Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs Shri Sunil N. Gupta on 31 July, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT - I
Appeal No.E/894-896/2009
Arising out of: OIO No.07/Commissioner/RKS/Ahd-II/2009, dt.25.03.2009
Passed by: Commissioner of Central Excise & Customs, Ahmedabad
For approval and signature:
Mr.M.V. Ravindran, Honble Member (Judicial)
Mr. H.K. Thakur, Honble Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
Appellant: M/s Gupta Synthetics Ltd, Shri Mohanlal N. Gupta,
Shri Sunil N. Gupta
Respondent: CCE Ahmedabad-II
Represented by: For Assessee: Shri P.M. Dave, Adv For Revenue: Shri P.V.R. Ramanan, Special Counsel.
CORAM:
MR.M.V. RAVINDRAN, HONBLE MEMBER (JUDICIAL) MR. H.K. THAKUR, HONBLE MEMBER (TECHNICAL) Date of Hearing:29, 30 & 31.07.13 Date of Decision:13.11.2013 Order No.A/11599-11601/2013, dt.13.11.2013 Per: M.V. Ravindran These appeals are directed against the Order-in-Original No 05/Commissioner/RKS/AHD-II/2009, dated 27.02.09, passed by the Commissioner of Central Excise, Ahmedabad II. The order, which has been challenged in the present appeal, confirms duty demand against the appellant under the following heads:-
(i) Rs 32,07,422/- leviable on 91929.140 Kgs of Draw Twisted Polyester Yarn (DTY), clandestinely manufactured and cleared by the appellant during the period March 2002 to 15.8.2002 liable to be recovered from the appellant under the first proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 [hereinafter referred to as the Act].
(ii) Rs 73,00,168/- leviable on 214.685 MT of DTY clandestinely manufactured and cleared during the period 1.4.01 to 30.6.02, liable to be recovered under the first proviso to Section 11A of the Act.
2. Besides the demand of duty and interest thereon and imposition of penalty against the appellant [hereinafter referred to as GSL], the impugned order has also imposed penalties upon Mohan Lal N. Gupta [Director of GSL] and Sunil N. Gupta [Director of Nova Petrochemicals Ltd]. Against both the Directors penalty of Rs 50,00,000/- each has been imposed by the Commissioner. The Directors against whom penalties have been imposed by the Commissioner are also in appeal before us. The said appeals are also being disposed of by the present order.
3. The brief facts which are necessary for the disposal of the appeal may be stated thus:
GSL, against whom the duty demand has been confirmed, is registered with the Central Excise Department and is engaged in the manufacture of excisable goods viz., Texturised and Draw-twisted Yarn (DTY) made of Polyester, falling under Chapter 54 of the first schedule to the Central Excise Tariff Act, 1985.
Investigations in the present case concluded with the issuance of Show Cause Notice dated 27.10.04, issued to GSL and its directors. The facts and evidence relied upon in the Show Cause Notice in respect of each demand are more or less identical in nature.
3. The facts narrated in the Show Cause Notice as regards demand of Rs.32,07,422/- and Rs.73,00,168/- are that search was conducted at the factory premises of GSL and Nova Petrochemicals Ltd (hereinafter referred to as Nova, when various documents were seized from the premises of GSL and Nova, and statements were also recorded during the course of search operations. The demand of Rs 32,07,422/- is based on documents titled in the Show Cause Notice as A-19, A-20, A-21, A-22 and A-23. Apart from the documents, statements of V N Parab, DTY Supervisor of the appellant company and of Mohan Bhai Nand Kishore Gupta one of the Directors of GSL have also been recorded. These statements are also relied upon in the Show Cause Notice. The nature and contents of the documents seized from the premises of the appellant have been described in the Show Cause Notice in the following manner:-
A-19 is a Daily Report Book, maintained by the V.N Parab, which contains the details about daily opening stock of POY, consumption quantities, quantities of waste of POY generated, working hours of machine etc. A-20 is a file of loose papers. Page No.13 of said loose papers shows number of boxes, the weight of the yarn, the denier no, merge number, crill no and date etc. A-21 is a duplicate note book maintained by V.N Parab. The entries referred to in the said note book are A.P Total, A.P Production total and A.P Production day. The said Note book has been maintained for the purpose of reporting the daily progress made in achieving the production targets, till the end of the month on cumulative basis. As per the Show Cause Notice, entries in A-19 tally with the entries in A-21. Thus it is a substantive evidence for arriving at the quantities of illicit production of DTY by GSL A-22 is a Note Book (91 pages) maintained by V.N Parab, which contains the details of Crill No and number of Crill Positions etc. As per Show Cause Notice, the entries noticed in this seized record have been chronologically maintained date wise, while some pages contain dates, some pages do not contain date, but from the progressive Crill Numbers entered therein and the merge no., or Lot Number and/or the Denier of either POY viz., 115/68 or the Finished DT Yarn viz., 70/68. These entries pertained to illicit procurement of POY of 115/68 Denier from Nova, which were subjected to Draw Twisting at GSL.
The document marked as A-23 is a note book, containing 83 pages, which are serially numbered. The entries contained therein are the details of random samples, drawn from different positions of spindles of the DT machine by the Quality control department of GSL. According to the Show Cause Notice, from the note book, it could be noticed that mainly POY of 115/68 Denier has been subjected to process in the DT machine by GSL.
The document marked as A-24 is a note book, containing 1 to 39 pages, and has been maintained for the period from 31.3.01 to 31.3.02, and has the details regarding the raw material yarn purchased. According to the Show Cause Notice, the details of purchases shown indicate that all the quantities of POY of denier of 115/68 have been purchased by GSL from Nova illicitly. The document marked as A-25, which is also a note book containing similar detail of purchases of raw material yarn.
Statement of V.N Parab was recorded on 16.8.2002. He admitted the register maintained by him, in his own handwriting. He also admitted that 115/678 denier POY, received from Nova, was only being processed by GSL. Statement of Mohan Lal Gupta, director of GSL, was also recorded, wherein he stated that GSL procures POY mainly from Nova and that the total average of POY loaded on a crill for processing would work to 1560 kgs.
Based on the documents recovered from the premises of Nova and statements recorded during the course of investigation, Show Cause Notice concludes that GSL and Nova in collusion with each other had devised a modus operandi, by which Nova was clandestinely supplying POY of Denier 115/68 to GSL, without the cover of any duty paying documents. GSL in turn, on receipt of POY of 115/68 denier, subjected the said POY to further manufacturing process and manufactured DTY of denier 70/68. The said DTY has been cleared by GSL without payment of duty. GSL in collusion with Nova has, therefore, clandestinely cleared 91,929.140 Kgs of DTY valued at Rs.87,50,820/- during the period March 2002 to 15.8.2002. Accordingly, duty demand of Rs.32,07,422/- has been demanded on the said quantity of DTY for the period starting from March 2002 to 15.8.2002. The impugned order confirms this duty demand.
