Case Law Details
Dipal Narendrabhai Shah Vs C.C.E. & S.T.-Bhavnagar (CESTAT Ahmedabad)
These appeals are directed against the Order-In-Appeal whereby the Commissioner (Appeals) upheld the penalty imposed by the original authority under Rule 26 (1) of Central Excise Rules, 2002.
The brief facts of the case are that all the appellants in the present appeals were allegedly involved in case of alleged clandestine removal made by M/s Pure Enterprises Pvt. Ltd. The allegation of clandestine removal was mainly based on some diaries recovered from brokers and follow up action was taken upon various manufacturers mentioning in the said diaries of the brokers. The adjudicating authority confirmed the demand and imposed penalty on among others present appellants under section 26(1) of Central Excise Rule, 2002. Being aggrieved by the Order-In-Original the appellants filed appeal before the Commissioner (Appeals) who rejected the appeals and upheld the penalties, therefore, the present appeals.
2. Shri Sarju Mehta, Learned Chartered Accountant appearing on behalf of the appellant submits that under a common investigation various case were made out against various manufacturers for alleged clandestine removal on the basis of diaries recovered from brokers. In two of the identical cases i.e. Shri Hari Steel Industries vide Final Order No. A/11053 – 11055/2022 dated 29.08.2022 and Shri Himanshu Nandalal Jagani & Ors vide Final Order No A/11082- 11089/2022 dated 01.09.2022 in respect of the similarly placed appellant including some of the same appellants of this case the penalties were set aside. Therefore, following the said two orders the penalties in the present case also not sustainable.
3. Shri Rajesh K Agarwal, Learned Superintendent (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.
4. I have carefully considered the submission made by both sides and perused the records. I find that the present appellants were also involved in the case of Shri Hari Steel Industries and also in the case of M/s. Pure Alloys Ltd. in the said cases the Tribunal has taken a view that the appellants are not liable for the penalty. The common investigation was carried out in the present case and cases of M/s. Pure Enterprises Pvt Ltd, M/s. Pure Alloys Ltd and Shri Hari Steel Industries. It is also observed that same statements, evidences such as broker’s diaries etc were relied upon in all the cases, therefore, facts of all the three cases are absolutely identical. Since this Tribunal has already taken a view regarding penalty on the appellant in this Tribunal’s orders (Supra), the penalty in the present case is also not sustainable. The decision of this Tribunal in the case of Himanshu Nandalal Jagani & Ors vide final order no A/11082 -11089/2022 dated 01.09.2022 is reproduced below:-
“4. I have gone through rival submissions. It is admitted fact of both sides that most of the investigation in the present case are not only identical but common to the case of Shri Hari Steel Industries. It is a fact that in case of Shri Hari Steel Industries also no shortage or excess were found in the factory premises, no investigation at the buyer’s end was conducted and no investigation in respect of Electricity raw material etc. was conducted. It is also a fact that in case of Shri Hari Steel Industries no examination in chief or cross examination was done. In these circumstance the decision of Shri Hari Steel Industries would be squarely applicable in respect of the demand raised on the basis of the diaries recovered from the brokers.
