Custom, Excise & Service Tax Tribunal
M/S. Alladi Drilling Equipment Pvt. Ltd vs Cce, Hyderabad on 5 April, 2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:16/02/2010
Date of decision:..
Appeal No. E/325-327/04
(Arising out of Order-in-original No.61/2003-Commr. Dt. 15/12/2003 passed by CC&CE, Hyderabad)
For approval and signature:
Honble Mr. M.V.Ravindran, Member(Judicial)
Honble Mr. P.Karthikeyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. Alladi Drilling Equipment Pvt. Ltd.
Shri M.Alladi Sreenivasulu
Shri GVN Rao
..Appellant(s)
Vs.
CCE, Hyderabad
..Respondent(s)
Appearance Mr.V.J.Sankaram and Mr.B.V.Kumar, Advocates for the appellants.
Mr. M.M.Ravi Rajendran, JDR for the Revenue.
Coram:
Honble Mr. M.V.Ravindran, Member(Judicial) Honble Mr. P.Karthikeyan, Member(Technical) FINAL ORDER No._______________________2010 Per M.V.Ravindran These three appeals are directed against the Order-in-Original No.61/2003-Commr. Dt. 15/12/2003. Since all these 3 appeals are directed against the same Order-in-Original and also inter-connected, they are being disposed by a common order.
2. For brevity sake, it is indicated that appeal No.E/325/04 is filed by the appellant company M/s. Alladi Drilling Equipment Pvt. Ltd. (ADEPL) and other two appeals i.e. E/326-327/04 are filed by the Managing Director and Director(Technical) of the appellant company against the imposition of penalty under Rule 209A of the Central Excise Rules, 1944.
3. Relevant facts that arise for consideration are that the appellant company herein is the manufacturer of parts of drilling rigs such as Tungsten Carbide Button Bits and Down the Hole Hammer assemblies and parts thereof and were availing exemption under the Small Scale Exemption Notification No.1/93 dt. 28/2/1993. The period involved in this case is between April, 1995 to March, 1997. On the basis of intelligence that the appellant company were indulging in evasion of Central Excise duty, the officers of DGAE conducted searches simultaneously on 10/4/1997 on the factory premises of the appellant and office premises and recovered records under panchnama. During the physical stock verification conducted at the factory premises on the very same day, officers noticed a shortage of 37.490 Mts. Of Alloy Steel Rods (Raw material). After scrutiny of various records and further recording of the statements of various persons, it was noticed that the appellant had evaded Central Excise duty by clandestinely removing the goods from the factory premises. A show cause notice dt. 11/1/2000 was issued to the appellant company and others directing them to show cause as to why;
(a) an amount of Rs.27,57,825/- (Rs.12,30,7291- + Ra.15,27,096/-) (Rupees twenty seven lakhs fifty seven thousand eight hundred and twenty five only) being the Central Excise duty payable on the finished goods i.e., Button Bits, Hammers, Parts of Hammer Assemblies and M.S. Scrap, totally valued at Rs.1,54,80,436/- manufactured and cleared without payment of duty during the period June, 1995 to March, 1991 should not be paid by them under rule 9(2) of Central Excise Rules, 1944 read with the proviso to sub section (1) of the section 11(A) of the Central Excise Act, 1944 .
(b) mandatory penalty equivalent to the duty amount mentioned at (a) above should not be imposed on them in terms of Section 11AC of Central Excise Act, 1944.
(c) interest 20% per annum on the duty amount mentioned above should not be paid by them as envisaged in Section 11AB of the Central Excise Act, 1944 read with Notification No.34/96-CE(NT) dated 09.10.96.
(d) an amount of Rs.1,65,993/- (Rupees one lakh sixty five thousand nine hundred and ninety three only) being the amount of Modvat credit availed on the raw materials viz., alloy steel and TC buttons totally valued at Rs.11,06,618/- cleared without reversing the Modvat credit thereon during the period August, 1995 to August 1996 should not be paid by them under rule 57 l of Central Excise Rules, 1944,
(e) penalty equivalent to the amount of Modvat credit mentioned at (d) above should not be imposed on them in terms of Rule 57l (4) of Central Excise Rules, 1944.
