2019 (1) TMI 315 - AT - Central Excise

Clandestine removal - parallel invoices - the demand is mainly based upon the handwritten pencil ledgers seized by the Revenue - statement of Shri Ravindra Singh relied upon which was later on retracted - Held that - On the basis of the computerized statement of clearances, which was made on the basis of illegible hand written ledgers and the statement of Shri Ravindra Singh, which stands retracted in his cross-examination, the demand cannot be made against the Appellant unit - further, no corroborative evidence has been brought on record to show transportation or procurement in the form of bilty receipts or goods receiving note by the recipient of the goods. We find that once the pencil written ledger entries were not legible, it was not possible to re-write the ledger and prepare ledger on the basis of such entries. Further, no statement of the supplier of the raw material has been recorded to show that the raw materials were supplied to the Appellant unit for manufacture of finished goods. When the Revenue has alleged huge evasion by clandestine clearances, it was obvious that there would have been discrepancy either in the stock of raw material or finished goods, which is absent in the present case. Demand on the basis of alleged clandestine removal under the cover of 8 parallel invoices - Held that - The Revenue has not shown either in the show cause notice or in the impugned order as to from where these invoices, which were photocopies, were retrieved by the Department. No Corroboration of these invoices are appearing on record. In such case when the authenticity of these invoices is in question and the same has not been substantiated by the Revenue, the demand made on the basis of such invoices does not sustain. Demand on job work activity undertaken by the Appellant - benefit of exemption notification has been denied to the Appellant on the ground that they have failed to maintain challan and register of such job work activity - Held that - When the Revenue themselves are of the view that the Appellant had undertaken the job work activity and the name of persons for whom such job work activity was undertaken, the Revenue should have investigated as to whether the principal manufacturer has paid the duty on the said finished goods or not - the benefit of exemption notification cannot be denied to an assessee on the ground of non-following the procedure - the demand against Appellant are not sustainable. The demand and penalty against the Appellant M/s Deepak Industries is not sustainable - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Alleged suppression of production and clandestine removal of goods.
2. Legibility and reliability of handwritten pencil ledgers.
3. Cross-examination of key witnesses.
4. Evidence of transportation and procurement.
5. Procedural lapses in job work activity.
6. Demand based on alleged parallel invoices.

Detailed Analysis:

1. Alleged Suppression of Production and Clandestine Removal of Goods:
The adjudicating authority confirmed a demand of ?4,48,20,768/- against M/s Deepak Industries for alleged suppression of production and clandestine removal of goods. The appellant was accused of not recording 33,351,715 MT of H.B. Wires/Binding Wires in their books and clearing them without paying central excise duty. The demand was based on pencil-written ledgers seized during a search, which contained details of unaccounted sales and purchases.

2. Legibility and Reliability of Handwritten Pencil Ledgers:
The appellant argued that the demand was based on illegible pencil-written ledgers, which were later computerized by the officers. The cross-examination of Shri Ravindra Singh revealed that these ledgers were not his documents and were prepared by the department. He claimed his statements were obtained under duress and were not voluntary. The tribunal found that the computerized statements, based on illegible handwritten ledgers, were unreliable and could not form the basis for the demand.

3. Cross-examination of Key Witnesses:
The appellant's request for cross-examination of key witnesses, including the author of the ledgers and alleged buyers, was denied by the adjudicating authority. The tribunal held that this denial was not legal and violated Section 9D of the Central Excise Act, which mandates the right to cross-examine witnesses whose statements are used against the appellant. The tribunal cited several judgments supporting the necessity of cross-examination to ensure the reliability of statements.

4. Evidence of Transportation and Procurement:
The tribunal noted the absence of corroborative evidence such as transport documents, statements from raw material suppliers, and records of extra power or labor usage. No discrepancy in raw material or finished goods was found during the officers' visit to the appellant's factory. The tribunal concluded that without such evidence, the allegations of clandestine removal could not be substantiated.

5. Procedural Lapses in Job Work Activity:
The demand for job work activity was based on the appellant's failure to maintain prescribed challans under the Cenvat Credit Rules, 2004. The tribunal held that procedural lapses alone could not justify the demand for duty, especially when there was no dispute about the job work. The revenue failed to investigate whether the principal manufacturer had paid the duty on the finished goods, which was crucial for confirming the demand.

6. Demand Based on Alleged Parallel Invoices:
The demand based on eight parallel invoices was questioned due to the lack of evidence regarding their origin. The invoices were photocopies and not seized from the appellant's premises. The tribunal found that the authenticity of these invoices was not substantiated by the revenue, rendering the demand unsustainable.

Conclusion:
The tribunal set aside the impugned order and allowed the appeal, concluding that the demand and penalty against M/s Deepak Industries were not sustainable due to unreliable evidence, procedural lapses, and denial of the right to cross-examine witnesses. The appeal was allowed with consequential reliefs.

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