2018 (6) TMI 327 - AT - Central Excise

Clandestine removal - P or P medicaments - This show cause notice was based on the private register maintained by the manufacturing chemist, his statement as well as the statements of others recorded during investigation - retraction of statement - Held that - In the instant case, the investigating officers have proof of clandestine production and clearance of excisable goods without payment of duty over and above the exemption limit of ₹ 1 crore. They have arrived at the production details conclusively based on the records seized and statements of production prepared by the Production Chemist from the seized records and confirmed by the husband of the proprietrix in his statement. The statements made before the Central Excise Officers are admissible only when the persons making them are examined as witnesses and the adjudicating authority is convinced that the statements should be admitted as evidence. In this case three of the persons who made the statements were examined and all three have retracted their statements. It does not appear from the records that other persons who made statements were examined by the adjudicating authority or cross examined. The department cannot prove with mathematical accuracy in the case of clandestine removal, the entire process of manufacture and sale. However, in this case, the main pieces of evidence of clandestine removal are the private register maintained by manufacturing chemist and the statements of the concerned persons. All those persons who were examined before the adjudicating authority have retracted their statements and the manufacturing chemist denied his own diary reflected the actual production. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Limitation period for demand of duty.
2. Validity of evidence for clandestine removal of goods.
3. Admissibility and relevance of statements made before Central Excise Officers.
4. Onus of proof in cases of alleged clandestine removal.

Issue-wise Detailed Analysis:

1. Limitation Period for Demand of Duty:
The departmental appeal contested the Order-in-Appeal which set aside the Order-in-Original on the grounds of limitation. The Commissioner (Appeals) initially held that the case was not hit by the limitation period and upheld the extended limitation period. However, in the subsequent order, the Commissioner (Appeals) contradicted this by setting aside the Order-in-Original, citing weak evidence of clandestine production/clearances. The Tribunal noted this contradiction and emphasized that the merits of the demand should be decided first before considering the limitation period under Section 11A of the Central Excise Act, 1944.

2. Validity of Evidence for Clandestine Removal of Goods:
The department's case relied heavily on a private diary maintained by the manufacturing chemist, which purportedly showed actual production figures. The chemist and other witnesses retracted their statements during cross-examination, claiming they were made under duress. The Commissioner (Appeals) found that the investigation did not provide tangible evidence of clandestine production/clearance and criticized the lower authority for dismissing the retractions as tutored lines. The Tribunal agreed that the onus was on the department to provide irrefutable evidence, which was not sufficiently met by merely relying on the private diary and retracted statements.

3. Admissibility and Relevance of Statements Made Before Central Excise Officers:
Section 9D of the Central Excise Act, 1944, stipulates the conditions under which statements made before Central Excise Officers are admissible. The Tribunal observed that such statements are relevant only if the person who made them is examined as a witness, and the adjudicating authority deems them necessary for justice. In this case, the key witnesses retracted their statements during cross-examination, and there was no indication that other statement-makers were examined or cross-examined. Thus, the Tribunal found the statements inadmissible as primary evidence.

4. Onus of Proof in Cases of Alleged Clandestine Removal:
The Tribunal underscored that the burden of proof lies with the department to establish clandestine removal through direct, affirmative, and positive evidence. The Commissioner (Appeals) pointed out that the department failed to conclusively prove the quantum of alleged clandestine production/clearances and improperly shifted the burden onto the assessee. The Tribunal concurred, noting that the evidence provided, including the private diary and retracted statements, was insufficient to substantiate the department's claims.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision to set aside the Order-in-Original, granting consequential relief to the assessee. The appeal filed by the department was rejected, emphasizing the necessity for the department to provide conclusive and irrefutable evidence in cases of alleged clandestine removal of goods. The judgment reiterated the importance of adhering to procedural requirements for the admissibility of statements and the proper allocation of the burden of proof in excise duty disputes.

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