2019 (1) TMI 706 - HC - Central Excise

High Court rules in favor of Revenue, emphasizing procedural compliance for exemptions & burden of proof in clandestine removal cases.

The High Court allowed the Revenue's appeals, ruling in their favor against the assessee. The Court held that strict compliance with procedural conditions ... Clandestine removal - cotton yarn - Department was of the view that the assessee removed cotton yarn on cheese in the guise of hank yarn with an intent to evade the payment of excise duty and clandestinely cleared the same - Demand based upon confession statement, which were retracted - Jurisdiction - Held that:- The assessee appears to have lost sight of the fact that any exemption from levy of duty is not automatic. Exemptions come along with conditions. Exemptions are either product specific or purpose specific or on other parameters. Exemptions can be conditional or absolute, yet it is an exemption. Therefore, strict interpretation is to be given and a person, who is charged of clandestine removal with sufficient evidence has to establish his innocence, having failed to discharge the burden cast on them and cannot be heard to say that despite all the charges against them, they are still entitled for exemption - perversity is manifast in the order passed by the Tribunal. The materials such as gate passes etc., which were recovered during the search and analysed by the Adjudicating Authority have been totally brushed aside. No proof of prejudice had been shown by the assessee for not making available for cross examination of two of the persons, who were the buyers from the assessee, who had candidly stated about the clandestine transaction. There is also an allegation of destruction of records at the assessee's end after the products were delivered to the buyers. Thus, in our considered view, there was sufficient material to establish that the assessee was guilty of clandestine removal and consequently, is liable for payment of duty, penalty and interest. Thus, the Tribunal wholly erred in reversing the order passed by the Commissioner and as we are satisfied that the order passed by the Tribunal is perverse and we are inclined to interfere with the order. The Adjudicating Authority is right in his conclusion that there are good and sufficient reasons as to why the assessee had effected clandestine clearances under the guise of clearing hank yarn. It attracts NIL rate of duty. Majority of the buyers of yarn from the assessee have given statements under Section 14 of the Act stating that they are manufacturing terry towels from the goods purchased from the assessee in their power looms, which goes to show that they cannot use hank yarn and this evidence was also brushed aside by the Tribunal. Appeal allowed - decided in favor of Revenue. Issues Involved:1. Whether the Tribunal was right in holding that the impugned goods can be procured duty-free by exporters despite procedural lapses.2. Whether the Tribunal was correct in holding that there was no motive behind the alleged fraud of clearing cheese yarn as hank yarn.3. Whether the Tribunal was correct in holding that the department failed to prove the charge of clearing cheese yarn as hank yarn.4. Whether the Tribunal was correct in holding that the available evidence should be in chronological order and not random cases.Issue-Wise Detailed Analysis:1. Duty-Free Procurement by Exporters:The Tribunal held that the impugned goods could be procured duty-free by exporters under Notification No. 47/94-CE(NT) and 43/2001 CE, even if the procedural conditions were not strictly followed. The Tribunal opined that non-fulfillment of procedural conditions was not fatal to the claim for export relief. However, the High Court rejected this view, emphasizing that strict compliance with procedural conditions is mandatory for claiming exemptions. The Court held that the assessee, who failed to follow the procedure for procurement of yarn duty-free, is not entitled to any relief, and consequently, the purchases of such 'tainted material' are prohibited from availing any duty drawback on their exports.2. Motive Behind Alleged Fraud:The Tribunal found no motive behind the alleged fraud of clearing cheese yarn in the guise of hank yarn. It observed that the evidence presented by the department was weak and insufficient to sustain the charge. However, the High Court disagreed, stating that the Tribunal's assessment was superficial and failed to address the core issue. The Court noted that the bulk of documents and voluntary statements given by the Managing Director and the Director of the assessee were brushed aside by the Tribunal. The Court emphasized that the burden of proof in cases of clandestine removal is on the department, and once a prima facie case is established, the burden shifts to the assessee to prove their innocence.3. Proof of Charge Against Assessee:The Tribunal held that the department failed to prove the charge that the assessee cleared cheese yarn in the guise of hank yarn. It noted that the buyers' statements were retracted, and the records relied upon by the Adjudicating Authority were not maintained in the normal course of business. The High Court, however, found this reasoning perverse. It stated that the Tribunal ignored significant evidence, including gate passes and other documents recovered during the search, which corroborated the statements of clandestine removal. The Court held that the initial burden of proof had been discharged by the department, and the assessee failed to establish their innocence.4. Chronological Order of Evidence:The Tribunal opined that the available evidence should be in chronological order and not random cases. It dismissed the evidence presented by the department as unreliable due to improper maintenance of records. The High Court found this approach flawed, emphasizing that the provisions of the Central Excise Act mandate the maintenance of proper records by the assessee. The Court stated that the Tribunal should have drawn an adverse inference against the assessee for not maintaining proper records and confirmed the order of the Adjudicating Authority. The Court concluded that the Tribunal's findings were perverse and unsupported by the evidence on record.Conclusion:The High Court allowed the appeals filed by the Revenue, answering the questions in favor of the Revenue and against the assessee. The Court restored the order passed by the Adjudicating Authority, dated 20.06.2005, and held that the Tribunal's order was perverse and not based on acceptable evidence. The Court emphasized the importance of strict compliance with procedural conditions for claiming exemptions and the burden of proof in cases of clandestine removal.