(f) interest @ 20% per annum on the amount of Modvat credit mentioned at (d) above should not be paid by them under Rule 57l( 5) of Central Excise Rules, 1944 read with Section 11AA of Central Excise Act, 1944 and Notification No.21/95-Central Excise(NBT), dated 29.05.1995.
(g) penalties should not be imposed on them under rules 9(2), 52A(8), 173Q and 226 of the Central Excise. Rules, 1944 for the contraventions alleged supra.
(h) land building, plant and machinery of M/s. ADEPL which are used in connection with manufacture and clandestine clearances of the excisable goods aforementioned should not be confiscated to the Government of India under rule 173Q(2) of central Excise Rules, 1944.
25. - Shri Alladi Sreenivasulu, Managing Director and Shri GVN Rao, Director (Technical) respectively of M/s. ADEPL are hereby required to show cause to the Commissioner of Central Excise (Adjudication), 121, Uttamar Gandhi Salai, Nungambakkam, Chennai 600 034, within 30 (Thirty) days from the date of receipt of this notice as to why penalty should not be imposed on them under rule 209A of the Central Excise Rules, 1944 for their involvement as detailed in the foregoing paras.
4. On receipt of the above said show cause notice, all the three appellants herein furnished detailed replies and inter alia, denied all the allegations and sought for cross-examination of the persons on whose statements the Revenue authorities were relying upon to fix the demand of the duty on the appellant company. Adjudicating authority, after granting personal hearing and recording the submissions made by the appellants counsel before him, came to the conclusion that there was indeed an evasion of duty and coming to such conclusion passed the following order:-
i) I confirm demand of Rs.27,57,825/- (Rupees twenty seven lakhs fifty seven thousand eight hundred and twenty five only) being the Central Excise duty payable on the finished goods valued Rs.1,54,80,436/- manufactured and cleared by ADEPL without payment of duty during the period June, 1995 to March, 1997 under Rule 9(2) of Central Excise Rules, 1944 read with proviso to Sub-Section (1) of Section 11A of Central Excise Act, 1944;
ii) I impose penalty of Rs.27,57,825/- on ADEPL which is equivalent to the duty confirmed at (i) above under Section 11AC of the Central Excise Act, 1944;
iii) Interest as applicable shall be paid by ADEPL under Section 11AB of the Central Excise Act, 1944;
iv) I confirm demand of Rs.1,65,993/- (Rupees one lakh sixty five thousand nine hundred and ninety three only) being the amount of Modvat credit availed on the raw materials which were cleared without reversing of the credit under Rule 57l of Central Excise Rules, 1944;
v) I impose penalty of Rs.1,65,993/- on ADEPL which is equivalent to the duty confirmed at (iv) above under Rule 57l (4) of the Central Excise Rules, 1944.
vi) Interest as applicable shall be paid by ADEPL on the amount mentioned at (iv) above under Rule 57l (5) of the Central Excise Rules, 1944;
vii) I impose penalty of Rs.3,00,000/- (Rupees three lakhs only) on ADEPL under rule 9(2), 52A(8), 173Q, and 226 of the Central Excise Rules, 1944 for contravention of various Central Excise Rules;
viii) I confiscate Land, Building, plant and Machinery of ADEPL to the Government of India under rule 173Q (2) of Central Excise Rules, 1944 as the same are used in the manufacture and clandestine clearance of the excisable goods. However, I give option to ADEPL to redeem the same on payment of fine of Rs.5,00,000/- (Rupees five lakhs only) under Section 34 of Central Excise Act, 1944;
ix) I impose penalty of Rs.1,00,000/- (Rupees one lakh only) on Sri Alladi Sreenivasulu, Managing Director of ADEPL under Rule 209A of Central Excise Rules, 1944 for his involvement in the clandestine clearance of finished goods ; and
x) I impose penalty of Rs.25,000/- (Rupees twenty five thousand only) on Sri GVN Rao, Director (Technical) of ADEPL under Rule 209A of Central Excise Rules, 1944 for his involvement in the clandestine activity of ADEPL.
