[Order per : M.V. Ravindran, Member (J)]. - All these following appeals are arising out of the very same Order-in-Original No. 11/2011/C, dated 11-11-2011 hence being disposed of by a common order.

2. The relevant facts that arise for consideration, after filtering out the unnecessary details are, M/s. Shree Sidhbali Ispat Ltd. (hereinafter referred to as main appellant) were holding Central Excise registration and are engaged in the manufacturing of iron and steel products namely sponge iron, M.S. Ingots and T.M.T/C.T.D. Bars falling under Chapter 72 of the Central Excise Tariff Act (CETA), 1985. The officers of Central Excise Commissionerate, Nagpur paid a surprise visit to the main appellant’s factory on 22-7-2008 and conducted simultaneous search operation in the residential premises of the Director, Vice-President etc. On perusal of the actual stock with the accounted stock in the statutory/books of account, the officers found shortage of finished goods on which duty payable was approximately Rs. 8.74 lakhs. During the search operation at the residential premises of the individuals, the officers also found some records, hard disks containing some information in respect of invoices issued to M/s. Ganraj Trading Co., Lorry Receipt (LR) belonging to the Proprietor of M/s. Aishwarya Roadlines who happened to be the brother-in-law of the Vice-President of the main appellant. Statements of various staff members of the main appellant were recorded. Another visit was made by the officers of the Central Excise on 24-7-2008 and on verification of the stock of T.M.T. Bars and Sponge Iron it was noticed that there was shortage. Re-verification of the stocks was made which reduced the total duty liability. The shortage was explained by the Manager (Commercial & Accounts) of the main appellant as due to weighment variations, burning loss variations and communication gap between staff of finished yard and staff of dispatch department. Further, premises of certain transporters were also searched and incriminating documents were recovered from their premises. On scrutiny of such documents and other information, the lower authorities came to a conclusion that the main appellant had indulged in clandestine removal of finished goods; other appellants have abated the main appellant in such clandestine removal of the goods, a show cause notice dated 23-3-2010 was issued to the main appellant as also to other appellants. The show cause notice directed the main appellant to show cause as to why Central Excise duty amounting to approximately Rs. 2.82 crores should not be demanded and recovered by invoking extended period, interest be not demanded and recovered and penalty not imposed on them under the provisions of Section 11AC of the Central Excise Act, 1944 and Rule 25 of Central Excise Rules, 2002. Show cause notices were also issued to other appellants for imposition of penalties under Rule 26 of the Central Excise Rules, 2002. The main appellant filed interim reply and sought cross-examination of various persons whose submissions were relied upon by the department for working out the details as well as the allegation of clandestine removal. Various dates were given by the adjudicating authority for hearing of the matter. The adjudicating authority on 26-8-2011, finally heard the matter and on that day the main appellant was represented and made elaborate submissions and again insisted cross-examination of persons whose statements were relied upon. The matter was adjourned to 28-9-2011 on which date the main appellant sought adjournment due to non-availability of Counsel due to pre-occupation before the Tribunal. The adjudicating authority did not fix any date for cross-examination or for the appellant to make further submissions as also other appellants, passed the impugned order by confirming the demands, demanded interest thereof and also imposed penalties on the main appellant as well as other appellants herein.

2.1 This matter was heard by this Bench on 5-11-2015. Since the arguments were inconclusive, hearing was continued on 6-11-2015 and on 9-11-2015. On that date, the arguments of both sides were heard and the order was reserved.

3. Learned Counsel appearing on behalf of various appellants submitted as under :-

(a)     The limited issue in dispute in the instant case is (i) whether the allegation of clandestine removal can be sustained against the main appellant primarily on the basis of photocopies of the documents collected/resumed from 3rd party premises, (ii) whether the main appellant had requisite infrastructure for manufacturing of the goods said to have been clandestinely cleared and whether any payment were received in cash and any investigation was carried out at the end of buyers.

