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CX – As person from whose custody documents were recovered has admitted that documents have been fabricated, therefore, same cannot be relied upon to allege clandestine manufacture and clearance of goods: CESTAT

2019-TIOL-2454-CESTAT-CHD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
COURT NO. I

Excise Appeal No. 60344 of 2019

Arising out of the Order-in-Original No. 23/ST/COMMR/VM/RTK/2018-19, Dated: 21.02.2019
Passed by The Commissioner of CGST, Rohtak, Haryana

Date of Hearing: 05.04.2019
Date of Decision: 15.05.2019

SHRI ASHOK NAHATA, DIRECTOR
M/s SOM SUGANDH INDUSTRIES LTD

Vs

THE COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX
ROHTAK

Excise Appeal No. 60345 of 2019

Arising out of the Order-in-Original No. 23/ST/COMMR/VM/RTK/2018-19, Dated: 21.02.2019
Passed by The Commissioner of CGST, Rohtak, Haryana

SHRI SATISH SETH, DIRECTOR 
M/s SOM SUGANDH INDUSTRIES LTD

Vs

THE COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX
ROHTAK

Excise Appeal No. 60346 of 2019

Arising out of the Order-in-Original No. 23/ST/COMMR/VM/RTK/2018-19, Dated: 21.02.2019
Passed by The Commissioner of CGST, Rohtak, Haryana

SHRI GYAN CHAND SHARMA, EMPLOYEE
M/s SOM SUGANDH INDUSTRIES LTD

Vs

THE COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX
ROHTAK

Excise Appeal No. 60347 of 2019

Arising out of the Order-in-Original No. 23/ST/COMMR/VM/RTK/2018-19, Dated: 21.02.2019
Passed by The Commissioner of CGST, Rohtak, Haryana

M/s SOM SUGANDH INDUSTRIES LTD

Vs

THE COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX
ROHTAK

Appellant Rep by: Dr. Seema Jain, Shri A. Kumar, Advs. & Shri R.K. Yadav, Consultant 
Respondent Rep by: Shri Tarun Kumar, Authorized Representative DR

CORAM: Ashok Jindal, Member (J)
C L Mahar, Member (T)

CE – Appellants are manufacturers of Pan Masala, Gutkha and Khaini of various brands – On the allegation that the appellants had suppressed the production and clandestinely cleared the said goods without payment of CE duty, a duty demand of Rs.15,15,67,401/- was made and since M/s Som had already paid Rs. 1,74,01,717/-, therefore, balance duty of Rs. 13,41,65,685/- was proposed to be demanded by way of issuance of show cause notice alongwith imposition of interest and penalties on appellant and co-noticees – the Commissioner while adjudicating the matter, found that the main appellant [M/s.Som Sugandh Industries Ltd.] is not having the capacity to produce 50.89 crores of pouches within a short span time of 20 days – he held that only 30.06 crores of pouches could have been manufactured during the said period – therefore, on the basis of best judgment of the production capacity of the main appellant, he confirmed duty, as per Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008, of Rs.8.25 crores against the main appellant alongwith interest and imposed penalty of Rs.8.28 crores and various penalties on the co-appellants – on appeal before this Tribunal, the said matter was remanded vide order dated 8.11.2016 with certain directions – in remand proceedings, vide impugned order, demand of Rs.13.41 crores was confirmed along with interest, penalty of Rs.13.41 crores imposed on the main appellant, and various penalties on the co-appellants – appeals to CESTAT.

