2019 (4) TMI 929 - AT - Central Excise

Clandestine removal - supply of yarn to job workers for getting the fabric manufactured - it was found that some of the job workers and buyers were not traceable or existing or the sub job workers stated that they did not undertake the job work - HELD THAT - O nly on the ground that some job workers could not be found or that some of them refused to have done job work, it cannot be concluded that no activity of job work manufacturing of fabrics was undertaken. The transporter did not show as to where else their vehicles were deployed. Moreover the statement of few transporters that they did not transport the fabric cannot be a ground to hold that no fabric was manufactured as the main job workers have accepted the manufacture of fabric on job work. Even the clearance/ sale of fabric and duty payment thereupon is not under dispute - There are no evidences that job work charges paid by the Appellant to the job workers flowed back to them. Even if some of the buyers of the fabrics could not be found, it cannot lead to the conclusion that the Appellant did not sell the fabrics to such parties. I t cannot be said that the Appellant did not get manufactured the fabrics and instead diverted the yarn in the market. No single evidence has been adduced by the Revenue to show that the Appellant had cleared yarn from their factory for sale as such and thereby evaded central excise duty. Not a single buyer of yarn has been identified by the Revenue nor there are any statements of the employee, authorized signatory or the director of the Company that the Appellant had cleared any yarn clandestinely and it is coupled with the fact that no consideration has shown to have been received by the Appellant. There are no evidences of transportation of yarn from the Appellant s factory or its diversion. It is a settled law that the allegation of clandestine removal should be based upon clinching evidences whereas in the present case, not a single evidence of clearance and sale of Yarn by way of any evidence in the form of clearance of yarn, identification of buyers, receipt of consideration and any single paper supporting the allegation of the revenue has been found. The revenue could not produce any evidence of removal and sale of POY and hence the demand on alleged removal of same does not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of clandestine removal of yarn.
2. Evidence of job work and manufacturing.
3. Statements and cross-examination of witnesses.
4. Payment and receipt of job work charges.
5. Investigation and issuance of show cause notice.
6. Time-barred demand.
7. Corroborative evidence for clandestine removal.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Removal of Yarn:
The Revenue alleged that M/s Filatex India Ltd. showed the supply of yarn to job workers for fabric manufacturing under Rule 12B of the Central Excise Rules and cleared the fabric for sale on payment of duty. However, investigations revealed that some job workers and buyers were untraceable or denied undertaking the job work. Transporters also refused to have transported the fabric. It was alleged that the transactions were mere paper transactions, and the yarn was diverted and sold elsewhere without payment of duty.

2. Evidence of Job Work and Manufacturing:
The appellants contended that they had filed intimation with their jurisdictional division office and job workers before sending yarn for job work. The job workers acknowledged the receipt of yarn and cleared the fabric to buyers on payment of duty. Monthly returns in Form ER-1 were filed, showing the clearance of fabrics and payment of duty. Statements from job workers and records of job work charges paid, along with TDS deductions, were provided as evidence.

3. Statements and Cross-examination of Witnesses:
The appellants argued that statements of various persons were relied upon without complying with Section 9D provisions. They cited several judgments emphasizing the need for cross-examination. The statements of transporters and sub-job workers denying transportation or job work were challenged on the grounds that they were not subjected to cross-examination.

4. Payment and Receipt of Job Work Charges:
The appellants paid job work charges amounting to over ?4,01,72,785, with TDS deducted on such amounts. There was no allegation that these charges flowed back to the appellants. The appellants argued that the payment of job work charges and the acknowledgment of receipt of yarn by job workers indicated genuine transactions.

5. Investigation and Issuance of Show Cause Notice:
The investigation was carried out intermittently from December 2003 to November 2008, with the show cause notice issued on 08.06.2009. The appellants argued that the investigation was incomplete and half-hearted, and the show cause notice was issued based on incomplete investigation. An addendum to the show cause notice was issued on 15.04.2010, indicating ongoing investigation.

6. Time-barred Demand:
The appellants contended that the demand was time-barred as the show cause notice was issued beyond the normal period of limitation. They relied on the Supreme Court judgment in Modipon Fibre Company, arguing that the department was aware of the job work activities, and hence the extended period of limitation was not invokable.

7. Corroborative Evidence for Clandestine Removal:
The appellants argued that the charge of clandestine removal must be conclusively proved with corroborative evidence. They cited several judgments emphasizing that the demand cannot be sustained without positive and tangible evidence. The Tribunal found that there was no evidence of removal and sale of yarn, no identification of buyers, no receipt of consideration, and no evidence of transportation of yarn from the appellant’s factory.

Conclusion:
The Tribunal concluded that the demand against the appellant was not sustainable due to the lack of corroborative evidence. The appeal filed by the appellant and co-appellants was allowed, and the impugned order was set aside with consequential reliefs. The Tribunal emphasized that the charges of clandestine removal must be based on clinching evidence, which was absent in this case.