[Order per : H.K. Thakur, Member (T)]. - These appeals have been filed against the Order-in-Original No. 49/Commr/2010, dated 7-10-2010 passed by Commissioner, Central Excise, Ahmedabad-III, under which demands have been confirmed and penalties imposed upon the appellants. Out of the total demand of Rs. 1,93,26,138/-, an amount of Rs. 1,85,10,861/- is based on the note books and pen-drive recovered from the premises of M/s. Sunrise Enterprises, Mehsana, who was a dealer of M/s. Sakeen Alloys Pvt. Limited, Mehsana and the remaining demand of Rs. 8,25,277/- is based on the parallel invoices recovered as sealed envelopes from the business premises of transporter M/s. Khodiyar Transport Services, Mehsana.

2. During the course of hearing, learned advocate Shri J.C. Patel appearing on behalf of the appellants submitted that during search at the business premises of M/s. Sunrise Enterprises, departmental officers found stock of goods in the stockyard of the M/s. Sunrise Enterprises. The goods found in the stockyard of M/s. Sunrise Enterprises were found embossed with the mark ‘VARSANA’ belonging to M/s. Varsana Ispat Limited, Kutch and no goods were found to be manufactured by the appellant or bearing the mark of the appellant in the stock. It was argued by the learned advocate that the allegation of clandestine removal against the appellant cannot be based on the records or pen-drive recovered from the business premises of third party i.e. M/s. Sunrise Enterprises, Mehsana because of the following reasons :-

(a)     That cross-examination of the person in charge of M/s. Sunrise Enterprises, Mehsana was not allowed to them in respect of the repeated requests made to the adjudicating authority. He submitted that request for cross-examination was rejected by the Commissioner, Central Excise vide letter dated 12-4-2010 against which they filed an appeal before the Tribunal but their appeal was rejected as not maintainable because the letter written by Commissioner to the appellant was held to be a non-appealable order.

(b)     That no statements of the buyers of finished goods appearing in the records/pen-drive recovered from the business premises of M/s. Sunrise Enterprises, have been recorded to whom the finished goods are alleged to have been clandestinely sold.

(c)     That some of the persons named in the said records/pen-drive have filed affidavits stating that department approached them to give a statement confirming the purchases of goods mentioned in the said records/pen-drive but they have refused to give such confirmation.

(d)    That statements of personnel of M/s. Mahavir Industries and M/s. Siddhi Industries, Silvassa have not been recorded as they have been alleged to have supplied the raw materials to the appellants.

(e)     That neither the alleged buyers of the clandestinely removed goods nor the alleged suppliers of the excess raw material have been made parties to the show cause notice.

(f)      Appellant also submitted that the evidence in the shape of a Chartered Engineer certificate is not considered by the adjudicating authority in which it is certified as to what was the quantity of goods manufactured by the appellants.

(g)     That third party evidences cannot be relied upon unless the concerned persons are made available for cross-examination, in view of the following judgments :-

(i)       Shalimar Rubber Industries - (S.C.)

(ii)     P.V. Varghese -

(iii)    Tribunal order Nos. A/110-114/WZB/AHD/2012, dated 22-12-2011/2-2-2012

(iv)    Jindal Nickel & Alloys Limited -

(v)      Charminar Bottling Co. Limited -

(vi)    Rama Shyama Papers Limited -

(vii)   Rutvi Steel & Alloys -

(viii)  Kumar Trading Company - .

(h)    That the statements of the appellant’s Managing Director, Manager and Shri Mukeshbhai Virabhai Patel have retracted their statements immediately after recording their statements.

3. It was also argued by the learned advocate that the demand of Rs. 8,25,277/- also cannot be upheld as no cross-examination of transporter M/s. Khodiyar Transport Service was allowed, in view of the above judgments relied upon by the appellants.

4. Shri J. Nagori, learned A.R. on the other hand argued that M/s. Sunrise Enterprises is not a third party but a registered dealer of the appellant. The case of clandestine removal is not only based on the statements of the appellants and registered dealer but also based on the records/pen-drive recovered from the business premises of M/s. Sunrise Enterprises. He therefore, reiterated the findings of the adjudicating authority.

