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TMI Blog2015 (9) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... k in 1992. The long drawn process of adjudication over a period of 12 years was followed by the judicial review process for another 10 years. Sending the case back to the CESTAT for a fresh determination would prolong the case interminably. The question of now producing persons whose statements were recorded 23 years after the event for cross-examination is impractical and not feasible. Secondly, no fresh material has to be brought on record to warrant a re-look. The Court is satisfied that the existing material is insufficient to sustain the adjudication order of the CCE on the issue. Court set asides the impugned majority order of the CESTAT on the issue concerning the alleged clandestine removal of the 606 ACs by the Appellant and hereby quashes the corresponding demand - Court in regard to the removal of 606 ACs is accordingly answered in favour of the Assessee and against the Revenue. - impugned majority order of the CESTAT as regards the issue of the clandestine removal of 24 ACs with the corresponding duty demand of ₹ 3,16,800 is hereby affirmed. - Decided partly in favour of assessee. - CEAC 6/2013 - - - Dated:- 17-9-2015 - S. Muralidhar And Vibhu Bakhru, JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of some of the persons who purportedly purchased ACs from the Appellant as well of the representatives of M/s. Sri Ram Refrigeration, Hyderabad ('SRR') and M/s. Kirloskar Brothers Ltd., Pune ('KBL'). The Department served the Appellant with a Show Cause Notice (SCN) dated 27th August, 1992 calling upon the Appellant to show cause why: (a) 36 ACs valued at ₹ 7,92,000/-, 4 deep freezers valued at ₹ 41,500/- and four fan motors valued at ₹ 1,600/- seized from their factory premises should not be confiscated under the provisions of Rule 173Q and 226 of Central Excise Rules, 1944 (CE Rules). (b) Central excise duty amounting to ₹ 3,16,800/- on 24 ACs cleared by them on 27th February 1992 without payment of central excise duty should not be demanded and recovered from the under provisions of Rule 9 (2) read with Section 11A of CE Act. (c) Duty leviable on ACs amounting to ₹ 58,44825/- as worked out in Annexures XXVIII for the period from 88-89 to 89-90 in addition to duty on 36 ACs amounting to ₹ 3,53,640/- show in para 17(i) to 17(xx) should not be recovered under the provisions of Rule 9(1) read with Section 11A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter its accounts, excise, banking and other matters and had been reporting both to Mr Pradeep Khanna as well as Mrs Neera Khanna. Inter alia, a reference was also made to the statement recorded of Mr Shiv Prasad, Manager (Marketing) of KBL on 4th June, 1992 regarding supply of compressors to the Appellant as an OEM. It was suggested that the Appellant being an OEM of ACs could not have traded in compressors without KBL and its other dealers coming to know of it. Replies to the SCN 10. In the interim reply dated 31st January, 1995 to the SCN, the Appellant, inter alia, sought the cross-examination of the persons whose statements were referred to therein. It was stated with reference to para 17 and para 18 of the SCN as under: In para 17 from page 10 to 16, a number of inquiries been referred to level allegations contained in para 18. In this regard, it is submitted that all these enquiries are misleading. This will be proven by us when each of the persons cited in para 17 is allowed to be cross-examined by us. Explanation against each sub-para under para 17 shall be submitted only after the cross-examination is over. We could have attempted to give explanations for each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e found in excess or any such quantity was not properly accounted for so as to infer the manufacture of such a huge quantity of ACs as alleged in the SCN. 14. The Appellant pointed out in the reply that there was nothing on record to show if the statement of any worker or supervisor or any document recovered from the premises of the proprietor which could show clandestine clearance of 606 ACs as alleged in the SCN. Neither the raw material for manufacture of such a huge quantity was established by the Department nor any statement recorded of any worker or supervisor to confirm the monthly sale of such a large number of ACs for the years 1988-89 and 1989-90. It was further pointed out that as per the SCN, the Appellant was supposed to have sold ACs in the price range of ₹ 12,000 to ₹ 18,000 per piece whereas at such price it is not possible to sell ACs. Therefore, the sale of compressors could not be connected with the alleged sale of ACs. The conclusions in the SCN were purely on the basis of surmises and conjectures. 15. The Appellant also furnished for each of the year 1988-89 and 1989-90 statements showing item wise sale proceeds receipts in respect of heat con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ACs as the aggregated value of clearances of all excisable goods from Thermoking, Jass Kann and Thermotech had exceeded the laid down eligibility limit. 