M/S. Golden Steel Co... v. Shri Rajnish Gambhir...

[Order per : H.K. Thakur, Member (T)]. - Appeal No. E/11/2007 has been filed by Appellant M/s. Golden Steel Corporation Ltd. (GSCL) and Appeal No. E/12/2007 has been filed by Shri Rajnish Gambhir who is the Director of GSCL. Appeal No. E/9/2007 has been filed by M/s. Hariana Iron Works (P) Ltd. for imposition of Rs. 1.00 Lakh penalty under same Order-in-Original No. 68/Commr./CE/Kol-II/Adjn/2006-07, dated 26-9-2006 against which other two Appellants have also filed Appeals.

2. Shri Biswajit Dutta (Advocate) appeared for Appellant GSCL and its Director whereas Shri B.N. Chattopadhyay (Consultant) appeared on behalf of the third Appellant. Shri Biswajit Dutta argued that a case of clandestine removal of excisable goods of Chapter 72 of the first schedule to Central Excise Tariff Act, 1985 has been decided against his clients demanding duty of Rs. 21,81,526/- along with interest and equivalent penalty has also been imposed. That the above demand is with respect to the following constituents :-

(i)      Demand of Rs. 9,86,411/- is calculated on the basis of one ‘Daily Performance Report of HR Strips’ for the period 18-8-2005 to  31-8-2005 prepared by Shri Pradip Chatterjee who is the quality control in-charge of GSCL.

(ii)    Demand of Rs. 4,47,064/- pertains to duty on shortages of finished goods and waste and scrap calculated by the officers of Central Excise during joint stock-taking done on 7-9-2005.

(iii)   Demand of Rs. 7,11,407/- is for clandestine removal of 311.920 MT of HR Strips calculated on the basis of weighment slips recovered from the Headquarters of GSCL.

2.1 Learned Advocate on the issue of above demand of Rs. 9,86,411/- argued that this portion of the demand is based on one ‘Daily Performance Report of HR Strips’ recovered from the factory premises of GSCL and was prepared by Shri Pradip Chatterjee, quality control in-charge of GSCL. It was his case that this statement is only a quality check of HR Coils and nowhere indicates that it is the daily production/manufacture of H.R. Strips by GSCL. That cross-examination of Shri Pradip Chatterjee was asked by his client which was not allowed. That without cross-examination of the witness the evidentiary value of statement of Shri Pradip Chatterjee is lost as is an accepted legal position now. That no evidence is brought on record as to from where excess raw material was brought by his client. That there is also no evidence of removal of such goods alleged to have been cleared clandestinely or excess consumption of electricity as no such goods have been seized. Learned Advocate relied upon the following case laws :-

(i)      Rhino Rubbers Pvt. Ltd. v. CCE, Bangalore [1994 (04) LCX 0008]

(ii)    Kumar Trading Co. v. Commissioner of Trade Tax, Lucknow - [ (All.)]

(iii)   Rama Syama Papers Ltd. v. Commissioner of C. Ex., Lucknow - [ (Tri.-Del.)]

(iv)   Nu-Trend Business Machines (P) Ltd. v. CCE, Chennai - [ (Tri.-Chennai)]

2.2 With respect to demand of Rs. 4,47,064/- learned Advocate argued that stock-taking was not done as per actual weighment but was done only on average weight taken for same HR Strip and then multiplying that average weight with total pcs.. That stock-taking method was not accepted by the Appellants and such calculated shortages in stock-taking cannot be made the basis for demand and clandestine removal as held by the following case laws :-

(i)      Micro Forge (I) Pvt. Ltd. v. Commissioner of Central Excise, Rajkot - [ (Tri.-Mumbai)]

(ii)    Geekay Wires Pvt. Ltd. v. Commissioner of Central Excise, Hyderabad - [ (Tri.-Bangalore)]

(iii)   S.V.G. Granites (P) Ltd. v. Commissioner of Cus. & C. Ex., Hyderabad-III - [ (Tri.-Bangalore)]

(iv)   Industrial Filter & Fabrics Pvt. Ltd. v. Commr. of C. Ex., Indore - [ (Tri.-Del.)]

