2009 (8) TMI 1008 - AT - Central Excise

Tribunal overturns penalties in cotton yarn case, citing unreliable evidence and lack of procedural fairness

The Tribunal set aside the demand and penalty for alleged clandestine clearances of cotton yarn, remanding the case for fresh adjudication due to ... - Issues Involved:1. Demand of duty on clandestine clearances of cotton yarn.2. Imposition of penalties and redemption fine.3. Reliability of gate passes and notebooks as evidence.4. Excess consumption of electricity as evidence of unaccounted production.5. Violation of principles of natural justice.6. Absence of corroborative evidence for clandestine clearances.7. Withdrawal of challenge to confiscation orders.Detailed Analysis:1. Demand of Duty on Clandestine Clearances of Cotton Yarn:The demand was based on the alleged clandestine clearances of 27,168 kgs, 30,576 kgs, and 6,450 kgs of cotton yarn, which were purportedly cleared without payment of duty. The original authority demanded Rs. 3,18,888/- as duty and imposed an equal amount as penalty under Section 11AC of the Central Excise Act, 1944. The basis for the demand was gate passes and notebooks maintained by the gatekeeper, which were not authorized by the Managing Director and were not systematically maintained. The Tribunal found these documents unreliable and noted that the demand was raised without sufficient corroborative evidence.2. Imposition of Penalties and Redemption Fine:Penalties of Rs. 15,000/- each were imposed on M/s. Prime Cottons Pvt. Ltd. and its Managing Director under Rule 25 of the Central Excise Rules, along with a redemption fine of Rs. 5,000/- for the detained cotton yarn. The Commissioner (Appeals) affirmed these penalties but vacated the penalty on the Managing Director. The Tribunal noted the lack of reliable evidence to support the penalties based on the gate passes and notebooks.3. Reliability of Gate Passes and Notebooks as Evidence:The Tribunal highlighted that the gate passes and notebooks maintained by the gatekeeper could not be relied upon to determine the actual quantity of yarn removed. The demand was based on discrepancies between gate passes and Central Excise invoices, but the gate passes were not systematically maintained and often did not correspond to actual clearances.4. Excess Consumption of Electricity as Evidence of Unaccounted Production:The department argued that excessive electricity consumption indicated unaccounted production. The Tribunal found this explanation unsatisfactory, noting that factors like worker efficiency and yarn counts were not adequately considered. The Tribunal concluded that the excessive power consumption alone could not substantiate the claim of clandestine production.5. Violation of Principles of Natural Justice:The appellants argued that the department did not allow cross-examination of key witnesses, violating principles of natural justice. The Tribunal acknowledged this concern, noting that the orders were passed without providing the appellants an opportunity to challenge the evidence properly.6. Absence of Corroborative Evidence for Clandestine Clearances:The Tribunal emphasized that clandestine clearances could not be established solely on private records and statements without corroborative evidence. Citing previous judgments, the Tribunal noted that entries in private records alone were insufficient to prove clandestine activities. The department failed to provide evidence of sales or identify buyers for the alleged clandestinely cleared goods.7. Withdrawal of Challenge to Confiscation Orders:During the hearing, the appellants withdrew their challenge to the orders relating to the confiscation of 1,352.6 kgs of yarn recovered from their godown.Conclusion:The Tribunal set aside the impugned order regarding the demand and penalty for clandestine clearances made during March 2002 to February 2003, remanding the matter for fresh adjudication. The original authority was directed to re-quantify the liability and decide the appropriate penalty, ensuring the appellants were given adequate opportunity to present their case. The Tribunal underscored the need for corroborative evidence to substantiate charges of clandestine removal.