(b)     It is the submission that for the charge of clandestine removal, the evidence that is required to be adduced is well settled by the Tribunal in the case of M/s. Nova Pharmaceuticals Pvt. Ltd. v. CCE - 2014-TIOL-15-CESTAT-AHM = (Tri.-Ahmd.). The ratio therein has been confirmed by the Hon’ble High Court in the case of Flevel International - 2015-TIOL-2230-HC-Del-CX = (Del.); the judgments of Hon’ble Gujarat High Court in the cases of CCE v. Vishwa Traders Pvt. Ltd. - (Guj.); Sakeen Alloys Pvt. Ltd. - (Guj.), Mahesh Silk Mills - (Guj.), wherein the law has been laid down that the allegation of clandestine removal should be evidenced properly by the department.

(c)     The evidence relied upon in the form of documents seized/recovered/handovered by 3rd parties do not establish a case of clandestine removal.

(d)    Demand of Rs. 10.5 lakhs on shortage of raw materials during panchanama proceeding is incorrect as during the search which was carried out on 22-7-2008 no incriminating document evidence was resumed from the factory premises of the main appellant and the shortages was based on theoretical conclusion and it was compared with the book stock recorded hence there was shortage. It was also submitted that the main appellant had disputed the correctness of the stock verification on the very next day. It is also his submission that though stock verification was undertaken on 24-7-2008, there also random sampling method was undertaken and the weight of three bundles of TMT were taken and extrapolated for arriving at the weight of other bundles of TMT which was totally incorrect as the length of TMT varies between 15-35 feet. It was informed by the Counsel for the main appellant that this panchanama was also contested by them.

(e)     It is the submission that the reason for difference in stock was not accepted by the lower authorities despite by the overall evidences in their favour and the shortage of stock cannot be alleged on estimation basis.

(f)      As regards the duty demand approximately of Rs. 83.09 lakhs for the period 14-1-2008 till 30-5-2008, on the allegation that there was clandestine removal of the goods based on the strength of Lorry Receipt of M/s. Aishwarya Roadlines seized from the premises of Shri K.K. Pandey who was Vice-President of the main appellant (panchanama dated 22-7-2008). It is the submission that the said demands are unsustainable as there was no evidence except photocopy of daily stock accounts. It is the submission that Lorry Receipt or the documents do not bear any stamp of receipt of any consignee and no investigation has been caused at the end of the consignee despite there being fully addressed on the Lorry Receipt along with the documents. It is the submission that there was no recorded statement of the individual who had maintained the account book of Aishwarya Roadlines; despite various names of other transporters being given for engaging the transportation of the goods; statement of the Proprietor of M/s. Aishwarya Roadlines indicates that they were not actually engaged in the transportation of the goods and they were transporting the goods of various transport Companies. It is the submission that clandestine removal cannot be sustained based merely on transporters records which are not corroborated by any other evidence for the following cases :-

(i)       CCE v. Brims Products - (Pat.)

(ii)     Rama Shyama Papers Ltd. v. CCE - (T)

(iii)    CCE v. Sulekhram Steels Pvt. Ltd. - (T).

(g)     As regards the demand of approximately Rs. 60.85 lakhs on the allegation that there was clandestine removal of the finished goods against photocopy of 276 invoices obtained from Octroi department and demand of approximately Rs. 40.40 lakhs on the allegation of clandestine removal of the finished goods based on details of 123 LRs obtained from Octroi department, it was submitted that the adjudication order or the show cause notice has not brought on record the source in the manner from where this photocopies of purported invoices had been obtained nor there is any letter or intimation from the Octroi department to indicate the same as also there is no panchanama. It is the submission that photocopies of documents by themselves cannot be relied upon to draw any adverse inference and fasten duty liability. Reliance in this regard is placed in the judgment of Apex Court in CCE v. East Punjab Traders - (S.C.) and South India Television v. CC - (S.C.). It is the submission that the authorities did not question any of the main appellant’s personnel with respect of photocopies of 276 invoices received from Octroi department as also regarding 123 LRs received from the Octroi department. It is the submission that the reliance placed by the adjudicating authority on the statements of transporters, most of them were commission agents who had arranged for transportation and used to hand over blank LR copies to the actual transporters and no records were maintained. The statements of the transporters were neither corroborated nor were any cross-examination granted to elicit the actual facts. He relies upon the judgment of the Tribunal in the case of Maya Mahal Industries v. CCE - for the proposition that the co-noticee can refuse to be subjected to cross-examination but the adjudicating authority has to put to co-noticee whether he would like to be cross-examined. He also relies upon the Hon’ble Supreme Court in the case of Andaman Timber Industries - 2015-TIOL-255-SC-CX = (S.C.) wherein it has been held that an opportunity to cross-examine the witness should be granted if it is sought for. It is his further submission that the statement of the co-noticee is not reliable at all and it was pointed out by the statements of various commissions and omissions.