4. The second demand of Rs.73,00,168/- has been demanded from the appellant on the basis of seized record marked as A-23. The nature of documents titled as A-23 has already been referred to us in the preceding para. Apart from the said Note Book, statements dated 3.9.03 of Mohan Lal Gupta, Director of the GSL has also been relied upon while demanding duty from the GSL. As per the Show Cause Notice, Mohan Lal Gupta in his statement dated 3.9.03, has mentioned that Draw Twisting Machine has 156 spindles and on an average 10 Kgs of Yarn was loaded and processed on each spindle per day. As per the Show Cause Notice, deposition made by Mohan Lal Gupta shows that the average quantity of 1560 Kgs of DTY was being manufactured by GSL per day. The Statutory records show far less quantity of production of DTY. Thus a duty demand of Rs.73,00,168/- has been made on the quantity of 214.685 MT of DTY, clandestinely cleared during the period 1.4.01 to 30.06.02. The impugned order confirms this duty demand against the appellant.
5. Preliminary response was made by GSL vide their letter dated 10.09.08 and 26.09.08, in which they requested for cross-examination of the investigating officers as well as the persons whose statements have been recorded during the course of investigation. Two persons, whom GSL requested for cross-examination is namely Rajendra Kaushik (Production Manager) and V.N Parab. Vide letter dated 7.10.08, the Joint Commissioner of Central Excise, communicated the decision of the Commissioner stating that the request for cross-examination cannot be acceded to. The reason stated for not allowing cross-examination of Rajendra Kaushik was that there is no reference to his statement in the Show Cause Notice. The officers have only incorporated the facts, which Kaushik narrated while drawing the Panchnama dated 16.8.02, in his presence. Further, as regards the request for cross-examination of V.N Parab, it has been stated that since he has left the job and his whereabouts are not known to GSL, the request for cross-examination cannot be acceded to. In the final reply dated 19.11.08, GSL once again submitted that if the request for cross-examination is not acceded to, it would amount to violation of principles of natural justice. On merits, they inter alia submitted that evidence led by the Revenue for demand of Rs.32,07,422/- is the documents namely A/21 with A/19 and A/20 and also the statements of V.N Parab and Mohan Lal Gupta. Similarly, the evidence for the demand of Rs.73,00,168/- is a document titled as A/23 and statement of Mohan Lal Gupta. These evidences do not support the case of the Revenue. Both the demands are raised on the optimum production of yarns in GSLs factory, but whether optimum production has actually been achieved on any particular day during the period in question has not been carefully examined. The demands could not be raised on the basis of aforesaid evidence without any support of substantiation like availability of raw materials, consumption of electricity, use of workers, evidence of transporters for removal of goods clandestinely, identification of the buyers of concerned goods and the evidence of payments received from such buyers. In the final reply to the Show Cause Notice, GSL also narrated their version of correct facts and true scope of seized records.
6. The Adjudicating Authority by the impugned order has first dealt with the preliminary objections raised by GSL. The adjudicating authority has referred to the letter dated 7.10.08, in support of his finding regarding denial of request for cross examination. The contents of letter dated 7.10.08 has been narrated in the impugned order for justifying the decision of rejecting cross-examination. The Adjudicating Authority has also referred to case laws in support of his decision for rejecting cross-examination. On merits, the Commissioner has held that the details contained in the seized records read along with the statement of V.N Parab and Mohanlal Gupta, Director of GSL, conclusively proves the case of the Revenue. The Adjudicating Authority has proceeded to confirm the duty demand of Rs. 32,07,422/- on the reasoning that it could be inferred from Mohan Lal Guptas statement that on an average 1560 Kgs of DTY was manufactured by GSL per day. Purchase documents produced by GSL show only two purchases of 2084.380 Kgs of POY. Balance quantity required for manufacture of DTY was procured illicitly from Nova. Mohan Lal Gupta put his dated signature on being shown VN Parabs statement. He has not stated that VN Parabs statement was incorrect. Statement of VN Parab is, therefore, correct and admissible as evidence. Statement of VN Parab is, therefore, corroborated by the statements of Mohan Lal Gupta. Mohan Lal Gupta, on being shown A/20, put his dated signature on it and did not disagree that the details matched, which means that he has admitted them to be correct. Mohan Lal Gupta, on being shown A/21, put his dated signature thereon and said that the entries are in conformity with the entries in A/19. A/21 is, therefore, a vital piece of evidence for arriving at GSLs production. A/22 carries the signature of VN Parab. Mohan Lal Guptas statement refers to Crill change everyday. Therefore, A/22 is corroborative evidence of use of POY by GSL. Drawal of samples from different positions of spindles shows that goods were processed on the DT machines and the production has not been shown in the records of GSL. As POY of 115/68 denier was mainly purchased from Nova, the Adjudicating Authority concluded that Nova had clandestinely cleared POY of 115/68 denier to GSL. The Adjudicating Authority has confirmed the duty demand of Rs.73,00,168/- on basis of entries made in the seized record titled as A-23 and relying upon the statement dated 3.9.03 of Mohan Lal Gupta, Director of GSL. Mohan Lal Gupta in his statement dated 3.9.03 has stated that on an average 1560 kgs of yarn is processed on the DT machine. This is an acceptable piece of evidence. Further private records maintained by GSL are sufficient for arriving at a conclusion of production and clearance by them. GSL has also resorted to suppression of fact of procurement of huge quantity of POY from Nova and by not accounting for the same in the prescribed books of accounts and further processing such procured POY and removing the resultant finished yarn manufacture out of POY without accounting and without payment of duty, has deliberately indulged themselves in suppression of the true and correct quantity of yarn manufactured and, therefore, extended period has been rightly invoked in the Show Cause Notice. Imposition of penalty under Section 11AC has been justified by the Adjudicating Authority on finding that there has been a deliberate and intentional suppression of production and clearance of yarn with an intention to evade payment of duty of excise. Penalties imposed upon the directors namely Mohan Lal N Gupta and Sunil N. Gupta has been justified by the Adjudicating Authority on the finding that they were fully aware of clandestine procurement of POY and clearance of finished goods [DTY].
