By TIOL News Service

MUMBAI, OCT 05, 2015: THE appellant is engaged in manufacture of TMT/CTD bars.

The case booked by DGCEI in December 2006 resulted in a SCN dated 25.11.2008 alleging that the appellant had manufactured and clandestinely cleared 7697.010 MT of TMT bars during the period June 2006 to December 2006 without payment of duty.

In reply to the SCN the appellant submitted that the installed capacity of their factory is only 4441 MT per year and as per the records during the period of six months in dispute, the appellant has already cleared about 2600 MTs of TMT bars on payment of duty. Therefore, it is contended that the appellant has not manufactured the quantity in dispute as the appellant has no manufacturing capacity. It is also contended that no evidence of any change in the pattern of production or in the electricity consumption or the capacity of the plant has been examined by the investigating team. No evidence was found by the investigating team regarding the use of furnace oil for the purpose of heating the furnace. For transporting the goods alleged to have been purchased and sold clandestinely, the appellants would have required over 1000 trucks during the impugned period. He further submits that during the course of search, no incriminating documents were found in the factory and office of the appellants. No excess raw material were found on verification of the stocks.

Adjudication took place and the allegations were upheld by the CCE, Nasik in December 2009 resulting in confirmation of CE duty along with penalties etc..

Inter alia , before the Tribunal, the appellant submitted that they had sought cross examination of 31 persons whose statements have been relied upon in the show-cause notice but were not afforded the same and which is in gross violation of Section 9(d) of the CEA, 1944.

The appeals were heard in September 2014; there was a difference in opinion and upon reference to the third Member, the Majority decision was pronounced recently.

The Division Bench Members had referred the following difference in opinion to the third Member.

1. In the facts and circumstances of the case whether Member (Judicial) is correct in holding that the appellant is not having the production capacity to manufacture 10,000 tons of TMT/CTD bars during the impugned period. Therefore, on the basis of records seized during the course of investigation are for the trading activity of the appellant and no duty is payable on the trading activity

Or

Member (Technical) is correct in holding that the capacity was never determined during the period in question and duty is to be demanded from the appellant for clandestine clearances.

2. Whether Member (Judicial) is correct in holding that the evidence on the basis of which the demand has been confirmed against the appellant are not sufficient to hold that the appellant has removed that goods clandestinely.

Or

The evidence collected by the Investigating team during the course of investigation are sufficient to prove the charge of clandestine removal as held by Member (Technical).

3. Whether the Member (Judicial) is correct after relying on the case law in the case of Basudev Garg (supra) that the cross-examination was not granted to the persons whose statements have been relied on to hold that the charge of clandestine removal is in violation of principle of natural justice.

Or

Member (Technical) is correct in holding that adequate opportunity was given and further cross-examination was not requested especially on last date of hearing by the advocate and relying on case of Surjit Singh Chhabra (supra).

The third Member on reference heard the matter in June and July 2015 and pronounced his decision on 28.08.2015.

This is what he held -

Reference 1

+ The capacity claimed by the appellant is not as per the original manufacturer of plant. The appellant has not produced any catalogue, literature or correspondence with the original manufacturer which would indicate the production capacity of the plant. Similarly, no authentic literature on subject is produced to support the production capacity. As far as determination of annual production capacity as per the compounded levy scheme which was introduced in 1998 and abandoned after 2-3 years, not much credence can be given.

+ In the facts and circumstances, in my considered view, no credence can be paid to the capacity determined in 1999 under the compounded levy scheme. I do agree with Member (Technical) that the capacity was not determined during the period in question. I also agree with Member (Technical) that duty is to be demanded from the appellant for clandestine clearances based upon available evidences. Thus I agree with Member (Technical) on this point.

+ While it is true that the appellant, Gautam Enterprises and Shiv Parvati Enterprises were doing some trading activities, however, the appellant has not been able to produce any tabulation or any record or any details even from record No. 23, 24, 26 or any other record that the total quantity of MS ingots purchased clandestinely were traded. In view of this position, it cannot be presumed that the whole of MS ingots which were clandestinely cleared and purchased were used for trading activity.