5. Aggrieved by such an order, the appellants are before us.
6.1. Ld. Counsel appearing on behalf of the appellants submits as under:-
Submissions issue-wise:
A. Violation of Principles of Natural Justice:
A.1. In the instant case, personal hearing was fixed for 4.7.02. However, all the letters dtd. 26.6.02 sent to the witnesses were returned by the Postal Authorities. ADEPL requested that the PH may be postponed by one month vide their letter dtd. 1.7.02. [Para 31 of 010).
A.2. The next date of personal hearing was fixed for 5.8.02 and letters dtd. 15.7.02 were sent to all the witnesses. However, the letters were returned by the Postal Authorities with remarks left and incomplete address no such person in that address etc. ADEPL requested that the personal hearing may be fixed for 7.8.02 since their Counsel was engaged in CESTAT, Bangalore. Intimations were accordingly sent to all persons concerned. K. C. Prakash Kumar and I. Balakrishna (Panch Witnesses) appeared before the Commissioner on 5.8.02 and they were informed that the personal hearing will be on 7.8.02. Both pleaded that the personal hearing may be held after 25.9.02, since they were going to Kerala. [Para 32 of 010].
A.3. The Counsel for ADEPL appeared before the Commissioner on 7.8.02. However, no witnesses who were called to appear for cross-examination turned up. The Counsel requested that one more chance be given to all the parties, which was acceded to, and 1.10.02 was fixed as the next date of personal hearing and letters were sent to all concerned once again. But the letters were all returned with similar remarks. [Para 33 of OIO].
A.4. On 30.9.02 ADEPL were informed that the personal hearing on 1.10.02 has been postponed and would be taken up when the (successor) Commissioner joins in Dec. 02. The case was posted for personal hearing on 21.1.03 but the Counsel for the Appellants requested that the personal hearing may kindly be held in Feb. 03 since he needs to study the case in depth, in view of the fact that none of the witnesses were being summoned. [Para 34 of OIO).
A.5. After completion of the hearing, written submissions were filed on 10.2.03 and 24.2.03.
A.6. ADEPL submits with great respect that not producing the witnesses on whose statements the Department has placed reliance would amount to gross violation of principles of natural justice. The observation of the Ld. Commissioner that the confessional statements were given voluntarily by the Companys own employees, who had not turned up for cross examination is found not desirable; is not based on facts on record or on settled law. The observation appears to have been made on the basis of the statements of G.V.N. Rao, Director (Tech) and K. V. Nagababu, Supervisor. G. V. N. Rao retracted his statement on 21.4.97. The Statement of K. Ranganath, G.M. was not recorded, though reportedly he was present at the time when the Panchanama was recorded on 10.4.97. [Para 51 of OIO]. There is nothing adverse in the statement of K. V. Nagababu.