HELD: While remanding the matter by this Tribunal, there was a clear cut finding that the duty cannot be demanded on the basis of documents recovered from Shri Manoj Rajouria and the statement of Shri Manoj Rajouria recorded under section 14 of the CEA -However, in the impugned order, the Adjudicating Authority has made basis the documents recovered from Shri Manoj Rajouria and statement of Shri Manoj Rajouria recorded under section 14 of the CEA but no reliance has been placed by the Adjudicating Authority of cross examination of Shri Manoj Rajouria -the statement of Shri Manoj Rajouria recorded during the course of investigation cannot be relied as he stated that due to enmity with the main appellant and its Directors, he fabricated these documents -as the person, from whose custody the documents were recovered and on which basis the allegations of clandestine manufacture and clearance of goods are made, has admitted that the documents have been fabricated, therefore, these documents cannot be the basis to rely and allege clandestine manufacture and clearance of the goods by the appellant-impugned order shows non-application of mind by the Adjudicating Authority -therefore, demand cannot be confirmed -it is also found that investigations have also not established the authenticity of these documents by any corroborative evidences – further, with regard to the railway receipts, after examining the same, this Tribunal has held that these railway receipts cannot be relied upon to allege clandestine removal of goods – as the statement of Shri Pitamber Sharma [a transporter] is not conclusive, the same cannot be relied upon to allege such huge quantity of clandestine manufacture and clearance thereof when he himself has admitted that he does not keep record of as to how much quantities of what commodity has been transported by him -moreover, to manufacture pan masala, gutkha, other supari ingredients such as tobacco, katha, lime, flavours, masala etc. are required but no efforts has been made by the Revenue as to how the other raw materials have been procured by the appellant to manufacture gutkha/pan masala in such a huge quantity -as Revenue has not come with any positive evidence on record to allege such a huge clandestine manufacture and clearance of the goods, therefore, without any evidence, the case of the Revenue is not sustainable -moreover, merely because the appellant approached the Settlement Commission it cannot be stated that they have clandestinely manufactured and cleared the goods -the sole basis to allege clandestine manufacture and clearance of the goods is the document resumed from Shri Manoj Rajouria and statement of ShriManojRajouria which has already been discarded by this Tribunal while remanding the matter to the Adjudicating Authority on 8.11.2016 – the said order of this Tribunal has attained finality as the same has not been challenged by the Revenue before any higher forum -it is settled principle that no demand can be confirmed on the basis of third party evidences as has been the case in the impugned order-accordingly, the demands confirmed by way of impugned order are set aside and no penalty is imposable on the appellants -appeals filed by the appellants are allowed : CESTAT [para14, 15, 16, 17, 18, 19, 20, 21, 22]

Appeals allowed

Case laws cited:

Commissioner of Customs (EP) versus National Steel & Agro Industries reported in 2016 (322) E.L.T. 690 (Bom.)… Para 3

Commissioner of Customs Mangalore vs. Kushalchand & Co. reported in 2015 (325) E.L.T. 813 (S.C.)… Para 3

M/s Jai Mata Industries Ltd. vs. Commissioner of Central Excise, Rohtak reported in 2013 (293) E.L.T. 539 (Tri. – Del.)… Para 20

M/s Rama Shyama Papers Ltd. vs. Commissioner of Central Excise, Lucknow reported in 2004 (168) E.L.T. 494 (Tri. – Del.)… Para 20

FINAL ORDER NOS. 60477-60480/2019

Per: C L Mahar:

The appellants are in appeal against the impugned order.

