Mere Statements without corroborative evidence cannot prove the charge of clandestine manufacture.

PJ/CASE LAW/2014-15/2416

Case:- M/s NISSAN COPPER LTD, SHRI SANJAY MARDIA, SHRI AJAY NIRMALVERSUS COMMISSIONER OF CENTRAL EXCISE, VAPI

Citation:-2014-TIOL-1798-CESTAT-AHM

Brief Facts:-These stay applications have been filed by the appellants for staying the operation of OIO NO.VAP-EXCUS-000-COM-061-13-14, dt.22.11.2013 passed by Commissioner of Central Excise Customs & Service Tax Commissionerate, Vapi. Under this OIO, a demand of Rs.3,13,35,656/- has been confirmed against the main appellant M/s Nissan Copper Limited, Silvassa, along with interest, and an equivalent amount of penalty has also been imposed. Penalties of Rs.35 lakh and Rs.2 lakh have also been imposed upon Shri Sanjay Mardia and Shri Ajay Nirmal, who are respectively the Chairman and Authorized signatory of the main appellant.

Appellant Contentions:-Learned Advocate appearing on behalf of the appellants argued that a case of clandestine removal of imported copper pipes was booked against the main appellant on the ground that the imported pipes were diverted from the factory premises of the main appellant and the credit was taken with respect to the imported pipes was not admissible. Ld. Advocate argued that the only reason with the Department for such allegation is that diameter of the pipes sold by the main appellant was more than the imported pipes which cannot be achieved by the process of drawing. It was his case that due to market fluctuation of prices in copper the imported pipes were melted to make pipes of higher diameter/dimensions. He made the Bench go through the raw material records maintained by the main appellant to drive home the point that imported pipes were cleared internally for re-melting to make higher diameter pipes. He also made the Bench go through Para 41.14 & 41.16 of the OIO dt.22.11.2013 and submitted that adjudicating authority has rejected the claim of the appellant for remelting of copper pipes only on the ground that for the earlier period April 2007 to September 2007 also appellant has been showing copper pipes issued for remelting in similar fashion although there were few imports during that period. He emphasized that in Para 41.16 adjudicating authority has held that even if there is no evidence of clandestine removal of imported pipes then also the claim of the investigation stands confirmed on the basis of other corroborative evidences on record. Ld. Advocate explained that on the date of stock taking in appellant's factory the entire stock of raw material and finished goods was found tallied. He emphasized that there is no other corroborative evidence to support any clandestine removal made by the appellants. Even the statements of Chairman and Authorised signatory do not say anywhere that imported pipes were clandestinely removed elsewhere as such. That no seizure of any imported pipes was made anywhere in the investigation and that there is no indication that any extra raw material was procured by the main appellant to manufacture and clear high diameter pipes. He also pleaded financial hardship as the unit is closed for the past 3 and half years and there are accumulated losses of Rs.198 crore as per the balance sheet of the main appellant for the financial year 2013-14. Ld. Advocate argued for complete waiver of the confirmed demands and penalties.

Respondent Contention:-Shri K. Sivakumar (AR) appearing on behalf of the Revenue argued that though the entire imported pipes were received by the appellant but the pipes manufactured by the appellant were of higher diameter than the imported copper pipes which cannot be made by drawing of imported pipes. That Shri Sanjay Mardia Chairman of the main appellant in his statement dt.15.5.2008 could not give any satisfactory answer for 249.227 MT of imported copper pipes and admitted that this quantity was neither lying in stock nor sent to the job workers. That similarly Shri Ajay Nirmal, Authorised signatory of the main appellant could not explain the shortage found in imported copper pipes. It was strongly argued by ld.AR that no explanation was given at the time of search or recording of statements that imported pipes were internally issued for remelting to make pipes of higher dimensions and that no prudent businessman will use brand new imported pipes for remelting to make pipes of higher diameter. It was the case of the ld. A.R. that appellants have no case and pre-deposits should be ordered in this case as the stand subsequently taken by the appellants is only an after thought.

Reasoning of Judgment:-Heard both sides and perused the case records. The issue involved in these stay applications is whether appellants have diverted the imported tubes as clandestinely or used the same for remelting and making of copper tubes of higher dimensions. It is the case of the appellants that during stock taking of the factory premises of the main appellant, no grave discrepancies were found and Commissioner has not disputed that imported copper tubes can be remelted to make out higher diameter tubes. We find it so as discussed by adjudicating authority in Para 41.16 of the OIO dt.22.11.2013. We also find that in Para 41.16 of the OIO he has also opined that even if there is no evidence of clandestine removal of pipes still he is holding that appellant is not able to justify their claim of remelting of imported copper pipes conclusively. It is also observed that adjudicating authority has found such practice of issuing copper pipes for remelting was in vogue during the period April 2007 to September 2007 (prior to the period involved in the present proceedings) in Para 41.15 of the OIO dt.21.11.2013. This finding of the adjudicating authority gives credence to the stand taken by the main appellant that imported pipes were remelted to make pipes of higher dimensions. There is no evidence like seizure of clandestinely removed imported copper pipes or extra raw material acquired by the main appellant for manufacturing higher diameter copper pipes/tubes. The statements of the Chairman and Authorised signatory of the main appellant also do not say anywhere that the imported copper tubes have been diverted clandestinely. Though the initial statement of Shri Sanjay Mardia recorded by the investigation team convey that he was not able to properly convey as to how imported copper tubes were dealt, but it is well settled law now that few statements, which are not corroborated by other evidences and were subsequently retracted, cannot be the sole basis for quantification and confirmation of demand on clandestine manufacture and clearance of the final excisable goods. Appellants have, therefore, made out a prima facie case for full waiver of the confirmed dues and penalties.
In view of the above observations, it is ordered that there will be stay on the recoveries of the confirmed dues and penalties involved in these stay applications till the disposal of these appeals.

Decision:-Stay granted.

Comment:-The crux of this case is that for confirming duty demand of clandestine manufacture, corroborative evidences are required. Mere statements that were subsequently retracted cannot establish the charge of clandestine manufacture and the same is required to be established with the help of appropriate evidences. Nothing indicating clandestine manufacture was found such as excess unaccounted stock of raw materials and rather stock was tallied and verified. As such, benefit of doubt was extended to the appellant and the stay application was allowed.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2014-15/2416

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