Himanshubhai Nandlal Jagani vs C.C.E. And S.T.-Bhavnagar

This appeal has been filed by Himanshu Nandlal Jagani against the imposition of penalty. In the case involving clandestine removal of goods from

the factory where he had allegedly facilitated the removal.

Learned Counsel for the appellant pointed out that in an identical case involving the same appellant in the case of Bansal Castings Pvt Ltd

tribunal’s vide order No A/11554-11556/2019 dated 21.08.2019 set aside the penalty imposed as well as demand on the main appellant. He argued

that the present issue is identical in nature and the case was solely made on the strength of statements. He pointed out that the primary reason for

setting aside the order was lack of any evidence other than statements. He pointed out that in the said case like this case, no cross- examination was

done.

3 Learned Authorized Representative argued that there is difference between the said case and this case. For this purpose he relies on the admission

made by the sales manager and the authorized concern of the main noticee namely M/s Kiran Ispat Udyog. He admits that no crossexamination was

done of any witness whose statements has been relied upon in this case.

4 I have considered rival submissions practically identical case of Bansal Casting Pvt Ltd for involving the same appellant was decided in the favour of

the appellant vide Order No. A/ 11554 - 11556/2019. The primary reason for allowing appeal is recorded in para 4 of the order of tribunal which reads

as under:

“4. I have carefully considered the submissions made by both the sides and perused the records. I find that entire case was made out on

the basis of search conducted with the third party which is the broker and the records recovered the from the broker. The records of the

broker bearing some entries related to some of the goods. Some statement was recorded from the broker. I find that despite the appellant

requested for cross examination, the lower authorities have rejected the request. In the present case, the entire evidence was relied upon

are documents recovered from the brokers and their statement. In this case, no evidence was found with M/s Bansal Casting Pvt. Ltd. It was

incumbent on the Ld. Commissioner to grant the cross examination of the broker as it is mandatory under section 9D. Without

crossexamination of the evidence, their statements cannot be relied upon. In the judgment of Rama Shyama Papers Ltd. (supra). cited by Ld.

Counsel, he pointed out following para 9 & 10:

“9. We have considered the submissions of both the sides. The Revenue has charged the Appellants with clandestine manufacture and

removal of paper mainly on the basis of documents seized from the premises of Chitra Traders and Transporters and the various statements

recorded from the Proprietor of Chitra Traders, transporters and labourers working in the factory of the Appellants and also the driver or

cleaner of the Truck which was in the process of loading on 22-6-2001 when the Central Excise Officers visited their factory premises. The

Appellants, on the other hand, have contended that most of the persons whose statements have been relied upon have not been produced for

cross-examination and the documents seized from third parties’ premises have not been corroborated by adducing evidence of any of

the customers though the enquiries were conducted at different places as deposed by Shri Anurag Sharma, Inspector, in his cross-

examination on 4-3-2002. Out of 19 consignments said to have been cleared by the Appellant No.1 without payment of duty on the basis of

five transporter, we observe that in respect of two consignments, it has been mentioned by the Revenue that the same may not pertain to the

Appellants. Further, only one transporter Shri Sanjay Garg of M/s. Balaji Transporter Co. was produced for cross-examination which

accounts for only two consignments out of 19 consignments in question. Shri Garg, it is observed from the record of cross-examination, has

deposed that they generally work as commission agent and provide transport to Appellant No. 1; the payment is used to be received directly

by the drivers after delivery of the goods at the consignee’s end and in case the driver did not report back for the next 3-4 days, it was

presumed that the goods had reached the consignees end. Further, the name of the Applicant No. 1 on one GR No. 34 had been written not

by Shri Sanjay Garg, but by his brother, whose statement has not been recorded and on GR 187, there is no mention of the name of the

Appellant No. 1 at all. No statement of the drivers concerned has been recorded by the Revenue to establish that the finished goods

manufactured by the Appellants were removed without payment of duty. The other transporters have not been produced for the purpose of

cross-examination nor the statements of drivers who might have actually carried the goods, had been recorded. Moreover no statement of

any of the recipients of the goods had been brought on record. Thus the statements of the transporters have remained uncorroborated and

also suffers from the short coming of being not being cross-examined by the Appellants. It has been the settled law that the liability cannot

be fastened on an assessee on the strength of documents seized from the possession of third party. There should be some corroborative

evidence/material. The Tribunal has in the case of Emmtex Synthetics Ltd., supra, when the charge of clandestine removal was made against

the Appellants therein out of yarn received from a third party based on the diary, loose documents and packing slips allegedly recovered

from Shri B.M. Gupta, Vice President of the Supplier Company, held that “no presumption on the basis of uncorroborated, uncross-

examined evidence of B.M. Gupta and the alleged entries made by him in the private diary, loose sheets, charts, packing slips could be

drawn about the receipt of polyester yarn by the Appellants from the company, M/s. HPL, in a clandestine manner during the period in

question. Similarly, no inference could be legally drawn against the Appellants of having manufactured texturised yarn out of the said

polyester yarn and the clearance thereof, in a clandestine manner without the payment of duty.†The Tribunal had also referred to the

decision in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.L.T. (J172) wherein “the Apex Court has observed that no show cause

notice or an order can be based on assumptions and presumptions. The findings based on such assumptions and presumptions without any

tangible evidence will be vitiated by an error of lawâ€. The Tribunal also took note of the decision in Kamal Biri Factory and Shri