GSL and its director Mohan Lal N. Gupta and Sunil N. Gupta, Director of Nova was represented by Shri Paresh Dave, Advocate and the Revenue were represented by the learned Special Counsel, Mr P R V Ramanan. The present appeal was heard on the same day along with the appeal preferred by Nova bearing No E/1060/2009. The facts related to demand of Rs. 32,07,422/- are more or less identical to the facts narrated in appeal preferred by Nova against the demand of Rs. 56,52,945/-. The demand of Rs.32,07,422/- in present appeal pertains to clearance of finished goods DTY clandestinely cleared and manufactured out of POY clandestinely cleared and manufactured by Nova. Clandestine clearance of POY to GSL forms the subject matter of Appeal No: E/1060/2009. This appeal has already been decided in favour of Nova by our Final Order No:A/11207-11219/WZB/AHD/2013 dated 26.09.03.
7. Shri Paresh Dave, Advocate appearing for all the appellants, before proceeding to argue the case of GSL submitted that as regards the confirmation of demand of Rs 32,07,422/- he would be adopting most of the arguments made by the ld. Senior Advocate, Shri M Chandrasekaran appearing along with him in the appeal preferred by Nova. In this factual backdrop, it would be necessary for us to deal with the submissions made by the Senior Advocate, once again in this appeal, insofar as, the same are relevant to the facts of the present case.
8. In the present appeal, the appellant has as early as on 19.11.04, had requested for cross examination of the witnesses to examine the reliability and veracity of the evidences brought on record. In their further communications, GSL had also raised the need and relevancy of cross examination in cases like the present at the initial stage and cited several judgements in support thereof, starting with State of Kerala v K.T Shaduli Yusuff Grocery Dealer (AIR 1977 SC 1627). By a letter dated 7.10.08, the request for cross-examination has been rejected. The reason stated in the letter for rejecting cross-examination is that Rajendra Kaushik, whose cross-examination has been sought by GSL, has made no statement under Section 14 of the Act. The officers have only incorporated the facts narrated by Kaushik while drawing the Panchnama. Since V.N Parab has left job and his whereabouts are not known to GSL, request for his cross-examination is not justified. We find that there is no discussion in the impugned order of any case referred to by GSL or to the facts and circumstances of those cases or even the dicta laid down in those decisions. On the contrary, the impugned order relies upon the decision in the case of Collector v D Bhoormul (1983) 13 ELT 1546, Shivom Ply-N-Wood Pvt Ltd v CCE, 2004 (177) ELT 1150, and Liyakat Shah v CCE, 2000 (120) ELT 556, the last 2 decisions being those of this Tribunal. The reasons contained in the letter dated 7.10.08 has been reiterated by Adjudicating Authority in the impugned order justifying rejection of request for cross-examination.
9. The ld. Senior Advocate, Mr. M. Chandrasekharan, whose arguments have been adopted by the Mr. Paresh Dave, Advocate appearing on behalf of GSL, submitted that the law on the issue of cross-examination of witnesses whose statements have been relied upon either in the Show Cause Notice or in the Adjudication Order is quite well-settled. As could be seen from the facts stated hereinabove, the Show Cause Notice proceeded on the basis of documents seized from different persons and from different premises, and statements thereon made by the persons concerned with the documents. It was, further, submitted by the learned Senior Advocate in his written submission filed on behalf of Nova that the correctness of the statements made by witnesses vis-`-vis documents on record and correctness of the documents on record vis-`-vis statements made by the witnesses would be the subject matter for cross examination. We find merit in the said submission made by the learned Senior advocate. In our opinion, there has been, in the present case, denial of natural justice to GSL by the rejection of the request of cross-examination of the persons whose statements have been relied upon. In the view we are taking, the following decisions relied upon by the ld.Senior Advocate, are in support:
In Bareilly Electricity Supply v Workmen, (1971) 2 SCC 617, the Honble Supreme Court had held that when a document is produced in a Court or Tribunal, mere production of the document does not amount to proof of it or the truth of the entries therein. . The writer must be produced or his affidavit in respect thereof be filed and an opportunity accorded to the opposite party who challenges this fact. In Swadeshi Polytex Ltd v CCE, Meerut 2000 (122) ELT 641 (SC), it was held that if the Adjudicating Authority intends to rely upon the statement of any such persons, the Adjudicating Authority should give an opportunity of cross examination to the appellant.
In Lakshman Exports Ltd v CCE, 2002 (143) ELT 21 (SC), the Honble Supreme Court had held that where an assessee had specifically asked to be allowed to cross examine the representatives of two concerns to establish that goods in question had been accounted for in their books of accounts and the appropriate amount of Central Excise duty had been paid, the logic of such request is clear from what is stated therein.
In Basudev Garg v CC, New Delhi, 2013 (294) ELT 353, the Honble Delhi High Court relied upon the earlier decision in J & K Cigarettes v CCE, 2011 (22) STR 225 (Del.), and held that, insofar as general propositions are concerned, there can be no denying that when any statement is used against the assessee, an opportunity of cross examining the persons who made those statements ought to be given to the assessee. Reliance is placed on the decisions of the Honble Supreme Court in Swadeshi Polytex (supra) and Lakshman Exports Ltd (supra) and to the earlier decisions of the Honble Delhi High Court in J &K Cigarettes case as clinching the issue in favour of the assessee. Reference is made in the said decision to the importance of Section 9D of the Act, the validity of which was also upheld in the said decision.
In the above connection, the ld. Senior advocate has also submitted that, in D Bhoormals case (supra) what was being considered by the Honble Supreme Court was the applicability of the provisions of the Evidence Act and the Code of Criminal Procedure to adjudication proceedings. In fact, this aspect has also specifically been adverted to by the Honble Supreme Court in the Bareilly Electricity Supply case (supra), referred to by the learned Senior Advocate, particularly, the issue of applicability of Evidence Act to proceedings before the Courts and Tribunals. As held by the Honble Supreme Court in that decision:
If a letter or other document is produced to establish some fact which is relevant to the enquiry the writer must be produced or his affidavit in respect thereof be filed and opportunity afforded to the opposite party who challenges this fact. This is both in accord with principles of natural justice as also according to the procedure under Order XIX Civil Procedure Code and the Evidence Act both of which incorporate these general principles.
