Customs, Excise and Gold Tribunal - Delhi
Arsh Castings Pvt. Ltd. vs Collector Of Central Excise on 13 September, 1995
Equivalent citations: 1995ECR410(TRI.-DELHI), 1996(81)ELT276(TRI-DEL)
ORDER G.P. Agarwal, Member (J)
1. This appeal is directed against the impugned Order-in-Appeal passed by the Collector (Appeals) Central Excise, Chandigarh.
2. Shortly put the facts of the case are that, the appellants M/s. Arsh Castings Pvt. Ltd. are engaged in the manufacture of Steel Ingots. For the manufacture of these Steel Ingots, the appellants have been using, amongst others, inputs namely, goods and materials of Chapter 73 obtained by breaking up of ships, boats and other floating structures, on which duty of excise, both basic as well as special, had been paid at the rates leviable thereon at the material time. It was the case of the Revenue that on 21-12-1990, the Preventive Staff of Chandigarh, Central Excise Collectorate, after checking the statutory records took into possession 20 gate passes against which the appellants had received Iron and Steel Waste/Scrap from M/s. Dee Kay Steel Corporation and M/s. Sonu Iron Store, Mandi, Chandigarh. Investigations made by the authorities concerned indicated that the appellants have received 333.215 MTs of Iron and Steel scrap against the 20 gate passes taken over by them and on this quantity of Iron and Steel scrap, the appellants had availed Modvat credit amounting to Rs. 2,09,925.45 during the period 20-8-1990 to 8-12-1990. The said gate passes so resumed by the officers showed M/s. Anupama Steel Industries, Plot No. 15, M/s. Ganpat Rai Jai Gopal, Plot No. 35, and M/s. Mahadev Industrial Corporation, Plot No. 34 all of Alang (Gujarat) as consignors of the goods. However, as per Revenue, Shri Ashwani Bhai Bhagwan Bhai Gujrati, partner of M/s. Mahadev Industrial Corporation, Shri Sanjeev Satpal Sharma, Director of M/s. Anupama Steel Industries Ltd., and Shri Vipin Ganpat Rai Aggarwal, partner of M/s. Ganpat Rai Jai Gopal in their statements dated 5-1-1991,6-1-1991 and 5-1-1991 respectively stated that the gate passes so taken over from the appellants showing M/s. Sonu Iron Store, Mandi Gobindgarh and M/s. Dee Kay Steel Corporation as consignors had not been issued by their firm. They pointed out that gate passes bearing the same serial numbers as appearing on the gate passes taken over from the appellants had actually been issued by them in favour of certain other parties. Enquiries made at Mandi, Gobindgarh revealed that M/s. Dee Kay Steel Corporation and M/s. Sonu Iron Store, Mandi, Gobindgarh were not in existence and the Sales Tax number mentioned on the invoices issued in the names of these firms were incorrect. On these allegations, a Show Cause Notice to show cause as to why the said amount of Rs. 2,09,925.45 availed as Modvat Credit by the appellants should not be recovered. However, no penalty was proposed in the Show Cause Notice. The appellants hotly contested the Show Cause Notice. However, the Additional Collector of Central Excise, Chandigarh, vide his Order-in-Original No. 56/CE/ADC/91, dated 12-9-1991 confirmed the demand.
3. Against that order of the Additional Collector of Central Excise, Chandigarh, dated 12-9-1991 the appellants preferred their appeal before this -Tribunal, which was allowed by remand by the Tribunal vide its Final Order No. A/245/92-NRB, dated 26-5-1992 observing as follows :
5. We have examined the record of the case and considered the submissions made by both the sides. It is seen that the Department's case was mainly based on the statements given by the Partner/Director of the firms in Alang (Rajkot) whose names appeared as consignors on the gate passes against which the disputed quantity 333.215 Mts of Iron and Steel scrap was claimed to have been received by the appellants. Since the appellants were denied the opportunity to cross-examine these witnesses, we are of the view that the impugned order was violative of the principles of natural justice. On these grounds we grant unconditional stay of the order passed by the Additional Collector and also simultaneously take up the appeal for disposal.
