2019 (8) TMI 125 - AT - Central Excise

Clandestine removal - main case of revenue is based on decoding of the information from 31 small spiral pads and nine files containing loose papers recovered from the residential premises of Shri Subodh Gupta - HELD THAT - Applying the ruling of Hon ble Allahabad High Court in the case of Commissioner of Central Excise, Meerut-I Vs Parmarth Iron Pvt. Ltd. 2010 (11) TMI 109 - ALLAHABAD HIGH COURT the evidence recovered from Shri Subodh Gupta is not admissible in the present case. For that reason also the clandestine manufacture and clearance by M/s Mayank Metals, M/s Shivam Metals and M/s Vasudev Udyog is not establish. The case of revenue is that SMS received raw material clandestinely cleared by M/s Mayank Metals, M/s Shivam Metals and M/s Vasudev Udyog and manufactured Copper Wires and Copper Strips and cleared the same without payment of duty. Since it is establish that M/s Mayank Metals, M/s Shivam Metals and M/s Vasudev Udyog did not clear Copper Ingots in clandestine manner to SMS, therefore, receipt of raw materials by SMS is not established. Further, revenue has not brought on record any other source of receipt of non duty paid raw material by SMS - Further, the only evidence against SMS was said 31 small spiral pads and 9 files containing loose papers recovered from the residential premises of Shri Subodh Gupta. Shri Subodh Gupta appeared before the Original Adjudicating Authority on 01.02.2018 and was not offered for cross examination. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegations of clandestine manufacture and removal of Copper Wires and Copper Strips by M/s Sandeep Manufacturing Strips (SMS).
2. Recovery of Central Excise duty from SMS and associated penalties.
3. Allegations against M/s Mayank Metals, M/s Shivam Metals, and M/s Vasudev Udyog for supplying Copper Ingots without invoices.
4. Admissibility of evidence based on statements and documents recovered from third parties.
5. Violation of principles of natural justice and cross-examination rights.

Issue-wise Detailed Analysis:

1. Allegations of Clandestine Manufacture and Removal by SMS:
The case revolved around the alleged clandestine manufacture and removal of Copper Wires and Copper Strips by SMS. The investigation revealed that SMS received non-duty paid Copper Ingots from M/s Mayank Metals, M/s Shivam Metals, and M/s Vasudev Udyog. The revenue's case was primarily based on documents recovered from the residence of Shri Subodh Gupta, an employee of SMS, which included 31 small spiral pads and 9 small files containing loose papers. Statements from various individuals, including representatives of the ingot suppliers, were also recorded, indicating that these transactions were conducted without invoices and on a cash basis.

2. Recovery of Central Excise Duty and Penalties:
A show cause notice was issued demanding Central Excise duty of ?6,71,05,300 from SMS, along with proposals for recovery of interest and imposition of penalties on all appellants. The demand was based on the alleged clandestine activities and the decoded information from the documents found at Shri Subodh Gupta's residence. However, the appellants contested these findings, arguing that the evidence was uncorroborated and that the statements were obtained under duress.

3. Allegations Against Ingot Suppliers:
Separate show cause notices were issued to M/s Mayank Metals, M/s Shivam Metals, and M/s Vasudev Udyog, demanding Central Excise duties based on the decoded information from the documents. These suppliers were accused of supplying Copper Ingots without invoices to SMS. During cross-examination, representatives from these companies denied any transactions with SMS and claimed that their earlier statements were made under coercion.

4. Admissibility of Evidence:
The appellants argued that the entire demand was based on uncorroborated private records recovered from third parties and statements that were not voluntary. They cited the ruling by the Hon'ble Allahabad High Court in Commissioner of Central Excise, Meerut-I Vs M/s Parmarth Iron Pvt. Ltd., which held that statements could not be relied upon if the individuals were not made available for cross-examination. The tribunal noted that the revenue did not produce any evidence of procurement of raw materials, excess production, dispatch, transportation, or realization of sale proceeds, which are necessary to establish clandestine removal as per the ruling in Continental Cement Vs Union of India.

5. Violation of Natural Justice and Cross-Examination Rights:
The tribunal observed that the Original Adjudicating Authority did not allow the cross-examination of Shri Subodh Gupta, despite him appearing before the authority. This was a violation of the tribunal's earlier directions and the principles of natural justice. The tribunal emphasized that without cross-examination, the evidence collected from Shri Subodh Gupta was inadmissible.

Conclusion:
The tribunal set aside the impugned orders, noting that the clandestine manufacture and removal by SMS and the ingot suppliers were not established. The evidence relied upon by the revenue was deemed inadmissible due to the lack of cross-examination and corroboration. All seven appeals were allowed, and the demands and penalties were quashed.

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