2024 (2) TMI 432 - AT - Central Excise

Tribunal Overturns Demand and Penalties Due to Lack of Evidence and Due Process Violations in Tax Case.

The Tribunal set aside the demand and penalties related to the alleged clandestine clearance of goods, citing the lack of corroborative evidence and ... Clandestine clearance - imposition of penalty - demand raised against the appellants on the basis of alleged three parallel invoices and some rough papers seized during the course of investigation and statements of the employees of the appellants - opportunity of cross-examination not granted - violation of principles of natural justice - HELD THAT:- In this case, the case has been made out on the basis of rough papers seized during the course of investigation, which were in the possession of the employees of the appellants, who made inculpatory statement at the time of seizure of the documents. But, the Managing Director has controverted the statement made by the employees. Moreover, three parallel invoices on the basis of which demand has been confirmed against the appellants were not examined. Neither an investigation was made with the buyers mentioned in those parallel invoices nor any investigation was made with the transporters. No effort was made to find out, who is the author of those invoices. In the absence of any corroboration to that effect, the demand is not sustainable. Moreover, the cross-examination of the employees were not granted to the appellants which is in gross violation of the principles of natural justice in terms of Section 9D of the Central Excise Act. Same view was taken by the Hon’ble Apex Court in the case of ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA-II [2015 (10) TMI 442 - SUPREME COURT], wherein it has been held that denial of cross-examination is in violation of principles of natural justice when the statement of that person has been relied upon to allege against the assessee. Further, without corroboration of the corroborative evidence, the demand cannot be raised against the appellant when appellant has denied the said charge during the course of investigation - this Tribunal in the case of SKV. CHEMICALS VERSUS COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY [2005 (5) TMI 221 - CESTAT, CHENNAI] held that mere factum of two set of invoices is not sufficient to prove the charge of clandestine removal in the absence of positive evidence with regard to the same. Admittedly in the case at hand no investigation was conducted at the end of the buyers mentioned in the invoices and transporter of the goods. In the absence of the same, the demand cannot be raised against the appellants - the impugned demand raised against the main appellant and penalty imposed on both the appellants set aside. Appeal allowed. Issues Involved: Appeal against duty demand for alleged clandestine clearance of goods and penalty imposition on appellants.Summary:Issue 1: Alleged Clandestine Clearance of Goods The case involved a search conducted at the factory premises, leading to the discovery of documents suggesting clearance of goods without duty payment. Statements from employees indicated discrepancies, with the Managing Director providing a contradictory statement. The demand was based on parallel invoices without further investigation into the buyers or transporters mentioned. The lack of cross-examination of employees and absence of corroboration rendered the demand unsustainable. The Tribunal emphasized the need for corroborative evidence and adherence to principles of natural justice, citing relevant legal precedents.Issue 2: Penalty Imposition The Authorized Representative supported the demand and penalties, citing admission by the appellants' employees regarding the parallel invoices. However, the Tribunal found the lack of thorough investigation into the invoices, buyers, and transporters to be a critical flaw. Without proper corroboration and denial of cross-examination, the demand and penalties were deemed unjustified. Rulings from previous cases were referenced to highlight the insufficiency of mere invoice presence in proving clandestine removal without substantial evidence.Conclusion The Tribunal set aside the impugned demand and penalties, emphasizing the necessity of thorough investigation, corroboration of evidence, and adherence to principles of natural justice. The appeals were allowed with consequential relief, highlighting the importance of due process and evidentiary support in tax matters.(Order pronounced in the open court on 08.02.2024.)