2. The facts of the case are that an intelligence was received that M/s Som Sugandh Industries Ltd. (hereinafter referred to as M/s Som) was evading Central Excise duty by way of suppression of production and clandestine removal of their finished goods. The information also indicated that the documents evidencing suppressed production and clandestine clearances were secreted at the residence of one Shri Manoj Rajouria located at 525, village, Kundli, Sonepat. Searches were conducted simultaneously at the factory premises of M/s Som and at the residence of Shri Manoj Rajouria on 20/10/2007 by the officers of Anti-Evasion, Central Excise, Rohtak. At the time of search, the factory was found operational and was engaged in the manufacturing of Pan Masala, Gutkha and Khaini of various brands. During the course of search, the stock was verified and certain documents were resumed. It was revealed that a shortage of stock of 18480 poly packs of Gutkha involving central excise duty of Rs. 3,45,474/-. M/s Som could not explain the shortage and voluntary debited the amount of duty of Rs. 3,45,474/- through PLA. The search conducted at the residence of Shri Manoj Rajouria resulted in the recovery of certain incriminating documents, which were resumed. These records mainly included loose slips about various raw materials for manufacturing gutkha/pan masala/khaini, private records of datewise production and dispatch of gutkha/pan masala/khaini by M/s Som and the consignment notes in respect of dispatch of finished goods through various transporters including certain central excise invoices issued by M/s Som. On the basis of these records resumed from the residence of Shri Manoj Rajouria and the statement recorded, it was alleged that the appellant has cleared 27732 bags (50.89 crores pouches) of gutkha, pan masala and khaini without payment of duty through railways and private transporters. On the basis of that, a duty of Rs. 15,15,67,401/- was demanded from the appellant, M/s Som has already paid Rs. 1,74,01,717/-, therefore, balance duty proposed to be demanded by way of issuance of show cause notice of Rs. 13,41,65,685/- alongwith interest and penalties were also sought to be imposed on the co-appellants. During the investigation, M/s Som paid a sum of Rs. 8,00,00,000/- the same was appropriated. M/s Som has approached to the Settlement Commission for settling the issue but it could not be materialized. Thereafter, the adjudication took place. The Commissioner while adjudicating the matter, has found that the appellant is not having the capacity to produce 50.89 crores of pouches with a short span time of 20 days. He held that only 30.06 crores of pouches could have been manufactured during the said period. Therefore, on the basis of best judgment of the production capacity of M/s Som, he demanded duty as per Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008. Accordingly, he confirmed demand the demand of duty of Rs. 8,25,00,000/- against M/s Som which was to be paid alongwith interest and imposed penalty of Rs. 8,28,45,474/- under Rule 25 and various penalties on the co-appellants. Aggrieved with the said order, M/s Som and its directors and authorized signatory filed appeal before this Tribunal. The said matter was remanded back by this Tribunal vide order dated 08/11/2016 with certain directions. In remand proceedings, impugned order has been passed as under :-

“1. I confirm the demand for Central Excise duty of Rs. 13,41,65,685/- (Rupees Thirteen Crore Forty One Lakhs Sixty Five Thousand Six Hundred Eighty Five only) under first proviso to Section 11A (1) of the Central Excise Act, 1944, readwith Section 174 (2) of CGST Act, 2017 against M/s Som Sugandh Industries Limited, Sonepat. I order for appropriation and adjustment of an amount of Rs. 8.00 crores already voluntarily paid by them against this demand of duty.

2. I confirm the recovery of interest on (1) above payable from due date of payment to the actual date of payment at the rate prescribed under notification issued from time to time under Section 11AB of the Central Excise Act, 1944 readwith Section 174 (2) of CGST Act, 2017.

3. I impose penalty of Rs. 13,41,65,685/- under Rule 25 of the Central Excise Rules, 2002 readwith Section 11AC of the Central Excise Act, 1944 readwith Section 174 (2) of CGST Act, 2017 upon M/s Som Sugandh Industries Limited, Sonepat. They shall be eligible to pay penalty equivalent to 25% of Rs. 13,41,65,685/- in terms of proviso to Section 11AC of the Central Excise Act, 1944, subject to the condition that duty confirmed at (1) above is fully paid alongwith interest and 25% of the penalty within 30 days of the receipt of this order.

4. I impose penalty as follows, under Rule 26 (1) of the Central Excise Rules, 2002 readwith Section 174 (2) of CGST Act, 2017 :-

a. Shri Satish Seth, Director Rs. 1 crore (Rupees one crore only)

b. Shri Ashok Nahata, Director Rs. 25 Lakhs (Rupees Twenty Five Lakhs only)

c. Shri R.K. Jaggi, Rs. 5 Lakhs (Rupees Five Production Supervisor Lakhs only)

d. Shri Gyan Chand Sharma Rs. 5 Lakhs (Rupees Five Authorized Signatory Lakhs only)

e. Shri Manoj Rajouria Rs. 10 Lakhs (Rupees Ten Lakhs only)

Against the said order, appellants are before us.

