2019 (11) TMI 240 - AT - Central Excise

Clandestine removal - clandestine purchase of texturized yarn, 43920.310 kgs under 7 bills, and clearance of dyed yarn made out of the same without payment of duty - Substantial evidence present or not - benefit of N/N. 5/1999 dated 28.02.1999 - principles of natural justice - HELD THAT - It is not understood as to how the Original Authority and the Appellant Authority have given a finding that the concerned persons of the Appellants have accepted their guilt. It is seen from the Show Cause Notice that Shri Jayesh Pathak did not provide the copy of the bank account statement. This being the case it appears that the allegation is built up by the department only on the basis of the sales register, delivery orders and ledger of the supplier of texturized yarn. This at best is a third party evidence. No corroborate to evidence has been pla Though it can be argued that the cases of evasion cannot be proved with mathematical precision, at the same time the same cannot be sustained with a single evidence that too found in some other premises. The charge of clandestine removal is a serious charge and requires to be substantiated by completing the chain of procurement of raw material, use of other raw material, electricity consumption, labour charges, manufacture of final products, sale of final products, transportation of final product and financial transaction - In the instant case no trace of evidence, even on sample base, has been adduced to complete the chain and prove the allegation. It is not the case of the department that there were discrepancies in the stock in the factory premises of the appellants. The allegation cannot be sustained by negative application i.e. just by alleging that the appellants have not maintained any records for receipt of the texturised yarn alleged to have been received by the appellants. No other evidence, except for the entries in the sales register of another company, to show receipt of raw material, use of other material, labour and fuel and clandestine manufacture and removal, has been put forth by revenue. That being the case we are doubtful if a case of clandestine removal can be sustained. Benefit of concessional of rate of duty as contained in notification No.5/99 - HELD THAT - The side making allegation has to prove and not the other way round. However, as we have held that the charge of clandestine removal is not sustainable, we find that there is no need to go into the merits of alternate arguments as submitted by the appellants. We also find that as the duty demand itself is held to be non sustainable, penalties on the director and the company need to be accordingly set aside. Appeal allowed - decided in favor of appellant.

Issues:
1. Allegations of clandestine purchase and removal of goods without duty payment.
2. Applicability of exemption under notification 5/1999 dated 28.02.1999.
3. Acceptance of guilt by the seller and purchaser.
4. Evidence required to substantiate charges of clandestine removal.
5. Comparison of legal precedents cited by both sides.

Analysis:

Issue 1: Allegations of Clandestine Purchase and Removal
The case revolved around the central issue of whether the appellants engaged in clandestine activities by purchasing texturized yarn without duty payment and subsequently clearing dyed yarn made from the same. The revenue alleged that the appellants received a specific quantity of white texturized yarn from a supplier, processed it, and clandestinely removed the final product. However, the evidence provided by the revenue was primarily based on third-party records and lacked direct proof of receipt, manufacturing, and clearance of goods by the appellants. The tribunal highlighted the seriousness of the charge of clandestine removal and emphasized the need for a complete chain of evidence to substantiate such allegations.

Issue 2: Applicability of Exemption under Notification 5/1999
The appellants argued that they were eligible for exemption under notification 5/1999, which allowed a concessional rate of duty. They contended that the goods purchased were duty-paid and provided evidence to support their claim. The tribunal, after finding the charge of clandestine removal unsustainable, did not delve into the merits of this alternate argument. As the duty demand itself was deemed non-sustainable, penalties imposed on the director and the company were set aside.

Issue 3: Acceptance of Guilt
The lower authorities had recorded findings that the seller and purchaser had accepted their guilt, based on certain statements and records. However, the tribunal observed discrepancies in the evidence and concluded that the allegation of acceptance of guilt was not substantiated. The appellants' history of approaching the settlement commission in a related matter was viewed as a sign of their bonafides rather than establishing them as habitual offenders.

Issue 4: Evidence Required for Substantiating Charges
The tribunal emphasized the importance of corroborative evidence to prove allegations of clandestine activities. It noted the lack of direct evidence linking the appellants to the purchase, manufacturing, and clearance of goods. The absence of concrete proof, beyond entries in a sales register, raised doubts about the validity of the allegations.

Issue 5: Comparison of Legal Precedents
The authorized representative for the department cited several legal precedents to support their arguments. However, the tribunal found that the cited cases did not align with the specific facts of the present case. It emphasized the need to derive legal principles from the facts of each case, as established by the Supreme Court in the case of Toyota Kirloskar Motor Pvt. Ltd. The tribunal concluded that the legal precedents cited were not directly applicable to the current matter.

In conclusion, the tribunal allowed both appeals filed by the appellants, highlighting the lack of substantial evidence to support the allegations of clandestine removal and the consequent inapplicability of duty demands and penalties. The judgment underscored the necessity of concrete evidence and a complete chain of proof in establishing charges of clandestine activities in excise matters.

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