5. We have carefully gone through the rival submissions and perused the records. In this case, the case of clandestine removal has been made out against the appellant M/s. Sakeen Alloys Pvt. Limited on the basis of records/pen-drive recovered from the business premises of M/s. Sunrise Enterprises. In the statements of Managing Director and the Excise persons of M/s. Sakeen Alloys Pvt. Limited and Shri Mukeshbhai V. Patel of M/s. Sunrise Enterprises it has been admitted that they have clandestinely manufactured and cleared CTD/round bars but they have retracted their statements immediately after recording the statements. It is the case of the appellants that request for cross-examination of the persons whose statements were recorded has not been made available to them by the adjudicating authority. In view of the various judgments relied upon, it was also argued that no investigation has been extended to the suppliers of raw materials or purchasers of finished goods to establish whether such clandestine removal of excisable goods have actually been undertaken by the appellants or not. It was emphasized that cross-examination of the persons whose statements have relied upon is obligatory to be provided especially when the statements are retracted by the appellants.

6. It is observed from Para 3.1 of the show cause notice dated 1-5-2009 issued to the appellants that stock yard of M/s. Sunrise Enterprise, Mehsana was searched by the departmental officers and during such checks it was found by the officers that TMT Bars lying in the stock were embossed with ‘VARSANA’ on each bar which was explained by Shri Mukeshbhai Virabhai Patel of M/s. Sunrise Enterprise have been manufactured by M/s. Varsana Ispat Limited, Kutch. Further, this paragraph also states that the stock lying in the stock yard of M/s. Sunrise Enterprise also had the stock received from M/s. Sakeen Alloys Pvt. Limited, but on verification of the stock with the invoices, the stock was found to have tallied with the documents available with M/s. Sunrise Enterprise. When the stock lying in the stockyard of M/s. Sunrise Enterprise was found to have tallied with the invoices available with M/s. Sunrise Enterprise then the request of the appellants for cross-examination of Shri Mukeshbhai V. Patel of M/s. Sunrise Enterprise was necessary to bring out the truth whether the records/pen-drive maintained by M/s. Sunrise Enterprise pertained to same stock which is received under duty paid invoices or otherwise.

7. It is also observed from Para 14.4 of the show cause notice that names and address of M/s. Siddhi Industries Pvt. Limited and M/s. Mahavir Alloys, Dabhol, Nani Daman are manufactured who were alleged to have supplied the excess raw materials to the appellants from which clandestinely removed goods were manufactured. Their addresses were made available to the department but no enquiry was conducted at the supplier’s end to establish that excess materials in fact were supplied to the appellants. Similarly, no investigation has been extended to the buyers of the finished goods whose names are in the records/pen-drive of M/s. Sunrise Enterprise. This part of the investigation was necessary to establish that clandestinely removed goods have reached to the buyers and they have confirmed to have received such goods. Appellants herein have filed affidavits from some of such buyers which the adjudicating authority has not accepted. It would have been in the interest of justice to call some of these purchasers for cross-examination so that true picture of the entire activities undertaken by the appellants was made clear. Appellants also requested for cross-examination of the Chartered Engineer who gave them the certificate regarding manufacturing capacity and consumption of electricity.

8. In the cases relating to clandestine removal of excisable goods, following are the indicators of clandestine removal activities by a manufacturer :-

(i)      Excess stock of raw materials found in the factory premises.

(ii)    Shortage of raw materials in the records of manufacturer.

(iii)   Excess/shortage of manufactured goods found in the factory premises.

(iv)   Excess consumption of electricity/power used in the manufacture of finished goods.

(v)     Any transit seizure of clandestinely removed goods made by the investigating authority.

(vi)   Any cash amounts seized from the factory premises or dealer’s premises or residential premises searched during investigation.

(vii)  Confessionary statements of the persons concerned with the clandestine manufacture/removal of excisable goods.

9. It is observed from the case records that in the present proceedings, there are few confessional statements of the persons which were later retracted by the persons concerned. The confessional statements subsequently retracted can be argued to be an afterthought under a proper legal advice but to observe the principles of natural justice, it becomes necessary to provide cross-examination of such witnesses, as held by various judicial courts including the Hon’ble Supreme Court relied upon by the appellants. In the case of CCE v. Omkar Textiles - (Guj.), it was held by the Jurisdictional Gujarat High Court that onus is on the Revenue to furnish the evidence to prove the charges of clandestine removal and it is not sufficient if some confessional statements have been given by the Director of the Company. Similarly, in the case of CCE v. Arsh Casting Pvt. Limited [ (H.P.)], the Hon’ble High Court of Himachal Pradesh held that the private records maintained by the staff of the company cannot be made as the sole evidence to hold that clandestine removal of the goods is established and accordingly, the following point of law was decided in favour of the assessee:-

“Whether on the basis of private records, the Central Excise duty can be demanded or not when these private records show higher production than that reflected in the statutory records resulting into removal of the excess stock clandestinely i.e. without issue of invoice and without making entries of production and clearance in the statutory records?”