3. The learned Counsel for the appellants submits that this Tribunal has already decided that the loose sheets resumed from the residence of Shri Manoj Rajouria are not admissible evidence, and same has been relied upon by the Adjudicating Authority in the impugned order which amounts to contempt of CESTAT order dated 08/11/2016. To support this, she relied upon the decision of Commissioner of Customs (EP) versus National Steel & Agro Industries reported in 2016 (322) E.L.T. 690 (Bom.), Commissioner of Customs Mangalore vs. Kushalchand & Co. reported in 2015 (325) E.L.T. 813 (S.C.).

4. She further submits that no evidence in relation to unrelated raw material brought on record. It is her submission that the documents recovered from the residence of Shri Manoj Rajouria are third party documents and cannot be relied upon but the Commissioner is relied upon the same documents. It is her further submission that the Adjudicating Authority has relied upon the statement dated 16/01/2008 of Shri Pitamber Sharma, a transporter who stated that his driver transported supari to M/s Som on 6-7 occasions, but he does not remember the dates, that in October 2007 itself, his driver had transported supari on 08/10/2007, 12/10/2007 and 15/10/2007 and each time 4 to 4.5 tonnes of supari was transported. He stated that Shri Gyan Chand Sharma used to book vehicle telephonically wherein he stated that he did not issue any transport document and he received payment in cash and he does not maintain any record. On being asked, he specified the dates on which supari was transported by him. He is stated on the basis of money which driver gave him after delivery of goods he also stated that he did not know anyone from M/s Som, therefore, the statement of Shri Pitamber Sharma cannot be relied upon and he is only the owner of the vehicle, the vehicles were driven by the drivers, and no statement of driver who allegedly transported the supari to M/s Som was recorded. Also no employee/director of appellant was confronted with the statement of Shri Pitamber Sharma. It is her submission that to manufacture Gutkha/pan masala apart from supari other ingredients i.e. tobacco, katha, lime, flavours, masala etc. are required and no evidence has been produced with regard to procurement of other materials/packing materials.

5. During the course of investigation, statement of Shri Satish Seth dated 13/11/2007 was recorded and was asked to reveal the name of the raw material suppliers. He gave a list of 22 suppliers supplying him all the raw materials, packing materials. There is no investigation from any of the suppliers.

6. She further submits that no evidence of clandestine manufacture and clearance were submitted before the Settlement Commission. She submitted that as the proceedings were not settled before the Settlement Commission and the appellants have not admitted clandestine manufacture and clearance thereof, therefore, approaching the appellant Tribunal before Settlement Commission, does not prove that the appellants were engaged in clandestine manufacture and clearance of dutiable goods. She further submits that no evidence with regard to use of extra labour for manufacture of goods or use of extra power has been brought on record by the Revenue.

7. It is her submission that admission of shortage of small quantities of raw material and finished goods is not conclusive evidence that the appellant manufactured and cleared huge quantity of finished goods. It is her submission that on the date of visit, except one stock of, all other brand of pan masala/gutkha had tallied with the recorded stocks. Shri Gyan Chand Sharma agreed to deposit the duty of the small shortages. During the course of cross-examination it is stated that there is no shortage of finished goods, the goods were sold and invoice were issued, but there was no vehicle number on the invoice. This was never objected by the officers. The said statement has during the course of cross examination has not been relied on the ground that same is after thought. She further submitted that Shri Satish Seth’s statement is not voluntary. She also submitted that investigation was on the basis of specific information. No investigation was conducted regarding the packing of raw material and no evidence of receipt of case by the appellant had been brought on record, therefore, the impugned order is not sustainable, hence, the same is to be set aside.

