Clandestine Removal - Requirement of evidentiary proof

Case: COMMISSIONER OF CENTRAL EXCISE, RAJKOT Vs M/s JAIDEV ALLOYS PVT LIMITED & OTHERS

Citation: - 201 1-TIO L-1126-CESTAT-AHM

Issue:- Clandestine removal – alleged due to shortage of raw material – No evidence on record – No alternate source of raw material shown – confessional statement cannot take precedence over material evidence.

Brief Facts:- Respondent are engaged in the manufacture of MS Ingots. M/s. Gujarat Steels Pvt. Limited and M/s. Sanjay Ispat Pvt. Limited are sister units of Respondent and they are engaged in the manufacture of CTD Bars, after re-rolling MS Steel etc. M/s. Bansal Brothers and M/s. Gujarat Impex Labs Pvt. Limited are the suppliers of the raw materials i.e. ship breaking raw materials to Respondent.

Information was received by the Revenue that Respondent were procuring ship breaking raw materials from M/s. Bansal Brothers and M/s. Gujarat Impex Labs Pvt. Limited under the cover of invoices issued by the two suppliers but instead of receiving the goods in their factory for manufacture of MS Ingots, the same were being diverted to their two sister units M/s. Gujarat Steels P. Limited and M/s. Sanjay Ispat P. Limited, who are using the same in the manufacture of CTD Bars. Such CTD Bars being manufactured by these two units are being cleared by them clandestinely without payment of duty. On the other hand Respondent is availing modvat credit in respect of the said raw materials shown to have been received by them.

As a result, the factory premise of M/s. Gujarat Steels Pvt. Limited was visited by Excise officers on 13/14.11.2003, who conducted various checks and verifications. The raw materials found in the said premises were in the form of MS Plates or cut plates or plate cutting. As a result of verifications of the final product i.e. CTD Bars, an excess quantity totally valued at Rs. 102672/- were found unaccounted and the same was seized. Similarly, the factory premises of M/s. Sanjay Ispat Pvt. Limited were also searched and it was found that the Truck was unloading scrap of ship breaking at their factory premises. However, the invoice issued by M/s. Bansal Brothers dated 12.11.2003 in the name of Respondent was found from the drawer of the table of authorised representative of the said noticee. It was also seen that MS scrap, which was one of the raw materials of the said unit, was not accounted for in the record. The same was also put under seizure.

Searches were also conducted at the premises of M/s. Bansal Brothers and M/s. Gujarat Impex Labs Pvt. Limited, suppliers of the raw material. Statement of partner revealed that the said firms were engaged in the business of procuring and breaking of old ships, which resulted in emergence of scrap of iron and steel and steel including melting scrap, iron and steel plates of various thicknesses and they were clearing the said scrap to Respondent, M/s. Gujarat Steels Pvt. Limited and M/s. Sanjay Ispat Pvt. Limited; that all the three firms are handled by Shri Vikas Arya; that sometimes the invoices are raised in the name of Respondent whereas, the raw materials are supplied to the other two sister concerns i.e. M/s. Gujarat Steels Pvt. Limited and M/s. Bansal Brothers; that the payments of the goods are received by cheques or demand draft.

The factory premises of Respondent were also put to search on 13/14/15-11-2003. It was found that majority stock of the raw materials lying in the said manufacturer were of pipe re-melting scrap i.e. other than ship breaking scrap. Further, weighment of the scrap was carried out on all the three days and shortages in the stock were detected. Statement of Shri Anil Chauhan, Accountant of the said unit was recorded wherein, he deposed that Respondent was engaged in the manufacture of MS Ingots and are using various types and quantities of metal scrap. He also disclosed that their sister units are engaged in the manufacture of CTD Bars as well as round bars and the ship breaking scrap in the shape of iron and steel plates are being used by them. He also clarified that all the three manufacturers are procuring the scrap from M/s. Bansal Brothers and M/s. Gujarat Impex Labs Pvt. Limited.