10. Similarly, in the case of CCE, Chandigarh-1 v. Shingar Lamps Pvt. Limited [ (P&H)], the Hon’ble High Court held that the private records which have been discovered during the raid may not be sufficient for holding clandestine production and removal but there should be some positive evidence suggesting clandestine production and removal. The Hon’ble Supreme Court in the case of Shalimar Rubber Industries v. Collector of Central Excise, Cochin [ (S.C.)] has also held that once the statement is retracted and the assessee asked for cross-examination then if such cross-examination is denied, the department cannot make such statements as the basis for concluding that there was clandestine removal. It is further observed that the Hon’ble CESTAT in the case of Rama Shyama Papers Limited v. CCE, Lucknow [2004 (160) E.L.T. 494 (Tri.-Del.)] came to the following conclusion in Paras 9 and 10 of the judgment which are reproduced below :-

“9. We have considered the submissions of both the sides. The Revenue has charged the Appellants with clandestine manufacture and removal of paper mainly on the basis of documents seized from the premises of Chitra Traders and Transporters and the various statements recorded from the Proprietor of Chitra Traders, transporters and labourers working in the factory of the Appellants and also the driver or cleaner of the Truck which was in the process of loading on 22-6-2001 when the Central Excise Officers visited their factory premises. The Appellants, on the other hand, have contended that most of the persons whose statements have been relied upon have not been produced for cross-examination and the documents seized from third parties’ premises have not been corroborated by adducing evidence of any of the customers though the enquiries were conducted at different places as deposed by Shri Anurag Sharma, Inspector, in his cross-examination on 4-3-2002. Out of 19 consignments said to have been cleared by the Appellant No. 1 without payment of duty on the basis of five transporter, we observe that in respect of two consignments, it has been mentioned by the Revenue that the same may not pertain to the Appellants. Further, only one transporter Shri Sanjay Garg of M/s. Balaji Transporter Co. was produced for cross-examination which accounts for only two consignments out of 19 consignments in question. Shri Garg, it is observed from the record of cross-examination, has deposed that they generally work as commission agent and provide transport to Appellant No. 1; the payment is used to be received directly by the drivers after delivery of the goods at the consignee’s end and in case the driver did not report back for the next 3-4 days, it was presumed that the goods had reached the consignees end. Further, the name of the Applicant No. 1 on one GR No. 34 had been written not by Shri Sanjay Garg, but by his brother, whose statement has not been recorded and on GR 187, there is no mention of the name of the Appellant No. 1 at all. No statement of the drivers concerned has been recorded by the Revenue to establish that the finished goods manufactured by the Appellants were removed without payment of duty. The other transporters have not been produced for the purpose of cross-examination nor the statements of drivers who might have actually carried the goods, had been recorded. Moreover no statement of any of the recipients of the goods had been brought on record. Thus the statements of the transporters have remained uncorroborated and also suffers from the shortcoming of being not being cross-examined by the Appellants. It has been the settled law that the liability cannot be fastened on an assessee on the strength of documents seized from the possession of third party. There should be some corroborative evidence/material. The Tribunal has in the case of Emmtex Synthetics Ltd., supra, when the charge of clandestine removal was made against the Appellants therein out of yarn received from a third party based on the diary, loose documents and packing slips allegedly recovered from Shri B.M. Gupta, Vice President of the Supplier Company, held that “no presumption on the basis of uncorroborated, uncross-examined evidence of B.M. Gupta and the alleged entries made by him in the private diary, loose sheets, charts, packing slips could be drawn about the receipt of polyester yarn by the Appellants from the company, M/s. HPL, in a clandestine manner during the period in question. Similarly, no inference could be legally drawn against the Appellants of having manufactured texturised yarn out of the said polyester yarn and the clearance thereof, in a clandestine manner without the payment of duty.” The Tribunal had also referred to the decision in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.LT. (J172) wherein “the Apex Court has observed that no show cause notice or an order can be based on assumptions and presumptions. The findings based on such assumptions and presumptions without any tangible evidence will be vitiated by an error of law”. The Tribunal also took note of the decision in Kamal Biri Factory and Shri Khushnuden Rehman Khan v. CCE, Meerut - (T) = 1997 (23) RLT 609 (CEGAT) wherein view has been taken that the allegations of clandestine removal of the goods will not stand established when based on the entries made by the assessee’s employee in a diary or on the basis of third party’s record in the absence of any corroborative evidence. It has also been the consistent view of the Tribunal that the statements of the witnesses, without allowing the assessee to test the correctness of the same by cross-examining those witnesses; cannot be made the basis for holding the allegation against the assessee. (Takshila Spinners v. CCE, supra). Similar views have been expressed by the Tribunal in the case of Haryana Petrochemicals Ltd., supra wherein the Tribunal has held that reliance cannot be placed on the documents maintained by a third party “who did not have the courage to come forward for cross-examination in order to test the veracity and correctness of the private record maintained by him.” It has also been held by the Tribunal in the case of Kothari Synthetics Industries v. CCE, Jaipur - (T) that entries made in the transport Register of the transport company could not be accepted as a conclusive proof of clandestine receipt of goods from that transport company for want of corroboration from any tangible evidence. Following the ratio of these decision, the duty demand cannot be upheld solely on the basis of uncorroborated statements and records of transporter. The statements tendered by the labourers can also not be relied upon by the Revenue as these persons were not produced for being cross-examined. Moreover, there is no corroboration of their statements with regard to the Trucks by which the goods were allegedly removed or the persons who received the goods. The Truck driver Shri Shiv Bahadur Yadav has also not been cross-examined and cleaner Shri Rakesh Kumar had deposed that the Bills/Invoices are supposed to be with the Driver and he being cleaner had no knowledge.