8. On the other hand, learned Authorized Representative relied on the impugned order and submits that apart from the documents received from Shri Manoj Rajouria and his statement, there are ample evidence which has been discussed by the Adjudicating Authority in the impugned order, therefore, the demand has rightly been confirmed against the appellants. He further submits that the statement of Shri Satish Seth, transporters were also relied upon by the Adjudicating Authority in the impugned order and the same are the basis of confirmation of demand against the appellants, therefore, demand has rightly was confirmed against the appellants, penalties were also correctly imposed on the appellants.

9. Heard the parties, considered the submissions.

10. On careful consideration submissions made by both sides, we find that in this case, the impugned order has been passed in the remand proceedings on the directions of this Tribunal vide final order No. 61619-61623 of 2016 dated 08/11/2016.

11. In this case after remand proceedings, the appellant filed an application for refund of the amount paid during the course of investigation and the said refund claims have been rejected. Against that order also, the appellant approach this Tribunal and this Tribunal has directed to Revenue to refund the amount paid during the course of investigation as there is no demand is pending against the appellant. The said order was challenged by the Revenue before the Hon’ble High Court of Punjab & Haryana and the Hon’ble High Court of Punjab & Haryana asked the Revenue to file an affidavit why the directions of the Tribunal’s have not been complied with. Before filing the affidavit before the Hon’ble High Court, the impugned order has been passed.

12. In this case, another fact has also been brought to the knowledge of the Bench by the learned Counsel of the appellants that during the course of investigation, cheques of about rupees more than 5 crore were also taken from the appellant and the same were dis-honoured. Against those cheque bouncing, the Revenue approached to the Criminal Court for initiating the proceedings under Section 138 of the Negotiable Instrument Act. During the pendency of those proceedings, the appellant approached to the Hon’ble Punjab & Haryana High Court and the Hon’ble High Court has stayed those proceedings as there was no demand for the amount for which cheques were dis-honoured. As the impugned order has been passed, therefore, the said proceedings before the Criminal Court shall revive. On that apprehension the appellants have approached to this Tribunal immediately and prayed for early hearing of the appeals. The application for early hearing of the appeals was allowed and matter was listed on 3 April 2019. On 3 April 2019, again, Revenue sought an adjournment in the matter on the ground that they need time to discuss the issue with the concerned officer. The concerned officer call from the department to appraise the facts of the case and the matter was adjourned for 5 April 2019 at the request of the concerned officer. Considering the fact that if appeals are not heard on priority basis, the Criminal proceedings against the appellant shall revive, therefore, appeals were taken up for hearing.

13. Now, we come to the merits of the case. We find that while remanding matter back to the Adjudicating Authority, this Tribunal has made the following observations :-

“25. The documents recovered from the premises of Shri Manoj Rajouria are the sole basis for issuance of the show cause notice to M/s Som and its directors and the employee. In the cross examination, Shri Manoj Rajouria stated that due to enmity with M/s Som and its directors, he had prepared these documents. By doing this, Shri Manoj Rajouria has taken his revenge from M/s Som and its directors, therefore, the documents recovered from the residence of Shri Manoj Rajouria have lost the evidentiary value as it cannot be said an independent evidence. Therefore, the duty cannot be demanded on the basis of the documents recovered from Shri Manoj Rajouria and the documents recovered from Shri Manoj Rajouria cannot be taken as evidence”.

14. Further this Tribunal observed as :-

“26. The charts have been prepared for dispatch as per resumed documents and actual production through the railways and various transporters”.

and on going through those documents, we find that the entries do not correspond with each other as the documents recovered from the premises of Shri Manoj Rajouria has date-wise of dispatch through various railway stations and various transporters. The department procured. PWB’s from the railway station during the said period showing transport of gutkha through railways. On comparison of railways receipts and the resumed documents it is clear that there is no record of transport of goods through railways to many destinations mentioned in dispatch slips. Moreover, the department has clubbed together several railway receipts, sometimes of different dates to correspond with the quantity of Gutkha shown as transported in the resumed documents. It is not correct as there are several gutkha manufacturers in and around Delhi who transported their goods through railways but no efforts have been made to ascertain whether the gutkha has been sent by M/s Som.

