2024 (9) TMI 403 - AT - Central Excise

Clandestine manufacture and clearance of the finished goods (Structural Items/ Rolled Products) - allegation merely on the basis of Private Records of a Third Party (manufacturer of Billets) and Statements of persons who did not remain present for cross-examination - entire case is made on the basis of alleged receipt of clandestinely removed Billets by M/s Twenty First Century Wire Roads Ltd. - relevancy of third party statements - HELD THAT - There is no evidence of clandestine manufacture of appellant s final product. The revenue couldn t bring a single evidence of finished goods allegedly manufactured received by any buyer. There is not a single evidence of receipt of sale proceed against alleged clandestine manufacture and clearance of final product. No evidence of transport of any single consignment of alleged clandestinely removed goods was adduced. Third party's evidence is not sufficient to establish the clandestine removal of appellant s goods particularly when the said third party's statement was not examined under Section 9D of Central Excise Act, 1944 - By reading the Section 9D, it is clear that it is not the optional but mandatory to conduct the cross examination of the witnesses. Since in the present case no cross examination was allowed, the statements can not be relied upon which is the root of the evidence and in the absence of root tree cannot stand. It is a settled law that in absence of cross examination the statements cannot be relied upon as evidence as the same lose its evidentiary value - reliance can be placed in ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA-II 2015 (10) TMI 442 - SUPREME COURT where it was held that ' we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice.' Thus, the revenue could not establish it s case of clandestine removal. Hence the demand will not sustain. Accordingly, the impugned order is set aside and appeals are allowed.

Issues Involved:
1. Allegation of clandestine manufacture and clearance of finished goods based on private records of a third party.
2. Admissibility and reliance on statements of persons not cross-examined.
3. Violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Allegation of clandestine manufacture and clearance of finished goods based on private records of a third party:
The principal issue in the present appeals is whether the allegation of clandestine manufacture and clearance of finished goods (Structural Items/Rolled Products) can be established merely on the basis of private records of a third party (manufacturer of Billets) and statements of persons who did not remain present for cross-examination, particularly when there is no evidence of any buyers of the finished goods, payments received for the finished goods, and transportation of the finished goods.

The first appellant was engaged in the manufacture of M.S. Structural Items falling under Chapter 72 of the Central Excise Tariff. During a search conducted by DGCEI officers, private records maintained by Motilal Junwal, Accountant of TFCWRL, were recovered, which allegedly contained entries of clandestine supplies of Billets to the appellant made without payment of duty. The department alleged that based on these entries, 691.33 M.Tons of Billets were clandestinely manufactured and cleared by TFCWRL to the appellant without payment of duty, and the appellant subsequently manufactured and cleared 691.33 M.Tons of Structural Items/Rolled Products without payment of duty.

The appellant contested the show cause notice, arguing that no case for clandestine removal can be established merely on the basis of private records maintained by a third party in the absence of any evidence of clandestine manufacture/production by the appellant.

2. Admissibility and reliance on statements of persons not cross-examined:
The appellant argued that reliance on statements recorded by the department to arrive at a finding of clandestine removal is not tenable in law because the deponents of the statements were not examined as required by Section 9D of the Central Excise Act 1944. It was noted that none of the witnesses turned up for cross-examination, and as such, no reliance can be placed on their statements.

Section 9D of the Central Excise Act 1944 states that a statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness in the case before the Court. The adjudicating authority erred by violating the principles of natural justice by not conducting cross-examination of the witnesses.

3. Violation of principles of natural justice:
The adjudicating authority gravely erred by violating the principles of natural justice. The statement of the accountant of TFCWRL, which was the evidence relied upon by the revenue, cannot be accepted as evidence of clandestine removal because the cross-examination was not conducted. The revenue could not bring a single piece of evidence of finished goods allegedly manufactured and received by any buyer. There was no evidence of receipt of sale proceeds against the alleged clandestine manufacture and clearance of the final product. No evidence of transport of any single consignment of alleged clandestinely removed goods was adduced.

The Tribunal cited several judgments to support the appellant's case, emphasizing that in the absence of cross-examination, statements cannot be relied upon as evidence as they lose their evidentiary value. The Tribunal concluded that the revenue could not establish its case of clandestine removal, and hence the demand will not sustain. The impugned order was set aside, and the appeals were allowed with consequential relief.

Conclusion:
The Tribunal found that the revenue's case was based solely on the alleged receipt of clandestinely removed Billets by TFCWRL and the statements of third parties, which were not cross-examined. The absence of independent evidence from the appellant to support the revenue's allegation, the lack of evidence of clandestine manufacture, and the violation of principles of natural justice led to the conclusion that the demand could not be sustained. The appeals were allowed, and the impugned order was set aside.

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