Khushnuden Rehman Khan v. CCE, Meerut - 2003 (161) E.L.T. 1197 (T) = 1997 (23) RLT 609 (CEGAT) wherein view has been taken that

the allegations of clandestine removal of the goods will not stand established when based on the entries made by the assessee’s

employee in a diary or on the basis of third party’s record in the absence of any corroborative evidence. It has also been the consistent

view of the Tribunal that the statements of the witnesses, without allowing the assessee to test the correctness of the same by cross-examining

those witnesses; cannot be made the basis for holding the allegation against the assessee. (Takshila Spinners v. CCE, supra). Similar views

have been expressed by the Tribunal in the case of Haryana Petrochemicals Ltd., supra wherein the Tribunal has held that reliance cannot

be placed on the documents maintained by a third party “who did not have the courage to come forward for cross-examination in order

to test the veracity and correctness of the private record maintained by him.†It has also been held by the Tribunal in the case of Kothari

Synthetics Industries v. CCE, Jaipur, 2002 (141) E.L.T. 558 (T) that entries made in the transport Register of the transport company could

not be accepted as a conclusive proof of clandestine receipt of goods from that transport company for want of corroboration from any

tangible evidence. Following the ratio of these decision, the duty demand cannot be upheld solely on the basis of uncorroborated statements

and records of transporter. The statements tendered by the labourers can also not be relied upon by the Revenue as these persons were not

produced for being cross-examined. Moreover, there is no corroboration of their statements with regard to the Trucks by which the goods

were allegedly removed or the persons who received the goods. The Truck driver Shri Shiv Bahadur Yadav has also not been cross-

examined and cleaner Shri Rakesh Kumar had deposed that the Bills/Invoices are supposed to be with the Driver and he being cleaner had

no knowledge.

The confirmation of duty in respect of 149 consignments is also based on the records seized from the premises of M/s. Chitra Traders

and not on the basis of any record seized from the premises of the Appellant-company. The Revenue has not been able to adduce any

corroborative evidence to show the movement of goods from the premises of the Appellant-company to the premises of M/s. Chitra Traders

or the Customers whom the goods were sent directly to as per the direction of Chitra Traders. No inquiry has also been made into these

Customers who ultimately received the goods. There is no substance in the reasoning given by the Commissioner in the impugned order to

the effect that “as the party did not challenge the fact of their business association with M/s. Chitra Traders, Delhi, the enquiry further

down the line was not considered necessary.†The onus of proof that the goods were removed by the Appellants without payment of duty

and without entering the same in their records is upon the Revenue which cannot be discharged merely on the strength of the entries made

in the records of a third party without linking the removal of goods from the premises of the Appellant-company. The mere fact that the

Appellant-company had business relation with Chitra Traders, does not mean that they will be liable to each and every entry made by Chitra

Traders in their books of account. It is also noted that none of the transporters and none of the labourers whose statements have been

relied upon by Revenue have mentioned that the goods in question were delivered to Chitra Traders from the premises of the Appellants. The

material brought on record may at the most create a doubt only. But doubt cannot take the place of evidence. The Revenue has, thus, not

proved its case against the Appellants in respect of 149 consignments. We, therefore, set aside the demand of duty and penalty imposed on

Appellant-company and consequently the demand of interest.â€​

From the above decision which is based on various Supreme Court decisions, it is clear that when the brokers whose statements were

recorded are not produced for cross examination such statements cannot be relied upon against the assessee. Therefore, as per the settled

legal position, since in the present case witnesses, i.e. brokers and transporters were not allowed for cross examination, their statements

cannot be relied upon. In such a case, the only evidence left is the diaries/private records of the brokers. Since the statements cannot be

relied upon, these records in isolation has no evidentiary valued particularly when the same was not corroborated with the statutory records

of the appellant. In the case of M/s Charminar Bottling Co. (P) Ltd. (supra) on the issue of third party evidence, Tribunal has observed as

follow:

Considered the submissions of both the sides. We have the charge of clandestine removal of bags-in-boxes by the Appellants has not been

established by Revenue which has mainly relied upon the difference in figures of sale of the impugned product reflected in PMX Reports. It

is not disputed by Revenue that these reports are prepared by M/s. Hyderabad Beverages and not by the Appellants. No evidence has been

brought on record to show any excess production of the impugned product by the Appellants by way of procuring necessary raw materials.

