2018 (9) TMI 1492 - AT - Central Excise

Clandestine removal - Demand is based on copy of some documents received by the Central Excise Department from the Income Tax Department which had earlier conduced search and seizer operation in the premises of the appellant - Held that - The main demand against the appellant-company is based on the private document i.e. Monthly Dispatch Summary Details (MDSD) recovered from the factory premises of the appellant. The said private documents i.e. MDSD has been alleged to have prepared by Shri Ramu Yadav and Shri R.K. Singh on the direction of the directors of the appellant-company for which department have relied upon the statement of Shri Ramu Yadav & Shri R.K. Singh. Cross-examination of witnesses - reliance to be placed on the statements of witnesses - Held that - Request of cross-examination of Shri Ramu Yadav & Shri R.K. Singh was allowed by the learned Commissioner, but the Department was unable to produce their witness - It is well settled law that if the Department is not able to produce their witness for cross-examination, then the statement of that witness cannot be relied upon. Demand based on MDSD - Held that - The said MDSD is not a genuine document as there is no corroborative or positive evidence available on record, showing clandestine removal of the goods. Therefore, demand on the basis of the said record-MDSD, is set aside. Demand on the basis of parallel invoices issued by appellant-company and resumed from the premises of Shri Mukul Jain, Commission Agent of fabric - Held that - The department is mainly relying upon the statements of Shri Mukul Jain, to establish that the goods have been cleared on parallel invoices. The Department has not been able to produce Shri Mukul Jain for cross-examination during the adjudicating proceedings - there is no other concrete evidence available on record to prove that the appellant company has removed goods on the parallel invoices - demand set aside. Hon ble High Court of Allahabad in the case of Continental Cement Company Vs Union of India 2014 (9) TMI 243 - ALLAHABAD HIGH COURT have held that the Department has to bring on record corroborative evidence in the form of procurement of raw material, transportation, sale proceeds, buyers of such goods, capacity to manufacture, etc. - In the present case, there is no such positive or tangible evidence available. Since duty demand is set aside, penalties are liable to be set aside. The whole demand of revenue is based on the assumptions and presumptions, there being no corroborative evidence to support the allegation of suppression of production and/or clandestine removal - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand based on documents from the Income Tax Department.
2. Reliability of Monthly Dispatch Summary Details (MDSD).
3. Demand based on parallel invoices.
4. Corroborative evidence for clandestine removal.
5. Reliability of witness statements and cross-examination.

Detailed Analysis:

1. Demand based on documents from the Income Tax Department:
The appellants contested a demand of ?23,34,649/- based on documents provided by the Income Tax Department. These documents were photocopies resumed under Resumption memo No.44 (RUD 145) and detailed in the show cause notice. The appellants argued that the documents were loose papers, and there was no clear evidence of clandestine clearance of goods. The Tribunal noted that the Income Tax Settlement Commission had settled the appellant’s unexplained cash credits without any finding of clandestine removal. Consequently, the demand based on these documents was not sustainable as it lacked corroborative evidence from the Central Excise Department.

2. Reliability of Monthly Dispatch Summary Details (MDSD):
The main demand against the appellant-company was based on MDSD recovered from the factory premises, allegedly prepared by Shri Ramu Yadav and Shri R.K. Singh. The appellants argued that these documents were forged and created under duress by an ex-employee, Shri Sharad Bhardwaj. The Tribunal noted that the Department failed to produce the witnesses for cross-examination, making their statements unreliable. The affidavits submitted by the witnesses also supported the claim of forgery. The Tribunal concluded that the MDSD was not genuine and lacked corroborative evidence, thus setting aside the demand based on these records.

3. Demand based on parallel invoices:
The Department relied on statements of Shri Mukul Jain, a commission agent, to support the claim of goods cleared on parallel invoices. However, Shri Mukul Jain was not produced for cross-examination. The Tribunal held that without the witness’s cross-examination, his statements could not be relied upon. Additionally, no unaccounted goods were found in Shri Mukul Jain’s premises, leading to the setting aside of the proportionate demand based on parallel invoices.

4. Corroborative evidence for clandestine removal:
The Tribunal emphasized the need for corroborative evidence, such as procurement of raw materials, transportation, sale proceeds, and buyers of such goods, as held in the case of Continental Cement Company Vs Union of India. In the present case, the Department failed to provide such evidence. The Tribunal observed that the demand was based on assumptions and presumptions without tangible evidence, leading to the setting aside of the duty demand and associated penalties.

5. Reliability of witness statements and cross-examination:
The Tribunal noted that all persons who initially admitted to clandestine activity either retracted or did not support the Revenue’s case during cross-examination. Out of eight persons allowed for cross-examination, only three were produced, and they did not support the allegations. This lack of reliable witness testimony further weakened the Department’s case.

Conclusion:
The Tribunal set aside the impugned order, allowing all appeals, and concluded that the demand was based on assumptions and lacked corroborative evidence. Consequently, penalties on other appellants were also set aside, and the appellants were entitled to consequential benefits in accordance with the law.