2015 (10) TMI 1566 - AT - Central Excise

Tribunal Remands Tax Case, Emphasizes Need for Tangible Evidence

The Tribunal set aside the impugned order and remanded the matter for denovo adjudication. The demand based on balance sheet figures and the test report ... Clandestine manufacture and removal of goods - moisture contained in tobacco - Confiscation of goods - Imposition of penalty - Held that:- the appellant has produced a report dated 14th February 2007 of Harcourt Butter Technological Institute, Kanpur which confirms that moisture content is 15.38%. The said report produced by the appellant has been brushed aside by the Adjudicating Authority which is not proper. As it is an admitted fact that tobacco being an agriculture product having moisture content and no sample of raw tobacco has been drawn to ascertain the moisture content, the demand on the basis of consumption of tobacco in a particular period on which test is conducted later on is not sustainable. There is no evidence to show the excess consumption of the other raw materials to be used in manufacture of Gutkha in the show cause notice. As without the usage of other raw materials which forms 92% quantity to manufacture Gutkha the demand is not sustainable. - he is not going by the balance sheet figure and test report only, but Department has adduced sufficient corroborative evidence but no such evidence has been discussed in the impugned order. Moreover, the statements relied upon by the Adjudicating Authority of various persons, the cross-examination has not been afforded to the appellant for fair trial. The allegation of clandestine manufactured and removal of goods is not a simple allegation, the allegation is to be supported by sufficient and required evidence as held by this Tribunal in the case of Arya Fibres Pvt. Ltd. vs. CCE, Ahmedabad - II reported in [2013 (11) TMI 626 - CESTAT AHMEDABAD], wherein the following principals have been laid down to allege clandestine manufacture/removal - Without establishing the above evidences, the demand on account of clandestine manufacture/removal is not sustainable - Decided in favour of assessee. Issues Involved:1. Demand of duty based on alleged excess consumption of tobacco.2. Validity of test reports and moisture content in tobacco.3. Allegations of clandestine manufacture and clearance.4. Reliability of statements from various persons.5. Violation of principles of natural justice due to lack of cross-examination.6. Confiscation of raw materials and cash.Issue-wise Detailed Analysis:1. Demand of Duty Based on Alleged Excess Consumption of Tobacco:The appellant, M/s CACF, was accused of manufacturing and clearing Gutkha clandestinely based on the alleged excess consumption of tobacco. The Department's case relied on the balance sheet figures and statements from various individuals. The demand was calculated by assuming a constant tobacco content of 7.99% in Gutkha, derived from test reports. The appellant contested this by arguing that the test report did not account for the moisture content in the tobacco, which would affect the calculation of tobacco consumption.2. Validity of Test Reports and Moisture Content in Tobacco:The appellant argued that the test report from Shriram Institute of Industrial Research, which showed a tobacco content of 7.99% on a dry basis, was unreliable because it did not consider the moisture content in the tobacco. The appellant presented a report from Harcourt Butter Technological Institute, confirming a moisture content of 15.38% in tobacco. This report was dismissed by the Adjudicating Authority as an afterthought. The Tribunal noted that tobacco, being an agricultural product, inherently contains moisture, and no sample of raw tobacco was drawn during the investigation to determine the actual moisture content. Thus, the demand based on the dry basis test report was deemed unsustainable.3. Allegations of Clandestine Manufacture and Clearance:The Department alleged that M/s CACF manufactured and cleared Gutkha clandestinely. However, the Tribunal found no evidence of excess consumption of other raw materials required for Gutkha production. The show cause notice did not allege the purchase of other raw materials in excess quantities, nor was there any evidence of manufacturing, transporting, clearing, selling, or receiving payment for the alleged extra quantity of Gutkha. The Tribunal emphasized that allegations of clandestine manufacture and clearance must be supported by tangible evidence, which was lacking in this case.4. Reliability of Statements from Various Persons:The statements of various individuals, including suppliers and buyers, were relied upon by the Department. The appellant argued that these statements were recorded under coercion and that no show cause notices were issued to the individuals who allegedly supplied or received goods without payment of duty. The Tribunal noted that the statements were not corroborated by documentary evidence and that the individuals were not subjected to cross-examination, rendering the statements unreliable.5. Violation of Principles of Natural Justice Due to Lack of Cross-Examination:The Tribunal found that the appellant was not afforded the opportunity to cross-examine the individuals whose statements were relied upon by the Adjudicating Authority. This was a violation of the principles of natural justice, as established in the case of CCE, Meerut - I vs. Parmarth Iron Pvt. Ltd. The Tribunal held that without cross-examination, the statements could not be considered credible evidence.6. Confiscation of Raw Materials and Cash:The Tribunal noted that the confiscation of raw materials and cash was not justified. There was no evidence that the Indian currency seized was part of the sale proceeds of clandestinely manufactured and sold Gutkha. Additionally, the confiscation of non-excisable raw materials was deemed improper.Conclusion:The Tribunal set aside the impugned order and remanded the matter for denovo adjudication. The Adjudicating Authority was directed to afford the appellant the opportunity for cross-examination and to base the adjudication on corroborative evidence. The demand based on balance sheet figures and the test report showing tobacco consumption was deemed unsustainable. The Tribunal emphasized the need for tangible evidence to support allegations of clandestine manufacture and clearance. The appeals were allowed by way of remand.