We agree with the aforesaid submissions of the ld.Senior Advocate that the decisions cited by the Adjudicating Authority on this aspect are clearly distinguishable. They do not lay down the proposition that cross-examination is not a right, but only that it would depend on the facts of each case. During the hearing held before this Tribunal, and while replying to the submissions on this issue made before us by the ld.Senior Advocate, the learned Special Counsel for the department made reference to the recent decision of the Honble Supreme Court in Telestar Travels Pvt Ltd v Special Director Enforcement, 2013 (289) ELT 3 (SC) as supporting the order rejecting cross-examination. In the said case, the Adjudicating Authority had relied upon the statements of two persons and communication received from Indian High Commission in London. These statements under reference were challenged as being inadmissible in evidence as the appellants request for an opportunity to cross examine these witnesses had been unfairly declined thereby violating the principles of natural justice. On the other hand, it was argued by the department that right of cross examination was available to a party under the Evidence Act which has no application to adjudication proceedings under the FERA and Adjudicating Rules framed thereunder. We have perused the said judgment of the Honble Supreme Court and also heard the submissions of the ld. Senior Advocate. The Honble Supreme Court held that it is evident from Rule 3 of the Adjudicating Rules framed under Section 79 of the FERA that Rules of Procedure do not apply to adjudication proceedings. At the same time, as pointed out by the ld. Senior Advocate, the Honble Supreme Court proceeded to say as under:
That does not, however, mean that in a given situation, cross examination may not be permitted to test the veracity of a deposition sought to be issued against a party against whom action is proposed to be taken. It is only when a deposition goes through the fire of cross-examination that a Court or Statutory Authority may be able to determine and assess its probative value. Using a deposition that is not so tested, may therefore amount to using evidence, which the party concerned has had no opportunity to question. Such refusal may in turn amount to violation of the rule of a fair hearing and opportunity implicit in any adjudicatory process, affecting the right of the citizen. After referring to the decision of the Honble Supreme Court in the case of Surjeet Singh Chhabra v UOI, 1997 (89) ELT 646 and M/s Kanungo & Co v CC, 1983 (13) ELT 1486, the Honble Supreme Court (in para 20), while dealing with the case at hand, held that reliance had been placed upon certain documents produced by the two persons as referred to above. The documents were permitted to be inspected by the appellants. Production of document duly confronted to the appellant was in the nature of production in terms of Section 139 of the Evidence Act, where the witness producing the document is not subjected to cross examination. Such being the case, refusal of the Adjudicating Authority to permit cross examination of the witnesses producing the document, cannot even on the principles of Evidence Act, be found fault with. It was, therefore, held that no prejudice was caused to the appellant nor was demonstrated by the appellant before the Honble Supreme Court or before the Courts below. We agree with the submissions of the ld.Senior Advocate that the said decision of the Honble Supreme Court does not support the proposition that rejection of request for cross examination of witnesses whose statements have been relied upon, does not amount to violation of principles of natural justice. On the other hand, the observations extracted above demonstrate to the contrary. As far as the facts before the Honble Supreme Court were concerned, production of the documents being in the nature of production of documents under Section 139 of the Evidence Act, their cross examination was prohibited by the said Section itself. In the present case, witnesses who have given the statements are not persons who were asked to produce documents under Section 139 of the Evidence Act. Their statements were recorded as witnesses. This decision, therefore, does not help the contention put forward by the learned Special Counsel. For the above reasons, we hold that there has been a denial of natural justice in the facts of the present case. The impugned order, as is evident, strongly relies on the statements of VN Parab and on the documents seized from GSL and explained by the witnesses whose statements were recorded. GSL had sought permission to cross-examine two persons for reasons which had been broadly stated by them. In the letter requesting for cross-examination, GSL had clearly explained the reasons for cross-examination. In the present case, as we would be dealing with later, de hors the documents and the statements, there was no material to establish the case made out against GSL. The decisions cited by the ld. Senior Advocate categorically reject the proposition that cross-examination can be refused in cases like the present. We also agree with the ld.Senior Advocate that the decisions cited by the ld. Special Counsel for the Revenue does not lay down any law to the contrary.
10. We are, therefore, constrained to hold that the decision made by the Adjudicating Authority in the impugned order, denying GSLs request for cross examination of witnesses, is clearly in violation of principles of natural justice in the matter of the need to permit cross examination of witnesses on whose statements reliance has been placed.
11. As a matter of course, we would have considered remitting the matter back to the Adjudicating Authority for fresh adjudication on the ground that principles of natural justice have been violated. The ld. Advocate appearing for GSL further relied on the submission made by the ld. Senior Advocate that, the case made against GSL and Nova in the Show Cause Notice is totally unsustainable on facts as well as in the light of the catena of decisions of this Tribunal (some of them affirmed in reference/appeals by higher Courts) on the degree of proof necessary to be adduced by the Department to establish clandestine manufacture and clearance of excisable goods, which, according to him, is totally lacking in the present case. The ld. Special Counsel for the Revenue had no objection to argue the case of the Revenue fully on merits and justify the correctness of the impugned order. We, therefore, proceeded to hear the matter fully and examine the entire case on merits as well.
12. The ld. Senior Advocate while addressing arguments on behalf of Nova had submitted that there is a long line of decisions of Courts and of this Tribunal in the matter of how clandestine manufacture and clearance of goods has to be established by Revenue. He submits that the law, in this regard, has been repeatedly laid down by this Tribunal in a long line of cases, some which have also been affirmed by different High Courts, and one of them, by the Honble Supreme Court.. The issue of clandestine manufacture and clearance of goods arises, according to the ld.Senior Advocate, in the case of first three demands confirmed in the impugned order and has some relevance to the fourth demand as well. He, therefore, submitted that we may hear the submissions of both the parties on the said issue and, thereafter, apply the principles to facts relating to each demand.
13. In a Note submitted by the learned Senior Advocate for Nova at the hearing on 29.07.2013, on clandestine clearance and how they are to be established, he has referred to some of the decisions in this regard (copies of which were compiled and filed before us). He has referred to the following cases and, in brief, made oral submissions on their contents:-
(i) In Oudh Sugar Mills Ltd v Union of India, 1978 (2) ELT (J172) (SC), the Honble Supreme Court, after discussing the facts before them, held that the finding that the alleged quantity of Sugar had not been accounted for has been arrived at without any tangible evidence and was based only on inferences involving unwarranted assumptions and is vitiated by an error of law. The orders of the lower authorities were quashed.