(h)    As regards the demand of duty approximately of Rs. 55.92 lakhs on the allegation of clandestine removal of finished goods, it is the submission that the said demand is unsustainable as no investigation was carried out at the end of consignor whose name figures in the truck destination register maintained by Proprietor of Akola Goods Transporters, Chandrapur.

(i)      As regards demand of duty approximately of Rs. 4.61 lakhs, on the allegation of clandestine removal in respect of 11 invoices as per Sl. 19 of Panchnama dated 22-7-2008, the adjudicating authority has overlooked that the personnel of the main appellant had not admitted that there was clandestine removal, statement of concerned persons from M/s. Ganraj Trading Co. was not recorded and no statements were recorded of the sale made by M/s. Ganraj Trading Co. to various purchasers.

(j)      As regards the demand of approximately Rs. 2.4 lakhs allegedly removed clandestinely based upon the loose pad/slips seized from the residential premises of Shri Anil Kansal, it is the submission that the adjudicating authority has not considered the fact that no statement of Shri Anil Kansal was recorded to corroborate such clandestine clearances nor any investigation was carried out as to who prepared the said chits. In the absence of any such corroboration, reliance cannot be placed on such chits for confirmation of demand on the main appellant.

(k)     It is his further submission that additional evidences in the form of Hard Disks which were seized from the premises of the Vice-President were clowned and not from any approved Government forensic laboratory but from a private organization and such evidence cannot be relied upon.

(l)      After reading from the provisions of Section 36(2) of the Central Excise Act, 1944, it was submitted that the print out taken from the computer should be during the period over which the computer was regularly used to store or process information; which was not done so in the case in hand. It is the submission that the Revenue has in its investigation not questioned any of the main appellant’s personnel with respect to discrepancies noticed by them during the raid/surprised visit to the main appellant’s factory and the residential premises.

(m)   It is the submission that since the demand of duty cannot be sustained on the above detailed submissions made, demand of interest and penalties are also not sustainable.

4. We have also considered the submissions of the various Counsels who were appeared for other appellants on whom penalties have been imposed. The common thread of the submissions of these cases wherein penalties have been imposed that there is no question of penalty as there was clear-cut knowledge that the goods have been removed from the factory premises on documents.

5. Learned DR after taking us through the show cause notice and the order-in-original would submit that -

(a)     the main issue involved in this case is regarding the clandestine manufacturing and clearance of excisable goods through the parallel invoices by the main appellant. He would submit that there was no accounting for the excess manufactured goods in any of the statutory records.

(b)     During the search operation in the factory premises and of the stock was taken there was substantial shortage in the stock of finished goods and variations in the stock of inputs which were used for manufacturing of finished goods, various documents were recovered during the search of residential premises of K.K. Pandey, Vice-President Commercial more specifically Central Excise invoices of the main appellant in the name of M/s. Ganraj Trading Co. and other documents like Lorry Receipt pertaining to Aishwarya Road-lines were recovered and during investigation it was confirmed that parallel invoices were issued from the factory in the name of different consignees on different date for different quantities and the said invoices were used twice, once on payment of duty and the 2nd time without payment of duty. Scrutiny of the main appellant has confirmed that both sets of invoices were issued by the main appellant.

(c)     Shortage of finished goods in stock, variations in input stock and recovery of parallel invoices from the residence of the Vice-President of the main appellant conclusively proves that the main appellant was involved in the clandestine manufacture and clearance of the excisable goods.