A.7. In this connection, ADEPL would refer to and rely upon the following cases:
Gyan Chand Sant Lal Jain vs. Union of India 2001 (136) ELT 9 (Bom), The Honble High Court of Bombay, inter alia observed as follows:
Mere assertion that the information received by the Tribunal is false or that the informant is a liar and an unreliable person may not satisfy the Tribunal about the truth or veracity of the assertion and it must be open to such party to demonstrate the truth or veracity of his assertion by cross-examining the informant. In fact the party against whom such information or material is intended to be used may adopt cross-examination as the only mode of explaining or commenting or demolishing the information or material collected against him CC Ahmedabad vs. Amruthbhai Vasudevbhai Patel 2003 (156) ELT 222(Tri.-Mumbai) Arsh Castings Pvt Ltd vs. CCE,Chandigarh 1996 (81) ELT 276. In this decision, the Honble Tribunal observed as follows:
lf witnesses do not turn up for cross-examination, it is open to the adjudicating authority to proceed with the adjudication without relying on these statements against the person so charged. Failure of a witness to appear for cross-examination will not be a ground to penalize the appellants in law when the appellant is entitled to an opportunity of cross-examination of third party on whose statements reliance is placed. Beaver Engineering Corporation vs. CCE, Hyd. 2002 (148) ELT 1102 (Tri. Chennai) In this decision, the H`nble Tribunal observed as follows:
The Commissioner should compel the witnesses to appear and face the cross- examination. The law has given powers to the Commissioner to summon them by all means as no witness can stay away from the quasi-judicial forum. The Commissioner should take all proper steps to get the witnesses so that the Appellants can cross-examine them.
Under the circumstances, the Appellants submit that the impugned order has been passed in gross violation of principles of natural justice. It is also settled law that the Adjudicating Authority can proceed with the Adjudication by discarding the statements of those witnesses who do not appear for cross-examination.
B. Shortage of 37.490 Mts. on the date of visit i.e., 10.4.97 In the instant case, kind reference is invited to the Panchanama dtd. 10.4.97. It can be seen from the said Panchanama that no details have been recorded as to how the physical stocks of finished products, raw materials available in the factory and the material in the process of manufacture at different stages were arrived at totaling to 118.644 Mts. as against the physical stock of 156.134 Mts. The Panchanama commenced at 10.45 hrs and concluded at 20.00 hrs. To physically weigh 118.644 Mts. would need at least 3 days and cannot be completed in 9.00 hrs time while carrying out other operations, such as search and seizure of various records listed out in the Annexure to the said Panchanama.
Further, in the absence of any indication as to how much quantity was in the form of finished goods; raw material at different stages of manufacture; lying in different stores; and lying elsewhere in the factory premises, the credibility of the Mahazar that there was shortage of 37.490 Mts. is questionable. G. V. N. Rao, Director (Tech) has retracted his statement dtd. 10.4.97 vide his letter dtd. 21.4.97. The statement of K. Ranganath, G.M. of ADEPL who reportedly was present and signed the Panchanama, has not been recorded. Under the circumstances, it is submitted that no credence can be given to the Panchanama regarding the alleged shortage.
C. The private records alleged to have been seized on 10.4.97 at the factory and marked as Annexure 5F, 14F and 36F:
C.1. In the instant case, the Appellants submitted before the Ld. Commissioner that the author of the said records have not been identified nor the said documents were sent to the Govt. Examiner of Questioned Documents to identify the author. Further, the Dept. have not verified the contents of the documents with any alleged buyer of the said goods or recorded the statements of the said buyers or transporters, who transported the said goods. In the absence of such corroborative evidence, no reliance can be placed on the said documents and such documents do not have evidentiary value and are required to be discarded. Further no evidence has been placed on record to show that excess raw materials were purchased or there was excess power consumption to corroborate the fact that there was clandestine clearance.
In this connection, the Appellants would like to and rely upon the following decisions, in which it was, inter alia, held that the charge of clandestine manufacture and removal solely based on private records and registers, is not sustainable in the absence of corroborative evidence:
Arti Steel Ltd., vs. CCE, Chandigarh 1999(114) ELT 537 (Tri) CCE, Coimbatore vs. Velavan Spinning Mills 2004 (167) ELT 91 (Tri. Chennai) CCE, Chennai II vs. Murugan Enterprises 2003 (162) ELT 233 (Tri Chennai) CDC Carbolic (I) Pvt. Ltd., vs. CCE, Chennai 2002 (148) ELT 1001 (Tn. Chennai) Ambika Chemicals vs. CCE, Chennai 2002(148) ELT 101 (Tri. Chennai).