(ii) In Deena Paints v CCE : 2001 (43) RLT 805, raw materials and finished products were found lying in the factory in excess of what was entered in the statutory records, at the time of search of the factory. The foreman of the factory deposed that he had been working in the factory for 26 years and was keeping daily account of production in his diary, which he had handed over to the officers. He was responsible for the manufacturing the finished product out of the raw material. The Manager of the factory, who had been working in the factory for 20 years and looking after the Central Excise work of the factory and the day-to-day production deposed that the Note Book recovered from the Foreman contained details of production, which were genuine and correct. It was argued by the appellants in that case that the department has not brought on record any evidence that the appellants had procured additional raw material and manufactured the goods. It was, also argued by the appellants that the department has not brought on record any evidence about clandestine removal of the goods without payment of duty. It was also submitted that there was no evidence placed on record to show that appellants received any amount of sale proceeds of the goods. It was therefore, contended by the appellants that duty was not demandable in the absence of any proof or records. It was submitted that clandestine manufacture and clandestine removal of the goods without payment of duty should have been proved properly, which was not done. It was further contended that the figures recorded in the diary maintained by the Foreman were not corroborated by any other evidence. Several decisions of this Tribunal were cited in support of the contentions of the appellant [CCE, Meerut v Moon Beverages Ltd., 2002 (150) ELT 976, Kabra Enterprises & others v CCE, 1999 (109) ELT 571, Kothari Products Ltd and others v CCE, Kanpur, 2003 (159) ELT 1187, CCE v Raman Ispat, 2000 (121) ELT 46]. This Tribunal cited and followed the earlier decision in the Moon Beverages Ltd case (supra) to the following effect:
it is well settled that the charge of clandestine removal cannot be established on the basis of one single factor which in this case, is the figures of sales reflected in the computerised sheets recovered by the Department from M/s. PEL. Without obtaining evidence such as evidence of other inputs required for manufacture of finished product namely Sugar, Carbon-di-Oxide being purchased and utilised in the manufacture of the final product during the period in dispute is required. There is no such evidence in the present case. There is also no evidence regarding higher electricity consumption. There is also no evidence of receipt of extra sale of goods clandestinely manufactured or removed. Dropping of the demand was upheld. This was despite documents having been recovered and statements of officials of the assessee that clandestine clearances were resorted to by the appellant.
(iii) In Brims Products v CCE : 2001 (130) ELT 719, this Tribunal was considering a case where four bags of Pan Masala containing 30 Kgms each were seized for non-accountal of the same in the RG-I Register. Some loose sheets of papers were found in the dustbin, containing entries of transactions relating to pan masala. The quantity of alleged clandestine clearance was calculated based on transport companys records. This Tribunal held that clandestine manufacture and surreptitious removal is required to be proved beyond doubt by the Revenue. There was evidence only of receipt of some raw materials but not of others. Such evidence, according to this Tribunal, may create a doubt in favour of the revenue but cannot take the place of legal evidence. The order was set aside.
(iv) In CCE v Laxmi Engg. Works, 2001 (134) ELT 811 (Tri-Delhi), during the search of factory premises, slips showing sale of different types of electric fans were recovered and seized. There was nothing on record to show if on physical verification of stock any excess raw material or finished goods were fund lying in the factory premises. In the absence of any corroborative evidence, merely on the basis of the slips allegedly recovered from the factory premises which did not even contain names of the customers or any other details regarding receipt of raw material or manufacture and clearance of electric fans by the Respondent, this Tribunal held that duty liability as demanded could not be fastened. In the reference application filed by the Commissioner against the said order of this Tribunal, the Honble High Court of Punjab & Haryana held that even if some record recovered during the raid and was corroborated by some supportable evidence holding that there was admission of clandestine production and removal of goods, it is necessary to have some positive evidence of clandestine production and removal of goods. The question of law preferred whether in the light of the private record discovered during the raid, the Tribunal was right in holding that there was no positive evidence of clandestine production and removal of goods was answered against the revenue and in favour of the assessee.
(v) In T.G.L Poshak Corp. v CCE, 2002 (140) ELT 187, this Tribunal considered the issue as to whether the demands can be confirmed on the basis of recovery of exercise Note Books and certain balance sheets maintained by the assessee and in the absence of any corroborative evidence. In fact, in a tabulated form this Tribunal dealt with the judgements which were referred to, to support the plea that demands cannot be confirmed which contained the reason for this Tribunal coming to the conclusion that, in the absence of any corroborative evidence, of a tangible nature, clandestine removal cannot be established. This Tribunal relied on the tabulated list of citations furnished by the Counsel that unless there is clinching evidence on the nature of purchase of raw material, use of electricity, sale and mode of flow back of funds, demands cannot be confirmed solely on the basis of Note Books maintained by some workers.
(vi) In Hilton Tobacco v CCE, 2005 (178) ELT 378, certain private documents maintained in the factory were seized under which it appeared that the appellant had not accounted for raw material procured by him. This Tribunal held that a inference cannot be based on certain private documents only when there is no corroborative evidence recorded. Investigation had not found out at least a few buyers who had received the goods cleared clandestinely. There was no evidence of excessive consumption of electricity. When the unit was visited there was no unaccounted stock of raw material. Charges were based purely on theoretical working out based on private document which are not statutory. Relying upon the earlier decision of the Tribunal, it was decided that clandestine removal cannot be sustained. The source of procurement of raw material had not been established, buyers of finished goods had not been contacted and receipt of sale proceed had not been proved. There was, therefore, no corroborative evidence in support of the revenues case.
(vii) In Vishwa Traders Pvt Ltd v CCE, 2012 (278) ELT 362, the appellant had submitted that the Adjudicating Authority has passed the order on conjectures and surmises. It was submitted that documents recovered from the premises of the employees and third parties are not official records. Their cross examination had also been denied by the Adjudicating Authority. Serious charge of clandestine removal cannot be sustained on the basis of documents recovered from outside the premises of the assessee. It was submitted that despite large scale investigation including visits to the premises of raw material suppliers, there was nothing brought on record to show that the appellant had purchased raw materials without recording the same in their books of accounts. The submission of the appellant was that demand cannot be upheld on clandestine removal on the basis of documents along with statements unless there is tangible, independent, corroborative proof like financial flow back, actual manufacture and clearance, excess purchase of raw material, electricity consumption, statement of workers, actual transportation of the goods, and statement of purchasers. It was contended on behalf of the revenue that the case was based on parallel invoices recovered from the residential premises of the factory manager and accountant. Lorry receipts indicated that there was no movement and even if there was any movement they were not clandestine clearances. The Managing Director of the company had even stated that they were making clandestine clearance of the finished products without recording the same in their books of account. The request for cross examination of some of the persons whose statements were relied upon was rejected by the Adjudicating Authority only on the ground that the assessee had not given any reason and justification for their cross examination. This Tribunal held that this approach of the Adjudicating Authority is inconsistent with the law of evidence. On a careful perusal of the entire records of the case, the Tribunal found that there was nothing on record as to unrecorded purchases or consumption of other various raw materials in the manufacture of finished products. There was no statement of suppliers of raw material, except in respect of one of the raw materials. His cross examination has also been rejected. In the absence of any other tangible evidence to show that other major raw materials had been procured without recording the same in books of accounts, this Tribunal did not accept the contention of the revenue that finished goods had been clandestinely manufactured and cleared. After referring to several earlier decisions of the Tribunal on the subject, the Tribunal held that the charge of clandestine manufacture was not established. This decision was taken by the Commissioner of Central Excise in appeal before the Honble High Court of Gujarat which was dismissed by the Honble High Court [2013 (287) ELT 243 (Guj.)]. The Honble High Court quoted with approval paragraph Nos 12, 13 & 16 of the order of the Tribunal which were extracted, stating that from findings of the Tribunal, it is clear that the appellant had not made any clandestine manufacture which he had removed clandestinely and on which duty was payable.