(v)     Commissioner of C. Ex., Raipur v. Sidhi Vinayak Sponge Iron (P) Ltd. - [ (Tri.-Del.)]

2.3 That demand of Rs. 7,11,407/- based on weighment slips is not sustainable as the same is entirely based upon the statements of Shri Ashim Kumar Pal (weighment clerk of M/s. Golden Weigh Bridge) and Shri Debdas Bhattacharjee (Office Assistant) of GSCL. That GSCL asked for cross-examination of Shri Pradip Chatterjee and Shri Sahaney as per Para 11 of the Order-in-Original dated 26-9-2006 which has been denied by the Adjudicating authority.

3. It was strongly argued by the learned Advocate of GSCL that demand of clandestine removal cannot be based on presumptions and there should be other supportive/positive evidences in the form of procurement of extra raw materials, excess power consumption, shortages/excesses in the raw material stock. That in the absence of any such positive evidences and due to denial of cross-examination of witnesses no case of clandestine removal is established against the Appellants. In addition to above case laws learned Advocate relied upon the case law of Durga Trading Company v. Commissioner of C. Ex., Lucknow [ (Tri.-Del.)] which has been dismissed by Apex Court in an Appeal filed by Revenue.

4. Shri B.N. Chattopadhyay (Consultant) appearing on behalf of M/s. Haryana Iron Works (P) Ltd. argued that his client cannot be held responsible for his name appearing in a third party weighment slips and penalized for abetment. That there is no statutory obligation to maintain any log book for his vehicles mentioned in weighment slips under the Central Excise law and no penalty on that account can be imposed.

5. Shri S.S. Chattopadhyay, Supdt. (AR) appearing on behalf of the Revenue argued as follows :-

(i)      That demand of Rs. 9,86,411/- is based on a document prepared by Shri Pradip Chatterjee, quality control in-charge of GSCL. That when that document was shown to Shri Rajnish Gambhir, Director of GSCL, then he avoided to comment on the said document. That Shri Pradip Chatterjee in his statement confirmed that the said document prepared by him indicate daily production of finished goods and that this information is handed over to Shri Rajnish Gambhir. Learned AR made the Bench go through statement dated 7-3-2003 of Shri Pradip Chatterjee to elaborate his points. That initial ignorance shown by Shri Rajnish Gambhir in his statement dated  8-3-2006 indicates that the said document was only for the manufactured finished goods which must have been cleared clandestinely. Learned AR made the Bench go through Para 16(V) of the Order-in-Original dated 26-9-2006 to argue that cross-examination of witnesses was correctly denied by the Adjudicating authority.

(ii)    With respect to demand of Rs. 4,47,064/- learned AR argued that the same was based on joint stock verification done and the same was based on the method suggested by the employee of GSCL and Appellant cannot say that method of weighment suggested by them is not acceptable.

(iii)   That duty demand of Rs. 7,11,407/- is based on the weighment slips of the Golden Weighbridge belonging to GSCL. That weighment clerk Shri Ashim Kumar Pal in his statement, inter alia, stated that in some of the weighment slips only vehicle number and weight is written by him and the other details are filled in by the office of GSCL. That statements of Shri Debdas Bhattacharjee, Office Assistant of GSCL and Shri Rakesh Shaney (Accountant of GSCL) were recorded. That the name of one Shri Kedhar Babu was featuring in some weighment slips and Shri Debdas Bhattacharjee confirmed to have received payments against such weighment slips. That both Shri Debdas Bhattacharjee and Shri Rakesh Sahney did not disclose the identity of Shri Kedhar Babu. Learned AR argued that as per Section 36A of the Central Excise Act, 1944 truth of the documents recovered from the office premises of the GSCL is an admissible evidence unless Appellant proves to the contrary. He relied upon the following case laws in support of his arguments :-

(i)       AC C. Ex, Rajamundry v. Duncan Agro Industries Ltd. - [ (S.C.)]

(ii)     Commr. of Central Excise v. International Cyilnders Pvt. Ltd. - [ (HP)]

(iii)    RHL Profiles Ltd. v. Commissioner of C. Ex., Kanpur - [ (Tri.-Del.)]

