CESTAT sets aside order on clandestine removal allegations due to uncross-examined witness statements under section 9D

CESTAT Mumbai set aside the original order in a case involving alleged clandestine removal of MS ingots between September 2003 and July 2009. The authorities claimed unreported production based on inflated electricity consumption during heat cycles. The tribunal held that correlation of production factors alone cannot establish evasion extent and that clandestine removal requires preponderance of probability through backward or forward trail evidence. The case failed because witness statements relied upon by authorities were not cross-examined despite requests. Matter remanded to original authority for fresh determination limiting reliance to statements meeting section 9D relevancy requirements.

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Issues Involved:
1. Allegation of clandestine removal of mild steel ingots.
2. Disproportionate consumption of electricity.
3. Procurement and utilization of raw materials.
4. Evidentiary value of statements and cross-examination.

Summary:

1. Allegation of Clandestine Removal of Mild Steel Ingots:
The case revolves around the alleged clandestine removal of mild steel ingots by the assessee, M/s Shree Steel Castings (P) Ltd, between September 2003 and July 2009. The assessee was held liable for recovery of differential duty under section 11A of the Central Excise Act, 1944, along with interest under section 11AB and penalties under section 11AC. The central excise authorities claimed that the assessee removed ingots without accounting for them in production records, based on the consumption of raw materials and electricity.

2. Disproportionate Consumption of Electricity:
The central excise authorities based their case on the disproportionately high consumption of electricity for the reported production. They relied on studies, including the Dr. Batra report and a study by the All India Induction Furnace Association, which provided normative data for electricity consumption in ingot production. The actual consumption by the assessee was found to be significantly higher than these norms, leading to the conclusion that unreported production took place.

3. Procurement and Utilization of Raw Materials:
The authorities alleged that raw materials procured from the open market were used for unreported production. The discrepancy in the records of BP sets and the unaccounted procurement of sponge iron were used to support this claim. The investigators also noted the consumption pattern of ferro alloys and other inputs, which indicated suppressed production.

4. Evidentiary Value of Statements and Cross-Examination:
The Tribunal emphasized the importance of cross-examination for the statements relied upon by the central excise authorities. The statements of drivers and suppliers, which were used to establish the procurement and utilization of raw materials, were not tested for acceptance under section 9D of the Central Excise Act, 1944. The Tribunal cited several judicial precedents, including Mohan Steels Ltd and Ghodavat Pan Masala Products Ltd, which held that theoretical assumptions and statements without corroborative evidence cannot sustain a charge of clandestine removal.

Conclusion:
The Tribunal set aside the impugned order due to the lack of cross-examination of key witnesses and remanded the matter back to the original authority for fresh determination. The reliance on statements must be limited to those that meet the relevancy criteria prescribed in section 9D of the Central Excise Act, 1944. The appeals were disposed of accordingly.

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