[Order per : P.S. Bajaj, Member (J)]. - Both the above captioned appeals have been directed against the impugned order-in-original dated 16-4-2001 passed by the Commissioner of Central Excise, Jaipur-II, vide which he has affirmed the duty with equal amount of penalty and another penalty of Rs. l0,00,000/-, as detailed therein, against the appellants.

2. The appellants are engaged in the manufacture of ‘Grey Fabrics’ falling under Chapters 52, 54 and 55 and also processing of Cotton Hosiery Fabrics falling under Chapter 60 of the CETA. On 8-1-1998, the Central Excise Officers visited their factory premises and on physical verification of the finished goods as well as the goods in process and grey fabrics, an excess of 40,000 mtrs. of processed fabrics was noticed. A separate show cause notice in respect of that fabric, which was seized, was issued (that show cause notice is not the subject matter of present appeals). Thereafter, the Officers visited the premises of transport company known as M/s. Gupta Transport Corporation, Balotra, through whom the appellants had been receiving the grey fabrics. The transport registers maintained by that company revealed the receipt of grey fabrics by the appellants during the period 1994-95 to December, 1997. But the entire receipt of the fabrics was not found entered by the appellants in their statutory record called Form IV register. The discrepancies found, therein had been detailed in the impugned order itself. The statement of Shri Shyam Sunder Agarwal, Manager of M/s. Gupta Transport Corporation, was also recorded, wherein he disclosed that the delivery of the goods was taken by the parties whose names were indicated in column 15 of the register as consignees. He also disclosed about the delivery of the grey fabrics to the appellants. Thereafter, statement of Shri Tara Chand Kothari, partner of the appellants’ firm, was also recorded who did not dispute the receipt of the grey fabrics from M/s. Gupta Transport Corpn., but maintained that whatever fabrics were received, the same stood entered in the Form IV register. On completion of investigation, the appellants were served with a show cause notice vide which duty demand of Rs. 56,86,561/- was raised and penalty was also proposed to be imposed on them on the ground that they had suppressed the production of the processed fabrics during the years 1994-95 to 1997-98 and removed the same from the factory premises without payment of duty. The appellants contested the correctness of the show cause notice and maintained that there had been no clandestine manufacture and removal of the processed fabrics by them during the disputed period and that the entries in the transport register relied upon in the show cause notice, were factually incorrect and as such could not be taken note of against them. They also maintained that they had not taken the delivery of the grey fabrics from M/s. Gupta Transport Corpn. of the quantity as alleged in the show cause notice and that the delivery was taken by other firms whose names were even entered in the transport registers and in whose favour even the challans were issued. The Commissioner, however, did not accept their version and confirmed the duty demand of the amount mentioned in the show cause notice and also imposed penalty of equal amount under Section 11AC along with interest. He also imposed penalty of Rs. 10 lakhs under Rule 173-Q on the appellants and of that very amount on Shri Tara Chand Kothari, appellant partner of the firm.

3. The present two appeals have been filed by the appellants questioning the validity of the impugned order of the Commissioner.

4. The learned Counsel has contended that there is no tangible evidence on the record to prove the receipt of the grey fabrics and manufacture and removal of the processed fabrics in excess of the quantity recorded in their Form IV register. The entries made in the transport registers of the transport company could not be relied upon and even otherwise were incapable of proving the actual receipt of the grey fabrics by the appellants and thereafter manufacture and removal of the processed fabrics by them without payment of duty. The learned Counsel has also contended that the Commissioner has passed the impugned order simply on assumptions and presumptions. No statement of any consignor of the grey fabrics had been recorded to prove the actual receipt of the grey fabrics by the appellants. Similarly, no statement of any buyer to whom the appellants allegedly in a clandestine manner sold the processed fabrics without payment of central excise duty had been recorded. No processed fabrics was even intercepted in transit. Therefore, the impugned order of the Commissioner deserves to be set aside.

