2023 (11) TMI 677 - AT - Central Excise

Clandestine removal of undeclared manufactured sponge iron - lower declaration of the produced sponge iron to the extent of 11089.730 MT, during the period July 2006 to November 2009 - quantification of the alleged clandestine manufacture has been arrived at estimated production basis - admissibility of oral evidence - time limitation - HELD THAT - In the entire investigation, the Department has not brought out any evidence towards excess procurement of coal and dolomites. Since the coal is bought from the coal mine, proper records were kept both by the vendor as well as by the receiver. Such huge quantity of coal could not have been bought by way of cash. There is also no evidence towards deployment and movement of hundreds of vehicles to transport such huge quantity of coal and dolomite. Further, it is seen that no investigation has been taken up towards alleged sale of the huge quantity of Sponge Iron. No statements have recorded from any of the alleged purchasers of the finished goods. There is no allegation about recovery of any private records towards cash receipt/cash payment for the alleged clandestine transactions. In case of allegations of clandestine manufacture/sales, it is essential for the Department to bring in as much corroborative evidence as possible. Sub-section (1) of Section 9D sets out the circumstances in which a statement, made and signed before a Gazetted Central Excise Officer, shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the statement, which has been made during inquiry/investigation, before a Gazetted Central Excise Officer, cannot be treated as relevant for the purpose of proving the facts contained therein - the evidentiary value of the statement, insofar as proving the truth of the contents thereof is concerned, is, therefore, completely lost, unless and until the case falls within the parameters of Section 9D(1). There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the Gazetted Central Excise officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word shall in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory. In the absence of the corroborative evidence, particularly taking into account that the entire estimated production has been arrived at based on certain formula with no statutory backing, there are no merits in the OIO passed by the Adjudicating Authority. Accordingly, the impugned order set aside on merits. Time Limitation - HELD THAT - There are force in the arguments of the Appellant that the Show Cause Notice has been issued after 1 years 4 months from the date of receipt of the officials to the Appellant s factory. There is no documentary evidence placed that such delay was caused by any non-cooperative attitude of the Appellant. Therefore, the confirmed demand is required to be set aside even on account of limitation also. The Appeal is allowed both on merits as well as on account of limitation.

Issues Involved:
1. Demand based on "Estimated Production" vs. "Actual Production"
2. Technological impossibility without consumption of other raw materials
3. Lack of tangible evidence for clandestine production/removal
4. Admissibility of statements under Section 9D of CEA, 1944
5. Relevance of "Process Log Book"
6. Limitation period for issuing Show Cause Notice

Summary:

1. Demand based on "Estimated Production" vs. "Actual Production":
The Appellant argued that no duty can be demanded on "Estimated Production" but only on "Actual production." They contended that the charge of clandestine production and removal cannot be sustained on theoretical calculations. The Tribunal noted that the demand was based on a formula for estimated production, which lacked statutory backing and legal sustainability. The Tribunal referred to case laws (Mittal Pigment Pvt. Ltd., Nav Karnataka Steels Pvt. Ltd.) that emphasized the need for corroborative evidence beyond theoretical calculations.

2. Technological impossibility without consumption of other raw materials:
The Appellant highlighted that the production of Sponge Iron requires Iron Ore, Coal, and Dolomite. The Department failed to provide evidence of excess procurement of Coal and Dolomite, which are essential for producing the alleged excess Sponge Iron. The Tribunal found that the Department did not consider the consumption of these materials or the transportation logistics, making the allegations technologically and practically unsustainable.

3. Lack of tangible evidence for clandestine production/removal:
The Appellant argued that there was no tangible, cogent, corroborative evidence for the charge of clandestine production/removal. The Tribunal agreed, noting the absence of evidence for excess purchase, transportation, sales, and cash transactions related to the alleged clandestine activities. The Tribunal emphasized the need for substantial corroborative evidence in such cases, which was lacking here.

4. Admissibility of statements under Section 9D of CEA, 1944:
The Appellant contended that statements recorded were irrelevant due to non-compliance with Section 9D of the Central Excise Act, 1944. The Tribunal referred to the Punjab and Haryana High Court ruling in G. Tech Industry Vs. Union of India, which mandated strict adherence to Section 9D for statements to be admissible. The Tribunal found that the procedure under Section 9D was not followed, rendering the statements inadmissible.

5. Relevance of "Process Log Book":
The Appellant argued that the "Process Log Book" was extraneous material. The Tribunal did not find substantial discussion on this issue in the judgment, indicating that it was not a significant factor in their decision.

6. Limitation period for issuing Show Cause Notice:
The Appellant argued that the Show Cause Notice issued on 18/02/2011 for the period July 2006 to November 2009 was time-barred. The Tribunal agreed, noting that the demand was confirmed after more than one year and four months from the date of the officials' visit, with no evidence of delay caused by the Appellant. The Tribunal held that the confirmed demand was required to be set aside on account of limitation.

Conclusion:
The Tribunal set aside the impugned order on both merits and limitation, allowing the Appeal and granting the Appellant consequential relief as per law. The judgment emphasized the necessity of corroborative evidence and adherence to statutory procedures in cases of alleged clandestine production and removal.

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