(d)    Proprietor of M/s. Aishwarya Roadlines, Shri M. Pant is brother-in-law of the Vice-President Commercial of the main appellant and was staying with him and during investigation it was confirmed that Lorry Receipt pertaining to M/s. Aishwarya Roadlines were recovered from Shri K.K. Pandey’s residence and Shri M. Pant has explained the modus operandi that two sets of documents are maintained. It was also found that in respect of Lorry Receipt in the business premises of M/s. Aishwarya Roadlines, corresponding invoices were issued while in respect of documents which were found at the residence of Vice-President Commercial of the main appellant such co-relation was not available.

(e)     During the scrutiny of computer hard disk found at the residence of the Vice-President of the main appellant, it is noticed that there is suppression of production of sponge iron by the main appellant in the factory as compared to actual production.

(f)      Based upon the transport documents and excise invoices obtained from Octroi department of Nagpur Municipal Corporation, it is found that large number of these invoices do not appear in the statutory records of the main appellant which indicates that excisable goods pertaining to these transport documents and invoices were cleared clandestinely and all the transporters during the investigation have confirmed that the goods were loaded from the factory of the main appellant.

(g)     The adjudicating authority has given detailed reasons for not granting the cross-examination of various transporters and reiterates the same and also relied upon the following judgments :-

(i)       Patel Engineering Ltd., Union of India - (Bom.) upheld by the Apex Court as reported at (S.C.).

(ii)     Dharampal Satyapal Ltd. v. CCE - (S.C.).

(iii)    Maya Mahal Industries v. CCE - (T)

(iv)    Arjandas Metal Industries Pvt. Ltd. v. CCE - (Bom.).

(h)    It is his submission that the appellants claim as to they are unaware how the documents from Octroi department of Nagpur Municipal Corporation have been obtained and whether original of these documents are available or not, it is found from the show cause notice that officers of the Central Excise department were deputed to collect the documents from Octroi department of Nagpur Municipal Corporation and these documents were received from Octroi authorities as recorded at para (C) of Page 83 of order-in-original and this point was not raised by the main appellant after the issuance of show cause notice.

(i)      It is his submission that the demands have not only been raised from the documents recovered from the transporter but the documents were corroborated by the transporters that the goods were loaded from the factory premises of the main appellant and delivered to various consignees and one of the major transport namely M/s. Aishwarya Roadlines is owned by the brother-in-law of Shri K.K. Pandey, Vice-President of the main appellant.

(j)      It is his submission that some of the documents/slips were recovered during the search from the residence of Managing Director of the appellant Shri Anil Kansal which proves that the clandestine manufacturing and clearance of excisable goods was going on with the active involvement of the Managing Director.

(k)     It is his further submission that the penalties imposed on various appellants is also correct as held by the Tribunal in the case of Twenty First Century Wire Rods Ltd. - (Tri.-Mum.) and Madhumilan Syntex Ltd. v. Union of India - (S.C.). He would also relied upon the judgments in the case of Siemens Ltd. - and Steel Tubes of India Ltd. - .

6. In rejoinder, learned Counsel would draw our attention to the very same statement and submit that none of the employees have implicated the main appellant stating that there was clandestine manufacture and removal. It is his further submission that non-granting of cross-examination of the transporters would mean that the reliance placed by the adjudicating authority on such statements to hold that there was clandestine removal of the goods cannot be held against the appellant and those statements have to be disregarded.

6.1 It is his further submission that if these statements of transporters are disregarded, there is no statement which implicates the main appellant for clandestine manufacture and clearance of the goods. He would submit that in the absence of any evidence to show there was clandestine manufacture and clearance, the demand confirmed against the main appellant are not sustainable and liable to be set aside.

7. We have considered the submissions made at length by both sides and perused the records and also considered the case laws quoted by both sides.

8. The issue involved in these cases is whether the main appellant has indulged in clandestine manufacture and clearances of finished goods or otherwise; whether Revenue is able to make out a case of clandestine removal and whether penalties are to be imposed on the appellants.

9. Having heard both sides at length and after perusing the record, we are of the view that the investigations in this matter raise more questions than answer them. To say that the investigations have been slipshod in our view will only be an understatement. It appears that the vital and clinching evidence has not been brought on record for reasons beyond us. Some of the stark gaffes that we have noticed in the investigation are enumerated hereinbelow.

