2018 (6) TMI 642 - AT - Central Excise

Clandestine removal - Pan masala, Gutkha and Mouth Fresheners - excesses of stock - receipt of excess quantity of 414473 Kg. of Kattha from their suppliers and utilized in the manufacture of finished goods - The entire demand has been raised only on the ground of reconciliations of entries and that the appellant received alleged excess quantity of 4,14,473 kg of catechu from their suppliers and utilised the same in the manufacture of suppressed production of their final products, which were cleared clandestinely without payment of duty - absence of corroborative evidences. Held that - The learned Commissioner in the impugned order has not taken into consideration explanations given by the appellant in respect of discrepancies in the quantity of catechu presumed to have been procured and used by the appellant and various short supplies, wrong postings of figures and processing losses to arrived at actual quantity of catechu used by the appellant for manufacture of their final product. Hon ble High Court of Allahabad in the relied upon case of M/s Continental Cement Company has held that clandestine removal is a serious charge against the manufacture and the same is required to be discharged by revenue by production of sufficient and tangible evidence -It further pointed out that revenue is required to prove about the excess raw material purchased, dispatch particulars from the regular transporters, realization of sale proceeds of finished products, and to find out receipt of finished products by the buyers. In the whole proceedings, there is no evidence produced by revenue in respect of procurement of other raw materials which were required for manufacture of alleged quantity of final products in addition to one single raw material i.e. catechu discussed throughout the proceeding - there is also no evidence in respect of dispatch of finished goods, realization of sale proceeds and receipt of the alleged finished goods by the purchasers. The conclusion drawn by original authority that alleged quantity of final products were manufactured on the basis of calculation of one single raw material i.e. catechu, is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged excess quantity of catechu received and used in the manufacture of final products.
2. Duplication of demand in the show cause notice.
3. Non-consideration of submissions and cross-examinations by the adjudicating authority.
4. Reliance on DGCEI investigation and ignoring evidence produced by the appellant.
5. Alleged clandestine manufacture and removal of goods without payment of duty.
6. Lack of corroborative evidence for procurement of other raw materials, transportation, and sale of finished goods.
7. Incorrect premise regarding the use of raw catechu in manufacturing.
8. Moisture loss during the processing of catechu.
9. Preliminary objections ignored by the Commissioner.
10. Legal requirement of evidence for clandestine removal.

Detailed Analysis:

1. Alleged Excess Quantity of Catechu:
The appellant was accused of receiving an excess quantity of 414,473 kg of catechu from suppliers, which was allegedly used to manufacture and clear final products clandestinely without paying duty. The demand was based on reconciliations of entries and statements recorded during the investigation. The appellant denied these allegations, providing detailed explanations and documentary evidence to reconcile the figures.

2. Duplication of Demand:
The show cause notice (SCN) was contradictory, assuming both the purchase data provided by the appellant and the data in the seized documents as true and complete. This resulted in a duplicated demand, as the same entries were used to calculate duty in different parts of the SCN.

3. Non-Consideration of Submissions and Cross-Examinations:
The adjudicating authority ignored the explanations and evidence provided by the appellant, including the outcomes of cross-examinations of suppliers. The order was passed mechanically without considering the submissions made, resulting in a miscarriage of justice.

4. Reliance on DGCEI Investigation:
The impugned order heavily relied on the DGCEI investigation and the documents recovered during the search, ignoring the evidence produced by the appellant. The adjudicating authority failed to address the appellant's arguments and explanations properly.

5. Alleged Clandestine Manufacture and Removal:
The appellant argued that the demand was based solely on the alleged excess receipt of catechu, without any investigation into other raw materials, production, transportation, or sale of the finished goods. The adjudicating authority did not provide any evidence of excess procurement of other raw materials, transportation, or sale of the alleged clandestinely manufactured goods.

6. Lack of Corroborative Evidence:
The revenue failed to provide evidence of procurement of other raw materials, transportation, sale of finished goods, and realization of sale proceeds. The Hon'ble High Court of Allahabad in the case of M/s Continental Cement Company emphasized the need for sufficient and tangible evidence to prove clandestine removal, which was lacking in this case.

7. Incorrect Premise Regarding Use of Raw Catechu:
The impugned order was based on the incorrect premise that raw catechu was used as such in the manufacture of final products. The appellant clarified that raw catechu needed to be processed into powder form before use, and there was a natural moisture loss during this processing.

8. Moisture Loss During Processing:
The appellant provided evidence of moisture loss during the processing of raw catechu, which was ignored by the adjudicating authority. The BIS standards and other laws allowed for a certain percentage of moisture loss, which was not considered in the impugned order.

9. Preliminary Objections Ignored:
The appellant's preliminary objections, such as the SCN being based on assumptions and inaccuracies, were ignored by the Commissioner. The SCN did not account for sales returns, goods in transit, and other vital factors, resulting in an erroneous demand.

10. Legal Requirement of Evidence for Clandestine Removal:
The legal requirement for proving clandestine removal involves evidence of procurement of raw materials, production, transportation, and sale of finished goods. The revenue failed to meet these requirements, making the allegation of clandestine manufacture and removal unsustainable.

Conclusion:
The impugned order was set aside due to the lack of sufficient evidence to support the allegations of clandestine manufacture and removal. The appeal was allowed, and the appellant was entitled to consequential relief as per law. The Miscellaneous Application filed by the revenue for early hearing of the appeal was dismissed as infructuous.