[Order per : H.K. Thakur, Member (T)]. - Appeal No. E/2172/99-MUM, filed by M/s. Mahesh Silk Mills, Surat, and Appeal No. E/2317/99 filed by M/s. Chandan Prints, Surat are directed against the same Order-in-Original No. 06 of 1999, dated 26-2-1999, passed by the Commissioner (Adjudication), Central Excise, Mumbai. As the issues involved in both the appeals are interconnected and arise out of the same impugned order, both these appeals are being disposed by this common order.
2. Briefly stated the facts of the case are that the appellant M/s. Mahesh Silk Mills is engaged in the processing of man-made fabrics (belonging to various cloth merchants/traders) on job work basis attracting Additional Duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The factory premises of the appellant M/s. Mahesh Silk Mills and seven shop premises of cloth merchants/traders were searched on 19-10-1995 by the officers of the Directorate General of Central Excise Intelligence, Zonal Unit, Mumbai, and the shop premises of M/s. Chandan Silk Mills being one of the seven shops searched. During the course of search at M/s. Mahesh Silk Mills on 19/20-10-1995, some short and some excess quantities of finished/semi-finished/grey man-made fabrics were detected by the officers, for which show cause notice was issued on 17-4-1996 by the Commissioner, Central Excise, Surat. The officers also seized one diary from the factory premise of Mahesh Silk Mills containing fabric details like Name, Date, No., Meterage, Name of Fabric, etc. allegedly showing quantities of grey fabrics received from 47 cloth merchants/traders and corresponding processed fabrics sent back by M/s. Mahesh Silk Mills after processing to the said merchants/traders during the period September to October, 1994. On comparing the figures contained in the diary with the Lot Register maintained by M/s. Mahesh Silk Mills, the officers suspected that M/s. Mahesh Silk Mills processed 16,82,267.15 linear meters of man-made fabrics without proper accountable in Central Excise records and removed the same clandestinely without payment of Additional Duty of Rs. 30,18,378/- during the period of September to October, 1994. During the search at the premises of M/s. Chandan Prints, one of the seven cloth merchants whose shop premises were also searched on 19-10-1995, the officers recovered and seized one file containing grey fabric challans for the period 15-7-1992 to 13-10-1995, under which Chandan Prints had sent grey fabrics for processing to various fabric processors including Mahesh Silk Mills, and found that Mahesh Silk Mills had received grey fabrics from Chandan Prints on 29-3-1994 and 5-8-1993 and sent the same back after processing without payment of Additional Duty amounting to Rs. 33,957/-. Another show cause notice dated 31-3-1998 was issued to Mahesh Silk Mills by invoking extended period of time limitation for recovery of duty of Rs. 30,18,378/- for the year 1994-95. After due process of adjudication, the Commissioner (Adjudication), Central Excise, Mumbai confirmed the demand of Rs. 30,18,378/- along with interest against Mahesh Silk Mills, imposed penalty of Rs. 30 lakhs on them under Rule 173Q(1), and confiscated land, building, plant and machinery of Mahesh Silk Mills under Rule 173(Q)(2) of the Central Excise Rules, 1944 by giving an option to the appellant to redeem the same on payment of redemption fine of five lakh rupees within one month of receipt of the impugned Order-in-Original. A penalty of Rs. 30,000/- was also imposed on Chandan Prints under Rule 209A of the Central Excise Rules, 1944.
3.1 Learned Advocate Shri Paresh M. Dave arguing on behalf of the appellants made the following submissions :
(a) that the demand of duty had been worked out only on the basis of a diary containing rough jottings, but no one from the appellant’s side had admitted that the diary belonged to them, nor the contents of the diary were admitted by any one from the appellant’s side. It is also not proved who maintained the diary and under whose directions the same was maintained.
(b) that statement of only one of the parties, out of many detailed in the diary, was relied upon and this statement of Shri Ramesh Chhipa of Chandan Prints was only for 24,555 linear metres against demand raised on a total quantity of 16.82 lakh metres in these proceedings. That, panchnamas were drawn at the premises of various other traders/cloth merchants also but those evidences are not relied upon by the Revenue for the reasons best known to them.
(c) that huge quantity of 16.82 lakh metres of fabrics is alleged to have been processed during two months of September and October, 1994, but no corroborative evidence of excess consumption of electricity, colours, dyes, chemicals. etc., is adduced by Revenue. That even the production capacity of the factory is also not considered by the investigation.