6. It is seen that the Departments case is mainly based on the statements of Shri Ashwani Bhai Bhagwan Bhai Gujrati Partner of M/s. Madhav Industrial Corporation recorded on 5.1.91 and Shri Sanjeev Satpal Sharma, Director M/s. Anupama Steel Industries Ltd. recorded on 6.1.91. Reliance has also been placed on the statement of Shri Vipin Ganpat Rai Agarwal, partner M/s. Ganpat Rai Jai Gopal which was recorded on 15.1.91. According to these persons the Gate passes in question against which a quantity 333.215 MTs of Iron and Steel scrap was received by the appellants had not been issued by any of their firms in favour of either M/s. Dee Kay Steel Corporation and M/s. Sonu Iron Store, Mandi Gobindgarh. They have further stated that the gate passes bearing the same serial numbers as appearing on the gate passes taken over by the Central Excise Officers from the appellants had actually been issued by them in favour of other parties. During the proceedings before the Additional Collector, the appellants had made a request that they should be given an opportunity for cross-examination of the persons whose statements had been relied upon by the Department. We are of the view that since the Department's case regarding the gate passes in question being fictitious mainly rests on the evidence of the Partners/Director of the concerned firms at Alang (Rajkot), the denial of opportunity to cross-examine the concerned persons was violative of the principles of natural justice. On these grounds, we hold that the impugned Order is not sustainable. We, therefore, set aside the order appealed against and remand the matter to the concerned adjudicating authority for de novo consideration in accordance with law after giving the appellants suitable opportunity for personal hearing."
4. On remand, it appears that the Additional Collector of Central Excise, Chandigarh (Preventive) summoned the witnesses for cross-examination whose statements were relied upon in the Show Cause Notice. But none of them turned up for cross-examination and the Additional Collector without making any effort to propose their attendance for cross-examination by resum- moning them etc. again decided the case on the evidence available on the record and confirmed the demand vide his impugned Order-in-Original dated 3-9-1993. Against that order of the Additional Collector, the appellants filed their appeal before the Collector (Appeals) Central Excise, Chandigarh, but without success. Hence, the present appeal by the appellants.
5. Appearing on behalf of the appellants, Shri J.S. Agarwal, learned counsel, at the outset, submitted that admittedly the Department's case regarding the gate passes in question being fictitious mainly rests on the statement of the Partner/Director of the concerned firms, namely, Shri Ashwani Bhai Bhag-wan Bhai Gujrati, Partner M/s Mahadev Industrial Corporation, Shri Sanjeev Satpal Sharma, Director M/s. Anupama Steel Industries Ltd., and Shri Vipan Ganpat Rai Aggarwal, Partner M/s. Ganpat Rai Jai Gopal, all of Alang who are consignors of the goods. The case was remanded earlier by the Tribunal, as aforesaid, for giving an opportunity to the appellants to cross-examine the said persons and the persons whose statements were relied upon by the Department in the Show Cause Notice. But curiously enough, the Additional Collector on remand did not give any opportunity to the appellants to cross-examine the said witnesses. He highlighted that from paragraph 4 of the impugned Order-in-Original, it is clear that, no attempt was made to procure the attendance of the witnesses for cross-examination when they failed to turn up. On the other hand, from paragraphs 5.1 and 5.2, it is clear that, the Additional Collector in utter disregard of the order of the Tribunal passed earlier whereby the case was remanded, questioned the right of the appellants to cross-examine the said witnesses by citing certain judgments. In this premises, his submission was that, the appellants were not given any opportunity to cross-examine the witnesses. The alleged statements of the witnesses recorded during investigation behind the back of the appellants cannot therefore be taken into consideration and has to be disregarded. If that is so, nothing survives for consideration for this Tribunal. He submitted that for the same reasons, the impugned Order-in-Appeal is also cannot be sustained.
