2021 (10) TMI 585 - AT - Central Excise

Clandestine Removal - threshold limit of SSI Exemption - third party evidences reliable or not - cross-examination of witnesses - entire case was made out mainly on the basis of diaries which is marked as A/2 A/3, said to have been recovered from the appellant s factory - Department s case is that the appellant have clandestinely removed the goods consequently the value of SSI exemption limit has exceeded and appellant is not entitle for the SSI exemption - penalty - HELD THAT - The entries in the diaries include the entries of removal in respect of which the invoices were issued. The investigation agency have also recovered certain documents from the transporters, various statements were recorded mainly of Mr. Ashuram, Director of the appellant company and also of transporters and dealers, documents from weighbridge also recovered/withdrawn under panchnama. On the basis of these documents department has come to the conclusion that appellant have cleared the goods clandestinely. As regard the panchnama drawn in the factory for recovery of the document which included the vital documents i.e. diaries marked as A/2, and A/3, appellant have strongly submitted that it is not shown from where these diaries were recovered and from whose possession. Therefore, to this extent even the recovery of diaries marked A/2 A/3 is under suspicion. The Director has appeared before the investigation agency and given his statement. There are certain documents recovered from transporter and dealer and their statements were recorded. Since the appellant Director has categorically denied about the diaries A/2 A/3, the Adjudicating Authority was supposed to cross examine the witness such as transporters and dealers. They being a third party witness and records recovered from a third party evidence however, the Adjudicating Authority has denied the cross examination. Once the Director of the appellant company has clearly disowned the diary and contents therein, it is incumbent of the Adjudicating Authority to cross examine third party witness to bring the truth of the diary on record. However, by not allowing the cross examination, the Adjudicating Authority has violated the basic requirement of cross examination for admitting any evidence such as statement of third part. It is the settled law that in terms of section 9D, it is mandatory on the part of the Adjudicating Authority to cross examine the witness or admitting their statements as evidence. It is settled that statements of dealers and transporters and the documents recovered from them cannot be relied upon as evidence since, no cross examination have been carried out by the adjudicating authority from the dealers and transporters as mandated under Section 9 of the Central Excise Act therefore, without cross examination neither the statements nor the documents recovered from transporter and dealers can be relied upon. Since the statements on these persons have not been examined their statements cannot be relied upon. Therefore, neither the appellant s/company s name nor the full name of the director is appearing, merely because word Assu is appearing on the document cannot be concluded that this detail mentioned in the said document is related to the appellant. It is settled law that in absence of cross examination of witnesses whose statements were recorded under Section 14 of the Central Excise Act, 1944, unless and until those witnesses are cross examined, the statements given by them are not admissible evidence for deciding a case. Therefore, in the present case firstly all the evidences are third parties evidence and no cross examination in terms of Section 9D was allowed of the witnesses therefore, such evidences could not have been used for confirming the demand - the department has not further corroborated or investigated the manufacturing capacity of the plant and electricity consumption to reinforce their case that the appellant has a capacity to manufacture the quantity which was alleged to have been cleared clandestinely. For this reason also, clandestine removal is not established. The entire demand was made on the basis of documents recovered from appellant s premises, statement of director of the appellant company, document from weighbridge and documents from transport and dealers and their statements recorded under Section 14 of the Central Excise Act, 1944. The documents recovered from the appellant s premises i.e. Diaries in A/2 A/3 were not accepted by the appellant s director. The department also could not establish who is the author of that diary and no contents of the documents was revealed either by the Director of the company or any employee. Penalty - HELD THAT - Since the charge of clandestine removal against the main appellant M/s. Meera Pipes P. Ltd. are not established, the consequential penalties imposed against various persons will also not sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legitimacy of the panchnama dated 27.11.2013.
2. Admissibility of evidence and documents recovered during the investigation.
3. Denial of cross-examination of witnesses.
4. Establishment of clandestine removal of goods.
5. Imposition of penalties and fines.

Issue-wise Detailed Analysis:

1. Legitimacy of the Panchnama Dated 27.11.2013:
The appellant argued that the panchnama dated 27.11.2013 was not genuine, claiming that the entire process, including formalities, search, stocktaking, and segregation of records, was completed in an unusually short time, suggesting that the search was predetermined. The appellant also contended that no statement from any factory personnel was recorded during the search, and the director's denial of certain diaries was not considered non-cooperation.

2. Admissibility of Evidence and Documents Recovered During the Investigation:
The appellant challenged the admissibility of various documents, including diaries marked A/2 and A/3, recovered during the search. The director of the appellant company categorically denied ownership and authorship of these diaries. The appellant argued that documents recovered from third parties like transporters and weighbridges were not admissible without their admission or ownership by the appellant. The appellant cited several judgments to support their claim that documents and statements from third parties without cross-examination are not admissible evidence.

3. Denial of Cross-examination of Witnesses:
The appellant emphasized that the adjudicating authority denied cross-examination of witnesses, such as transporters and dealers, whose statements were heavily relied upon by the department. The tribunal noted that it is mandatory under Section 9D of the Central Excise Act to allow cross-examination of witnesses for their statements to be admissible as evidence. The tribunal cited several judgments reinforcing the necessity of cross-examination for the statements to be considered valid evidence.

4. Establishment of Clandestine Removal of Goods:
The tribunal found that the entire case of clandestine removal was based on the diaries A/2 and A/3, which were disowned by the appellant’s director. The adjudicating authority failed to establish the authorship of these diaries and did not allow cross-examination of third-party witnesses. The tribunal observed that without corroborative evidence such as manufacturing capacity, electricity consumption, and specific admissions from the appellant, the charge of clandestine removal could not be established beyond doubt. The tribunal referenced multiple judgments where similar demands were set aside due to lack of cross-examination and corroborative evidence.

5. Imposition of Penalties and Fines:
Since the charge of clandestine removal was not established, the tribunal concluded that the consequential penalties and fines imposed on the appellant and other individuals could not be sustained. The tribunal set aside the impugned order and allowed the appeals with consequential relief.

Conclusion:
The tribunal set aside the impugned order, allowing all appeals with consequential relief. The tribunal emphasized the importance of cross-examination of witnesses and corroborative evidence in establishing charges of clandestine removal. The judgments cited by the appellant were instrumental in the tribunal’s decision to rule in favor of the appellant.