19. Further from the scrutiny of records and random enquiries it had been found that the Appellant had manufactured and removed clandestinely 36 ACs illicitly without following the Central Excise procedure. The Appellant had cleared goods without bills/gate passes ( GPs ); they had been manufacturing and removing ACs in the guise of gas compressors and extra payments had been reflected in the ledger without the corresponding bills; the Appellant had been raising invoices but no corresponding excise GPs were issued and the Appellant even issued bills in triplicate sets bearing the same serial number. Reference was made to the statements of Mr. Shiv Prasad of KBL, Mr. Subba Rao of SRR and Mr. Pradeep Bhargava. 20. The CEE concluded that the Appellant had contravened the provisions of Rules 9(1), 52A, 53, 173B, 173F, 173G and 226 in as much as it did not record the correct production of ACs in the excise records and cleared the same without payment of excise duty leviable thereon. 21. The further findings rendered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cross-examination, the CCE referred to the decision in Kanungo Co. v. C.C. Calcutta 1983 ELT 1486 (SC) to hold that there was no provision in the Central Excise law for providing opportunity to cross-examine a witness. It was held that if the Appellant s request for cross-examination of a large number of persons was granted it would have taken the case to an unending process. According to CCE, the Appellant had by its letter dated 3rd February 2002 shortlisted the number of persons and named specific witnesses for the cross-examination. It was held that under Section 9D of the Act, a statement made before a Central Excise Officer would be admissible under certain circumstances. According to the CCE, the statement of a person who had not been produced for cross-examination did not lose evidentiary value if the content thereof is supported by other corroborative evidence. In the present case the statement of Mr. Pradeep Bhargava about the diversion of the compressors of M/s. Thermoking to the Appellant even if retracted is corroborated by the fact that an independent case has been made out against Thermoking, which undoubtedly is not solely on Shri P. Bhargava s statement s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho heard the appeal. 27. The findings of the Member (Judicial), Ms. Wadhwa were as under: (i) The entire demand on account of allegation of clandestine removal was made on the basis of entries in the ledger account. The price range of the goods reflected in the ledger account was that of compressors. Apart from the retracted statements of Mr. Bhargava and the statements of the representatives of KBL and SRR there was no direct evidence of manufacture of such huge quantities of ACs in the Appellant s factory. The mere fact of non-obtaining of a permission could not lead to a conclusion that the goods traded in the market were not compressors but the ACs which were manufactured and clandestinely removed by the Appellant. (ii) The list of buyers provided by the Appellants could not have been rejected merely because the details of the buyers addresses were not given or that the bills were in the names and surnames of persons. (iii) There was no evidence on record to establish that there was clandestine manufacture and clearance of the ACs. There was no evidence of procuring excess raw material required for production of such a huge number of ACs. No statement of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of opinion was, therefore, (i) regarding clandestine removal of 24 ACs with the duty demand of ₹ 3,16,800 and (ii) the duty demand of ₹ 58,44,825 for the clandestine clearance of 606 ACs. It was on the above two aspects that reference was made to the third Member. 31. At this stage it requires to be noticed that in the SCN as part of the charge concerning the clandestine removal of 606 ACs, the Department had also clubbed another duty demand in the sum of ₹ 3,53,640 on which no finding was rendered by the Member (Technical). Nevertheless, since he agreed with the Member (Judicial) that none of the charges in this regard were made out and the Department has not carried said matter further, it must be taken that the SCN as regards this part of the demand was also not sustained. Opinion of the Third Member on reference 32. On the point of the above difference, the matter went before the third Member (Technical), Mr. Mathew John. In his order dated 15th November 2002 Mr. John agreed with Mr. Rakesh Kumar, Member (Technical) and disagreed with Ms. Wadhwa, Member (Judicial). 33. The resultant position was that by a majority of 2:1, two issues were decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above surviving question, the Court has heard at length the submissions of Mr. Hari Shanker, learned Senior counsel appearing for the Appellant and Mr. Satish Kumar, learned Senior Standing counsel for the Department and has examined the documents on record and the impugned orders. 