(viii) In CCE v Dhariwal Industries Ltd, 2012 (283) ELT 113, the department had alleged that the appellant had made clearance of Gutkha without cover of invoice and without payment of duty and the transit documents were brought back and sent along with subsequent consignments. Unaccounted quantities of packing material had been procured. It was contended on behalf of Revenue that the appellant had devised a clever modus operandi to clear the goods without payment of duty by multiple use of the same document which had been confirmed by the managers of the transport company who booked the consignments. Purchase of some raw materials had also been alleged. After going through the exhaustive evidence which was produced in that case, this Tribunal held that demand cannot be confirmed entirely on the basis of documents of the transporters. There should be independent corroborative evidence to support the finding of clandestine clearance. The Tribunal observed that for the quantity of finished goods allegedly removed clandestinely it would have required approx. 700 trips for transporting the same. No evidence had been adduced by the revenue to establish this. Procurement of essential raw material without accounting had also not been established. The Tribunal noticed that an identical issue of clandestine manufacture and clearance came up before a coordinate Bench of the Tribunal in the case of Durga Trading Company v CCE wherein the Tribunal held as under:
9.?It is well settled that the charge of clandestine manufacture of the dutiable goods and removal thereof without discharging the duty liable by an assessee, cannot be established on assumptions and presumptions. Such a charge has to be based on concrete and tangible evidence. In this context, reference may be made to Oudh Sugar Mills Ltd. v. Union of India - 1978 (2) E.L.T. (J 172) (S.C.), wherein the Apex Court has observed that demand of duty cannot be raised on the strength of assumptions and presumptions. There should be sufficient evidence of the removal of the goods alleged to have been manufactured and cleared without payment of duty. The charge of clandestine removal must be based on tangible evidence and not on inferences involving unwarranted assumptions. This very principle of law had been applied by the Tribunal in a number of cases and out of those, few are, Amba Cement and Chemicals v. CCE - 2000 (115) E.L.T. 502 (Tribunal) = 2000 (90) ECR 265, Gurpreet Rubber Industries v. CCE - 1996 (82) E.L.T. 347 and Madhu Foods Products v. CCE - 1995 (76) E.L.T. 197.
10.?For want of any legal, tangible and concrete evidence, the duty demand of Rs. 4,64,56,058/- as confirmed by the learned Commissioner along with equal amount of penalty and interest, against the company appellant No. 1, cannot be legally sustained and is set aside. Being aggrieved by the order, the revenue carried it in appeal to the Honble Supreme Court and the same was dismissed as reported in 2003 (157) ELT A315 (SC). The ratio of the decision clearly indicated that in the case of clandestine removal it was for the revenue to substantiate the allegation of clandestine removal.
(ix) In Radha Madhav Corporation Ltd v CCE, Daman, 2012 (284) ELT 369, the issue was once again raised in a case where the allegation was that there was clearance of plastic film in the guise of Lay Flat Tubing (LFT). The revenues case was based on statements of transporters and of the Director of the main appellant. This Tribunal held that the charge of clandestine removal is to be established on the basis of preponderance of probability and not on the basis of presumptions and assumptions. It was held that, on facts, there was no sufficient cogent, unimpeachable, relevant and credible material to establish the case of clandestine manufacture and clearance. After examining the facts of the case at length, it was held that a link between the documents recovered in the search and the activities of the appellant in their factory is required to be proved. This Tribunal held that the revenue had failed to prove the same.
In our view the decisions which have been cited in the Note submitted by the learned Senior Advocate reflect the true legal position in the matter of how cases relating to clandestine manufacture and clearance have to be established. In two of the decisions, the matter had been taken up in reference/appeal before the Honble High Court and one of the cases was even taken up before the Honble Supreme Court. All the three of them had been dismissed which confirms that the view taken by this Tribunal in the earlier cases lays down the correct law in the matter.
Even though the learned Special Counsel for the Revenue did not challenge the correctness of the decisions cited as above by the learned Senior Advocate, and perhaps rightly so, in the light of their being approved by the higher judicial fora, he had contended that such cases have to be decided on the principle of preponderance of probability. It was not necessary for the revenue, nor possible, to establish the cases of clandestine manufacture and clearance with mathematical precision as has been observed by the Honble Supreme Court in CC v D. Bhoormull, 1983 (13) ELT 1546 . In our view, this submission may be of help to the revenue only in cases where, in the matter of clandestine manufacture and clearance, there is some tangible evidence of such manufacture and clearance by Nova. This Tribunal has, in the above referred cases, laid down several criteria which could go to establish the cases of clandestine manufacture and clearance. Where such ingredients exist, a contention that a case need not be proved with mathematical precision may become relevant. The decision in D. Bhoormull would not, therefore, be of help to the revenue in cases where there is no evidence at all satisfying the tests laid down by this Tribunal in the long line of cases referred to earlier. In support of the submission regarding preponderance of probability being tested to determine the issue the learned Special Counsel had referred to 3 decisions. Gulabchand Silk Mills Pvt Ltd v CCE, 2005 (184) ELT 263, Umiya Chem v CCE, 2008 (7) LCX 0602 2009 (239) ELT 571 and Ureka Polymers v CCE, 2001 (127) ELT 618. These decisions, according to the ld. Senior Advocate, are not contrary to the decisions cited by him for Nova. In the case of Gulabchand v CCE, the vehicle was intercepted carrying non duty paid goods. Unaccounted duty paid goods were found in the dealers premises and they gave statements to the effect that the goods were supplied with bills and without bills. This was not a case where there was no evidence of clandestine manufacture and clearancee. In the Umiya Chem (supra) during the course of search, shortage of finished goods was noticed when compared with RG-23A Part I register. The partner of the firm had also admitted illicit clearance. Brokers statement gave details of commissions received against sale. There was, therefore, evidence regarding illicit clearance. In the third case of Ureka Polymers, the department had obtained the statement of raw material suppliers and also of finished goods dealers. Since no regular records were maintained by the assessee to show electricity consumption, as to how much electricity was consumed, the submission of the assessee was rejected. This again was a case where there was some evidence to show manufacture and clearance, supposedly clandestine.
