2019 (1) TMI 1100 - AT - Central Excise

Clandestine manufacture and removal - manufacture of Gutkha out of short found raw materials and clandestine clearance of the same - validity of statements recorded during the investigation - the entire case is based on presumption that alleged shortage of one raw material, was the evidence to establish clandestine removal and evasion of duty - Held that - The revenue s case is based on statements and revenue s grounds are an attempt to establish as to how such statements are reliable for setting aside the impugned order. However, as recorded by the Original Adjudicating Authority many statements have been retracted and transporters have stated that they have never transported the goods manufactured by respondent - Further, revenue could not establish as to from where other raw materials were procured. Further, revenue could not establish actual manufacturer of Gutkha alleged to have been clandestinely removed - appeal dismissed - decided against Revenue.

Summary

Issues:
Appeal against Order-in-Original for alleged evasion of Central Excise duty based on shortage of raw materials, clandestine clearance of goods, and retraction of witness statements.

Analysis:
The appeal was filed by the revenue against Order-in-Original alleging evasion of Central Excise duty by the respondents, who were manufacturers of Gutkha. The case involved a search operation revealing discrepancies in raw material stock and ready-to-pack Gutkha. Subsequent investigations led to a show cause notice for alleged clandestine clearance and duty evasion. The matter was adjudicated earlier, remanded by the Tribunal for cross-examination, and re-adjudicated. The Original Adjudicating Authority found the demand largely based on theoretical calculations with insufficient evidence of clandestine clearance.

The Original Adjudicating Authority referenced legal parameters for proving clandestine clearances, emphasizing the need to establish manufacturing, procurement of raw materials, payment trails, power consumption, labor deployment, and cash recovery. However, the authority noted the lack of positive evidence, disproportionate activities, or worker statements to support the revenue's claims. Consequently, the proceedings for duty recovery of approximately ?1.35 crores were dropped.

The revenue appealed the decision, highlighting recorded statements and emphasizing their reliability. The respondent's counsel argued against the presumption of clandestine removal based on raw material shortages, citing the absence of provisions for stock maintenance or key ingredient declaration. They challenged the reliance on previous tribunal decisions and pointed out the failure to establish the procurement sources of other raw materials.

After considering both sides, the Tribunal upheld the Order-in-Original, noting retractions of statements, lack of evidence on raw material procurement, and failure to identify the actual manufacturer of the allegedly removed Gutkha. Consequently, the appeal by the revenue was dismissed, affirming the respondent's position. The respondent was granted consequential relief as per the law.