Reference 2

+ The first portion is purchase of MS ingots by the appellant without bills from various manufacturers of MS ingots and the second part is the production of MS bars from such ingots and selling the same clandestinely. As far as the first part is concerned, the quantity of MS ingots which has been clandestinely purchased by the appellant is based upon the record Nos. 23, 24 and 26 recovered from office of the appellant in Mumbai.

+ I also note that clandestine purchase of MS ingots was not from one source but from number of sources and at times through brokers. Suppliers of MS ingots as also brokers had confirmed the correctness of the information indicated in the diaries recovered from the appellant's office in Mumbai. It is also noted that majority of the suppliers of MS ingots in turn have paid the duty for the clandestinely cleared MS ingots to the present appellant. In such a situation, in my considered view, as far as the purchase of clandestinely cleared MS ingots is concerned, there can be no doubt and is proved.

+ A lot is being said about retraction of the statements made by Shri Pravesh Gautam and Shri Pravin Gautam. I find that in majority of the statements all that was done was explaining the contents of the Records or correctness of the tabulation made by the Revenue based upon these Records. These are factual matters based upon documents. If there is any incorrectness in these, the same could have been pointed out either during investigation or at the time of original adjudication. No such thing was done even before this Tribunal. No such infirmity has been pointed out. In view of this position, retractions of statement of Shri Pravesh Gautam and Shri Pravin Gautam are required to be totally ignored.

+ As far as the second aspect i.e. the sale of bars is concerned, I observe that the demands have been made based upon the assumed production from MS ingots clandestinely cleared by original manufacturer and received by the appellant. Overall, it would be seen that the records recovered from the appellant's office in Mumbai did indicate the clandestine sale of MS bars. However, the Revenue has failed to precisely correlate or arrive at the quantity so cleared. These will be required to be recomputed by original authority.

+ I agree with Member (Technical) that the evidences collected by the investigation team during the course of investigation are sufficient to prove the charge of clandestine removal. However, my agreement is not for the whole demand or assumed production but only to the extent indicated above. The remaining demand is not sustainable for want of evidence.

Reference 3

+ From the sequence of various letters as also the records of personal hearing, it appears that though the advocate for the appellant initially asked for cross-examination of 31 persons but later on, was satisfied with the cross-examination of 5 persons which were agreed by the adjudicating authority.

+ When the final submissions are made and the final hearing is over, to write for further cross-examination is not appropriate. In any case the whole case is based upon the records which were mainly recovered from the appellant's office and were explained by the director of the appellant company.

+ Even if we ignore the statements, the only conclusion from the documents particularly regarding procurement of clandestinely cleared goods will be what has been proposed by the Revenue. Keeping in view the overall factual matrix, I agree with Member (Technical) that adequate opportunity was given and further cross-examination was not requested especially on the last date of hearing by the advocate. I do not think that there has been any violation of the principles of natural justice in the present facts and circumstances of the case. I, therefore, agree with Member (Technical) on point No. 3.

And so, the Majority order pronounced on 11.09.2015 is -

(i) The capacity was never determined during the period in question and duty is to be demanded from the appellant for clandestine clearances.

(ii) The clandestine clearance of MS bars totaling 1641.25MT as brought out in Third Member opinion at Para 21.3 is established. The duty on this quantity is confirmed. However, for the balance quantity, the evidences are not sufficient. The duty, interest and penalty shall be proportionately reduced with reference to the above mentioned quantity. Personal penalty is ordered to be scaled down with reference to the above mentioned quantity.

(iii) Adequate opportunity was given to the appellant and further cross-examination was not requested especially on the last date of hearing by the Advocate and relying on the case of Surjit Singh Chhabra - 2002-TIOL-158-SC-CUS.

(See 2015-TIOL-2108-CESTAT-MUM)