C.2. The Appellants would also refer to and rely upon the decision of the Honble Supreme Court in the case of State of Kerala vs. M.M. Mathew AIR 1978 (S.C.) 1517 in which the Apex Court observed as follows:
It is now well settled that strong suspicion, strange coincidences and grave doubts cannot take place of legal proof. To establish the charge against the respondents, it was, in our judgment, essential for the prosecution to establish that the secret books of account related to the business transactions carried on by the respondents and none else. This it could have established in a variety of ways viz. (10 by adducing satisfactory proof to the effect that the place from which the secret books of accounts were seized formed part of the place of business of the respondents or was in their exclusive possession and control, (2) that the secret books of accounts were maintained by or under the order of the respondents, (3) that the said books of accounts were in the handwriting of either of the respondents or their accountants, or clerk or some other person employed by them. The third method indicated above could have been adopted by following one or more of the ordinary modes provided in the Evidence Act for proving the handwriting i.e. (I) by calling the Accountant or clerk or some other employee of the respondents who is supposed to have posted the entries in the accounts book, (ii) by calling a person in whose presence the accounts books were written (Hi) by calling a handwriting expert to testify that the entries in the secret books of account tallied with the admitted specimen writing of the respondents or any of their employees, (iv) by calling a person acquainted with the handwriting of the person by whom the secret books of accounts were supposed to have been written, (v) by having the comparison done in court of the secret books of account with some admitted writing as provided in made by any one of the respondents that the secret books of accounts related to the business transactions carried on by their firm or that any one of them had written the same, (vii) by adducing, other unimpeachable circumstantial evidence. D. The Ld. Commissioner did not take into consideration the submissions made before him and as such there was total non- application of mind on his part:
The Ld. Commissioner did not take into consideration the submissions made before him and as such there was total non-application of mind on his part.
The Honble Supreme Court in the case of Dhirajlal Girdharilal V. Commissioner Of Income-Tax, Bombay - 1954-(026)-ITR -0736 SC and Omar Salay Mohammed Sait vs. Commissioner of Income Tax, Madras 1959 (037) ITR 0151, inter alia, held that:
.. but if the court of fact, whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an issue of law arise. In the instant case, ADEPL submits with great respect that, it is apparent from the impugned Order that the Ld. Adjudicating Authority did not consider material that was placed before him, or considered material which is partly relevant arid partly irrelevant and based its decision not on the basis of the evidence that was on record but was based on conjectures, surmises and suspicions. In addition there was gross violation of the principles of natural justice and on this ground also the impugned Order is liable to be set aside.
E. The demands for duty are hit by limitation:
In this case the factory and connected premises were searched on 10.4.1997. The statement of G.V.N Rao, Director (Tech) was recorded on 10.4.1997. The statements of other witnesses were recorded from 29.5.1998 to 23.7.1999. The Show Cause Notice was issued on 10.1.2000 i.e., after a period of over 2 years 9 months. It is the submission of the Appellants that the Department had knowledge of the records and the alleged evasion of duty on 10.4.1997 itself. Therefore, the subject Show Cause Notice should have been issued on or before 10.4.1998. The Appellants therefore submit that the demands made in the subject Show Cause Notice dated 10.1.2000 and confirmed in the impugned order are barred by limitation. In this connection the Appellants would like to refer to and rely upon the following decisions:
Shree Renuka Sugars Ltd. (SRSL) vs. CCE, Bangalore - 2007 (210) ELT 385 (Tn. - Bang.) Monika Electronics Ltd. vs. CCE, Delhi - 2006 (204) ELT 468 (Tn. Del) Rivaa Textile Inds. Ltd. vs. CCE, Surat-I -2006 (197) ELT 555 (Tn. Mumbai) CCE, Indore vs. Prashant Electrode -2006 (196) ELT 297 (Tn. - Del.) Lovely Food lndustriesvs. CCE, Cochin -2006 (195) ELT 90 (Tn. Bang) Kathiravan Pipes Ltd. vs. CCE, Coimbatore - 2002 (147) ELT 1266 (Tn. Chennai) Gammon India Ltd. vs. CCE, Goa - 2002 (146) ELT 173 (Tn. Mumbai) Affirmed by Supreme Court Commissioner vs. Gammon India Ltd. - 2002 (146) ELTA3I3 J.S.L. Industries Ltd. vs. CCE, Ahmedabad -1999 (109) ELT I Tribunal) 6.2. It was also submitted by the ld. Counsel that the author of the miscellaneous outward register was not at all ascertained and hence even if the miscellaneous outward register is seized from the factory premises, it was for the Revenue to bring on record who wrote the entries therein. It is his submission that by non-granting the cross-examination of the persons, there is a violation of principles of natural justice. It was also submitted that the adjudicating authority has not considered their pleas regarding the incorrect evaluation of the stocks which were found short. It was submitted that when the stocks were taken, the General Manager of the company was present and has signed the mahazar but crucially, his statements were not recorded nor were the statements of any security personnel recorded. It is his submission that the entire demand confirmed by the authorities is inappropriate and needs to be set aside.
