2020 (11) TMI 434 - AT - Central Excise

Clandestine manufacture and removal - MS Ingots - Excess consumption of electricity - third party evidences - corroborative evidences or not - demand based on assumption and preseumption - demand of Central Excise duty along with imposition of Personal Penalty - xtended period of limitation - HELD THAT - It is found that the demand has been confirmed only on the basis of the unsubstantiated evidence being the private records of the two brokers viz. M/s.Monu Steels and Kailash Traders and the statement of their proprietors. Further, it is found that the author of private records of M/s. Monu Steels - Mr. Bal Mukund was never examined by the Revenue. Further, M/s. S.K. Pansari during his cross examination has admitted that the said records were maintained under his instructions by Shri Bal Mukund Pansari. Further, Revenue have failed to find out any inconsistency in the records of the appellant, nor there is any seizure of any consignment of goods being raw materials or finished goods, being transported without the documents or clandestinely. It is also observed that although the third party records are good evidence of suspicion of clandestine activity, but the same cannot be adopted for concluding the charge of clandestine removal in the absence of corroborative evidence. Further, in spite of the names being found of the parties, to whom the alleged clandestine removal has been despatched, there is no further inquiry made from the alleged receivers of goods - the demand against the appellant is not sustainable, in absence of sufficient evidence of clandestine manufacture and removal of the goods. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegation of clandestine manufacture and removal of goods.
2. Demand of excise duty and imposition of penalties.
3. Validity of evidence based on third-party documents and statements.
4. Examination of electricity consumption as evidence of clandestine production.
5. Cross-examination of witnesses and reliability of their statements.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Manufacture and Removal:
The appellant company and its Director were accused of clandestine manufacture and removal of M.S. Ingots, Runners & Risers, and Steel Shots and Grits, leading to a demand of ?41,76,213 in excise duty along with an equal penalty. The Revenue, acting on intelligence, conducted searches and inquiries, which led to the seizure of incriminating documents and cash from M/s. Monu Steels, a broker. The broker's records indicated that the appellant had allegedly cleared M.S. Ingots without paying excise duty.

2. Demand of Excise Duty and Imposition of Penalties:
The Revenue issued a show-cause notice demanding duty of ?6,77,53,407 for the alleged suppressed production and clearance of 19084.853 MT of M.S. Ingots during 2005-2006 to 2009-2010. Penalties were proposed under Section 11 AC and Rule 25 of the Central Excise Rules, 2002, with personal penalties on the Director and brokers under Rule 26. The adjudicating authority confirmed a duty of ?41,76,213 on 1415.914 MT of ingots, imposing equal penalties on the appellant and a ?50,000 penalty on the Director.

3. Validity of Evidence Based on Third-Party Documents and Statements:
The appellant contested the demand, arguing that it was based on third-party documents and statements without corroborative evidence. The Tribunal noted that the demand was confirmed solely on unsubstantiated evidence from the private records of brokers M/s. Monu Steels and Kailash Traders, and the statements of their proprietors. The Tribunal emphasized that the author of the records, Mr. Bal Mukund Pansari, was never examined, and no confessional statements from suppliers were obtained.

4. Examination of Electricity Consumption as Evidence of Clandestine Production:
The Revenue estimated production based on electricity consumption, assuming 830 units per MT of ingots. The appellant argued that electricity consumption varied due to factors like raw material quality, unskilled labor, and equipment breakdowns. The Tribunal found that the adjudicating authority had dropped the proposed demand based on electricity consumption, relying on precedent cases where such assumptions were deemed insufficient for concluding clandestine production.

5. Cross-Examination of Witnesses and Reliability of Their Statements:
During cross-examination, Mr. S.K. Pansari admitted that the records were maintained by his nephew, who had died, and their accuracy was not verified. The Tribunal observed that while third-party records could indicate suspicion, they could not conclusively prove clandestine removal without corroborative evidence. The Tribunal found no further inquiry was made from the alleged receivers of goods, and no inconsistencies were found in the appellant's records.

Conclusion:
The Tribunal allowed the appeals, setting aside the demand and penalties, citing insufficient evidence of clandestine manufacture and removal. The Tribunal emphasized the need for corroborative evidence beyond third-party documents and statements to substantiate such allegations. The appellants were entitled to consequential benefits in accordance with the law.

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