2022 (10) TMI 318 - AT - Central Excise

Clandestine Removal - documents recovered from a third party can be used against the manufacturer to prove clandestine removal - corroborative evidences or not - reliability on statements of witnesses - HELD THAT - It is settled law that documents recovered from a third party can be used against the manufacturer to prove clandestine removal only when these are supported with corroborative evidences. The Revenue has alleged that huge quantity of finished products have been manufactured and cleared clandestinely without payment of Central Excise duty. The booking register/loading register recovered from the business premises of transporter, no doubt, gives rise to suspicion that these are details relating to clandestine clearance of the goods - the clandestine manufacture and clearance alleged against the appellant is a very serious charge which needs to be proved by Revenue by producing tangible and reliable evidences. For clandestine clearance of such huge quantities of finished products, corresponding quantity of raw materials ought to have been procured by the appellant. From the records recovered from the Appellant s premises, there is no evidence of any physical receipt of raw materials used in production of such a huge quantity of finished goods. In fact on the date of search, no discrepancy was recorded in respect of stock of raw materials and finished goods vis-a-vis that recorded in statutory records. No single payment detail of clandestine sale has been brought on record. Nor there is any evidence of any excessive power consumption which is one of the vital factor otherwise required for the alleged large scale production. No document in the form of receipts of any cash or kind on account of clandestine clearance and sale of goods has been seized from the parties. No evidences of removal of excisable goods or procurement of raw materials and its consumption are on record. Clearly, there is also no evidence in the form of unaccounted procurement of raw materials, fuel, labour, receipts of unaccounted cash, etc. which are some of the basic parameters which have been laid down by Courts and Tribunals over a period of time for determining whether or not the allegation for clandestine removal is established. It is well settled law that though the statements carry good persuasive value but such untested statements cannot be made stand-alone basis for arriving at an adverse conclusion against the assessee. Though an admission or a statement is one of the important piece of evidence but the same has to bear the test of veracity through the tool of cross examination. Further, as per various decisions, it is well settled law that no reliance can be placed on the deponents statements unless he is allowed to be cross examined for testing the correctness of his statement - It is well settled law that clandestine removals cannot be arrived at based upon the confessional statement of other persons or the documents recovered from the third party premises, without corroboration of the said documents. The statements itself are not sufficient for holding so. No presumptions are available in respect of such documents unless they come from the proper custody and such documents raise serious doubts about their genuineness. Department has failed to prove the allegations against the appellant. The confirmation of duty demand along with interest and penalty against the appellant is, therefore, held to have been confirmed without any cogent basis. Order under challenge is, accordingly, hereby set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegations of clandestine clearance of goods without payment of duty.
2. Validity of evidence based on transporter's loading register.
3. Cross-examination of witnesses.
4. Reliance on third-party documents.
5. Confirmation of duty demand and imposition of penalties.

Issue-wise Detailed Analysis:

1. Allegations of Clandestine Clearance of Goods Without Payment of Duty:
The appellants were accused of clandestinely clearing 1126.193 MT of finished goods without payment of duty. The case was built on the basis of an intelligence report that suggested M/s Metal Gems were clearing goods without proper invoices and accounting. The investigation involved searches at the premises of M/s Metal Gems and M/s Moongipa Roadways Pvt. Ltd., leading to the seizure of several records and documents. Statements from various individuals, including employees and partners of the appellant, were recorded.

2. Validity of Evidence Based on Transporter's Loading Register:
The department's case relied heavily on the loading register maintained by M/s Moongipa Roadways Pvt. Ltd., which allegedly showed transportation of goods without proper invoices. However, the appellant argued that no incriminating evidence was found during the investigation at their premises. The loading register contained details of parties in abbreviated forms, and the department only investigated three out of the 63 code names, finding no corroborative evidence. The Tribunal noted that documents recovered from a third party could only be used against the manufacturer if supported by corroborative evidence, which was lacking in this case.

3. Cross-examination of Witnesses:
The appellants contended that the impugned order violated principles of natural justice as the department did not allow cross-examination of 14 out of 18 witnesses whose statements were relied upon. The Tribunal emphasized that untested statements could not be the sole basis for adverse conclusions. The right to cross-examine is crucial for testing the veracity of statements, and the denial of this right rendered the statements unreliable.

4. Reliance on Third-party Documents:
The Tribunal highlighted that demands could not be confirmed solely on the basis of third-party records without corroborative evidence. The case law consistently held that third-party documents must be supported by tangible evidence of clandestine manufacture and clearance. The Tribunal cited several judgments reinforcing that private records of third parties, without corroboration, could not substantiate allegations of clandestine removal.

5. Confirmation of Duty Demand and Imposition of Penalties:
The Tribunal found that the department failed to prove the allegations against the appellant. There was no evidence of procurement of raw materials, excessive power consumption, or unaccounted cash transactions. The Tribunal referred to established tests for proving clandestine removal, which were not met in this case. Consequently, the confirmation of duty demand, along with interest and penalties, was held to be without any cogent basis. The appeals were allowed, and the order under challenge was set aside. As the main demand was not sustainable, the penalties on co-appellants under Rule 26 of the Central Excise Rules, 2002, were also quashed.

Conclusion:
The Tribunal concluded that the department did not provide sufficient evidence to substantiate the allegations of clandestine removal. The reliance on third-party documents and untested statements without corroborative evidence was inadequate. The appeals were allowed, setting aside the duty demand and penalties.

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