6. On merits, he submitted that the appellants correctly availed the credit of duty on the inputs received in the factory, along with the gate passes evidencing payment of duty of excise and used by them in the manufacture of their final product. All the 20 gate passes in question bear the seal and stamp of the officers of the Central Excise Department of Alang. The entire material so received under the said gate passes was entered in Raw Material Account (Form IV) as well as in RG-23 Part-I and Part-II. The said material was used in the manufacture of final products and the inputs as well as the final products were mentioned in monthly returns in RT-12. These were finalised and the gate passes in question were defaced. All the payments were made by crossed Account Payee's cheque. All these consignments had crossed sales tax barrier and the documents accompanying the consignments have invariably been checked, verified and duly stamped by the Sales Tax barrier authorities. All these facts and circumstances of the case lead to the conclusion that the said gate passes were genuine and not fictitious as alleged by the Department. He highlighted that except the alleged statements of the said persons recorded behind the back of the appellants, there is nothing on record from the side of the Department to prove that the said gate passes were fictitious. He stressed that the burden to prove that the gate passes in question were fictitious was on the Revenue and not on the appellants and when the Revenue has not adduced any acceptable evidence to prove that the gate passes in question were fictitious the case of the Department must fail and the authorities below erred in holding that the burden was on the assessee to prove that the gate passes were not fictitious. To buttress his submission, he cited the case of L. Chandrasekar v. Collector of Customs, 1990 (48) E.L.T. 289 and Shiv Charan Bajpai v. Collector of Customs & Central Excise, Kanpur, 1995 (56) E.C.R 736.
7. In reply, Shri K.K. Dutta, learned JDR, supported the impugned order.
8. Considered. It is not in dispute that the entire case of the Department regarding the gate passes in question being fictitious hinges on the evidence of the Partner/Director of the concerned firm of Alang (Rajkot), who according to the gate passes resumed in the instant case were consignors. From the Final Order (as extracted above) No. A/245/92-NRB, dated 25-5-1992 passed by the Tribunal, it is clear that, earlier the case was remanded to the adjudicating authority for affording an opportunity to the appellants to cross-examine the concerned persons whose statements were relied upon in the Show Cause Notice. We find from the impugned Order that still the opportunity to cross-examine the witnesses whose statements were relied upon in the Show Cause Notice was not given to the appellants. The adjudicating authority, that is to say, the Additional Collector of Central Excise, Chandigarh, has recorded his finding in paragraph 4 of the impugned order-in-original as follows :
"4. Personal hearing along with cross-examination of the witness, whose statements were relied upon in the Show Cause Notice, was fixed for 27-10-1992, 9-11-1992,12-12-1992, 23-1-1992,10-2-1992, 30-3-1993 which was finally held on 17-5-1993. None of the witnesses turned up for cross-examination, except for written statements tendered by two of the witnesses one partner of Ganpat Rai Jai Gopal and other AB Gujrati, Partner of Madhaw Industrial Corporation."
9. From the above findings of the adjudicating authority, it is obvious that the opportunity was not given to the appellants to cross-examine third parties on whose statement reliance was placed by the Department and, in fact, on whose statements the present demand has been confirmed. It is an elementary principle of natural justice and fair play that a person who is sought to be proceeded against and penalised in adjudication on the basis of third party statements should be afforded effective opportunity to challenge the correctness of the same as per law by cross-examination, if he so desires. If witness 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 penalise the appellants in law when the appellant is entitled to an opportunity of cross-examination of third party on whose statements reliance is placed. In case of L. Chandrasekhar v. Collector of Customs, supra, decided by the Tribunal applies on all fours to the present case. For ready reference, the relevant portion may be reproduced herein with advantage :
"5. On going through the records, I find that the factual submission set out above and made by the learned Counsel are correct. The Tribunal initially remanded the case for giving the appellant an opportunity of cross-examination of third parties on whose statements reliance had been placed against the appellant. In the impugned order, after remand, the learned Adjudicating Authority in this context has observed as under :
"S/Sri Sundarraj, Velusamy, Manuel Coreira, Sethu and Kalyani who were called upon for cross-examination did not turn up. The Advocates insisted on their cross-examination but it appeared that they are keeping away from their proceedings and as such the process could not be completed. Moreover, the case could not be kept in abeyance indefinitely merely on the non-availability of persons required for cross-examination."