9.1 The notice relies upon LRs of a transporter and claims that non-duty paid goods were transported under cover of the said LRs. Surprisingly, however, the testimony of none of the consignees has been brought on record even though the LRs mentions the names and addresses of the consignees. The testimony of the consignees backed by their records would have clearly nailed the appellant, had it actually resorted to clandestine removal under the said LRs.

9.2 The Daily Account Book Register of M/s. Aishwarya Roadlines, one of the transporters, is one of the documents relied upon in the notice. It is an admitted position in the notice that the same was prepared and maintained by one Mr. Padmakar Wankhade, Supervisor. However, no statement of Mr. Wankhade has been recorded nor is there any explanation in the notice as to why such a statement could not be recorded.

9.3 Even in respect of statements which were recorded, there seems to have been no follow up on the leads provided. For instance, Mr. Monu Pant, who is the proprietor of M/s. Aishwarya Roadlines, whose LRs/Daily Account Book Register were seized from the residential premises of his brother-in-law, had in his testimony clearly explained that his transport company was acting as a mere booking agent and did not own any truck of their own. Mr. Pant also gave names of some of the transporters who were engaged for the actual transportation. It is clear from this statement that M/s. Aishwarya Roadlines was not engaged in the actual transportation of the goods and that such transportation was being undertaken by various other transport companies. Surprisingly, despite this statement of Mr. Pant, the notice contains no reference to any investigation with the actual transporter. Neither any statements of such other transporters are on record, nor is there any explanation available as to why such statements could not be recorded.

9.4 Shortage of raw materials and finished goods during stock taking in the factory has been alleged on the basis of theoretical calculation of weight rather than actual physical weighment.

9.5 Documents said to have been obtained from the Octroi have been, are neither recovered under a panchnama nor is there any letter or document on record evidencing the same having been supplied/furnished by the Octroi Authorities.

9.6 Demands are based on documents which were recovered/seized not from the assessee’s premises but from premises of third parties such as transporter’s premises, premises of an employee who was residing with his brother-in-law of a key transporter in this case etc. Since these documents were not seized from the premises of the appellant, the burden of proving that the same pertain to the appellant lies upon the Revenue. The notice has however, without establishing how the said documents could be correlated with the appellant assumed the same to be correct and pertaining to the appellant.

9.7 Having summarised the lacunae and shortcomings in the investigation, we shall now deal with the broad evidence relied upon qua each of the demands confirmed in the impugned order and examine whether the evidence relied upon is sufficient to establish the case of clandestine removal.

9.8 The largest demand of Rs. 83.09 lakhs is based on LRs/Daily Account Book Register seized from the premises of Mr. K.K. Pandey, brother-in-law of Mr. Monu Pant - the proprietor of M/s. Aishwarya Roadlines. The evidence relied upon in support of this demand appears to be, vague and unreliable inasmuch as, except for copies of 136 LRs for the period 14-1-2008 to 30-5-2008 and daily account book register for the period of 14-12-2007 to 13-1-2008 and for the day of 2-4-2008, there is absolutely no other evidence that has been relied upon. Admittedly, as per the Revenue the LRs/the daily account book Register were prepared by Mr. Padmakar Wankhede, however there is no testimony of Mr. Padmakar Wankhede on record. There does not appear to us any conceivable reason as to why the testimony of the author of the document has not been brought on record. Though such a testimony, by itself would not have been sufficient to nail the appellant. However, absence of the same is clearly unexplainable. Further, from the testimony of Shree Monu Pant it comes out that M/s. Aishwarya Roadlines was acting only as booking agents and did not undertake the actual job of transportation, which was undertaken by different transporters named by Mr. Pant within his testimony. No investigation seems to have been undertaken at the end of the actual transporter. There is also no investigation at the end of the consignees whose names appear on the LRs against which goods have supposedly been cleared clandestinely. There is also no evidence in the form of unaccounted procurement of raw materials, fuel, labour, receipts of unaccounted cash, etc. which are some of the basic parameters which have been laid down by Courts and Tribunals over a period of time for determining whether or not the allegation for clandestine removal is established. It may be worthwhile to quote the tests that have been laid down in the case of in M/s. Nova Pharmaceuticals Pvt. Ltd. v. CCE - 2014-TIOL-15-CESTAT-AHM = (Tribunal) which approved of by the Hon’ble Delhi High Court in Flevel International v. CCE - 2015-TIOL-2230-HC-DEL-CX = (Del.). The said tests are extracted hereinbelow :

“(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 sale of such goods to identified parties;

(e)     receipt of sale proceeds, whether by cheque or 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 validly 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 documents recovered during the search and activities being carried on in the factory of production; etc.”