Statement of Shri Vikas Arya, Director of MRespondent as also M/s. Gujarat Steels P. Limited and M/s. Sanjay Ispat Pvt. Limited, was recorded, wherein he submitted that all the three units are maintaining the records of various raw materials received from various suppliers and he does not agree with the statement of the representative of other two firms indicating that the ship breaking material shown to have been received by Respondent was in fact used in the factory of other two sister units and the final product manufactured out of the same was being clandestinely removed.

For all the shortages and excesses of the raw material and the final products was the subject matter of a separate show cause notice dated 10.05.2004, issued to the noticees proposing confirmation of demand, confiscation of the seized goods and imposition of penalties upon them.

The Original Adjudicating Authority vacated the said show cause notice vide his order dated 25.02.2005 but the same are not the subject matter of the present appeals.

Revenues initiated proceedings against the respondents on the basis of such visits and the Commissioner in his present impugned order has made reference to the observations and findings of the Assistant Commissioner made in the earlier order in original. As a result of the above detection of shortages and excesses, Revenue carried the matter further by way of scrutinising the various records seized from the premises of various respondents and by recording the statements of various persons. Based upon such scrutiny and the statements, a show cause notice was issued to the respondents alleging that the raw materials shown to have been received by Respondent was not in fact utilised in the manufacture of their final product and the modvat credit availed by them is liable to be rejected. The notice also proposed confirmation of duty against the Respondent along with confirmation of interest and imposition of penalty. The notice further proposed to confirm demand against the Sister unit M/s. Gujarat Steels Pvt. Limited along with interest and imposition of penalty on the ground that they have manufactured and clandestinely removed CTD Bars manufactured out of the unaccounted ship breaking raw materials. Similarly duty was proposed to be recovered from other sister unit M/s. Sanjay Ispat Pvt. Limited, on the basis of identical allegations. Notice also proposed imposition of penalty on the suppliers of the goods as also on Shri Vikas Arya and Shri Anil Chauhan.

The Commissioner dropped all the proceedings initiated by the show cause notices. The Commissioner (Appeals) doubted the factum of actual weighment of raw material. It was observed that total of 34 trips per hour shown to have been made from the place of loading of scrap to the weighment bridge thereby making one trip every two minutes which seems to be not only impractical but also impossible. The Panchnama was held to be not conclusive evidence. The genuineness of the weighment of raw material was doubted.

Hence, the present appeals are filed by the Revenue before the Tribunal.

Appellant’s Contention:- Revenue contended that with regard to weighment, it was not only 3 truck trailers but in total 11 tractor trailers with hydraulic jack were used for weighment purpose. The proceedings reflected in Panchnama were accepted by the Accountant and Director of Respondent.

With regard to retraction of statements given by respondents, Revenue took the stand that such retraction of statements should not affect the evidentiary value of such statements. They have also referred to certain decisions laying down that such statements given before the Central Excise officers are admissible in evidence and the mere fact of retraction, cannot take away the evidentiary value of the same.

Reasoning of Judgement:- With regard to weighment issue, the Tribunal held that the acceptance of Panchnama report by Respondents, director and accountant was not relevant fact as the shortages detected at the time of visit by Revenue was not the subject matter of the present proceedings. But the said facts were subject matter of earlier show cause notice which was vacated.

It was held that the shortage of raw material found in the premises of Sister units of Respondent was also the subject matter of previous show cause notice which was dropped on the ground that no evidence showed that the raw material found short was removed clandestinely.

It was held that no inference can be drawn from the earlier proceedings which were dropped to charge and confirm the diversion of raw material against the respondent. Moreover, no appeal was shown to have been filed against the earlier order.

The Tribunal noted that the Adjudicating authority has observed that the statements made by the suppliers of the raw materials or the authorised representatives of Sister units were contrary to the documentary evidence available on record. He has further observed that the production register, cenvat credit register, raw material register, issue slips for consumption of raw material, weighment slips, purchase/ sale register, ledgers, evidences showing payment towards supply of scrap etc. which stands verified and/ or audited by the department from time to time, such confessional statement cannot take precedence over the documentary evidence. He has also observed that such statements stands retracted by the deponents by sworn in affidavit and are not corroborated by any other independent evidence.