5. On the other hand, the learned SDR has reiterated the correctness of the impugned order of the Commissioner.

6. We have heard both sides. The duty demand has been raised and confirmed against the appellants on the allegation that the quantity of the grey fabrics received by them from the transport company, M/s. Gupta Transport Corpn. was in excess than what had been entered by them in their Form IV register and that the excess quantity had been processed and cleared, in the form of processed fabrics without payment of duty by them, during the disputed period. To substantiate these allegations, the main reliance has been placed by the Department on the entries made in the transport registers of the transport company known as M/s. Gupta Transport Corpn. But those entries, the copies of which had been placed on record, in our view, could not be accepted as conclusive proof of clandestine receipt of the grey fabrics from that transport company and thereafter removal of the same after processing without payment of duty to other parties, by the appellants, for want of corroboration from any other tangible evidence. Even otherwise, from those entries it could not be concluded that the grey fabrics consignments as entered therein, were actually received by the appellants. The annexure 5 contains extract from the transport register showing the names of consignors, consignees and the parties who took the delivery of the consignments during the period 1-4-1997 to 18-12-1997. The names of the parties to whom the goods were delivered, entered in this annexure, are not only of the appellants alone, but also of M/s. M.B. Processing and M/s. Sadhna Fabrics. All the consignments as detailed in this annexure from serial No. 93 to 150 were received by these two concerns. The copies of the challans and delivery cash memos prepared in the name of these firms had been also brought on record (pages 261 to 296 of the paper book) showing the actual delivery of the grey fabrics by them. Similarly, in annexure 6, the name of the party who actually received the consignments of the grey fabrics recorded is M/s. Heritage Indus., and not the appellants. The consignees’ name recorded therein is of M/s. Vinod Synthetics. This annexure contains entries made for the period 4-9-1996 to 31-3-1997. The copies of the challans and the delivery cash memos in the name of M/s. Heritage Indus. are at pages 289 to 306 of the paper book. Likewise, in annexure 7 wherein the entries showing the delivery of the consignments of grey fabrics during the period 4-9-1996 to 31-3-1997 and 1-4-1997 to 18-12-1997, the names of the parties who took the actual delivery recorded are M/s. Padmawati Mills (India), M/s. Monika Textile, Shree Adeshwar Textile Mills, M/s. Heritage Indus., M/s. Shanti Textile and M/s. M.B. Processing House. The copies of the challans and cash memos regarding the delivery of the goods to these firms are also on the file at pages 308 to 347. In annexure 8 also, the delivery of the goods actually taken had been shown to M/s. Kothari Indus., and not to the appellants during the year 1995-96. The acknowledgement regarding the receipt of the goods by that firm is at page 349 (Annexure 4-A).

7. It is not the case of the Revenue that none of the above referred firms or the companies were in actual existence and that their names had been fraudulently used by the appellants. No statement of any Partner/Director/Employee of any of these firms/companies had been recorded in that regard. Rather, these firms/companies had even accounted for the goods in their respective records as is evident from the copies of the documents placed on the record (refer pages 309 to 347 of the paper book). No statement of any consignor had been recorded that the delivery of the goods was actually taken by the appellants against payment to them and not by any of the above referred firms/companies, such as, M.B. Processing House, Sadhna Textiles etc. Even the Manager of the transport company, namely, Shri Shyam Sunder Agarwal, in his statement recorded on three different dates, had nowhere categorically stated that delivery of all the consignments as detailed in the above referred annexures, was made to the appellants and not to the firms/companies whose names were entered in the register. Shri Tara Chand Kothari, Partner/Director of the appellants’ company, has also nowhere categorically admitted that the delivery of the consignments of grey fabrics as recorded in the above referred annexures was taken by his firm and not by any other firm or company whose names had been shown therein. No statement of any employee, partner or director of the above referred firms/companies whose names appear in the transport register had been recorded during investigation regarding non-receipt of the goods by them. Therefore, no inference under these circumstances could be drawn that the appellants and none else obtained the delivery of the consignments of the grey fabrics as entered in the above referred annexures, for the simple reason that against some of the consignments they were shown as consignees, especially when none of the consignors, had been questioned and examined to prove that the goods were actually sent by them to the appellants and not to any other firm or company.