(iv)    Umiya Chem Intermediate v. Commissioner of C. Ex. & Cus. - [ (Guj.)]

(v)      Somani Iron & Steels Ltd. v. CESTAT - [ (All.)]

6. Heard both sides and perused the case records. The issue involved in these appeals revolves around the activities of appellant GSCL whether they have indulged in clandestine manufacture and clearance of Iron and Steel finished goods falling under Chapter-75 of the Central Excise Tariff Act, 1985. The case against GSCL is based on the following three elements :

(i)      A daily performance report of HR Strips prepared by the Quality Control in charge of GSCL.

(ii)    Alleged shortage of finished goods as per a joint stock-taking held on 7-9-2005.

(iii)   Weighment slips of the Golden Weighbridge under the control of appellant GSCL.

Above elements at (i) and (iii) are also confirmed by the statements of the employees of GSCL.

6.1 So far point at 6(i) above is concerned the case of the Revenue is that the document prepared by Shri Pradip Chatterjee and his statement recorded clearly established that quantities shown in the said Daily Performance Report of H.R. Strips were manufactured during the period 18-8-2005 to 31-8-2005. It is observed that this document recovered from the factory premises of GSCL only indicate the quantities tested by the Quality Control In-charge of the appellant and does not convey the daily manufacturing quantity of GSCL. Statement of Shri Pradip Chatterjee dated 7-3-2006 also indicate that this report is not maintained regularly. There is no correlation brought out by the Adjudicating authority that the quantities mentioned in this report are not reflected in the statutory records of Appellant GSCL. Appellant also requested for the cross-examination of Shri Pradip Chatterjee but the same has not been entertained by the Adjudicating authority. It is now a well accepted legal proposition that by virtue of Section 9D of the Central Excise Act, 1944 cross-examination of the relied upon witness has to be extended when the same is sought for by the aggrieved party. If for any reasons the request cannot be entertained then the same has to be rejected and informed to the concerned party separately for redressal if he intends to appeal against such rejection. In the absence of cross-examination of the concerned witness the evidentiary value of that statement is lost. Reliance placed by the Revenue on Section-36A of the Central Excise Act, 1944 and Apex Court’s decision in the case of AC C. Ex Rajamundry v. Duncan Agro Industries Ltd. (supra) will not be of any help to the department because these relied upon authorities does not say that a statement/document has to be blindly accepted without cross-examination of the concerned witness. It is relevant to note that in the case of AC C. Ex Rajamundry v. Duncan Agro Industries Ltd. (supra) Apex Court was deliberating a situation where a statement under Section 108 of the Customs Act, 1962 was to be used against the accused. In the present case appellants have never confessed to the offence committed. No doubt Shri Rajnish Gambhir, Director of GSCL gave evasive/ambiguous version but never admitted to have indulged in clandestine manufacture and removal of finished goods. In such a factual matrix evidences like procurement of extra raw materials, power consumption, any transit seizure of clandestine clearances, etc. become relevant for corroboration. Alternately third party’s statement, being used against the appellants was required to pass the test of cross-examination. The case of CCE v. International Cylinders Pvt. Ltd. [ (H.P.)] relied upon by the department involved a seizure of 822 cylinders from the godown of International Cylinder Pvt. Ltd. and the concerned persons confessed to the clandestine activity. There were host of other statements indicating clandestine activity. There is no indication in this order of Himachal High Court that cross-examination was denied to the party. In the present proceedings investigation has only suggested to some clandestine activity but there is no positive evidence that any goods were clandestinely cleared. There is no statement to this aspect or a transit seizure of alleged clandestinely cleared goods. The case of RHL Profiles Ltd. v. CCE Kanpur (supra) relied upon by the department was a situation where a cash of Rs. 8,30,000/- was seized from the residence of the MD and total production arrived at was compared with the RGI register during these months as recovered in Paras 1.1 and 1.2 of this order passed by CESTAT, Delhi. It is also not coming out of the relied upon case law that cross-examination of the relied upon witness was sought by appellants. In the case of Umiya Chem Intermediate v. Commr. of C. Ex. & Cus. (supra) relied upon by the department the case before Gujarat High Court involved a situation where partner of the appellant admitted the clandestine clearances as per Para 3 of this case law. Case law of Somani Iron & Steels Ltd. v. CESTAT (supra) relied upon the Revenue does not convey whether offence was admitted by that party or whether cross-examination was sought.

