2019 (11) TMI 305 - AT - Central Excise

Clandestine removal - manufacture of Pan Masala Gutkha bearing the brand name Shyam Bahar - opportunity to cross-examine - opportunity of personal hearing - it is alleged that the charges of clandestine removal are based on third party documents and based on the oral statements who were not cross-examined - HELD THAT - Since the said cross examinations were not conducted, the basis for conclusion of total quantity of Gutkha alleged to be clandestinely cleared has not been established. Further, wherever Zarda, Masala and Shyam Bahar was stated in the GRs and lorry challans the same was clandestinely removed Shyam Bahar Gutkha without payment of duty by the appellant has also not been established because the cross examination of the representatives of transporters was not allowed. We, therefore, hold that the clandestine manufacture and clearance of alleged quantity of gutkha is not established. The seized currency of about ₹ 4.38 crores cannot be held to be sale proceeds of clandestinely removed gutkha - the demand of Central Excise duty of about ₹ 7.17 crore is not sustainable - the confiscation of currency of ₹ 4.38 crores approximate is not sustainable - therefore, penalties are also not imposable interest is not recoverable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Legality of the demand for Central Excise duty.
2. Confiscation of seized currency.
3. Confiscation of seized goods.
4. Imposition of penalties on various parties.
5. Right to cross-examine witnesses.

Issue-wise Detailed Analysis:

1. Legality of the demand for Central Excise duty:
The demand for Central Excise duty of ?7.17 crores was based on alleged clandestine removal of "Shyam Bahar" Gutkha. The case relied heavily on third-party documents and statements from transport companies and suppliers. The Tribunal noted that the cross-examination of these witnesses was crucial to establish the basis for the duty demand. The Original Adjudicating Authority failed to ensure the presence of these witnesses for cross-examination, as directed by the Tribunal and affirmed by the Allahabad High Court. Consequently, the basis for the duty demand was not established, rendering the demand unsustainable.

2. Confiscation of seized currency:
The seized currency amounting to ?4,38,80,530/- was alleged to be the sale proceeds of clandestinely removed goods. The Tribunal emphasized that without establishing the clandestine manufacture and clearance of the Gutkha, the confiscation of the currency could not be justified. The Original Adjudicating Authority did not follow the Tribunal's directions to allow cross-examination of relevant witnesses, which was necessary to substantiate the claim that the seized currency was linked to the clandestine activity. Therefore, the confiscation of the currency was deemed unsustainable.

3. Confiscation of seized goods:
The confiscation of 85,008 pouches of Gutkha seized from the factory premises was also challenged. The Tribunal had directed that fresh samples of the seized goods should be tested through the Central Revenue Control Laboratory (CRCL) if still available. The Original Adjudicating Authority did not comply with this direction. Moreover, the Tribunal noted that the seized Gutkha had not attained the RG-1 stage (finished goods ready for sale) and thus could not be confiscated. Therefore, the confiscation of the seized goods was set aside.

4. Imposition of penalties on various parties:
Penalties were imposed on the appellant and other noticees based on the alleged clandestine removal of goods. Since the Tribunal found that the clandestine removal was not established due to the lack of cross-examination of key witnesses and the failure to follow procedural directions, the basis for imposing penalties was invalid. Consequently, the penalties were set aside.

5. Right to cross-examine witnesses:
The Tribunal and the Allahabad High Court had explicitly directed that the appellant should be allowed to cross-examine the witnesses whose statements were relied upon by the department. The Original Adjudicating Authority's failure to ensure this cross-examination violated the principles of natural justice and the specific directions given by higher judicial authorities. This failure was a significant factor in setting aside the duty demand, confiscation orders, and penalties.

Conclusion:
The Tribunal set aside the impugned order, holding that the demand for Central Excise duty, confiscation of currency, and penalties were unsustainable due to the failure to allow cross-examination of key witnesses and the lack of corroborative evidence. The appeal was allowed, providing consequential relief to the appellant.

← Previous Next →