2018 (6) TMI 320 - AT - Central Excise

Clandestine removal - raw tobacco - unaccounted quantity of raw tobacco - excesses and shortage of stock - parallel invoices - the demand is mainly based upon the records and statements made by supplier of raw material i.e tobacco which showed that the tobacco was consigned to the Appellant Unit - Cross-examination of persons - Held that - Though the statements of these persons have been relied upon, but there is no corroborative evidence to show that the said goods reached the factory of the Appellant Unit and were consumed in manufacture of unaccounted finished goods. Only on the basis of records of some of the alleged suppliers and their statements which are of third parties, it cannot be concluded that the goods were consigned to the Appellant Unit. The Appellant had requested for cross examination of the suppliers and persons whose statements were relied upon. Either the said persons did not appear for the cross examination or the persons who appeared for cross examination have resiled from their statements. No statement of driver of any of the vehicle was recorded to ascertain the actual place where the raw material was actually delivered. There is no corroborative evidence of receipt of any unaccounted raw material by the Appellant Unit. Neither there is any evidence of unaccounted production and its removal. Further no evidence of use of other raw material/ packing material, extra labour, payment of unaccounted wages, use of power or any evidence of production is appearing. There is no buyer of such goods nor any evidence of any consideration received by the Appellant Unit against such clearance. Clearances against alleged parallel invoice - Held that - It is found that during the cross examination of the departmental officer on questioning regarding such parallel invoice, he stated that the copies of invoices were given to him by his seniors. There is no authentic source who has provided the copies of said parallel invoice. One of the party who allegedly received the goods under the cover of two such parallel invoice in his statements refused to have received such goods. The other party in its cross examination also stated that no goods were received by them. Also the revenue could not find any other buyer of goods except the alleged parallel invoice. The search at Appellant Unit could not show excess of finished goods. In such case the allegation of clandestine production/ removal and demand of duty on finished goods does not sustain - the demands against Appellant M/s RKP are not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegations of unaccounted procurement of raw tobacco.
2. Allegations of clandestine manufacture and clearance of Zarda without payment of duty.
3. Reliability of statements from suppliers and transporters.
4. Evidence of unaccounted production and removal.
5. Penalties imposed on co-appellants and employees.

Detailed Analysis:

1. Allegations of Unaccounted Procurement of Raw Tobacco:
The case was initiated based on intelligence that the appellant, M/s R.K. Patel & Co. Tobacco Manufacturers (RKP), was procuring unaccounted raw tobacco from various suppliers in Gujarat. The investigation revealed discrepancies in the records of raw material received and used by RKP. Statements from multiple suppliers indicated that several consignments of raw tobacco were not recorded by RKP. However, during cross-examination, many suppliers either did not appear or retracted their statements, claiming they had no documents to support the alleged supplies. The Tribunal noted that "there is no corroborative evidence to show that the said goods reached the factory of the Appellant Unit and were consumed in manufacture of unaccounted finished goods."

2. Allegations of Clandestine Manufacture and Clearance of Zarda:
The authorities alleged that RKP was involved in clandestine manufacture and clearance of Zarda without accounting for it, based on the unaccounted procurement of raw tobacco and three parallel invoices found. However, the Tribunal found that "during physical verification no excess stock of goods i.e., raw material tobacco was found" and "the physical stock of finished goods was found exactly matching with stock recorded in books." The Tribunal emphasized that "there is no evidence of excess production of finished goods in the factory, excess deployment of labor and wages distribution, unaccounted procurement of packing material."

3. Reliability of Statements from Suppliers and Transporters:
The Tribunal scrutinized the reliability of the statements from suppliers and transporters. Many suppliers either retracted their statements or stated they could not read the statements written in Hindi. The Tribunal observed that "either the said persons did not appear for the cross-examination or the persons who appeared for cross-examination have resiled from their statements." Additionally, the Tribunal noted that "no statement of driver of any of the vehicles was recorded to ascertain the actual place where the raw material was actually delivered."

4. Evidence of Unaccounted Production and Removal:
The Tribunal found that there was no substantial evidence to support the allegations of unaccounted production and removal. The Tribunal pointed out that "there is no evidence of use of other raw material/packing material, extra labor, payment of unaccounted wages, use of power or any evidence of production." Furthermore, the Tribunal highlighted that "there is no buyer of such goods nor any evidence of any consideration received by the Appellant Unit against such clearance."

5. Penalties Imposed on Co-Appellants and Employees:
Penalties were also proposed against the partners and employees of RKP, alleging their involvement in the clandestine activities. However, since the main demand against RKP was not sustainable, the Tribunal concluded that "no case is made out against the co-appellants to uphold the penalty."

Conclusion:
The Tribunal set aside the impugned order, stating that "the demands against Appellant M/s RKP are not sustainable." The Tribunal allowed the appeals filed by RKP and other co-appellants, providing consequential reliefs in accordance with the law. The judgment emphasized the lack of corroborative evidence and the unreliability of the statements from suppliers and transporters, ultimately leading to the dismissal of the allegations against RKP and its associates.

Pronouncement:
The judgment was pronounced in court on 11.5.2018.