5. In the case of Shri Hari Steel Industries reliance was palced on another identical case of Bansal Castings. In Bansal Casting while granting relief following has been observed:
4. I have carefully considered the submissions made by both the sides and perused the records. I find that entire case was made out on the basis of search conducted with the third party which is the broker and the records recovered the from the broker. The records of the broker bearing some entries related to some of the goods. Some statement was recorded from the broker. I find that despite the appellant requested for cross examination, the lower authorities have rejected the request. In the present case, the entire evidence was relied upon are documents recovered from the brokers and their statement. In this case, no evidence was found with M/s Bansal Casting Pvt. Ltd. It was incumbent on the Ld. Commissioner to grant the cross examination of the broker as it is mandatory under section 9D. Without cross-examination of the evidence, their statements cannot be relied upon. In the judgment of Rama Shyama Papers Ltd. (supra). cited by Ld. Counsel, he pointed out following para 9 & 10:
9. We have considered the submissions of both the sides. The Revenue has charged the Appellants with clandestine manufacture and removal of paper mainly on the basis of documents seized from the premises of Chitra Traders and Transporters and the various statements recorded from the Proprietor of Chitra Traders, transporters and labourers working in the factory of the Appellants and also the driver or cleaner of the Truck which was in the process of loading on 22-6-2001 when the Central Excise Officers visited their factory premises. The Appellants, on the other hand, have contended that most of the persons whose statements have been relied upon have not been produced for cross examination and the documents seized from third parties premises have not been corroborated by adducing evidence of any of the customers though the enquiries were conducted at different places as 5 E/12133, 12451 & 12559/2010-SM deposed by Shri Anurag Sharma, Inspector, in his cross-examination on 4-3- 2002. Out of 19 consignments said to have been cleared by the Appellant No. 1 without payment of duty on the basis of five transporter, we observe that in respect of two consignments, it has been mentioned by the Revenue that the same may not pertain to the Appellants. Further, only one transporter Shri Sanjay Garg of M/s. Balaji Transporter Co. was produced for cross examination which accounts for only two consignments out of 19 consignments in question. Shri Garg, it is observed from the record of cross examination, has deposed that they generally work as commission agent and provide transport to Appellant No. 1; the payment is used to be received directly by the drivers after delivery of the goods at the consignee’s end and in case the driver did not report back for the next 3-4 days, it was presumed that the goods had reached the consignees end. Further, the name of the Applicant No. 1 on one GR No. 34 had been written not by Shri Sanjay Garg, but by his brother, whose statement has not been recorded and on GR 187, there is no mention of the name of the Appellant No. 1 at all. No statement of the drivers concerned has been recorded by the Revenue to establish that the finished goods manufactured by the Appellants were removed without payment of duty. The other transporters have not been produced for the purpose of cross-examination nor the statements of drivers who might have actually carried the goods, had been recorded. Moreover no statement of any of the recipients of the goods had been brought on record. Thus the statements of the transporters have remained uncorroborated and also suffers from the short coming of being not being cross-examined by the Appellants. It has been the settled law that the liability cannot be fastened on an assessee on the strength of documents seized from the possession of third party. There should be some corroborative evidence/material. The Tribunal has in the case of Emmtex Synthetics Ltd., supra, when the charge of clandestine removal was made against the Appellants therein out of yarn received from a third party based on the diary, loose documents and packing slips allegedly recovered from Shri B.M. Gupta, Vice President of the Supplier Company, held that “no presumption on the basis of uncorroborated, uncross-examined evidence of B.M. Gupta and the alleged entries made by him in the private diary, loose sheets, charts, packing slips could be drawn about the receipt of polyester yarn by the Appellants from the company, M/s. HPL, in a clandestine manner during the period in question. Similarly, no inference could be legally drawn against the Appellants of having manufactured texturised yarn out of the said polyester yarn and the clearance thereof, in a clandestine manner without the payment of duty.” The Tribunal had also referred to the decision in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.L.T. (J172) wherein “the Apex Court has observed that no show cause notice or an order can be based on assumptions and presumptions. The findings based on such assumptions and presumptions without any tangible evidence will be vitiated by an error of law”. The Tribunal also took note of the decision in Kamal Biri Factory and Shri Khushnuden Rehman Khan v. CCE, Meerut – 2003 (161) E.L.T. 1197 (T) = 1997 (23) RLT 609 (CEGAT) wherein view has been taken that the allegations of clandestine removal of the goods will not stand established when based on the entries made by the assessee’s employee in a diary or on the basis of third party’s record in the absence of any corroborative evidence. It has also been the consistent view of the Tribunal that the statements of the witnesses, without allowing the assessee to test the correctness of the same by cross-examining those witnesses; cannot be made the basis for holding the allegation against the assessee. (Takshila Spinners v. CCE, supra). Similar views have been expressed by the Tribunal in the case of Haryana Petrochemicals Ltd., supra wherein the Tribunal has held that reliance cannot be placed on the documents maintained by a third party “who did not have the courage to come forward for cross-examination in order to test the veracity and correctness of the private record maintained by him.” It has also been held by the Tribunal in the case of Kothari Synthetics Industries v. CCE, Jaipur, 2002 (141) E.L.T. 558 (T) that entries made in the transport Register of the transport company could not be accepted as a conclusive proof of clandestine receipt of goods from that transport company for want of corroboration from any tangible evidence. Following the ratio of these decision, the duty demand cannot be upheld solely on the basis of uncorroborated statements and records of transporter. The statements tendered by the labourers can also not be relied upon by the Revenue as these persons were not produced for being cross-examined. Moreover, there is no corroboration of their statements with regard to the Trucks by which the goods were allegedly removed or the persons who received the goods. 6 E/12133, 12451 & 12559/2010-SM The Truck driver Shri Shiv Bahadur Yadav has also not been cross-examined and cleaner Shri Rakesh Kumar had deposed that the Bills/Invoices are supposed to be with the Driver and he being cleaner had no knowledge.
