By TIOL News Service

AHMEDABAD, JUNE 17, 2014: THE appellants are engaged in the manufacture of Ceramic Glazed Mixture known as Frit, falling under Chapter 32 of the Central Excise Tariff Act, 1985. The frit manufactured by the appellant is used as a major raw material for manufacturing Ceramic Glazed Tiles. It is the case of the Revenue that manufacturers of ceramic glazed tiles were engaged in evasion of Central Excise duty. On the basis of the investigations done by DGCEI, proceedings were initiated against the appellants. The DGCEI also conducted parallel investigations against the other frit manufacturers. In one of the search operations conducted by DGCEI on 17.07.2008 on a Ceramic Tile manufacturer, the DGCEI seized incriminating documents along with two computer pen-drives containing incriminating information which according to them contained documentary evidences establishing undervaluation of frit by some frit manufacturers including the present appellants, resulting in demand of duty with penalties.

The appellant submitted that the entire case of the department is based upon third party evidences. It was submitted that there is no direct evidence to show either clandestine removal or under valuation. That nothing is found at the premises of the appellants which would show that they were engaged in any illicit activities. Even the statements of production supervisor and Managing Director are exculpatory, that these persons also denied and not admitted that the documents recovered from the premises of Sanyo (another assessee) indicate any undervaluation. These persons have also not been confronted with the statements of any of the purchasers of frit. The statements of purchasers have been retracted. No evidence is found from their premises and there is nothing to substantiate Revenue's case. There is no independent corroboration of their statements that there is any under valuation. There is no proof of any cash payment or illicit receipt of payments when crores worth of cash transactions were alleged to have been made.

After hearing both sides, the Tribunal held:

The provisions of Section 9D were examined by Delhi High Court in the case of Basudev Garg vs. Commissioner of Customs 2013-TIOL-464-HC-DEL-CUS and as per ratio laid down, it is to be held that the Adjudicating authority was not correct in disallowing the cross-examination of persons listed in Para 10.1 of OIO dated 10.05.2011, except cases covered by Section 9D of the Central Excise Act, 1944.

On the issue of clandestine removal of frit, based on the gas consumption of the main appellant, it is observed from the order-in-original dated 10.05.2011 that records maintained by main appellant show the gas consumption for making 1 MT of frit from 844 SCM to 286 SCM. It has been contested by the appellant that gas consumption varied from season to season, from one quality of frit to other quality of frit, use of better technology etc. It has also been brought on record that after change in the management in Oct 2007 and installation of new furnaces and new refractories, the gas consumption has reduced. Under the above factual matrix, the method used by the investigation cannot be a sound method to demand duty on assuming 318 SCM of gas required for manufacturing one MT of any quality of frit. As the appellant is not undertaking the manufacture of one standard product, in the interest of justice, it will be appropriate to conduct a few more representative studies of different frit product codes in order to arrive at a more realistic gas consumption PMT of frit manufactured.

In the light of the observations the matter is required to be remanded back to the adjudicating authority to extend the opportunity of cross-examination of the persons specified in Para 10.1 of the order-in-original dated 10.05.2011 and also to conduct a few more representative studies on the gas consumption on the pre-dominant frit codes manufactured by the appellant during the relevant period.

(See 2014-TIOL-1040-CESTAT-AHM)