By TIOL News Service

NEW DELHI, FEB 28, 2019: BOTH the assessee and the Revenue are in appeal against the order passed by the Principal Commissioner of Central Excise.

After conducting investigations, the Department concluded that the assessee who is engaged in manufacture and clearance of slotted angles, shelves, cable trays etc. was also doing trading of similar goods are were clearing excisable goods in the garb of trading. The Department alleged that the appellants have manipulated the records of dutiable manufactured goods by showing fake trading purchases; that the appellants were only procuring bills from various firms without actually receiving the goods mentioned in the invoices; that factors such as consumption of electricity, manufacturing wages, job work expenditure, machinery installed at the manufacturing premises reflected that the appellant had capability of manufacturing excisable goods in much higher quantities than what has actually been reflected in their statutory records.

On these grounds, a SCN dated 17.10.2007 came to be issued demanding Central Excise duty of Rs.1,46,07,818/- and also invoking the provisions of interest and penalty.

The demand was confirmed by the Commissioner by an order dated 27th January 2009 and in appeal, the matter was remanded by the CESTAT by order dated 04.03.2015 with directions in the matter of cross examination of witnesses whose statements were recorded.

In the second round of adjudication, the Principal Commissioner by order dated 28.11.2015 confirmed the CE duty demand to the extent of Rs.68,14,035/- and imposed equivalent amount of penalty. A penalty of Rs.20 lakhs was imposed u/r 26 of CER on the Director of the appellant assessee. The CE duty demand of Rs.77.94 lakhs was dropped.

Both, the assessee and the Revenue are now in appeal against this order.

The appellant assessee submits that the directions of the Tribunal given while ordering denovo proceedings was not complied by the department since out of the total 13 witnesses, only the Truck driver was produced for cross-examination; that, therefore, the compliance with the provisions of s.9D of CEA, 1944 has not been made. Reliance is placed on the P&H High Court judgment in Jindal Drugs Pvt. Ltd. - 2016-TIOL-1230-HC-P&H-CX in this regard.

It is further contended that the entire case of the Department is based on the statements which have been recorded by the department during the course of investigation; that the allegations are without any substance inasmuch as various invoices were produced (before the Bench) to substantiate their claim that the appellants had purchased slotted angles etc. on payment of appropriate amount of VAT/sales tax and these goods have also been sold to various buyers on payment of appropriate amount of VAT and these transactions are properly recorded in their books of accounts; that there is no corroborative evidence of any extra purchases of raw material, dispatch of finished goods to any of the buyers, any excess consumption of electricity or any other raw materials; that the onus is on the department to establish and corroborate it with evidences to prove beyond doubt that certain additional quantities of goods have actually been manufactured and cleared without recording the same in the statutory books and records and without payment of duty.

The Revenue appeal challenges the extension of the benefit of Notification No. 6/2002-CE dated 01/03/2002 to the assessee. It is submitted that as per condition No. 61 of the notification, a certificate from the Chairman or Managing Director of Delhi Metro Railway Corporation was required for getting the benefit but the same is not forthcoming; that the VAT invoices produced have been prepared only as a cover up and, therefore, not acceptable.

The Bench considered the submissions and inter alia observed -

+ Entire case of department is primarily based on the statements of 13 odd witnesses whose statements have been relied upon in the show cause notice for demanding central excise duty.

+ As ordered by Tribunal in its previous order dated 04/03/2015 the department needed to comply with the requirement of Section 9D(1) of Central Excise Act, 1944.

+ The Adjudicating Authority was required to make available the witnesses for cross-examination to the appellant to establish the evidence as legally sustainable since no other corroborative record have been produced by the department to prove the case of evasion of central excise duty by the appellant by resorting to clandestine manufacture and trading of the same in the garb of trading undertaken by their sister concern.

+ Since the witnesses have not been cross-examined at the time of adjudication, the evidentiary value of such statements have been lost and same alone cannot be accepted for proving the case of duty evasion. [ Andaman Timber Industries 2015-TIOL-255-SC-CX relied upon.]

+ It was a legally required that Adjudicating Authority should have made available the crucial witnesses and allowed their cross-examination by the appellant before accepting their evidences and confirming the demand of central excise duty.

Insofar as the books of accounts, Balance sheet, P&L accounts maintained by the appellant and supplied to the Superintendent (Preventive) department and now produced before the Bench, the Tribunal observed -

"…These are the records which are not only maintained by an independent person for its accounting purposes but same are also submitted to other Government agencies, such as, Registrar of Companies etc. and, therefore, the authenticity cannot be doubted unless and until proved otherwise. The department has not advanced any evidences to disapprove such records which indicate that the appellant have indeed purchased various materials, finished goods for trading purposes."

It was further viewed -

+ For proving a case of clandestine manufacture and clearance of dutiable goods, some evidences more concrete and convincing in nature need to be adduced.

+ It is a settled law that in cases of alleged clandestine removals and duty evasion the burden lies on the department to prove that activities of manufacturing, its clearance and thus duty evasion have taken place with concrete evidences.

+ The department have not been able to adduce any evidence to show as to from where such a huge quantity of raw materials have been procured by the appellant to manufacture the excisable goods and to whom the same were sold without payment of duty, as to how such a huge quantities has been transported clandestinely after its clearances. No enquiries have been made at the end of the buyers.

+ Since the department has failed to establish the crucial evidences of clandestine manufacture and its clearance, we find that a case of clandestine removal and thereby evasion of central excise duty has not been established by the department. [Continental Cement Company - 2014-TIOL-1527-HC-ALL-CX relied upon]

In fine, the order-in-original was set aside as being devoid of any merit. The appeals of the assessee were allowed.

Consequently, the Revenue appeal was also dismissed.

(See 2019-TIOL-633-CESTAT-DEL)