It was, therefore, the submission of the ld. Senior Advocate that, in three cases cited by the ld.Special Counsel for the Revenue, this Tribunal and Honble High Court of Gujarat had taken a view that there was no need to prove such clandestine clearance with mathematical precision. These were cases where evidence was available regarding unaccounted duty paid goods being found, shortage of finished goods found and evidence regarding supply of raw materials and receipt of commission by brokers, which were all tangible evidence of clandestine clearances. It was further submitted by the ld. Senior Advocate that the cases cited by him were cases where no such evidence was available at all and the law laid down as applicable to such cases, to which category the present case belongs.
14. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of:
a) raw materials, in excess of that contained as per the statutory records;
b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
c) discovery of such finished goods outside the factory;
d) instances of sale of such goods to identified parties;
e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
f) use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
g) statements of buyers with some details of illicit manufacture and clearance;
h) proof of actual transportation of goods, cleared without payment of duty;
i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacture or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v CCE, Vadodara, 2013 (293) ELT 689. It would appear that the decision, though rendered on 3.5.2013, was reported in the issue of the ELT dated 29.7.2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. In yet another decision of a co-ordinate Bench of the Tribunal (Pan Parag India v CCE, 2013 (291) ELT 81), it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.
15. We may now proceed to deals with the two demands of duty in the present case:
It is the contention of GSL that the demand of Rs 32,07,422/- was wholly illegal and without any justification because no evidence has been produced to the effect that GSL had actually manufactured the quantity of 91929.140 Kgs of DT Yarn, which is alleged to be cleared clandestinely without payment of duty. It was further submitted that as per Annexure A(1) of the Show Cause Notice it is clear that the figures of the alleged clandestine manufacture and removal has been arrived at on the presumption that GSL had achieved during the period 1.7.02 to 15.8.02 an optimum production of 1867 Kgs of DT yarn. However, there was no evidence showing that GSL had achieved optimum production of 1867 Kgs of DT Yarn during the period of 45 days. There was also no evidence or justification for showing how and why the optimum production was achieved by GSL only for a period of 45 days and not at any other point of time. It was further submitted on behalf of GSL that the figure of optimum production of 1867 Kgs of DT yarn per day was taken from Register A-21 but in reality no such details were not found in the said Register. No clarification has been sought by the investigating officer regarding the expressions appearing in the Register titled as A-21. There was no corroborative material to suggest that GSL had manufactured and cleared such a huge quantity of DT Yarn without payment of duty. It is the further submission of GSL that the case made out by the Revenue that GSL had achieved optimum production fails even on the basis of seized document titled as A-21. This document itself indicates that the machine stopped on each day for several hours. It was further submitted that that the details compiled in Annexure A (1) to the Show Cause Notice clarifies that the demand of Rs 32,07,422/- was based only on Register titled as A-21 and not based on any documents namely A-19 and A-20. The expression used in the document titled as A-21, like A.P total, A.P Production total, A.P etc was never clarified by V N Parab as no such question has been put forth to him for clarification of the expression mentioned in the entries during the course of recording of the statement. The entries made on each page of the document titled as A-21 i.e. details of machine stop time on a particular day and machine stop time total was also written which indicated that the machine was not operated and was stopped on a particular day for how many hours and what was the total and which machine was not operative. Despite this evidence being available on record, the demand has been worked out in the Show Cause Notice on the basis of optimum production of 1876 Kgs of DT Yarn. It was further submitted that even the statement of Mohan Lal Gupta does not substantiate the case of the Revenue that A-21 was a register maintained for recording the actual production. Neither Mohan Lal Guptas statement nor any evidence indicated that the details appearing in A-21 were in conformity with the details recorded in the Register titled as A-19. It is the contention of GSL that they had established during the adjudication proceedings that A-21 and A-19 did not correlate to another and thus, the details shown in A-19 being corroboration to the case made out by the Revenue on the basis of A-21 was totally illegal and incorrect. Even the document titled as A-20 did not support the case of the Revenue as the loose papers found in this file were never examined by the Revenue.
In reply to the submission made on behalf of GSL it was submitted by the learned Special Counsel, Mr P R V Ramanan that the Adjudicating Authority has confirmed that the duty demand of Rs 32,07,422/- on the basis of records recovered from the premises of the GSL. Mohan Lal Gupta, Director of GSL on 3.9.03 has deposed that there are 156 positions on each Crill and on an average 10 Kgs of POY was loaded for processing each day. Thus, total average weight for each Crill were worked out to 1560 Kgs per day. Further, Mohan Lal Gupta had stated that there was Crill change every day and the factory was running in two shifts. From the statement of Gupta the only inference that could be drawn was that on an average 1560 Kgs of DT yarn was being manufactured by GSL each day. It was also submitted that the Adjudicating Authority has also relied upon the seized records titled as A-19, A-20, A-21, A-22 and A-23, the statement of V N Parab and comparing the same with the entries made in the A-19, it becomes clear that the figure of 1867 Kgs appearing in all the pages of A-19 register has been mentioned as optimum production for the day and is arrived after considering the aforesaid figure and the time taken for the machine idle.
We have considered the submissions of both parties. We find that no evidence has been produced by the Revenue to show that GSL has effected sale of such huge quantities of 91929.140 Kgs of DT Polyester Yarn. There is no tangible evidence of GSL having actually produced all the DTY or Twisted Yarn from out of non-duty paid POY supplied by Nova. No transporters documents have been seized or produced by the Department to show transport and sale of such huge quantities of POY from Nova to GSL or, even for that matter, from GSL to the buyers of DTY produced by GSL. No evidence has been forthcoming of purchase of raw materials by Nova for production of POY in such huge quantities, or of payments effected by GSL to Nova for the excess quantities of POY, clandestinely manufactured and cleared by Nova and sold to GSL, or even of payments made by the buyers of DTY from GSL made out of quantities alleged to have been purchased by GSL from Nova. The only basis of the demand is the figures contained in A/19 and A/21, seized from GSL premises, of which VN Parab is the author. Even if the figures in the seized documents tally (which is disputed by GSL, since VN Parab has not, when he was being examined during the investigation, stated that they tally), that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained by this Tribunal in the decisions cited earlier, amongst several others. Submission made by ld. Senior Advocate, who had addressed arguments on behalf of Nova also supports the case of GSL that where the demand is based on clandestine production, clearance and sale of excisable goods, mere entries in note books or diaries cannot establish the same. Proof of actual production, whether by direct evidence or corroborative evidence is a must, and the probative value of such evidence has to be established, especially when such a finding would lead to penal consequences.