7. Ld. DR on the other hand would submit that the Director(Technical) of the appellant company i.e. Mr. GVN Rao had categorically stated that their company has been indulging in clandestine removal of the goods. It is also his submission that Mr. Rao gave a statement on 10/4/1997 and retracted the same on 21/4/1997 which is belated retraction. For this purpose, he would rely upon the following decisions:-
a. Surjeet Singh Chhabra [1997(89) ELT 646(SC)].
b. Jain Exports [1992(61) ELT 173(SC)] c. Fortune Impex [2001(138) ELT 556(Tri. Kol.)].
It is also his submission that the notebook/ miscellaneous outward register was maintained by the security person and relates to the material sent out. He would submit that the said miscellaneous outward register have entries which can be co-related with the statutory records like RG1 wherein the clearances were recorded and also had entries which could not be co-related with any of the statutory records. It is his submission that this would indicate that the said miscellaneous outward register also recorded unaccounted clearances from the factory premises of the appellant. It is his submission that once such register is recovered from the factory premises of the appellant, said register can be relied upon for the activity clandestine clearances and duty liability. As regards the duty liability on the shortages of the inputs found on the day of visit of the officers, it is his contention that the said shortage was ascertained on the day in the presence of General Manager of the company and also the Director(Technical), who had signed the said panchnama as regards the shortages. As regards the demand of the duty on the various other documents, it is submitted that the said documents were recovered from the cabin of Mr.GVN Rao, Director(Technical) and he has admitted in his statement that the said clearances were of clandestine removal. He would submit that the appellant has no case and the appeals filed by them should be dismissed.
8. We have considered the submissions made at length by both sides and perused the records.
In these appeals, issues to be decided by us are;
a. whether the appellant had manufactured and cleared finished goods clandestinely and based upon the entries in miscellaneous outward register recovered under panchnama?
b. whether clandestine clearances were effected from the factory based upon the statement of monthly production report and entries of removal of finished goods based upon the documents recovered from the office of the Director(Technical) of the appellant company?
c. Whether there was double invoicing of the goods under invoice No.576 dt. 17/2/1996 and whether there was shortage of 37.490 Mts. Of duty paid inputs valued at Rs.69,87,050/-?
d. Whether consequent penalties are imposable on all the appellants?