(d) that penalty on only one trader Chandan Prints, who allegedly received a small quantity of 24,255 L. Metres of processed fabrics, has been imposed. However, there were no proceedings against any of the other 46 traders, who allegedly got their grey fabrics processed from Mahesh Silk Mills, and whose identity is also not established by the Department.
(e) that in view of the above circumstances, a serious charge of clandestine production and illicit removal of goods cannot be held to have been proved beyond a reasonable doubt.
3.2 The learned Advocate cited the following citations in support of his arguments :
(i) Rajasthan Foils Pvt. Ltd. v. Commissioner of Central Excise, Jaipur [ (Tri.-Delhi)];
(ii) Ashwin Vanaspati Industries Pvt. Ltd. v. Collector of Central Excise [ (Tribunal)];
(iii) Ebenzer Rubbers Limited v. Collector of Central Excise, Ahmedabad [ (Tribunal)];
(iv) Shakti Chemical Industries v. Collector of Central Excise, Baroda [ (Tribunal);
(v) Kashmir Vanaspati (P) Ltd. v. Collector of Central Excise [ (Tribunal)];
(vi) Vishwa Traders Pvt. Ltd. v. Commissioner of Central Excise, Vadodara [ (Tri.-Ahd.)]; and
(vii) Nova Petrochemicals Ltd. v. CCE, Ahmedabad-II [Final Order Nos. A/11207-11219/2013, dated 29-9-2013 (Tri.-Ahd.)]
3.3 The learned Advocate Shri Dave further argued that the only evidence in support of the Revenue’s case was statement of co-accused Shri Ramesh Chhipa of Chandan Prints, which has been retracted during the adjudication proceedings before the Commissioner (Adjudication). It is a settled legal position that no reliance could be placed on the statement of a co-accused. He referred to the following case laws in this regard :
(a) Abdul Kadar Gulam Mohd. Mulla v. Commissioner of Customs, Ahmedabad [ (Tri.-Ahmd.)];
(b) Hasan Ali v. Commissioner of Customs, Patna [ (Tri.-Kolkata)];
(c) Rajendra Prasad v. Commissioner of Customs, Patna [ (Tri.-Kolkata)]; and
(d) Om Parkash Kulthia v. Commissioner of Customs (Prev.), W.B. [ (Tribunal)]
3.4 Shri Dave also argued that the appellant’s request for cross-examination was rejected while passing the impugned Order-in-Original, and thus there was a violation of the principles of natural justice inasmuch as the appellants could have filed affidavits or any other proof of the concerned persons if the Commissioner had informed the appellants before passing the order that request for cross-examination was denied. When statement of a third party is relied upon against an assessee, the assessee has a right to cross-examine such witness. Otherwise, statement of the concerned person, and in any case, statement of a co-accused, could not have been relied upon for holding anything against the appellant. He cited the case law of Mahek Glazes Private Limited v. Union of India, reported at (Guj.).
3.5 The learned Advocate also argued that penalties under Rules 173Q and 209A imposed on the appellants were without jurisdiction in view of the judgment of Hon’ble Supreme Court in the matter of Collector of Central Excise v. Orient Fabrics Pvt. Ltd. [ (SC) = (2004) 1 SCC 517].
3.6 Ld. Advocate further argued that the first show cause notice dated 17-4-1996 was issued after investigations were over, and no new evidence was found by the Revenue to justify delay of almost two years in issuing the second show cause notice on 31-3-1998. The second show cause notice dated 31-3-1998 is, therefore, time-barred. He cited the following case laws in this regard :
(a) Nizam Sugar Factory v. Union of India [ (S.C.) = (S.C.)],
(b) Riva Textile Industries Ltd. [ (Tri.-Mum.)],
(c) Lovely Food Industries [ (Tri.-Bang.)], and
(d) Neminath Fabrics [Order Nos. A/1676-1677/WZB/AHD/2008 (Tri.-Ahd.), dated 20/26-8-2008 - (Tri.-Ahmd.)].
3.7 The Ld. Advocate, therefore, contended that the demand of Additional Duty of Excise is not sustainable in view of the above arguments.
4.1 On the other hand Shri J. Nair (AR), reiterating the findings of the Adjudicating authority, argued that demand of Additional Duty of Excise is sustainable on the basis of the diary recovered from the factory premises of the appellant on 19/20-10-1995 and the statement of Shri Ramesh Chhipa of Chandan Prints. The recovery of the diary from the premises of Mahesh Silk Mills during the course of search on 19/20-10-1995 is not disputed. He drew our attention to the provisions of Section 36A of the Central Excise Act, 1944 relating to presumption as to documents seized from the custody or control of a person. He cited the following case laws in support of his arguments :
(a) Motorol Technologies Ltd. v. Commissioner of Central Excise, Vadodara [2009 (245) E.L.T. 352 (Tri.-Mumbai)]; and
(c) Ramachandra Rexines Private Limited v. Commissioner of Central Excise, Bangalore-I [ (Tri.-Bang.)]