8. The alleged processed fabrics by the appellants’ company was never intercepted while in transit from the factory to any third party without payment of duty. No statement of any buyer had also been recorded to show that the processed fabrics was supplied to them by the appellants in a clandestine manner without discharging the duty liability. Therefore, the entries made in the third party’s register (transport registers) could not, in our view, be legally made basis for saddling the appellants with the duty liability by raising assumptions and presumptions that they must have received the excess quantity of the grey fabrics from the transport company than what was entered by them in their record and processed the same and thereafter disposed of in a clandestine manner without payment of duty.

9. The question as to whether the third party record could form basis for fastening the duty on a manufacturer or assessee came up for consideration before the Tribunal in the case of M/s. Rhino Rubbers Pvt. Ltd. v. CCE, 1996 (85) E.L.T 260. The Tribunal in that case observed that it was not safe to rely only on the third party’s evidence when no direct link has been established between the assessee and the supplier of the raw material through the cash transactions. In that case the reliance was placed on the register of M/s. Chemtech Indus., who was supplier of carbon black, but the assessee denied the correctness of those entries in the register. The plea of the assessee was accepted and the duty demand was set aside. The ratio of the law laid down in that case, very aptly applies to the case of the present appellants.

9. No evidence to prove the processing of the grey fabrics and clearance of the processed fabrics by the appellants had been also brought on the record. No statement of any buyer to whom the appellants allegedly sold the processed fabrics had been recorded nor any documents showing the clearance of such fabrics by them, in a clandestine manner, had been placed on record. It is well settled that the charge of clandestine removal of the goods has to be established by adducing positive evidence and that the same cannot be based on assumptions and presumptions. In this context, reference may be made to the following cases wherein it has been so laid down -

(1)     M/s. Amba Cement and Chemicals v. CCE, (T) = 2000 (90) ECR 265;

(2)     M/s. Oudh Sugar Mills Ltd. v. UOI, 1978 (2) E.L.T. (J-172);

(3)     M/s. Gurpreet Rubber Indus. v. CCE, ; and

(4)     M/s. Saheli Synthetics Pvt. Ltd. v. CCE, .

In Oudh Sugar Mills Ltd. supra the Apex Court has even ruled that conclusion regarding clandestine removal of the goods should be arrived at from tangible evidence and should not be based on inferences involving unwarranted assumptions.

10. In the instant case, not only the receipt of excess grey fabrics but also the clandestine removal of the processed fabrics, has been concluded only on the basis of assumptions and presumptions. Even the receipt of printing, chemicals and other raw materials by the appellants as recorded in the annexures 10, 6 and 5 and other documents running from pages 354 to 372, had been interpreted in the impugned order, as receipt of the grey fabrics by them. Such an approach could not be legally adopted by the adjudicating authority. An earnest attempt should have been rather made by the adjudicating authority to ascertain the true facts. The firms/companies, referred to above, who actually received the delivery of the consignments of grey fabrics from the transport company should have been examined to establish that they did not actually take the delivery and that their names had been used by the appellants. The challans and the cash memos prepared in the name of those firms/companies also were required to be scrutinised before ignoring the same and attributing receipt of every consignment of fabrics recorded in the registers of the transport company, to the appellants, although actual delivery was taken by the firms/companies whose names were entered therein. The assumptions and presumptions as taken by the adjudicating authority, could not be legally drawn against the appellants and even otherwise could not take the place of legal proof for establishing the charge of clandestine receipt of raw material (grey fabrics) and removal of the same in the form of processed fabric, after processing. Such a charge was required to be proved by positive and tangible evidence as laid down by the Apex Court in the case of M/s. Oudh Sugar Mills Ltd. supra.

11. The provisions of Section 11AC for imposing penalty equal to the amount of duty had been also invoked by the adjudicating authority without applying mind. The provisions of this Section came into force only from 28-9-1996 whereas the duty demand in the present case pertains to the year 1994-95 to 1997-98. No penalty for the period prior to 28-9-1996 under this Section could be imposed on the appellants as this Section has no retrospective application.

12. In view of the discussion made above, the impugned order of the Commissioner cannot be legally sustained against the appellants and the same is ordered to be set aside. Both the appeals of the appellants accordingly are allowed with consequential relief, if any, permissible under the law.