9.9 The aforesaid ratio also finds support in the following judgments :

(a)     Vishwa Traders Pvt. Ltd. v. CCE, (T), as affirmed by the Hon’ble Gujarat High Court in CCE v. Vishwa Traders, (Guj.),

(b)     Sakeen Alloys Pvt. Ltd. v. CCE, (T), which has been affirmed by the Hon’ble Gujarat High Court in CCE v. Sakeen Alloys, (Guj.),

(c)     Mahesh Silk Mills v. CCE, (T), as affirmed by the Hon’ble Gujarat High Court in CCE v. Mahesh Silk Mills, (Guj.)

(d)    CCE v. Air Carrying Corporation, (Bom.).

9.10 The only contrary evidence is statement of Shree Monu Pant which seeks to suggest that the goods were being clandestinely cleared by the appellant. The statement does not inspire any confidence in the absence of the same having not been examined on the touchstone of cross-examination. Further, the impugned order has recorded that the clandestine clearances reflected in the LRs were corroborated in a few cases by the rahadari/transit pass, details of which were specified in Annexure B to the SCN, no such details appear in Annexure B to the SCN nor have any details in respect of the same been furnished in the SCN. Considering the lack of evidence, it would serve no purpose to remand the matter back for seeking cross-examination of Shree Monu Pant, the gaps and the lacunae in the investigation cannot be undone by his cross-examination.

9.11 The second largest demand of Rs. 60.85 lakhs is based on the photocopies of 276 parallel invoices which are claimed, by the Revenue, to have been obtained from the Octroi department. Here again, even though the names and addresses of the purchasers are available on the alleged parallel invoices, no statement has been recorded from any of the purchasers with regard to these invoices. The best evidence has thus not been collected. Surprisingly, the notice as well as the impugned order is totally silent on the reasons for not recording or not been able to record the statements of the buyers. The situation with regard to the next demand of Rs. 48.40 lakhs which is based on the photocopies of 123 LRs obtained from the Octroi department is the same. One of the most appalling aspect of the investigation is that the Revenue has not even placed on record the document under cover of which these photocopies of LRs and invoices were obtained from the Octroi department. Further the said documents are admittedly photocopies. It is settled law that photocopies are not credible evidence and it becomes necessary for any investigating authority to place on record authenticated copies of such photocopies in case the originals are not available. Here, not only there is lack of authentication from the Octroi department but there is not even a covering letter available on record to establish that these photocopies are obtained from the Octroi department. These photocopies are therefore rendered unreliable. Whatever little case that the Revenue could have, if at all made out, based on such unauthenticated photocopies, does not survive in the instant case in the absence of any investigation with the consignees/purchasers shown in these invoices/LRs.

9.12 Further it is relevant to note here that with respect to the said 276 parallel invoices, statements of Mr. Pandey, Vice-President and Mr. D.D. Rathi, Manager (Commercial & Accounts) of the Appellant Company were recorded and both of them have, in their statements dated 18-9-2009 and 17-9-2009 respectively, denied the existence of such parallel invoices by the appellant. Insofar as the 123 LRs supposed to have been received from the Octroi department have been received, the investigating authority did not even deem it necessary to record statement of the appellant’s personnel all the same.

9.13 The statement of the transporters which have been relied upon to corroborate the said records supposed to have been furnished by the Octroi authorities, also do not support the case of the Revenue inasmuch as a reading of their statements show that mostly all of them were commission agents who had only arranged for transportation and used to hand over blank LR copies to the actual transporters and did not maintain any records regarding actual transportation having been undertaken, as they were concerned only with the commission for arranging the transport. No testimony of the actual transporter, if any, has been recorded. The statements of the transporters in question are without reference to any documentary evidence/record maintained by them and are completely uncorroborated. The statement of the transporters clearly brings out the fact that they were handing over the blank copy of the LRs to the actual transporters. This factor by itself is sufficient to discard the testimony of the transporters as they had no knowledge whatsoever of whether or not goods had actually been carried under the cover of the LRs.