The Adjudicating authority again in the finding column in the impugned order has observed as under:
"The opportunity by cross-examination of the witnesses also was given. But the persons summoned to appear for cross-examination before me did not turn up. It was explained to Counsel L. Chandrasekaran that the persons summoned for cross-examination appeared to keep away from their proceedings and as such the adjudication process will not be completed."
6. It is, therefore, obvious from the finding of the Adjudicating authority that opportunity was not given to the appellant to cross-examine third parties on whose statements reliance was placed. It is an elementary principle of natural justice and fair play that person who is sought to be proceeded against and penalised in adjudication on the basis of third party statements should be afforded effective opportunity to challenge the correctness of the same as per law by cross-examination if he so desires. If witnesses do not turn up for cross-examination, it is open to the adjudicating authority to proceed with the adjudication without relying on those statements against the appellant given. Non-availability of witness will not be a ground to penalise the appellant in law when the appellant is entitled to an opportunity of cross-examination of third parties on whose statements reliance is placed. The proceedings are penal in nature...".
(Emphasis ours)
10. Besides, the case of Pahar Chand & Sons v. The State of Punjab, (1972) 30 STC 211, decided by the Division Bench of the Punjab & Haryana High Court (cited by the appellants in the memo of appeals) also applies on all fours to the present case. In that case also, the Sales Tax Assessing Authorities under the Sales Tax Act were treating the sales recorded in the books of accounts as fictitious and the assessing authorities relied upon the testimony of the witnesses without giving opportunity of cross-examination to the assessee therein. Setting aside the assessment, the Court observed (1) that "if the assessing authority was relying on the testimony of a witnesses, the assessee should have been afforded an opportunity to cross.exam.ne. It was not open to the assessing authority to get over this hurdle on the plea that the witness had not been produced by the assessee; and (2) that the assessing authority acted on material which was not legal, to come to the conclusion that the sales were fictitious. [Head Note (2) & (3)]. The same view was taken by the Division Bench of the Mysore High Court in the case of Neminath Appayya v. Jamboorao, AIR 1966 Mysore 154, wherein it was held that the evidence of the witness must be excluded from consideration when there is a failure to give opportunity to cross-examine the witness.
11. In view of the above, the statement of the witnesses on whom the Department is relying upon has to be disregarded. If that be so, nothing remains on record to prove that the gate passes so resumed were fictitious.
12. That apart, we are of the view that the Department has failed to prove that the gate passes, so resumed, were fictitious. It was not disputed before us that the burden was on the Department to prove that the gate passes in question were fictitious. The Department is relying upon the statements made during the investigation by the aforesaid persons. The appellants have challenged their statements right from the day one. The appellants have a right to impeach the credit of witness by cross-examination. Therefore, they have requested for cross-examination, but this opportunity was denied earlier by the adjudicating authority and, therefore, on appeal by the appellants, the Tribunal had to remand the case to the original authority for this purpose. But none of the witnesses turned up for cross-examination as is evident from para 4 of the adjudication order, as extracted above. With the result that the appellants could not impeach their credit by cross-examination. Failure of these witnesses to appear for cross-examination not only goes strongly against them, but the Court of Law is entitled to draw an inference adverse to them if they do not have courage to stand the test of cross-examination. In such a situation, the statements made by these witnesses during investigation do not carry any conviction when they keep themselves away and are not ready to stand the test of cross-examination. To put in other words, the Department wants to rely upon the statements of the witnesses which were recorded during investigation, who when challenged by the appellants during the adjudication proceedings are keeping themselves away and are not ready to stand the test of cross-examination. Whereas the appellants have not merely denied the charge in their reply to the Show Cause Notice, but have brought on record both the documentary and circumstantial evidence to demolish the case of the Department. That is to