2001 (5) TMI 79 - AT - Central Excise

Cone yarn misdeclared as hank yarn for exemption claimed; duty demand failed due to untested witness statements, no evidence

The dominant issues were whether clandestine removal and wrongful availment of exemption were proved, and whether penalty under s. 11AC of the CEA could ... Imposition of penalty u/s 11AC - Demand - Clandestine Removal - cleared worsted woollen yarn in cones, in the guise of plain (straight) reel hanks - wrongly availed the benefit of exemption Notification No. 26/94-C.E. - veracity of statements, during the course of adjudication proceedings by the Revenue - HELD THAT:- The description of the goods given by them in the invoices was worsted woollen yarn 'H' i.e. in hanks. None of the invoices indicated the sale of worsted woollen yarns in cones to any of the buyers (witnesses). Even from the factory premises of the appellants no unaccounted in the statutory record, cones of the worsted woollen yarn, were found by the Preventive Staff. Rather on verification the finished goods lying in the stock were found to be in order as per the balance recorded in RG 1 Register and this fact even stands admitted in the show cause notice as well as in the impugned order, also. Therefore, occular and uncorroborative statements of the witnesses recorded during investigation at the back of the appellants, without allowing them to test the correctness of the same by cross-examining those witnesses, could not be made basis for holding that the allegations against them as set out in the show cause notice, stood proved, by the Commissioner. That was, in fact, no evidence in the eyes of law which could be used against them. Therefore, the impugned order of the Commissioner being solely based on inadmissible evidence cannot be legally sustained. In Sharma Chemicals v. CCE, Calcutta-II [2000 (12) TMI 161 - CEGAT, KOLKATA] referred by the Counsel it had been ruled that denial of cross-examination of the person to whom the appellants denied their employee, amounted to violation of principles of natural justice and as such clandestine removal of the goods based on the entries in the note book recovered from that person did not stand proved. To the same effect is the proposition of law laid down by the Tribunal in Shalimar Agencies v. CCE, Kandla [2000 (2) TMI 377 - CEGAT, MUMBAI] cited by the Counsel. Imposition of penalty u/s 11AC of the CEA the impugned order of the Commissioner cannot be legally on the face of it sustained, as the said section was not on the statute at the time when the evasion of the duty was allegedly made by the appellants. The period involved is from 25-4-1994 to 31-3-1995 and at that time Section 11AC was not on the statute as this section was inserted w.e.f. 28-9-1996 by Section 76 of the Finance Act, 1996. This section did not had retrospective but only prospective operation as ruled by the Apex Court in CCE, Coimbatore v. Elgi Equipments Ltd. [2001 (1) TMI 90 - SC ORDER] referred by the Counsel. Thus, the impugned order of the Commissioner, under appeal, is set aside - Appeal of the appellants is allowed. Issues involved: Duty demand, penalty imposition, validity of evidence, imposition of penalty u/s 11AC of CEA.Duty Demand: The appellants were found to have cleared woollen worsted yarn in cones instead of reel hanks, availing an exemption. Statements of buyers were relied upon, but they were not produced for cross-examination. Lack of corroboration and evidence led to the impugned order being based on inadmissible evidence, violating principles of natural justice. The Commissioner's order was set aside due to reliance on unreliable evidence.Validity of Evidence: The statements of buyers were recorded during investigation but not corroborated by any other evidence. Invoices showed sale of yarn in hanks, not cones. Lack of physical evidence and failure to allow cross-examination rendered the statements inadmissible. The reliance on uncross-examined witness statements was deemed legally unsustainable.Imposition of Penalty u/s 11AC of CEA: The imposition of penalty under Section 11AC of the Central Excise Act was challenged as the alleged duty evasion period predated the insertion of this section. The retrospective operation of Section 11AC was clarified, stating it was not in effect during the period in question. Citing legal precedent, the Tribunal ruled that the penalty imposition under Section 11AC was not legally sustainable.Conclusion: The impugned order of the Commissioner was set aside, and the appeal of the appellants was allowed. The lack of admissible evidence, failure to allow cross-examination, and the inapplicability of penalty provisions under Section 11AC led to the decision in favor of the appellants.