2021 (7) TMI 891 - AT - Central Excise

Appellant's Involvement in Clandestine Activities Not Proven

The appellant company was accused of clandestine removal of goods by clearing resins under fictitious bills through dummy firms. Despite evidence of money ... Clandestine Removal - reliability of statements - sufficiency of evidence or not - cross-examination of statements - persons failed to stand the earlier statements - principle of preponderance of probability - difference of opinion - Majority Decision - HELD THAT:- The two types of standards of proof applied in proceedings are ‘proof beyond reasonable doubt’ and ‘proof of preponderance of probability. The appreciation of evidence in either of these types of standards of proof differs depending on the facts involved. In a serious case such as evasion of duty by fraud, the degree of appreciation of evidence has to be higher than in a case of allegation of mere delay in payment of duty though in both cases the evidence has to be appreciated on the preponderance of probability. In adjudication proceedings, there may be factors established in favour of appellant and some in favour of Revenue. The established factors will lead or indicate whether the unestablished factors are probable or not. Needless to say that the conclusion has to be drawn on established facts and probable facts and not on presumption of facts. In grave cases of forgery, fraud, conspiracy etc. seldom direct evidence would be available. In a case of fraud there is always an intention to hide / delete / eliminate or cover up the acts of fraud. Such violations of law go undetected for a long period by tactful ways of hiding, deleting or covering up the fraud. For the same reason, the process of investigation and collecting evidence also become humongous and challenging. This would equally apply to the requirement to prove and establish such evidence in court. While applying the standard of proof of preponderance of probability, in the present case though some of the witnesses have negated their original statements in the cross-examination, the statement of Shri Kalyan Chakravarthy, Shri Duraga Prasad, the misdeclaration of the goods seized from the premises of transporter SRMT, Chennai, discrepancies / reconciliations in accountsmaintained by V. Srinivas Mahesh and others would sufficiently prove the allegations raised in the Show Cause Notice. In para 100 of the Order in Original, the adjudicating authority has discussed the defect of non-supply of relied upon documents. Even without considering the evidence of such documents there is enough evidence to establish the case put forth by department. The role of the Managing Director in such activity is also clear. Demand confirmed. Issues Involved:1. Alleged clandestine removal of goods by the appellant company.2. Use of dummy firms for evasion of excise duty.3. Evidentiary value of statements made under Section 14 of the Central Excise Act.4. Compliance with Section 9D of the Central Excise Act.5. Establishment of flowback of money to the appellant.6. Admissibility and reliability of cross-examined statements.7. Relevance of documentary evidence in proving clandestine activities.Detailed Analysis:1. Alleged Clandestine Removal of Goods by the Appellant Company:The appellant was accused of clandestine removal of Alkyd, Phenolic, and Malleic Resins without paying excise duty. The investigation revealed that the appellant was clearing resins in excess quantities under fictitious bills issued in the names of M/s Kalyan Chemicals, M/s Prasad Chemicals, and M/s Priya Chemicals. The goods were misdeclared as orthoxylene, MTO, Xylene, etc. Chemical analysis confirmed these goods were resins.2. Use of Dummy Firms for Evasion of Excise Duty:The investigation established that M/s Kalyan Chemicals and M/s Prasad Chemicals were dummy firms created by the appellant. Employees of the appellant firm, Shri Kalyan Chakravarthy and Shri V.B.S. Durga Prasad, confirmed during cross-examination that these firms were set up at the behest of the Managing Director, Shri Sama Rajasekhar, and were used to issue paper invoices while actual goods were cleared by the appellant.3. Evidentiary Value of Statements Made Under Section 14 of the Central Excise Act:The statements made before Central Excise officers under Section 14 are considered judicial proceedings and are relevant for proving facts in any prosecution under the Act, subject to the conditions laid out in Section 9D.4. Compliance with Section 9D of the Central Excise Act:The judgment emphasized that statements made under Section 14 cannot be admitted as evidence unless the person making the statement is examined as a witness and cross-examined. In this case, only 12 out of 18 witnesses were cross-examined. The statements of the remaining six witnesses, who were not cross-examined, were deemed inadmissible.5. Establishment of Flowback of Money to the Appellant:The investigation found evidence of money flowback to the appellant through bank accounts of employees. Counterfoils of deposit slips and demand draft applications showed deposits into accounts of employees, which were used to purchase demand drafts favoring the appellant and M/s Priya Chemicals. However, the evidence was considered insufficient to establish a direct flowback of money to the appellant with reasonable certainty.6. Admissibility and Reliability of Cross-Examined Statements:During the denovo proceedings, the buyers who were cross-examined negated their earlier statements, affirming that they purchased resins from the appellant under proper invoices. This negation during cross-examination cast doubt on the reliability of their original statements.7. Relevance of Documentary Evidence in Proving Clandestine Activities:The judgment highlighted the importance of documentary evidence, such as private books of accounts, transport records, and bank statements, in establishing clandestine activities. Despite some witnesses negating their statements, the documentary evidence indicated a pattern of clandestine removal and flowback of money.Separate Judgments:- Member (Technical): Concluded that the revenue could not establish the case based on preponderance of probabilities and statements admissible under Section 9D. The impugned order was set aside, and the appeals were allowed.- Member (Judicial): Held that the documentary evidence, supported by oral statements, sufficiently established the clandestine removal of goods. The appeals were dismissed, and the impugned order was upheld.- Third Member (Judicial): Agreed with the findings of Member (Judicial) and held that the appeals should be dismissed based on the overwhelming documentary evidence and corroborative oral statements.Final Order:In view of the order of the Hon’ble Third Member, the appeals were rejected, and the impugned order was upheld.