9.14 The statements of the transporters, though not relevant, the reasoning assigned by the respondent for rejecting the cross-examination of the transporters is completely untenable. The respondent has placed reliance on the decision of the Tribunal in the case of Mayamahal Industries v. CCE reported in in support of decision to reject cross-examination. In our view the Revenue alleged for denying cross-examination, on the sole ground that the transporters were co-noticees, is untenable. It is settled law that while a co-noticee has a right to refuse to be subjected to cross-examination, it is incumbent upon the part of the adjudicating authority to put it to the co-noticee whether he would be willing to subject himself to cross-examination. In any case the statements being unreliable no adverse inference can be drawn solely based on them.

9.15 The position with regard to the demand of Rs. 55.92 lakhs which is based on the copies of Truck Destination Register maintained by another transporter, namely M/s. Akola Goods Transporter, Chandrapur, is no different. Here again, no investigation seems to have been conducted at the end of the alleged consignees whose name appear in the said Truck Destination Register. The actual receipt of the goods by the consignees is thus not established. No investigation was undertaken to bring on record the author of the said truck destination register. The said statement of Mr. Shakheel Khan shows that M/s. Akola Transport Co. was only acting as a commission agent and were merely arranging for transportation rather than actually transporting the goods themselves in their own trucks. No investigations have been conducted with the actual transporters engaged by M/s. Akola Transport Co. The Books of Account of M/s. Akola Transport Co. have also not been examined to find out the names of the actual transporters. In any case it is settled law laid down by the Hon’ble High Court of Patna in CCE v. Brims Products, (Pat.), that allegation of clandestine removal cannot be sustained based merely on transporters’ records which are not corroborated by any other evidence.

9.16 Even in regard to the smaller demand of Rs. 10.58 lakhs based on the alleged shortage of raw materials/finished goods, the explanation given by the appellant on the very next day of the Panchnama wherein the shortages were disputed have not been countered or dealt with in the notice. Further the Panchnama as clearly record that the stock positions have been worked out based on theoretical calculations by assuming the length, breadth, width of the raw materials/finished goods. Such theoretical calculations cannot be the basis for foisting demand on account of shortages.

9.17 In these circumstances, we are left with no option but to draw an adverse inference against the investigation in all the aforesaid cases as the best evidence which was easily available and steering in the investigators on the face have been either not examined or, if examined, the results of such examination was not convenient or supporting the Revenue’s case. The evidence relied upon in the notice, no doubt, create a lot of suspicion against the conduct of the appellant but as such these evidences all of which are recovered from third party’s premises by themselves cannot prove the case of clandestine removal against the appellant unless their contents are corroborated by independent evidence. In this case, we find that such corroborative evidence is totally missing. There is no answer available, either in the show cause notice, or in the impugned order, to explain the absence of statements of most relevant persons such as the consignees/buyers shown in the invoices/LRs/Truck Destination Register/Books of Accounts etc. The transporters, who actually transported the goods, have also not been questioned. In short, the investigation has failed to establish the case of clandestine removal.

9.18 There are further two demands of Rs. 4,61,172/- and Rs. 2,40,575/- which have been confirmed. These demands are not entirely based on third party records and find support from some statements which have been recorded in course of investigation. While the demand for Rs. 4,61,172 is based on 11 invoices seized from the premises of Shree K.K. Pandey. Mr. Rajeev Verma, Dispatch Supervisor, in the statement dated 22-12-2008 has accepted that the 11 parallel invoices were prepared and issued by him under signature as per direction of Mr. K.K. Pandey. Mr. K.K. Pandey and Mr. D.D. Rathi have in their statements dated 29-7-2008 identified the signature of Mr. Rajeev Verma on the parallel invoices. Likewise, Mr. Hriday Deb in his statement dated 10-9-2008 has also confirmed the signatures in the parallel invoices. Insofar as demand for Rs. 2,40,575 with reference to certain chits which were seized from the residential premises of Mr. Anil Kansal, Managing Director of the Appellant Company. In respect of these demands also there is no testimony of the buyer or evidence of illicit cash having been received. The demand is primarily on the statements, authors of which have not been offered for cross-examination. In the interest of justice, the matter to the extent needs to be remanded and the appellant deserves to be granted an opportunity for cross-examination, whereafter the adjudicating authority can decide afresh.