10. The confirmation of duty in respect of 149 consignments is also based on the records seized from the premises of M/s. Chitra Traders and not on the basis of any record seized from the premises of the Appellant-company. The Revenue has not been able to adduce any corroborative evidence to show the movement of goods from the premises of the Appellant-company to the premises of M/s. Chitra Traders or the Customers whom the goods were sent directly to as per the direction of Chitra Traders. No inquiry has also been made into these Customers who ultimately received the goods. There is no substance in the reasoning given by the Commissioner in the impugned order to the effect that “as the party did not challenge the fact of their business association with M/s. Chitra Traders, Delhi, the enquiry further down the line was not considered necessary.” The onus of proof that the goods were removed by the Appellants without payment of duty and without entering the same in their records is upon the Revenue which cannot be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the premises of the Appellant-company. The mere fact that the Appellant-company had business relation with Chitra Traders, does not mean that they will be liable to each and every entry made by Chitra Traders in their books of account. It is also noted that none of the transporters and none of the labourers whose statements have been relied upon by Revenue have mentioned that the goods in question were delivered to Chitra Traders from the premises of the Appellants. The material brought on record may at the most create a doubt only. But doubt cannot take the place of evidence. The Revenue has, thus, not proved its case against the Appellants in respect of 149 consignments. We, therefore, set aside the demand of duty and penalty imposed on Appellant-company and consequently the demand of interest.
From the above decision which is based on various Supreme Court decisions, it is clear that when the brokers whose statements were recorded are not produced for cross examination such statements cannot be relied upon against the assessee. Therefore, as per the settled legal position, since in the present case witnesses, i.e. brokers and transporters were not allowed for cross examination, their statements cannot be relied upon. In such a case, the only evidence left is the diaries/private records of the brokers. Since the statements cannot be relied upon, these records in isolation has no evidentiary valued particularly when the same was not corroborated with the statutory records of the appellant. In the case of M/s Charminar Bottling Co. (P) Ltd. (supra) on the issue of third party evidence, Tribunal has observed as follow:
6. Considered the submissions of both the sides. We have the charge of clandestine removal of bags-in-boxes by the Appellants has not been established by Revenue which has mainly relied upon the difference in figures of sale of the impugned product reflected in PMX Reports. It is not disputed by Revenue that these reports are prepared by M/s. Hyderabad Beverages and not by the Appellants. No evidence has been brought on record to show any excess production of the impugned product by the Appellants by way of procuring necessary raw materials. In a similar situation in the case of Moon Beverages wherein the charges of clandestine removal was made on the basis of computerized sheets of sales figures maintained by M/s. Parle Exports Ltd. whom the figures were sent by the assessee, the Tribunal has held that “the charge of clandestine removal cannot be established on the basis of one single factor………… Other corroborative evidence such as evidence of other inputs required for manufacture of aerated waters namely sugar, carbon dioxide being purchased and utilized in the manufacture of the final 7 E/12133, 12451 & 12559/2010-SM product during the period in dispute is required. There is no such corroborative evidence in the present case. There is also no evidence of higher electricity consumption.” In the present appeal before us also there is no corroborative evidence except the PMX Reports. Revenue has also not contradicted the submission of the learned Advocate that the Managing Director of the Appellants was not even questioned about these reports. In the case of Rama Shyama Papers Ltd, supra, wherein the records were seized from the premises of one of the customer of the assessee, the Tribunal did not uphold the charge of clandestine removal as “the Revenue has not been able to adduce any corroborative evidence to show the movement of goods from the premises of the Appellant’s company to the premises of M/s. Chitra Traders or the Customers when the goods were sent directly to as per the directions of Chitra Traders…….. The onus of proof that the goods were removed by the Appellants without payment of duty and without entering the same in their records is upon the Revenue which cannot be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the premises of the Appellant Company.” In the present matter also the Revenue has not brought any material on record to show that the excess bag-in-boxes said to have been sold by M/s. Hyderabad Beverages were removed from the premises of the Appellants. As show cause notice alleging clandestine removal cannot be issued based on assumption and presumption and as held by the Supreme Court in Oudh Sugar Mills Ltd. v. U.O.I., 1978 (2) E.L.T. (J 172), the findings based on assumption and presumption without any tangible evidence will be vitiated by an error of law. We, therefore, set aside the demand on charge of clandestine removal.