On careful analysis of various evidence on record, the following points are noted as relevant :

a) On the date of physical verification of records and stocks at the factory premises of M/s Som, there was a shortage of 18,480 polypacks of gutkha. As the shortage could not be explained, the appellant discharged duty of Rs. 3,45,474/- on the same. There is no context on this liability. This is apparently admitted unaccounted clearance of gutkha.

b) Officers could collect private records, loose slips showing raw materials for manufacturing gutkha/pan samala/khaini, date wise production, dispatch, consignment notes, central excise invoices etc. The corroborative/evidentiary value of these are to be appreciated in proper perspective.

c) The allegation in the notice was that during the relevant period, M/s Som manufactured/cleared 50.89 crore pouches, involving duty of Rs. 15.15 crores whereas quantification of duty has been made based on best judgment method, following the norms of Pan masala Rules, 2008. These Rules which were of later origin per-se cannot be made applicable to the impugned period. Though it can be argued for Revenue that the provisions were considered as bench mark only and not as applied law, the dispute still remains regarding correct quantification duty demandable from M/s Som.

d) The reliance on various railway receipts requires reexamination. All such receipts cannot be clubbed for the reasons already discussed above.

e) Similarly, consignment notes and other private records are treated in a summary manner while arriving at conclusion.

f) M/s Som paid Rs. 8 crores towards admitted duty liability and applied before the Settlement Commission to settle the case. This by itself will not establish their guilt. However, considering the overall facts and circumstances of this case, the said development cannot be totally brushed aside as of no material consequence. It is recorded here only to emphasis that whatever evidences gathered during investigation requires objective and close scrutiny before arriving at the final quantification of duty not paid by M/s Som during the impugned period. Such quantification cannot be summarily made, but made rationally with reasons”.

and remanded matter back to the Adjudicating Authority while remanding the matter by this Tribunal there was a clear cut finding that the duty cannot be demanded on the basis of document recovered from Shri Manoj Rajouria and the statement of Shri Manoj Rajouria recorded under Section 14 of the Act. But in the impugned order, the learned Adjudicating Authority has made basis the documents recovered from Shri Manoj Rajouria and statement of Shri Manoj Rajouria recorded under Section 14 of the Central Excise Act, 1944 was relied but no reliance has been placed by the Adjudicating Authority of cross examination of Shri Manoj Rajouria. The statement of Shri Manoj Rajouria recorded during the course of investigation cannot be relied as he stated that due to enmity with M/s Som, and its Directors, he fabricated these documents. As a person from whose custody the documents were recovered which are the basis to allege clandestine manufacture and clearance of goods by the appellants have been fabricated and the said person has admitted that he has fabricated these fake documents, therefore, how can be these documents can be the basis to rely and alleged clandestine manufacture and clearance of the goods by the appellant. This shows non-application of mind by the Adjudicating Authority while passing the impugned order. Therefore, on the basis of these documents, this demand cannot be confirmed. We also find that investigations have also not established the authenticity of these documents by any corroborative evidences.

15. Further, with regard to the railway receipts after examining the same this Tribunal has held that these railway receipts cannot be relied upon to allege clandestine removal of goods as recorded hereinabove.

16. With regard to transport receipts and statement of Shri Pitamber Sharma, who stated that they have supplied supari to the appellant on various dates. Admittedly, the vehicles have been operated by the drivers and no statement of any of the driver has been recorded to support the statement of Shri Pitamber Sharma. Moreover, in the cross examination also, Shri Pitamber Sharma has stated that he does not issue any transport document and that he received payment in cash and that he does not maintain any records. He also stated that he did not know anybody from M/s Som. As the statement of Shri Pitamber Sharma is not conclusive, therefore, the same cannot be relied upon to allege such huge quantity of clandestine manufacture and clearance thereof when he himself has admitted that he does not keep record of as to how much quantities of what commodity has been transported by him.