9.1. We take up the case for recording of findings.
a. Allegations regarding the clandestine removal of the goods based upon the miscellaneous outward register:-
On perusal of the records and the submissions made by both sides, we find that the Revenues case is that this miscellaneous outward register which was seized in the factory of the appellant company was recovered under panchnama dt. 10/4/1997. We find that this recovery is not disputed by the appellants counsel. Appellants counsels defence is that the Revenue has not brought on record as to who maintained this miscellaneous outward register. We find that the appellant has been taking this plea before the adjudicating authority from the day they filed reply to the show cause notice. The findings of the adjudicating authority regarding this issue are as under:-
50. ADEPLs another contention that the recovered records on which reliance has been placed were not proved, is not tenable. As already stated that the said records were recovered under to independent witnesses and in the presence of General Manager of the company who had also witnessed total proceedings. Sri K.V.Nagababu, Supervisor has stated that Miscellaneous Outward Register was maintained by security and it contained details of material sent out. Similarly, the details contained in all other records were identified by Sri GVN Rao, Director(Technical) of the company. It can be seen from the above reproduced finding of the adjudicating authority that the Revenue has claimed that Supervisor has stated that miscellaneous outward register was maintained by security and it contained details of materials sent out. On perusal of the entire records, we find that investigating officers have not recorded statement of any of the security personnel, to bring on record that such register was maintained by them either in their capacity as the employees of the company or otherwise. In the absence of author of the said miscellaneous outward register and in the absence of any such statement from the persons who has written the entries in the miscellaneous outward register, we are of the considered view that the entries in such register would be final word to come to a conclusion to hold that there was a clandestine removal of the goods as indicated in the said register and which was not matching with the statutory records. We are fortified by our stand in the judgment of Honble Supreme Court in the case M.M. Mathew (supra), wherein Honble Supreme has laid down the law regarding requirement for providing the charges of clandestine removal, which is reproduced:-
It is now well settled that strong suspicion, strange coincidences and grave doubts cannot take place of legal proof. To establish the charges against the respondents, it was, in our judgment, essential for the prosecution to establish that the secret books of account related to the business transactions carried, on by the respondents and none else. This it could have established in a variety of ways viz. (1) by adducing satisfactory proof to the effect that the place from which the secret books of account were seized formed part of the place of business of the respondents or was in their exclusive possession and control, (2) that the secret books of account were maintained by or under the orders of the respondents, (3) that the said books of account were in the handwriting of either of the respondents or their accountant, or clerk or some other person employed by them. The third method indicated above could have been adopted by following one or more of the ordinary modes provided in the Evidence Act for proving the handwriting i.e. (i) by calling the Accountant or clerk or some other employee of the respondents who is supposed to have posted the entries in the account books, (ii) by calling a person in whose presence the account books were written (iii) by calling a handwriting expert to testify that the entries in the secret books of account tallied with the admitted specimen writing of the respondents or any of their employees, (iv) by calling a person acquainted with the handwriting of the, person by whom the secret books of account were supposed to have been written, (v) by having the comparison done in Court of the Secret books of account with some admitted writing as provided in S.73 of the Evidence Act, (vi) by proof of an admission made by any one of the respondents that the secret books of account related to the business transactions carried on by their firm or that any one of them had written the same, (vii) by adducing other unimpeachable circumstantial evidence. We find that the issue involved in this case as regards demand of duty on the clandestine removal of the goods, based on the entries on the miscellaneous outward register fails miserably and the demand to that extent is liable to be set aside and we do so.
b. Clandestine clearances effected from the factory based upon the statement of monthly production report and entries of removal of finished goods based upon the documents recovered from the office of the Director(Technical) of the appellant company.
On perusal of the entire records and the submissions made by both sides, we find that the demand on this count is based upon the papers and chits of production report, which were recovered from the cabin of Sh. GVN Rao, Director(Technical) of the appellant company. It is also seen from the records that Sh. GVN Rao on the date of search i.e. 10/4/1997 confirmed the said monthly production report and the activities and the details of removal of goods noted in the chits were of the goods cleared from their factory and were cleared without accountal or without payment of duty. To our mind, these chits and monthly production report as recovered from the cabin of Mr.GVN Rao and his statements on the day of such recovery of these documents, clearly indicate that there was a clandestine removal as regards the items mentioned in the said monthly production report and the chits, which are part of the show cause notice as entry E-3 and E-4, have been established to have been clandestinely removed from the factory premises. We are of the considered view that the demand of the duty as regards the goods which were purportedly cleared as indicated in entry E-3 and E-4 needs to be upheld and we do so. The argument of the ld. Counsel that Mr.GVN Rao had retracted the statement, will be of no avail as the said retraction was belated and also it is on record that the said evidence was recovered from Mr.GVN Raos cabin.
c. Whether there was double invoicing of the goods under invoice No.576 dt. 17/2/1996 and whether there was shortage of 37.490 Mts. Of duty paid inputs valued at Rs.69,87,050/-?
