSAL was allegedly issuing invoices for raw materials without dispatching the actual goods, enabling recipients like M/s. BSPL to avail CENVAT credit fraudulently. Statements from various transporters indicated no material was transported from M/s. HSAL to M/s. BSPL or M/s. A.G. The Commissioner relied on these statements to confirm the duty demand against M/s. BSPL for non-receipt of AS/MS Steels but dropped the demand for non-receipt of chrome materials due to lack of evidence.

3. Denial of Cross-Examination of Witnesses by the Adjudicating Authority:
M/s. BSPL requested cross-examination of witnesses whose statements were relied upon by the Revenue, which was denied by the Commissioner. The Commissioner justified the denial by stating that the statements were recorded under Section 14 of the Central Excise Act and were admissible without cross-examination. However, the Tribunal found this reasoning flawed, emphasizing that cross-examination is essential to test the veracity of statements, especially when the Revenue's case relies heavily on such statements.

4. Allegations of Clandestine Removal of Goods by M/s. HSAL:
M/s. HSAL was accused of clandestine removal of SS flats and covering it up by issuing cenvatable invoices for raw materials. M/s. HSAL settled their case with the Settlement Commission, admitting a part of the duty liability but denying the issuance of invoices without dispatching goods. The Tribunal noted that the Revenue's contradictory stance before the Settlement Commission and in the present case undermined their allegations.

5. Imposition of Penalties on M/s. BSPL and Associated Parties:
The Commissioner imposed a penalty on M/s. BSPL but dropped penalties against the directors and M/s. A.G. International. The Tribunal found the imposition of penalties on M/s. BSPL unsustainable due to the lack of corroborative evidence and the denial of cross-examination, which violated principles of natural justice.

6. Revenue's Appeal Against Non-Imposition of Penalty on M/s. A.G. International:
The Revenue appealed against the non-imposition of penalty on M/s. A.G. International. The Tribunal rejected this appeal, aligning with the decision to drop penalties due to insufficient evidence and procedural lapses in the investigation.

Conclusion:
The Tribunal allowed the appeal by M/s. BSPL, setting aside the Commissioner's order due to procedural lapses, lack of corroborative evidence, and denial of cross-examination. The Tribunal emphasized the necessity of adhering to Section 9D of the Central Excise Act and principles of natural justice. The Revenue's appeal against M/s. A.G. International was dismissed, and the matter was remanded for fresh adjudication in compliance with legal procedures.