39. The facts of the cases have been discussed in detail hereinbefore. The reasons that weigh with the Court in overturning the impugned order of the CCE rendered by a majority of 2:1 on the issue of the alleged clandestine removal of 606 ACs by the Appellant without payment of duty, are set out hereafter. 40. The main pieces of evidence relied upon by the Excise Department to support the demand of excise duty in respect of the alleged clandestine removal of the 606 ACs are as under: (a) The statements made by some of the persons to whom the compressors were sold as listed out in para 17 ii, iii, xvi, xvii and xviii of the SCN (b) The ledger entry discrepancies. (c) The statements of Mr. Pradeep Bhargava, Mr. Shiv Prasad of KBL and Mr. Subba Rao of SRR. 41. As regards the statements of the alleged buyers, as noted in the aforementioned sub-paras of para 17 of the SCN, as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this was the most perfunctory way of dealing with the request, particularly since the statements made by Mr. Pradeep Bhargava, a former employee of M/s. Thermoking, to the effect that 1022 compressors had been diverted by M/s. Thermoking to the Appellant, formed one of the strong pieces of evidence with the Department to conclude that they had been used for manufacture of ACs. The Department failed to show the existence of any of the extraordinary circumstances under Section 9D of the Act to justify the denial of right to cross-examine Mr. Pradeep Bhargava. In the considered view of the Court, this was a serious infraction which vitiated the adjudication order. 45. As regards the request for cross-examination of the other witnesses, the adjudication order again dealt with this perfunctorily. It simply stated in para 36 that if the request made by the Appellant in the letter dated 31st January 1985 for cross-examination of such a large number of persons was granted it would have take the case to a non-ending process. This cannot be a justified reason within the meaning of Section 9D of the Act to deny that opportunity to the Appellant. Further the CCE proceeds to observe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eized by the Department. 19-B-IV) As per Annexure-XVIII of SCN it is alleged that for the year 1988-89, the appellants sold 356 numbers of air conditioners. This means that the average sale price of each air conditioner should be ₹ 38,06,556/- divided by 356 and this brings the figure on an average to be Rs .10,692/- per air conditioner, as per the show cause notice. 49. Likewise a detailed explanation was offered by the Appellant for each of the sales figures in the ledger accounts. These were not discussed in any of the above orders except that of the Member (Judicial). The non-consideration of the Appellant s plausible explanation also seriously vitiates the said orders. 50. The Court also finds that no attempt has been made to undertake any serious investigation even as regards the details furnished by the Appellant or those gathered in the course of investigation. In cases of clandestine removal a certain standard is expected of the Department before a finding can be reached against an Assessee. In Oudh Sugar Mills Ltd. v. Union of India 1978 (2) ELT (J 172) (SC), the Supreme Court pointed out that the inference drawn by the authorities only on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the stock of raw materials as well as finished goods was tallying with recorded balances. This conclusion can be reached from perusal of records, as there is nothing on record to indicate otherwise. 13. On careful perusal of the entire records of the case, we find that there is nothing on record as to unrecorded purchases or consumption of various other raw material in the manufacture of Frit, there is also nothing on record to indicate that the appellant had purchased the Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite and without accounting them used for the manufacture of Frit for clandestine removal. There is also nothing on record nor there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials. There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil jadav and whose evidence has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Senior counsel for the Appellant, has also drawn the attention of the Court to a decision of the CESTAT in Arya Fibres Pvt. Ltd. v. CCE, Ahmedabad-II 2014 (311) ELT 529 (Tri.-Ahmd.) where the entire law concerning clandestine removal has been discussed and the legal position has been summarised as under: (i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of: (a) raw materials, in excess of that contained as per the statutory records; (b)instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him; (f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty; (g) statements of buyers with some details of illicit manufact ..... 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