The charge of clandestine removal is to be proved with cogent and corroborative evidences.

PJ/Case Law/2013-14/1842

Case:-COMMISSIONER OF CENTRAL EXCISE VERSUS OMKAR TEXTILE MILLS PVT. LTD.

Citation:-2010 (259) E.L.T. 687 (Guj.)

Brief Facts:-The facts of the case stated briefly are that the respondent is engaged in the business of processing of cotton fabrics and man made fabrics falling under Chapter 52, 54 and 55 of the First Schedule to the Central Excise Tariff Act, 1985. The factory premises of the respondent came to be searched on 9-7-2003. According to the appellant, during the course of search, on physical verification of finished processed cotton fabrics and man made fabrics at the various stages of processing i.e., bleaching, dyeing, printing, finishing, packed in HDPE bags on comparison with recorded stock, a shortage of 175178 mtrs. of processed MMF valued at Rs. 31,53,204/- involving Central excise duty of Rs. 3,15,329/- was detected. Accordingly, a panchnama came to be drawn recording the said facts. Statement of a Director of the Company, Shri Rajnikant Omkarmal Agarwal also came to be recorded, under Section 14 of the Act, wherein apart from several other admissions, he admitted the contents of the panchnama. Statements of other employees of the respondent were also recorded under Section 14 of the Act. Subsequently, a show cause notice came to be issued to the respondent calling upon it to show cause as to why Central excise duty amounting to Rs. 4,30,275/- should not be demanded under Section 11A of the Act, as well as, as to why mandatory penalty and penal interest should not be imposed.

Pursuant to the show cause notice, the respondent filed reply and after considering the explanation given by the respondent, the adjudicating authority dropped the demand of duty. Against the order of the adjudicating authority, revenue preferred appeal before Commissioner (Appeals), who confirmed the order made by the adjudicating authority. Revenue preferred second appeal before the Tribunal, but did not succeed.

Appellant’s Contention:- Learned Senior Standing Counsel for the appellant-revenue vehemently assailed the impugned order, and submitted that once it had been admitted in a statement under Section 14 of the Act that there was illicit and clandestine removal of excisable goods, there was no need to prove the same by further corroborative evidence. It was submitted that both the Commissioner (Appeals) as well as the Tribunal were not justified in upholding the order of the adjudicating authority, dropping the demand despite the fact that there was admission of clandestine removal of excisable goods and evasion of central excise duty.

Respondent’s Contention:-As can be seen from the order made by the adjudicating authority, before the adjudicating authority, the assessee had contended that the shortage of fabrics shown in the panchnama was not correct as they had produced the documents to show that the fabrics in question had not been cleared without payment of duty, but the officers who drew the panchnama did not take into consideration their request and did not even physically verify the stocks. Shri Rajnikant Agarwal, Director of the assessee-Company submitted an affidavit wherein it was clearly mentioned that the stock verification was not conducted physically and was not compared with the recorded balance thereof. It was contended that the statements and panchnama were both recorded forcibly and the factual position of stock was not ascertained. He had, therefore, by affidavit dated 20-7-2003 retracted the facts mentioned in the panchnama and the statements.

Reasoning of Judgment:-The adjudicating authority, upon appreciation of evidence on record, found that upon going through the panchnama (Annexure “B”), it appeared that the assessee had cleared the disputed lot numbers of fabrics of man made fabrics to different parties on payment of central excise with valid central excise invoices. He, accordingly, found that the shortage of fabrics mentioned in the panchnama was not acceptable. According to the adjudicating authority, it appeared that the disputed man made fabric was actually available in the said factory premises of the assessee, hence, the allegation made in the show cause notice that the assessee had illicitly cleared the fabrics without payment of duty and without maintaining the central excise records and without following proper central excise procedures, was not sustainable. It was further found that there was no further evidence from the customers/traders to whom such illicitly processed and clandestinely removed fabrics might have been delivered. The adjudicating authority was of the view that clandestine removal is a serious charge which is required to be proved by producing tangible, corroborative and concrete evidence, and that, unless such evidence was brought on record, the demand could not be sustained.

Commissioner (Appeals), upon appreciation of the evidence on record, has concurred with the findings of fact recorded by the adjudicating authority. Commissioner (Appeals) has found that, except the statement dated 10-7-2003 of the Director, Shri Rajnikant Agarwal, there was no evidence to support the charge of clandestine clearance of fabrics. That in absence of any corroborative evidence, the adjudicating authority had rightly dropped the demand.

The Tribunal has concurred with the findings of fact recorded by Commissioner (Appeals) and has found no reason to interfere therewith.

Thus, all the authorities below viz., the adjudicating authority, Commissioner (Appeals) as well as the Tribunal have concurrently found that except for the statement of the Director of the assessee Company, Shri Rajnikant Agarwal recorded on 10-7-2003, there was no other evidence in support of the charge of clandestine removal of goods. The statement recorded on 10-7-2003 had subsequently been retracted by Shri Rajnikant Agarwal. Thus, it is apparent that the only evidence in respect of clandestine removal against the assessee was in the nature of the statement recorded under Section 14 of the Act, which had been subsequently retracted. Before the adjudicating authority, the respondent assessee had led evidence to establish that the charge of clandestine removal is not made out and that there was no shortage of material as recorded in the panchnama which was accepted by the adjudicating authority. The findings of the adjudicating authority stand confirmed by both the appellate authorities. Learned counsel for the appellant is not in a position to point out any evidence to the contrary, in support of the case of the revenue as regards shortage of material or clandestine removal of goods. Thus, the conclusion arrived at by the Tribunal is based solely upon concurrent findings of fact recorded by all the authorities below. In absence of any perversity being pointed out in the findings recorded by the Tribunal, it is not possible to state that the conclusion arrived at by the Tribunal is, in any manner unreasonable so as to warrant interference. A case of clandestine removal of goods has to be made out on facts which find corroboration from the material on record. In absence of any corroborative material, no demand could have been raised merely on the basis of a statement recorded under Section 14 of the Act, which had been subsequently retracted.

Consequently, the appeals filed by the revenue were dismissed.

Decision:-Appeal is dismissed

Comment:-The substance of this case is that the allegation of clandestine clearance is a very serious allegation that is to be confirmed with cogent and corroborative evidences. In the present case, as the demand was sought to be confirmed only on the basis of the confessional statement of the director that was subsequently retracted, the demand was not sustainable and deserved to be quashed.

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PJ/Case Law/2013-14/1842

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