2018 (11) TMI 912 - AT - Central Excise

Clandestine removal - whether huge duty demand can be confirmed merely on the basis of information provided by the Railways and as to whether the duty demand can be confirmed without examining and relying on the original copies of the RRs? - demand also on the basis of the charts relied upon by the Revenue which has been stated to be prepared on the basis of the records seized from the transporters. Held that - The allegation of clandestine removal of finished goods is a very serious charge and required to be proved with independent, corroborative, tangible and affirmative evidence. In all these appeals, it has been presumed by the department that all the six manufactures had received unaccounted quantity of Iron Ore through Railway Sliding at Uslapur. The Sr. Divisional Commercial Manager of South East Central Railway vide his covering letter dated 5-03-2008 had given a list of 156 consignments, which has been made relied upon Documents as evident from the SCN and paper book submitted by the Appellant. In the case of M/s. SPIPL the said chart appears to have been prepared by the Revenue itself. And not by the Railway Authority. In absence of original RRs the Revenue cannot allege it could not be as to which of the Appellants had actually lifted the Iron Ore. It was, therefore, absolutely necessary that the department should have obtained original copies of RRs and examined the same to arrive at a definite conclusion regarding the party which actually lifted the Iron Ore from the endorsements carried out in the said RRs and should have examined as to whether a particular manufacturer/ Appellants had entered the said quantity in their statutory records or not. Further, no reliance can be placed on the said chart as in respect of 98 RRs out of total 156 RRs, there is no entry under the column endorsement as this column has been left blank. Regarding the allegation and finding about the receipt of unaccounted quantity of Iron Ore on the basis of records of M/s. Gyan Singh, no basis whatsoever has been given in the show cause notice. It has merely been alleged that certain entries as shown in the chart were regarding receipt of Iron Ore by the respective parties on the basis of records seized from M/s. Gyan Singh and not accounted for in the statutory records. It has already been noted hereinabove that records of M/s. Gyan Singh have not been relied upon in the show cause notice. The records of the transportation is sufficient enough to fasten the appellant with the aforestated demands, unless corroborated with the other evidence, which Revenue has not been successful in doing so. There are plethora of judgments wherein it has been held that duty cannot be demanded on theoretical calculation. It has been held that in order to prove clandestine removal the department has to bring on record independent and corroborative evidence - the cases of clandestine removal cannot be made out merely on the basis of receipt of one raw material when in order to manufacture final product several other raw materials are also required. Demand of ₹ 16,89,789/- from M/s. PIPL on a quantity of 1367.62 MT of Sponge Iron. It has been contended by the learned Counsel that the said demand is based upon certain private records. They had requested for the cross-examination of Shri Shailendra Kumar Thawait, Manger (Accounts), M/s. Phil Ispat P. Ltd. Bilaspur, Shri P.S. Rao, General Manager (Plant), M/s. Phil Ispat P. Ltd., Bilaspur, Shri Amit Patel, Laboratory Assistant, M/s. Phil Ispat P. Ltd., Bilaspur, Shri Niveet Mittal, Ex-Director, M/s. Phil Ispat P. Ltd., Bilaspur, Shri Pradeep Jha, Ex-Director M/s. Phil Ispat P. Ltd., Bilaspur, and Shri Manoj Sharma, General Manager (Commercial), M/s. Phil Ispat P. Ltd. - It is noted that there is no independent finding by the Adjudicating Authority on this part of the duty demand - the matter requires to be remanded back to the Adjudicating Authority. Clandestine removal - sponge iron - Held that - Since in these appeals there is no evidence of clearance of finished goods duty demand on the Sponge Iron cannot be sustained. Appeal disposed off.

Issues Involved:
1. Alleged receipt of unaccounted Iron Ore by manufacturers.
2. Basis of duty demand on Sponge Iron.
3. Reliability of records and statements from transporters.
4. Evidence of clandestine removal and manufacture of Sponge Iron.
5. Cross-examination of key witnesses.
6. Confirmation of duty demands and imposition of penalties.

Issue-wise Detailed Analysis:

1. Alleged Receipt of Unaccounted Iron Ore:
The Revenue alleged that the manufacturers received unaccounted Iron Ore based on information from Railways and records seized from transporters M/s. Gyan Singh and M/s. Amit Roadlines. However, the Tribunal found that the evidence provided by the Railways was insufficient and unreliable. The charts prepared by the Revenue lacked endorsements and had inconsistencies, such as showing the same party as both consignor and consignee. Without original Railway Receipts (RRs), it was impossible to determine which party lifted the Iron Ore. The Tribunal concluded that the information from Railways and transporters could not be solely relied upon to prove receipt of unaccounted Iron Ore.

2. Basis of Duty Demand on Sponge Iron:
The duty demand was based on the input-output ratio, assuming that 1.6 MT of Iron Ore is required to produce 1 MT of Sponge Iron. The Tribunal found this approach unscientific and theoretical. The manufacturers argued that the yield of Sponge Iron depends on the quality of raw materials, which was poor in their case. The Tribunal noted that the Revenue did not provide any scientific basis for their formula and did not consider the quality of raw materials used by the manufacturers.

3. Reliability of Records and Statements from Transporters:
The Tribunal held that the records of M/s. Gyan Singh and M/s. Amit Roadlines were not reliable. The statements from the transporters' representatives were not corroborated by independent evidence. The Tribunal emphasized that the records of third parties (transporters) could not be used to substantiate the allegations without further investigation and corroboration.

4. Evidence of Clandestine Removal and Manufacture of Sponge Iron:
The Tribunal highlighted the lack of evidence for clandestine removal. There was no proof of extra procurement of other essential raw materials like Coal and Dolomite. The Tribunal noted the absence of evidence for labor charges, transportation, and delivery of the alleged clandestinely manufactured Sponge Iron. The allegations were based on assumptions and lacked independent, corroborative, and tangible evidence.

5. Cross-examination of Key Witnesses:
The Tribunal found that the cross-examination of key witnesses like Sh. Dilip Kumar Markam was crucial. Since he had died, his statements could not be tested. The Tribunal noted that his statements were general and did not implicate any specific manufacturer. The Tribunal also considered the cross-examination of Sh. Gyan Singh, who denied receiving any freight charges in cash, contradicting the Revenue's claims.

6. Confirmation of Duty Demands and Imposition of Penalties:
The Tribunal set aside the duty demands and penalties imposed on the manufacturers and individuals. It held that the duty demands were based on unsubstantiated theoretical calculations and unreliable evidence. The Tribunal emphasized the need for independent and corroborative evidence to prove such serious allegations of clandestine removal.

Conclusion:
The Tribunal allowed the appeals, setting aside the duty demands and penalties. It remanded the case for re-adjudication of the demand based on private records, directing the Adjudicating Authority to allow cross-examination of witnesses and follow principles of natural justice. The Tribunal reiterated that allegations of clandestine removal must be supported by concrete evidence, not mere assumptions or theoretical calculations.

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