As regards the two set of invoices bearing No.576 on perusal of the records, we find the said invoice was issued from the office of the appellant company. The said invoice does not relate to the invoices which have been issued from the factory premises. We find that the demand confirmed by the lower authorities on this point cannot stand and we set aside the said demand.
d. As regards the shortage in stock noticed by the officers on their visit to the factory premises on 10/4/1997, we find that the findings of the adjudicating authority on this count is as under:-
49. The contention that the panchanama does not show evidence that any verification was done and that it is not correct to say that there was a shortage of 37.49 tonnes of Alloy Steel Rods (raw material), is no acceptable. The operation of search and verification of materials was conducted before two independent witnesses and also before Sri K.Ranganath, GM of the company who has signed on the panchanama with the remark in my presence. It is recorded in panchanama that both Sri K.Ranganath, GM and Sri GVN Rao, Director(Technical) of the company have accepted the said shortage of material and also have stated that this material has been used in the manufacture of their final products drilling bits/hammers which have not been accounted by them in the statutory records. It can be seen from the above reproduced findings of the adjudicating authority that Shri K.Ranganath, General Manager of the appellant company was present during the panchnama. It is surprising to note that the investigating officers have not recorded any statement of Shri K.Ranganath on 10/4/1997 or subsequently also. The non-recording of statement of Shri K.Ranganath is fatal to the case of the Revenue as regards the shortage of the raw materials. It is seen that the shortage has been recorded as 37.490 mts. of alloy steel rods. On perusal of the panchnama, we find that the shortage has not been worked out in any scientific manner. To our mind the said shortage has just worked out based upon the arithmetic calculation of the book stock and physical stock (as informed by the employees of the company). At the most such shortages can be said as of eye estimation. It is settled law that any stock which recorded as shortage based upon only arithmetic calculation and without any scientific process, is fraught with inconsistencies. In the absence of any statement of the General Manager, who was present during the recording of panchnama, is definitely as shoddy piece of investigation, which is detrimental to the Revenues case. The insistence of JDR that Technical Director has accepted the shortage and there is no need for statement of General Manager would, not carry the case of the Revenue any further as the shortage is itself wrongly arrived at and seems to be incorrect, and in view of this, we hold that demand of the duty on the shortage of raw materials, is liable to be set and we do so.
9.2. In order to arrive at the correct demand of the duty as regards the clandestine clearances effected as per entry E-3 and E-4 of the show cause notice, we remand the matter back to the adjudicating authority for limited purpose of quantification of the said demand. Consequent to such quantification, the adjudicating authority may also impose proportionate penalties on all the appellants.
9.3. Another point which was raised by the ld. Counsel that they were denied the cross-examination of the witnesses and there is a mis-carriage of principles of natural justice. In this case, we find that the argument of the appellant cannot carry the case any further as the Director(Technical) in his statement has clearly recorded that the chits and the monthly report which were found in his cabin, was indeed authored by him. In the absence of any contrary evidence, we find that non-granting of cross-examination, in the facts and circumstances of the case, is not fatal.
10. Since we have disposed all the appeals on merits and facts of the case, we are not recording any other findings on various other submissions by both sides. Accordingly, all the appeals are disposed as indicated hereinabove.
(Pronounced in court on ..) (P.KARTHIKEYAN) Member (Technical) (M.V. RAVINDRAN) Member (Judicial) Nr 21