9.19 The impugned order had also referred to certain collateral evidence to corroborate the allegation of clandestine removal. We have perused through the said additional evidence and find that not only is the same unreliable but the same also does not support the theory of clandestine removal.

9.20 The order records that there were 8 hard disks that were seized from the residential premises of Mr. K.K. Pandey however it is an admitted position that the said hard disks were cloned in some private organization by the name of AGAPE Inc., Nagpur. In fact, 2 of the 8 hard disks after being cloned showed loss of master boot record and were recloned. In our view such cloning and recloning, which is not in accordance with the provision of 36B of the Central Excise Act, 1944 and has been done at some private organization cannot be accepted.

9.21 Paragraph 21(I) of the impugned order refers to print out that were taken from the cloned hard disks and a statement prepared by comparing the closing balances that had been furnished to the banks, as appearing in the hard disks, vis-à-vis that appearing in the RG-1 register. This comparative statement cannot be used to draw any adverse inference as firstly the veracity of the cloned hard disk is in serious doubt and secondly it is an undisputed position that the actual stock statement furnished to the bank has been seized from the residential premises of Mr. D.D. Rathi. It is surprising as to why, no comparison has been made between the actual figures submitted to the bank and the RG-1 figures. In any case it is settled law laid down by the Apex Court in the case of CCE v. Synfab Sales - (S.C.) that clandestine removal cannot be alleged by merely comparing the stock figures submitted to the bank and those in the RG-1. For the same reason the report regarding the valuation of the closing stock as on 30th June, 2007 and 31st March, 2007 reflecting therein the stock position of iron ore which was compared with the balance thereof in the statutory records, is not reliable.

9.22 The comparison of the production log sheet printed from the cloned hard disks vis-à-vis the production recorded in the RG-1 also cannot form a basis for alleging clandestine removal as the RG-1 records the actual production, after approval from the quality control department while the log sheet records whatever has been manufactured, though a part of the same may be due to defect in the quality be recharged in the furnace. Surprisingly no explanation of the appellant’s personnel has been sought on this issue. Likewise, the comparison of the production approved by the Quality Control department as reflected in its QC reports, which were compared on 10 odd random dates with the actual production recorded in the RG-1 is concerned, the difference between the two has been explained on account of the fact that the QC department does not prepare its report on a real time basis and that based on approval from the QC the production is entered in the RG-1 even though the QC report may be prepared on a subsequent date. This explanation though advanced before the adjudicating authority has not been taken cognizance of. In the absence of there being any evidence to the contrary as also there being an absence of any investigation having been undertaken, no adverse inference can be drawn against the appellant.

9.23 The impugned order has, on internal Page 40 of the impugned order, referred to certain additional evidences based on file at Sl. No. 19 seized from the premises of Mr. K.K. Pandey. The same primarily refers to certain accounting entries in respect of M/s. UGAC Steels Pvt. Ltd., N.R. Steel, Akash Steel Sales to suggest that the entries made therein were beyond what had been recorded in the excise records of the appellant. It is to be held that no adverse inference can be drawn based on such accounting entries as firstly, no investigation has been carried out with the said parties. Secondly, neither Mr. K.K. Pandey nor any of the employees have been questioned with respect to the same. Thirdly, the said accounting entry does not by itself imply that the goods had been clandestinely cleared. It could have been an entry for loan or could have been a trading transaction, unconnected with excise.

9.24 As regards the penalties imposed on main appellant, we find in view of the foregoing, the demand itself is not sustainable hence the question of interest and penalties does not arise.

9.25 As regards the penalties imposed on other appellants, since the demand of duty is itself not sustainable question of penalties on other appellants does not arise.

10. In view of the foregoing all the appeals are allowed and the impugned order is set aside.

(Order pronounced in Court on 22-3-2016)