2018 (10) TMI 82 - AT - Central Excise

Clandestine manufacture and removal - MS Ingots and TMT Bars - parallel set of central excise invoice - the entire case of the department is based on the private records seized from the factory premises of ASPL as well as the statements of various persons recorded during the course of investigation - whether the appellant Anant Steel Private Limited (ASPL for short) have suppressed their production and have resorted to clandestine removal of the finished goods? Held that - The Commissioner is incorrect in observing that if the records could not be found on earlier search, but found at later search the same would not make the recovered records untrue and fake. But, these facts, create reasonable doubt regarding the authenticity of the seized private records, as they relate to period prior to Oct 2011. Therefore, Commissioner could not have solely relied upon these documents without testing the genuineness of the details stated therein by conducting investigation with the persons who were named in the said documents - the investigation is also totally silent on this aspect and not even a single person whose name was found mentioned in the said private records, to whom ASPL has been alleged to have supplied TMT bars or the name of the transporters whose details were found mentioned in the said private records were issued summons for the purpose of recording their statement, so as to use it as corroboration. Reliance placed upon the statements of various persons including employees - Held that - Commissioner has committed an error in rejecting the request of ASPL for cross-examination, by concluding that the same was an attempt to delay the adjudication proceedings. We have come to this conclusion by noting the fact that ASPL has prayed for cross-examination on 21.03.2016 i.e. during the pendency of adjudication proceedings whereas, the adjudication order came to be passed only on 26.08.2016 i.e. after five months of the request. Further, it is now settled law that in case the adjudicating authority wants to rely upon the statements recorded during investigation, such witnesses have to be examined in adjudication proceedings and an opportunity of cross-examination has to be granted. In the absence of cross-examination, no reliance could have been placed on such statements. Demand based on respective private records - Held that - The department has not brought on record any evidence to show that the said documents were not genuine. Even the Commissioner has chosen to totally overlook the said evidence and relied upon the said weighment register even though Shri Mithilesh Singh who was author of the said weighment register had stated on affidavit that he had prepared the said weighment register by recording random entries to implicate ASPL, for which he was paid money - the Commissioner ought to have taken into consideration documents placed on record regarding the capacity of production of the two furnaces in question, which clearly establishes that ASPL could not manufacture the quantity of MS Ingot reflected in the weighment register, on the basis of which the demand of duty has been confirmed upon it. The Tribunal, in the case of Fact Paper Mills Ltd. v CCE, Bhavnagar 2012 (2) TMI 473 - CESTAT AHMEDABAD , while dealing with the allegation of clandestine manufacture and removal under similar circumstance, had set aside demand by holding that the allegation of clandestine manufacture in not sustainable when the assessee did not even have the capacity to manufacture the quantity of excisable goods alleged to be cleared clandestinely. We are surprised to find that the Commissioner in the adjudication order, instead of dealing with the contentions and evidence led by ASPL, has tried to justify the entries recorded in weighment register, by merely relying upon the retracted statement of Shri Mayank Bansal. Oral evidence cannot override the documentary evidence brought on record - the demand of duty on the basis of weighment register is not sustainable. Also, there is no corroborative evidence on record in the form of capacity determination, electricity consumption, receipt of raw material, etc. to establish manufacture of any clandestine quantity. Therefore, duty is levied only on presumption and assumption, as such, is fit to be set aside. The charge of clandestine manufacture and removal cannot be based on private records unless the same are corroborated through some other independent evidence which is totally missing in the present case as no person named in the private records was inquired or investigated to confirm the authenticity of the entries recorded in the said documents The allegation of clandestine manufacture and removal of TMT bars, made in the SCN, on ASPL is merely on assumption and presumption without any material evidence corroborating the said allegation. The demand of duty on ASPL, therefore, is not sustainable - As demand of duty itself is not sustainable, no interest or penalty could be imposed on ASPL as well as on other appellants on whom penalties were imposed under Rule 26 of the Central Excise Rules, 2002. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged suppression of production and clandestine removal of finished goods by Anant Steel Pvt. Ltd. (ASPL).
2. Validity and reliability of private records and statements as evidence.
3. Capacity of ASPL to manufacture the alleged quantities.
4. Cross-examination of witnesses.
5. Corroboration of evidence regarding clandestine activities.
6. Imposition of penalties on ASPL and other appellants.

Issue-wise Detailed Analysis:

1. Alleged Suppression of Production and Clandestine Removal:
The core issue was whether ASPL suppressed production and clandestinely removed finished goods without paying central excise duty. The department's case relied heavily on private records and statements obtained during searches. The show cause notice (SCN) alleged that ASPL suppressed in-house production of MS Ingots and Billets, leading to clandestine removal of TMT bars, resulting in a duty evasion of ?9,72,00,165/-.

2. Validity and Reliability of Private Records and Statements:
The Tribunal found that the entire case was based on private records seized from ASPL's premises and statements from various individuals. ASPL argued that these documents were fabricated by disgruntled ex-employees and were not reliable. The Tribunal noted that the private records were not found during an earlier search, raising doubts about their authenticity. The Tribunal emphasized that the Commissioner should not have solely relied on these documents without corroborating their genuineness through independent investigation.

3. Capacity of ASPL to Manufacture the Alleged Quantities:
ASPL provided evidence, including Chartered Engineer’s certificates, electricity bills, and Pollution Control Board certificates, to show that their production capacity was significantly lower than the quantities alleged in the SCN. The Tribunal agreed, noting that the maximum possible production from ASPL's furnaces was far less than the quantities recorded in the private weighment register. This discrepancy cast serious doubts on the allegations of suppressed production.

4. Cross-examination of Witnesses:
ASPL requested cross-examination of individuals whose statements were relied upon in the SCN. The Commissioner denied this request, citing delays. The Tribunal found this denial to be erroneous, emphasizing that cross-examination is a fundamental right in quasi-judicial proceedings. Without cross-examination, reliance on these statements was unjustified.

5. Corroboration of Evidence Regarding Clandestine Activities:
The Tribunal noted the lack of corroborative evidence to support the allegations of clandestine removal. The department did not conduct adequate investigations with named individuals in the private records, nor did they verify the capacity of ASPL to produce the alleged quantities. The Tribunal highlighted that mere entries in private records, without independent corroboration, could not substantiate the serious charge of clandestine removal.

6. Imposition of Penalties:
Given the lack of credible evidence to support the allegations, the Tribunal found that the demand for duty and the imposition of penalties on ASPL and other appellants were unsustainable. The Tribunal set aside the Order-in-Original, thereby nullifying the penalties imposed under Rule 26 of the Central Excise Rules, 2002.

Conclusion:
The Tribunal concluded that the allegations of clandestine manufacture and removal against ASPL were based on assumptions and lacked substantive evidence. The demand for duty, along with interest and penalties, was set aside, and all appeals were allowed with consequential relief. The judgment underscored the necessity of corroborative evidence and the right to cross-examination in establishing charges of clandestine removal.