In our view, therefore, the present demand of Rs.32,07,422/-, which has been confirmed against Nova by the impugned order, is not based on evidence which, as this Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance, would justify a finding against the appellant (GSL). Unless there is conclusive evidence that Nova did actually manufacture DTY and clandestinely clear them without payment of duty, liability cannot be placed on GSL on the basis of conjectures and surmises, as the Honble Supreme Court emphatically declared in the Oudh Sugar Mills case (supra). We are of the view that there is no tangible evidence produced by the department to establish that GSL has clandestinely manufactured and cleared DTY on which the present demand has been made. We, therefore, set aside the demand of Rs.32,07,422/- as being illegal and unjustified.
16. As regards the demand of Rs.73,00,168/-, it is the contention of GSL that the said demand has been made on the basis of seized records i.e. document titled as A-23. It was further submitted that the said demand was purely based on assumptions and presumptions as it has not been established by the Revenue as to who had written the details in A-23. The purpose for making such an entry in the register was also not clear. The Revenue has placed their own interpretation of various words and nomenclature found in the entries in the said register. It was further submitted that the entire basis of demand of Rs 73,00,168/- was the Note Book containing 83 pages which was seized from the factory and the said Note Book contained details of samples drawn from various position of spindles on DT Machine. On the basis that the average production of DT Yarn was 1560 Kgs, per day, huge quantity has been worked out for the period from 1.4.01 to 30.06.02, alleging that POY of 115.68 deniers was processed on the DT machines during the aforesaid period because reports of drawal of samples were shown in documents titled as A-23. It is the submission of GSL that the author of the said report has not been identified by the revenue. The purpose for making such entries is also not clear. The entries made in the said register have not been established by the officers during interrogation of any person. It is the further contention of GSL that no admission has been made by Mohan Lal Gupta or by V N Parab as regards the optimum production having been achieved on all days in the factory or average production having been achieved for all days. It was further submitted that the drawing of samples would not necessarily mean that the machine was operating on that very particular day and average production of 1560 Kgs was achieved on the said day when the sample was drawn.
In reply to the submission made on behalf of GSL, it was submitted by the learned Special Counsel Mr P R V Ramanan that the Adjudicating Authority has carefully considered the relevancy of the documents titled as A-23 and the statement of Mohan Lal Gupta, Director of GSL. In paras 90 to 92 of the impugned order, the Commissioner has discussed as to how the seized records marked as A-23 containing 83 pages substantiates the case of the Revenue. Further, in the said paras, the Adjudicating Authority has carefully considered the statement of Mohan Lal Gupta. It is further submitted that the Adjudicating Authority has rightly concluded that on a combined reading of the statement of Mohan Lal Gupta and the Note Book marked as A-23, it can be concluded that the details of drawing of samples reflected in the Note Book marked as A-23 is an unimpeccable evidence to support the contention that the yarn was produced on DT machine on which random samples were shown to have been drawn. The Adjudicating Authority has rightly concluded that the private records maintained by the assessee are sufficient for arriving at the figures of production and clearance of GSL as the records A-19, A-20 were either maintained or duly signed by the Supervisor In-charge of the DT machine which means that the said records reflected the true and correct working on the DT machine.
We have considered the submissions of both parties. We find that no evidence has been produced by the Revenue to show that GSL has effected sale of such huge quantities of DTY weighing 214.685 mtrs. There is no tangible evidence of GSL having actually produced all the DTY or Twisted Yarn from out of non-duty paid POY supplied by Nova or by another company. No transporters documents have been seized or produced by the Department to show transport and sale of such huge quantities of POY from Nova or any other company to GSL or, even for that matter, from GSL to the buyers of DTY produced by GSL. No evidence has been forthcoming of purchase of raw materials by Nova or any other company for production of POY in such huge quantities, or of payments effected by GSL to Nova or any other company for the excess quantities of POY, clandestinely manufactured and cleared by Nova or any other company and sold to GSL, or even of payments made by the buyers of DTY from GSL made out of quantities alleged to have been purchased by GSL from Nova or any other Company. We also find force in the submission made on behalf of GSL that no efforts have been made by the Revenue to establish the words or expressions used in the document titled as A-23. The meaning of the words and expressions used in the document could have been easily ascertained by asking a question to this effect to any of the responsible person working with GSL. Actual production achieved by GSL ought to have been established by the Revenue by concrete evidence. Statements by itself cannot be made the basis of concluding the production achieved by GSL. We are constrained to reiterate that it is one thing to make out the content of entries made in a document, it is totally a different thing to assess the probative value of the contents of the document. As repeated by this Tribunal, clandestine manufacture and clearance cannot be readily inferred from documents and statements. They have to be established on evidence, relatable to or linked with actual manufacturing operations. As far as the present demand is concerned, there is no such evidence forthcoming in the record before us. Mere reliance on note books or statements cannot justify a finding of clandestine manufacture and/or clearance. Investigation into the sources of supply raw material would have revealed the actual facts. Apparently, no efforts seem to have been made in this behalf by the investigating authorities. Of equal importance would have been investigations into the transportation of the raw materials (in huge quantities, as alleged) to GSL and of DTY allegedly manufactured from the factory of GSL to its buyers, and payments for such raw materials and for the clandestinely cleared DTY. In the absence of all such evidence, a finding that excisable goods have been clandestinely manufactured and cleared by GSL cannot justifiably be arrived at. The probative value of the entries needs to be established by independent corroboration, which is lacking in the present case. The long line of decisions referred to and relied upon by the ld. Senior advocate, appearing for Nova have laid down the parameters for a charge of clandestine manufacture and clearance to be established, which have not been satisfied in the present case. The present demand of Rs.73,00,168/- is, therefore, unjustified and deserves to be set aside. Accordingly, we do so.
17. The Adjudicating Authority, in the impugned order, has imposed penalty on GSL and its director and Sunil N. Gupta, director of Nova. Imposition of penalty has been justified by the Adjudicating Authority on the basis that there has been suppression of facts with an intention of evade duty. Since we have allowed GSLs appeal and set aside the demand for duty, to sustain imposition of penalty on GSL on the ground of suppression and intention to evade duty does not arise. The penalty imposed upon GSL and its director, Mohan Lal N. Gupta and also on Sunil N. Gupta is accordingly set aside.
18. In view of the foregoing and in the facts and circumstances of the cases, we set aside the impugned orders and allow the appeals.
(Pronounced in Court on 13.11.2013)
(H.K. Thakur) (M.V. Ravindran)
Member (Technical) Member (Judicial)
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