say, the present case is not merely a case of statement against the statement, but is a case where the witnesses who have made the statement during the investigation/enquiry behind the back of the appellants are keeping themselves away and are. not ready to stand the test of cross-examination against the statement (defence) of the appellants duly corroborated by the facts and circumstances of the case and the undisputed documentary evidence on the record. To wit, as per Rule 55 read with Rule 173D of the Central Excise Rules, 1944, a manufacturer is required to maintain the raw-material account in the prescribed form and furnish information to the authorities concerned. As per Rule 54, the manufacturer is required to submit the monthly returns. As per amended Rules 54 and 173G, the manufacturer is required to submit the duty paying documents on which credit has been taken along with extract of RG-23A, Part I & Part II, and on submission of the duty payment documents the same are verified and defaced by the Superintendent of Central Excise by putting the rubber stamp to the effect "credit taken under Rule 57-A on the duty payment documents" and then returned to the manufacturer. The appellants have strictly complied with the said rules. The raw material (input) received under the gate passes in question was entered in Raw-material Account (Form IV) as well as in RG-23A, Part I & Part II, and it was used in the manufacture of the final product. The inputs, so used, as well as the final products were mentioned in monthly return in RT-12 and the duty paid gate passes in question were submitted along with these returns. These gate passes were verified and defaced by the authorities concerned and that quantity of the inputs received tallied almost with the final product manufactured by the appellants, and further that the payments for the raw-material received under the the gate passes in question was made by account payee cheque. All these facts have not been denied by the Revenue. These established facts on the record not only probabilise the defence of the appellants that the gate passes were not fictitious but prove that the same were genuine. The fact that no penalty was imposed or ever proposed in the Show Cause Notice is also a circumstance to be taken note of. But curiously enough both the authorities below relying upon the statements made by the witnesses during the investigation and the private enquiries held that the gate passes were fictitious without giving any opportunity of cross-examination. It may be noticed here that earlier also the adjudicating authority denied the opportunity of cross-examination of the witnesses whose statements were relied upon in the show cause notice and, therefore, the case was remanded by this Tribunal, as aforesaid, but on remand no opportunity to cross-examine was given. It is true that, it is open to the adjudicating authority to collect material during investigation even by private enquiry. But if he desires to use the material, so collected, the assessee must be informed of the material and must be given an opportunity of explaining it by cross-examining the witnesses. But when such opportunity to cross-examine the witnesses is denied by the adjudicating authority, the order so passed by the adjudicating authority on the basis of such private enquiries and the statements made by the witnesses during investigation, stands vitiated. See C. Vasantlal and Co. v. Commissioner of Income-tax, Bombay City, (1962) 45 ITR 206, wherein the Supreme Court has observed as follows :
"The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it."
"It will be noticed that if the sales tax authorities refused the prayer of the assessee to cross-examine the wholesale dealers, then such a refusal would not amount to an adequate opportunity of explaining the material collected by the assessing authority." [Extracted from State of Kerala v. K.T. Shaduli Yusuff, (1977) 39 STC 478 - SC]."
12.1 The reason for holding so is not far to seek for, to quote the Apex Court again:
"... It is difficult to conceive as to how the assessee would be able to disprove the correctness of the accounts of Haji P.K. Usmankutty or the other wholesale dealers, unless he is given a chance to cross-examine them with respect to the credibility of the accounts maintained by them. It is quite possible that the wholesale dealers may have mentioned certain transactions in their books of account either to embarrass the assessee or due to animus or business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the accounts are brought before the authorities and allowed to be cross-examined by the assessees..." [see State of Kerala v. K.T. Shaduli Yusuff, (1977) 39 STC 478 - SC].
(Emphasis ours)
13. In the result, we set aside the impugned Orders and allow the appeal with consequential relief to the appellants, if any, according to law.