2022 (8) TMI 1251 - AT - Central Excise

Tribunal overturns duty demand, interest, penalties due to lack of evidence

Shri Hari Steel Industries, Nagjibhai Jivrajbhai Dodiya and Himanshubhai Nandlal Jagani Versus C.C.E. & S.T. -Rajkot and C.C.E. & S.T. -Bhavnagar

The tribunal set aside the confirmation of duty demand, interest, and penalties in a case involving alleged clandestine removal of excisable goods. It ... Clandestine Removal - Re-rolled products - no invoices or sales bills have been issued by the Appellant for the goods mentioned in the most of the entries of the said records and the good have been removed without payment of duty and without issue of invoice - reliability of third party evidences - cross-examination of witnesses - wrongful availment of benefit of N/N. 08/2003 –C.E. dtd. 01.03.2003 - levy of penalty under Rule 26 of Central Excise Rules 2002 on partner of Appellant and broker. HELD THAT:- The entire case was made out on the basis of search conducted with the third party which is the broker and the records recovered from the broker. The Ld. Adjudicating authority for confirmation of demand also relied on the statement of broker and partner of appellant’s firm. However it is on records that in the present matter partner of appellant firm filed affidavit and in his affidavit he had clearly negated the contents of his earlier statements and therefore no reliance can be placed upon his statement. Department had demanded excise duty on finished goods, alleging that the Appellant have clandestinely removed the goods by relying on the broker’s records and oral statements and without any corroborative evidence either from the Appellant’s premises or from the Customers documents etc. Despite the appellant requested for cross-examination of witnesses, the lower adjudicating authority has rejected the request of appellant. As per the provisions of section 9D it is clear that during adjudication, the adjudicating authority is required to first examine the witness in chief and also to form an opinion that having regard to the facts and circumstances of the case, the statements of the witness are admissible in evidence. Thereafter, the witness is offered to be cross-examined. It is a settled principle of law that if the authority wants to rely upon the statement of any witness, the opportunity of cross-examination ought to have been given to enable the party to prove its case. Non-providing of the opportunity of cross-examination amounts to violation of the natural justice and in absence of denial of natural justice, such documents/statements cannot be relied upon. It is well settled law that there has to be some concrete evidence in the form of receipt of raw materials, shortage of raw materials, clandestine manufacture including use of electricity, excess or shortage of inputs found in the stock, flow back of funds, purchase of final products by parties alleging receipt and removal of goods and any such evidence which would show clandestine manufacture of goods. It is also an admitted facts that the documents recovered from the premises of Broker are third party documents and same cannot be relied upon without any corroborating evidences. Therefore, the entire case is based on entries found recorded in the record of broker does not have reliability and credibility. There is no sufficient material on record to establish clandestine manufacture and clearance by Appellant. We, accordingly, set aside the confirmation of demand, interest and imposition of penalty. Penalty imposed upon Shri Nagjibhai Dodiya, Partner of Appellant firm is also set aside - As regards penalty imposed upon Shri Himanshu Nandlal Jagani, Broker, having held that there was no clandestine removal, clearance from the factory of Appellant, penalty upon said broker cannot be upheld. Appeal allowed - decided in favor of appellant. Issues Involved:1. Alleged clandestine removal of excisable goods.2. Reliance on third-party documents and statements.3. Non-provision of cross-examination of witnesses.4. Violation of principles of natural justice.5. Sufficiency of evidence for confirming duty demand and penalties.Detailed Analysis:1. Alleged Clandestine Removal of Excisable Goods:The case originated from an inquiry by the anti-evasion branch, based on intelligence suggesting that certain re-rolling units were evading Central Excise Duty by clandestinely removing re-rolled products. The investigation revealed that brokers facilitated the procurement and dispatch of goods without Central Excise Invoices and without payment of duty. The Appellant's premises were searched, and documents indicating removal of goods without payment of duty were seized. Statements from the broker and the Appellant's partner admitted to these activities.2. Reliance on Third-Party Documents and Statements:The demand for excise duty was primarily based on documents and statements obtained from a broker, which indicated clandestine removal of goods. The Appellant argued that the reliance on third-party documents and statements without corroborative evidence from their premises or customers was improper. The tribunal noted that mere entries in the broker's records were insufficient to confirm the demand without concrete evidence such as receipt of raw materials, usage of electricity, or flow of funds.3. Non-Provision of Cross-Examination of Witnesses:The Appellant contended that the department neither supplied relevant documents nor allowed cross-examination of witnesses, violating Section 9D of the Central Excise Act. The tribunal underscored that cross-examination is a valuable right and that the statements of witnesses cannot be relied upon without providing this opportunity. The tribunal cited the Delhi High Court's decision in Basudev Garg v. Commissioner of Customs, which held that statements against the assessee cannot be used without giving them the opportunity for cross-examination.4. Violation of Principles of Natural Justice:The tribunal found that the lower adjudicating authority's denial of cross-examination amounted to a violation of natural justice. The tribunal emphasized that non-provision of cross-examination and non-supply of relied-upon documents rendered the statements and documents inadmissible as evidence.5. Sufficiency of Evidence for Confirming Duty Demand and Penalties:The tribunal observed that the case lacked concrete evidence to support the allegations of clandestine removal. There was no discrepancy in the stock of raw materials or finished goods, no incriminating documents from the Appellant's premises, and no evidence of procurement of raw materials or extra payment to laborers. The tribunal referenced several decisions, including those in Bansal Castings Pvt. Ltd. and Vishva Traders Pvt. Ltd., which held that third-party documents without corroborative evidence cannot substantiate allegations of clandestine removal.Conclusion:The tribunal concluded that the evidence presented was insufficient to establish clandestine manufacture and clearance by the Appellant. Consequently, the confirmation of demand, interest, and penalties was set aside. The penalties imposed on the Appellant's partner and the broker were also annulled. The appeals were allowed with consequential relief to the appellants.