In a similar situation in the case of Moon Beverages wherein the charges of clandestine removal was made on the basis of computerized

sheets of sales figures maintained by M/s. Parle Exports Ltd. whom the figures were sent by the assessee, the Tribunal has held that “the

charge of clandestine removal cannot be established on the basis of one single factor. Other corroborative evidence such as evidence of other

inputs required for manufacture of aerated waters namely sugar, carbon dioxide being purchased and utilized in the manufacture of the

final product during the period in dispute is required. There is no such corroborative evidence in the present case. There is also no evidence

of higher electricity consumption.†In the present appeal before us also there is no corroborative evidence except the PMX Reports.

Revenue has also not contradicted the submission of the learned Advocate that the Managing Director of the Appellants was not even

questioned about these reports. In the case of Rama Shyama Papers Ltd, supra, wherein the records were seized from the premises of one of

the customer of the assessee, the Tribunal did not uphold the charge of clandestine removal as “the Revenue has not been able to adduce

any corroborative evidence to show the movement of goods from the premises of the Appellant’s company to the premises of M/s. Chitra

Traders or the Customers when the goods were sent directly to as per the directions of Chitra Traders... The onus of proof that the goods

were removed by the Appellants without payment of duty and without entering the same in their records is upon the Revenue which cannot

be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the

premises of the Appellant Company.†In the present matter also the Revenue has not brought any material on record to show that the

excess bag-in-boxes said to have been sold by M/s. Hyderabad Beverages were removed from the premises of the Appellants. As show cause

notice alleging clandestine removal cannot be issued based on assumption and presumption and as held by the Supreme Court in Oudh

Sugar Mills Ltd. v. U.O.I., 1978 (2) E.L.T. (J 172), the findings based on assumption and presumption without any tangible evidence will be

vitiated by an error of law. We, therefore, set aside the demand on charge of clandestine removal.

In view of above judgment, only on the basis of third party records, the demand cannot be confirmed alleging the clandestine removal. I also

observe that despite the investigating officers recovered the diaries/ private records from the brokers no investigation was conducted to the

effect who are the buyers of the goods, whether any payment was received by the appellant against the alleged clandestine removal. No

effort was made to find out that whether the appellant have procured the excess raw materials to meet out the clandestinely manufactured

and clearance of the goods. No excess electricity consumption was brought on record. Therefore, merely on the basis of third party evidence,

that too not corroborated with any other evidence of the appellant, case of clandestine removal cannot be established. It is also observed that

the appellant, Shri Atul Bansal, Director of M/s Bansal Castings has given ex-culpatory statement and he has not accepted any clandestine

removal. In the case of Sulekhram Steels Pvt. Ltd. (supra), the Tribunal has considered that if there is no discrepancy in the raw material

and finished goods, no incriminating documents recovered from the assessee, no record showing procurement of raw material for

manufacturing of goods, extra payment to labourers, electricity consumption, transportation, etc. the clandestine removal was set aside. The

facts more or less of the above judgment is similar to the facts of the present case. Similarly, in the case of Vishva Traders Pvt. Ltd. (supra),

the Tribunal has held that in absence of the record to show purchase of raw material for manufacture of final products but when there is no

statement of raw material suppliers, in this regard, the persons whose statements were recorded have not been produced for

crossexamination, there is no investigation to indicate unusual use of electricity, it was held that no tangible goods to indicate that there was

clandestine removal of goods. Accordingly, the demand and penalty were set aside. It was also observed that even though the

transporter’s statement was recorded but the transporter has not specifically accepted that the goods were transported from

assessee’s factory and only general statement was given by the transporter, particularly, when the transporters were not allowed a

crossexamination, there is no evidence of transport of goods also. As regard Revenue’s submission and case laws relied upon, I find that

the case of clandestine removal is based on its individual facts. Therefore, as per examination of the facts of the present case, I find that the

facts of the cases relied upon by the Revenue are not applicable in the present case. As per my above discussion and findings which is based

on the settled legal position as per above cited judgments, I am of the view that Revenue could not establish the case of clandestine removal

beyond any doubt. Therefore, the impugned order cannot be sustained. Hence, I set aside the impugned order and allow the

appeals.’’

4.1 The differentiation asserted by the Learned Authorized Representative is misplaced as the order dated 21.08.2019 of tribunal does not actually go

into the statements. Therefore, any extra admission made in the statement is of no relevance to create any distinction from the aforesaid decision. It

disregards the statements on the ground that no cross- examination has been granted.

In these circumstances, I find that the facts are identical in both the case. Consequently, the appeal is allowed and impugned orders are dismissed.

(Dictated and pronounced in the open court)