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.”

11. From the above settled law, it is clear that in a clandestine removal case, the facts of clandestine removal of excisable goods cannot be established only on the basis of certain statements which are retracted later but there has to be positive evidences like purchase of excess raw materials, shortage/excess of raw materials/finished goods found in the stock/factory premises of the appellant, excess consumption of power like electricity, any seizure of cash during the investigation when huge transactions are made in cash. In the present case also, it is observed, from the annexures to the show cause notice dated 1-5-2009 issued to the appellants, that there were huge cash transactions to the tune of Rs. 11.23 Crores. When such large number of transactions involving huge amounts are being undertaken in clandestine removal activities, it is very likely that some cash would have been seized. There is not a single instance where either seizure of cash is made or any clandestinely removed goods are seized or raw materials/finished goods were found either short or in excess in the factory premises of the appellant or at any other place. As per the Panchnama drawn at the factory premises it is shown that there was no excess/shortage of the raw materials or finished goods found. The documentary evidences collected from the business premises of M/s. Sunrise Enterprise and the statements recorded by investigation, can at the most raise a reasonable doubt that some clandestine removal activities are undertaken by the appellant. However, such a suspicion or doubt has to be strengthened by positive evidences which seem to be lacking in this case. Any suspicion whosoever cannot take the place of evidence regarding clandestine removal of excisable goods. Moreover, after having positive evidences, quantification of duty on clandestinely removed goods also becomes essential. As already mentioned above, the stock lying in the stock yard of M/s. Sunrise Enterprise, Mehsana was found containing the goods received from M/s. Sakeen Alloys Pvt. Limited under proper invoices. When the goods received under proper invoices are found in the stock yard of M/s. Sunrise Enterprise, then it is possible that out of such goods certain quantities were sold to various customers by accepting payment in cash. In such a situation, the quantification undertaken by the investigation becomes doubtful and incorrect. For this purpose cross-examination of the person Incharge looking after the records of M/s. Sunrise Enterprise was must, which was not allowed by the adjudicating authority. In view of the above observations, the demand of duty of Rs. 1,85,10,861/- is not sustainable and is required to be set aside.

12. However, so far as the duty demand of Rs. 8,25,277/- with respect to parallel invoices recovered from the transporter is concerned, it is observed that positive evidence in the form of parallel invoices issued by the appellant are available and the same have been confirmed by the proprietor of transporter M/s. Khodiyar Transport and the same have been affirmed by independent witness other than the manufacturer of the goods. Therefore, the duty demand of Rs. 8,25,277/- pertaining to clandestine removal of goods on parallel invoices is required to be upheld and the appellants are liable to penal action under the provisions of the Central Excise Act and Central Excise Rules. Accordingly, penalty of Rs. 8,25,277/- is imposed upon M/s. Sakeen Alloys Pvt. Limited under Section 11AC of the Central Excise Act, 1944 and penalties of Rs. 2,00,000/- each are imposed on Shri Mohamad Altaf Alambhai Kapadia, Managing Director of M/s. Sakeen Alloys Pvt. Limited and Shri Mukeshbhai Virabhai Patel, proprietor of M/s. Sunrise Enterprise, Mehsana. A penalty of Rs. 1,00,000/- is imposed upon Shri Shantuji Manaji Thakore, proprietor of M/s. Khodiyar Transport Service.

13. Appeals filed by the appellants are allowed by modifying the order of the adjudicating authority to the extent indicated in Para-12 above.

(Order pronounced in the Court)