6. Considered the submissions of both the sides. We have the charge of clandestine removal of bags-in-boxes by the Appellants has not been established by Revenue which has mainly relied upon the difference in figures of sale of the impugned product reflected in PMX Reports. It is not disputed by Revenue that these reports are prepared by M/s. Hyderabad Beverages and not by the Appellants. No evidence has been brought on record to show any excess production of the impugned product by the Appellants by way of procuring necessary raw materials. In a similar situation in the case of Moon Beverages wherein the charges of clandestine removal was made on the basis of computerized sheets of sales figures maintained by M/s. Parle Exports Ltd. whom the figures were sent by the assessee, the Tribunal has held that “the charge of clandestine removal cannot be established on the basis of one single factor….. Other corroborative evidence such as evidence of other inputs required for manufacture of aerated waters namely sugar, carbon dioxide being purchased and utilized in the manufacture of the final 7 E/12133, 12451 & 12559/2010-SM product during the period in dispute is required. There is no such corroborative evidence in the present case. There is also no evidence of higher electricity consumption.” In the present appeal before us also there is no corroborative evidence except the PMX Reports. Revenue has also not contradicted the submission of the learned Advocate that the Managing Director of the Appellants was not even questioned about these reports. In the case of Rama Shyama Papers Ltd, supra, wherein the records were seized from the premises of one of the customer of the assessee, the Tribunal did not uphold the charge of clandestine removal as “the Revenue has not been able to adduce any corroborative evidence to show the movement of goods from the premises of the Appellant’s company to the premises of M/s. Chitra Traders or the Customers when the goods were sent directly to as per the directions of Chitra Traders… The onus of proof that the goods were removed by the Appellants without payment of duty and without entering the same in their records is upon the Revenue which cannot be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the premises of the Appellant Company.” In the present matter also the Revenue has not brought any material on record to show that the excess bag-in-boxes said to have been sold by M/s. Hyderabad Beverages were removed from the premises of the Appellants. As show cause notice alleging clandestine removal cannot be issued based on assumption and presumption and as held by the Supreme Court in Oudh Sugar Mills Ltd. v. U.O.I., 1978 (2) E.L.T. (J 172), the findings based on assumption and presumption without any tangible evidence will be vitiated by an error of law. We, therefore, set aside the demand on charge of clandestine removal.
In light of above penalties imposed on the basis of broker’s diaries cannot be sustained and are set aside.
6. Now coming to the evidence collected from the residence of Juvansinh Jeshabhai Solanki, it is seen that the said slip are reproduced in the impugned order in para 3.4.8. It is seen from the said slips that there is no mention of the manufacturer’s name and therefore there is no direct correlation with the main noticee in this case, namely Pure Alloys Limited. Moreover, it is seen that there was no examination in chief or cross examination done and therefore, the only link between these weighment slips and the alleged manufacturer namely Pure Alloys, is the statements of Juvansinh Jeshabhai Solanki and Nareshbhai Ramsang Rana which cannot be admitted as evidence in absence of Examination under Section 9D of Central Excise Act. In these circumstances, no penalties in respect of these weighment slips also can be imposed.
8. In view of above findings, the penalties imposed against various appellants are set aside and appeals are allowed.”
4.1 From the above order of this Tribunal it can be seen that identical facts and issues were involved in the above cases of M/s. Pure Alloys Ltd, Shri Hari Steel Industries , Bansal Castings wherein all the present appellants were implicated as a common person. Therefore, following the aforesaid order the penalty in the present case is not sustainable.
5. Accordingly, I set aside the penalty imposed on the appellants and allow the appeals.
(Pronounced in the open court on 16.03.2023)