With regard to placing reliance on Statements which were later retracted, the Tribunal noted that evidentiary value of the confessional statement has to be adjudged in the light of the peculiar facts and circumstances present in each and every case. The fact of retraction in some cases may affect their evidentiary value, whereas in the other the same may not. In the present case, the evidentiary value of the same has to be adjudged keeping in view the documentary evidences available on record. Admittedly, the statutory records speak louder than the oral evidences. The Revenue has not been able to show any evidence to reflect upon the fact that various statutory records considered by the adjudicating authority were wrongly maintained by the respondents. The entries made therein do not stand rebutted by the Revenue. In such circumstances, the Tribunal found no fault in the findings of the Adjudicating Authority, giving preference to the statutory records than to the retracted statements. It is also seen that the retracted statements must be corroborated by some evidences on record so as to reflect upon the correctness of the same, especially when the same stands retracted by the deponents. In the present case, there is virtually no corroboration by way of independent and positive evidence on record. It is also noted that the said statements are in the nature of statements of co-noticees, as far as Respondent is concerned. The Director of Respondent as also its two Sister units have given an exculpatory statement. As such, the statement of the co-noticees are required to be corroborated in material particulars for making them the evidences against the three units of Shri Vikas Arya, especially when the statement of Shri Vikas Arya nowhere admits the modus-operandi, alleged by the Revenue.

With regard to issue of taking of credit on raw material by the Respondent which was diverted to other rolling mills and of obtaining low cost scrap from open market from unorganised sources, the Tribunal noted that the Adjudicating Authority had observed that these allegations are in the nature of assumptions and presumptions as there is no corroborative evidence. No supplier from unorganised sector found to have supplied the raw material. Cash payment details not found. No transporter found who had transferred such huge quantity. Statutory records of respondents accounted for all raw materials and production of MS ingots shown. No evidence by Revenue to rebut the said entries in record.

It was found that Commissioner is justified in placing reliance on the earlier order in original dated 06.10.2005, passed by the Assistant Commissioner vide which, he has dropped the allegations of clandestine removal of short found inputs and excess found final products. Similarly, the observations of the adjudication authority dealing with the Revenues stand that there was difference in the price of melting scrap and re-rollable scrap, rejecting the same that there is no evidence to that effect and no proceedings for under valuation stand initiated against the supplier of the raw material. He has also observed that there is nothing available on record to show that the suppliers supplied re-rollable scraps at the higher price or any differential amount, on account of difference of price floated back to the said suppliers from the manufacturers.

Accordingly, in view of the Tribunal, the Commissioner has rightly held that the modvat credit of duty availed on the scrap obtained from M/s. Bansal Brothers and M/s. Gujarat Impex Labs P. Limited, cannot be denied to Respondent. We note that the proposal in the notice to confirm duty in respect of M/s. Gujarat Steels Pvt. Limited and M/s. Sanjay Ispat P. Limited was as a consequence of alleged diversion of raw materials by Respondent and on the ground that the said diverted raw material stands utilised by them for manufacture of their final product cleared clandestinely. The Adjudicating Authority has rightly held that the case against Respondent having been demolished, no duty can be upheld against the said two respondents. Similarly, as a consequence of vacating the show cause notice against Respondent no penalty can be imposed on either of the noticees, including the suppliers of the ship breaking material. In view of the foregoing discussions, no reasons to interfere with the impugned orders of Commissioner (Appeals).

Decision:- Appeal dismissed.

Comment: - This is very landmark judgement which says that the charge of clandestine removal has to be proved with cogent and corroborative evidence. It cannot be established only on the basis of confessional statement. Further, if the confessional statements are retracted then department has to prove their case with corroborative evidence. Further, charge of clandestine removal cannot be based only on statement of co-noticee. It has to be supported with the evidence of huge cash payment, alternate supplier of raw material, transporter detail who has transported such huge quantity etc. Thus, this decision speaks loudly that the charge of clandestine removal is a serious charge and onus lies on the department to prove the same with concrete evidences.

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PJ/Case Laws/2011-12/1323

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