6.1.1 It is a well accepted legal proposition that clandestine removal is a serious charge and cannot be held on the basis of presumption, assumption and surmises.

6.2 So far as duty demand of Rs. 4,47,064/-, on the basis of shortages, is concerned Revenue has taken the argument that the same was done as per the method suggested by Shri Sahaney of GSCL. It is observed from the statement dated 25-1-2006 of Shri Rajnish Gambhir that a method was suggested by Shri Sahaney in distress where his daughter was sick and he has to leave during the search proceedings. Answer to Question No. 13 of statement dated 25-1-2006 also makes it clear that Shri Rajnish Gambhir was not in agreement with the stock taking done and mentioned on the stock-taking report as “provisionally and it is required to be verified”. It is observed from stock verification report dated  7-9-2005 that stock-taking is endorsed by his authorized representative but it is remarked that the same is required to be actually verified by him and signed provisionally. Appellants have relied upon various case laws on this issue as reflected in Paragraph 2.2 above. When on the date of stock taking itself appellant was reluctant to sign the stock-taking made by the department and the authorized representatives then it cannot be said that GSCL has extended any concessions to the department in stock taking in whatever manner they want. Stock was required to be verified on actual weighment basis as per relied upon case laws and not on the basis adopted by the department while calculating shortages in stock of the appellant. Charge of the department regarding clandestine removal and demand on this ground is not sustainable and is required to be rejected.

6.3 Demand of duty of Rs. 7,11,407/- is based on quantities of clandestine removal calculated on the basis of certain weighment slips recovered from the Golden Weighbridge under the control of GSCL and the statements recorded during the investigation. It was strongly argued by the Learned AR appearing for the Revenue that certain details in the relied upon weighment slips were filled in by the employees of GSCL in the name of one Shri Kedhar Babu indicated one such weighment slips. That the payments received from Shri Kedhar Babu were admitted by Shri Debadas Bhattacharjee of GSCL. Learned Adjudicating Authority vide Para 16(V) of Order-in-Original dated 26-9-2006 gave a finding that cross-examination is denied as the voluntary statements relied upon in the show cause notice were not the sole evidence in respect of framing the charges against the appellants in the show cause notice and that there could be browbeating the paid employees to retract them from their earlier admission. We are afraid that reasons given by learned Adjudicating authority are not correct as per the legal propositions on the issue. The statements of relied upon witnesses are the only evidences on record as they are only authenticating the documents recovered from the factory/official premises of the appellants. There is no evidence of extra raw materials purchased/procured by the appellant GSCL and extra power consumption. During Stock-taking no excess/shortage in raw materials were found. Appellant GSCL and his employees did not admit to clandestine removal. No doubt the investigation conducted do suggest a strong suspicion about clandestine activities but a suspicion howsoever grave cannot take the place of proof of clandestine clearance like seizure of clandestinely removed goods, seizure of cash admitted by the concerned persons to be sale proceeds of the illicitly removed goods, excess procurement of raw materials, excess power utilization, confirmation by some of the transporters and receipients to indicate that such clandestined cleared goods have been transported/received by them. In the absence of any of these positive evidences and non-extending the opportunity of cross-examination the case of clandestine clearances of Iron and Steel products by GSCL is not established. The case laws relied upon by the Adjudicating authority discussed in Para 16(v) of the Order-in-Original do not rule that cross-examination should be denied in all situations rather in the case of Mahendra Nath Chatterjee v. CCE [1977 TaxLR. 1754], as mentioned by the Adjudicating Authority in Para 16(v), Calcutta High Court observed that each case has to be seen independently.

7. So far as imposition of penalties against the appellants is concerned we observe that once on merit case is decided in favour of the appellants then penalties cannot be imposed upon them under various provisions of the Central Excise Act, 1944 and the rules made thereunder.

8. In view of the above observations and the settled proposition of law, appeals filed by the appellants are allowed.

(Pronounced in the open Court on 28-9-2016.)