4.2 He further argued that statement of co-accused Ramesh Chhipa of Chandan Prints can be used against Mahesh Silk Mills in view of the judgment of the Hon’ble Supreme Court in the matter of Naresh J. Sukhawani v. Union of India [ (S.C.)].
4.3 On the point of limitation, the ld. AR argued that the extended period of time under proviso to Section 11A(1) of the Central Excise Act, 1944 has been rightly invoked in the case. It was his case that the first show cause notice dated 17-4-1996 was issued in respect of excess quantities of processed/semi-finished man-made fabrics detected & seized from the factory of Mahesh Silk Mills as well as shortages of processed/semi-finished/grey man-made fabrics detected in the appellant’s factory on 19/20-10-1995 keeping in view the fact that show cause notice in respect of seized goods had to be issued within six months from the date of seizure of goods in terms of sub-section (2) of Section 110 of the Customs Act, 1962, as made applicable to Central Excise cases. The second show cause notice was issued on 31-3-1998 on the grounds of non-accountal of man-made fabrics and suppression of production of processed man-made fabrics during the year 1994-95 by invoking the proviso to sub-section (1) of Section 11A, as the period of demand of duty was within a period of five years from 31-3-1998. He cited the following case laws in support of his arguments :
(a) Hi-Tech Needles (P) Ltd. v. Commissioner of Customs, Allahabad [2012 (279) 461 (Tri.-Del.)];
(b) Commissioner of Central Excise, Daman v. Caprihans India Limited [ (Tri.-Ahmd.)];
(c) Commissioner of Central Excise, Visakhapatnam v. Mehta & Co. [ (S.C.)]; and
(d) Commissioner of Central Excise, Surat-I v. Neminath Fabrics Pvt. Ltd. - [ (Guj.)]
4.4 The learned AR, thus, contended that the demand of Additional Duty of Excise along with interest is maintainable and consequently penalties were correctly imposed upon the appellants apart from confiscation of land, plant and machinery of Mahesh Silk Mills.
5. We have heard both sides and perused the case records. The issue involved is alleged clandestine and manufacture of man-made fabrics by the appellant M/s. Mahesh Silk Mills.
6. It is observed from the records that the total demand of duty of Rs. 30,18,378/- in the case has been raised mainly on the basis of figures taken from the diary recovered from the factory premises of Mahesh Silk Mills on 19/20-10-1955. While recovery of the impugned from the factory premises of Mahesh Silk Mills is not disputed by the appellant but no one from appellant’s side has admitted that the diary belonged to the appellant. Nor the contents of the diary were admitted by any one from the appellant’s side. The scribe of the said diary has not been identified by the Revenue for ascertaining the ground realities. Only one trader - Chandan Prints, who is one of the 47 traders mentioned in the said diary, initially admitted to have received 24,555 L. Meters of processed man-made fabrics, involving excise duty of Rs. 33,957/- from Mahesh Silk Mills against 24,555 L. Meters of grey Man-Made Fabrics sent to Mahesh Silk Mills on 29-3-1994 and 5-8-1993.However, M/s. Chandan Prints had retracted its statement during the course of adjudication. The statements of the remaining 46 traders have not been placed on record by the Revenue to prove that the remaining entries recorded in the diary also related to clandestine manufacture and removal of processed man-made fabric. There is no corroborative evidence of excess consumption of electricity, colours, dyes, chemicals, etc., by the appellant. There is also no evidence of transportation of processed man-made fabrics from the appellant’s factory or any instance where clandestinely removed goods were seized by the revenue. Cross-examination of the third party witness was also not provided to the appellants.