17. Moreover, to manufacture pan masala, gutkha apart from the other supari ingredients such as tobacco, katha, lime, flavours, masala etc. are required but no efforts has been made by the Revenue how the other raw materials have been procured by the appellant to manufacture gutkha/pan masala in such a huge quantity.

18. As Revenue has not come with any positive evidence on record to allege such a huge clandestine manufacture and clearance of the goods, therefore, without any evidence, the case of the Revenue is not sustainable. Moreover, more approaching to the Settlement Commission by the appellant cannot be the basis to allege they have clandestinely manufactured and cleared the goods.

19. The sole basis to allege clandestine manufacture and clearance of the goods is the document resumed from Shri Manoj Rajouria and statement of Shri Manoj Rajouria which has already been discarded by this Tribunal while remanding the matter to the Adjudicating Authority on 08/11/2016. The said order of this Tribunal has attained finality as the same has not been challenged by the Revenue before any higher forum.

20. It is settled principal that no demand can be confirmed on the basis of third party evidences as has been the case in the impugned order. This Tribunal in following decision has categorically held that the third party record can be the sole evidence to confirm the evasion of central excise duty.

(i) In case of M/s Jai Mata Industries Ltd. vs. Commissioner of Central Excise, Rohtak reported in 2013 (293) E.L.T. 539 (Tri. – Del.). The relevant extract of the decision is reproduced here below :-

“5. We have considered the submissions from both the sides and perused the records. The point of dispute in this case is as to whether during the period of dispute the cotton yarn cleared to Laxmi Trading Company/M/s. Laxmi Industries was in cone form only, which is not exempt from duty or whether the same was in form of plain reel hanks which is fully exempt from duty under Notification No. 8/96-C.E. The department’s allegation is that this yarn was in cone form and not in form of plain reel hanks and this allegation is purely based on the documents recovered from their customers, M/s. Laxmi Trading Company/M/s. Laxmi Industries and statement of their employees. On the other hand, neither any documents indicating the clearance of yarn in cone form to Laxmi Trading Company/ M/s. Laxmi Industries have been recovered from the premises of appellant nor any such admission has been made by Shri Nand Lal Arora in his statement. Except for recording the statement of Shri Nand Lal Arora no other inquiry has been made at the end of the appellant, in regard to the allegation being made by them. The Tribunal in the case of Rhino Rubbers Pvt. Ltd. (supra) and Kothari Synthetics Industries (supra) has held that it is not safe to rely only on the third party’s evidence for making the allegation of duty evasion against an assessee. Other than the records recovered from M/s. Laxmi Trading Company/M/s. Laxmi Industries and the statement of their employees, there is no other evidence indicating that the appellant company had cleared the yarn in cone form and not in form of not plain reel hanks. Neither any such admission has been made by Shri Nand Lal Arora in his statement nor any documents in this regard have been recovered from their premises. No inquiry has been made with the concerned employees of the appellant company on this point. In view of this, we hold that the impugned order is not sustainable. The same is set aside. Both the appeals are allowed.

(ii) Similarly in case of M/s Rama Shyama Papers Ltd. vs. Commissioner of Central Excise, Lucknow reported in 2004 (168) E.L.T. 494 (Tri. – Del.). The relevant extract of the decision is reproduced here below :-

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”.

21. In view of the above discussions and precedence of case laws, we do not find any material on record or any documentary admissible evidence to prove that the appellants are engaged in clandestine manufacture and clearance of the goods, therefore, the impugned demand is not sustainable in the absence of any evidence. Accordingly, the demand confirmed by way of impugned order are set aside and no penalty is imposable on the appellants.

22. In view of the above analysis, the impugned order is set aside and the appeals filed by the appellants are allowed with consequential relief.

(Order pronounced in open court on 15.05.2019)

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