7. Appellants have relied upon several case laws on the issue of establishing case of clandestine manufacturing and clearance of excisable goods. We find that in the matter of Rajasthan Foils Pvt. Ltd. v. Commissioner of Central Excise, Jaipur [ (Tri.-Del.)], relied upon by the appellant, CESTAT held as under :
“6. From the record, we find that the company is engaged in the manufacture of aluminium foils/sheets. The factory premises of the company was inspected by the Central Excise officers on 19-2-2000 and certain notebooks detailed at Sl. Nos. 1 to 5 of the resumption memo prepared on the date, at the spot, were seized. The entries contained in these notebooks had been tabulated in chart marked Annexure A, to the show cause notice which according to the Revenue, depicted details of clearances in condensed manner during the period in dispute to various buyers and also of the material sent for weighment and the raw material received for the manufacture of the goods during that period by the company. All the entries detailed in Annexure A, had also been shown in Annexure B. The details of the raw material received by the company had been given in Annexure C prepared from the notebook mentioned at Sl. No. 4 of the resumption memo. But it is quite evident even from the impugned order itself that certain entries made in all the five seized notebooks tallied with the invoices issued under Rule 52A, by the company at the time of clearances of the goods. The entries in the notebooks mentioned at Sl. Nos. 4 and 5 of the resumption memo, pertains to goods sent for weighment by the company to the Dharamkanta and from these entries, it could not be inferred that these goods were cleared to the buyers without payment of duty specially when there is no evidence/statement of any buyer of having received the goods without cover of invoice or payment of duty from the company. In the entries of notebook mentioned at Sl. No. 4 of the resumption memo, at pages 20 to 40, only the names of the customers in short, quantity of the aluminium foils and figures showing certain amount in rupees equal to the quantity in kg., had been detailed and these had been tabulated in Annexure B, but no evidence has been collected whatsoever to connect these entries with a particular customer/buyer to whom the goods were allegedly cleared by the company during the period in dispute. No material/evidence has been collected from the transporter M/s. Baba Transport Company through whom the goods were allegedly booked on the basis of GRs in question. Only statement of Shri Vijaypal Singh, Proprietor of that transport company was recorded on 2-5-2001 who simply stated that he used to arrange the trucks from outside as and when required by the company for transportation of the goods and had been getting Rs. 25/- as commission from the driver of the vehicle. He had nowhere admitted that the goods booked did not accompany the invoices. No statement of any driver of the vehicle had been recorded who transported the goods. Shri Vijaypal Singh himself had no knowledge about the destination at which the goods were sent by the company.”
8. Similarly, in the matter of Nova Petrochemicals v. CCE, Ahmedabad-II, this Tribunal in its Final Order Nos. A/11207-11219/2013, dated 26-9-2013 this bench has held as under in Para 40 :
“After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained as per the statutory records;
(b) Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty.
(c) Discovery of such finished goods outside the factory
(d) Instances of sales of such goods to identified parties.
(e) receipt of sale proceeds, whether by cheque o by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validity cleared on payment of duty
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty
(i) links between the document recovered during the search and activities being carried on in the factory of production; etc.
Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What once could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons may even be responsible official of the manufacture or even of its Directors/partners’ who are not even permitted to be cross-examined, as in the present case, without one or more of the evidence referred to above being present. In fact, this Bench has considered some of the case law on the subject in Centurion Laboratories v. CCE, Vadodara, . It would appear that the decision though rendered on 3-5-2013 was reported in the issue of the E.L.T. dated 29-7-2013, when the present case being argued before us, perhaps, not available to the parties. However, we have in that decision, applied the law, as laid down in the cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchases, distributor or dealers. Record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entice case law on the subject [Hindustan Machines v. CCE, ]. Members of Bench having hearing initially differed, the matter was referred to a Third Member, who held that clandestine manufacturing and clearances were not established by the Revenue. We are not going into it in details, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case law, including most of the decisions cite before us now, considered them and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, ] it has been held that the theory of preponderance of probability would be applicable only when there were strong evidence heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in case of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the art materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.”
9. In view of the above legal position and facts available on record, we are constrained to reiterate that evidence of only one diary cannot be made the basis of establishing clandestine manufacture and removal of the fabrics. It has been repeatedly held by the Courts that clandestine manufacture and clearance cannot be readily inferred from few documents and statements unless the allegations are also corroborated and established on evidences, relatable to or linked with actual manufacturing operations. As far as the present demand is concerned, there is no such evidence forthcoming in the records before us to suggest clandestine manufacture and clearance by the appellants. Mere reliance on note books/diaries or statements cannot be considered as enough evidence for clandestine manufacture and clearances. Accordingly, duty demand Rs. 30,18,378/- is not sustainable against the appellant Mahesh Silk Mills, and the same is set aside. Consequently, neither any penalty is imposable upon Mahesh Silk Mills nor their land, plant nor machinery are liable to confiscation under Rule 173Q of the Central Excise Rules, 1944. Appeals filed by the appellants are allowed by setting aside the Order-in-Original dated 5-3-1999.
(Pronounced in the open Court on 31-3-2014)