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Shri Santosh Textile Mills, Shri Sandeep Arunkumar Khaitan, Shri Mohan Lal Khaitan And Shri Koral Prints Versus Commissioners of Central Excise, Customs and Service Tax-Surat-I

2016 (4) TMI 143 - CESTAT AHMEDABAD

Clandestine clearance of finished MMF(P) measuring 66,91,771.78 L.Mtrs. - confiscation of the goods of MMF(P) 66,91,771.81 L.Mtrs though not physically available proposed - demand of duty - Held that:- Clandestine removal cannot be sustained in the absence of evidence of clandestine manufacturing. The statements were uncorroborative nature and could not be made sole basis for holding against the assessee. Their veracity has to be gauged from accompanying circumstances and corroborated by indepen .....

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arned Authorised Representative cited various decisions on this issue. We agree with the submission of the Learned Authorised Representative. The demand of duty of ₹ 27,560.00, the Learned Advocate had not contested, and therefore, it is required to be upheld. - Regarding imposition of penalty on Shri Sandeep Arunkumar Khaitan Director of the assessee company, we find that he has accepted the removal of finished goods to the quantity of 4,82,220.00 L. Mtrs, and therefore, the impositio .....

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warranted. - In view of the above discussion, the impugned order is modified to the extent the demand of duty of ₹ 14,65,949.00 and ₹ 27,560.00 alongwith interest and the imposition of penalty of equal amount of duty are upheld. The demand of duty of the balance amount alongwith interest and penalty is set-aside. The penalty on Shri Sandeep Arunkumar Khaitan is reduced to ₹ 2,00,000.00 (Rupeees Two Lakhs only). Confiscation and Redemption Fine are set-aside. The penalty on .....

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40, 1326-1327/2007 - Order No. A/10091-10094/2016 - Dated:- 12-1-2016 - MR. P.K. DAS, MEMBER (JUDICIAL) AND MR. P.M, SALEEM, MEMBER (TECHNICAL) For the Petitioner : Shri Anand Nainawati, Advocate For the Respondent : Shri J. Nagori, Authorised Representative ORDER PER: P.K. DAS These appeals are arising out of a common order, and therefore, all are taken up together for disposal. 2. The relevant facts of the case, in brief, are that M/s. Santosh Textile Mills Prop. Mudra Prints Ltd. (hereinafter .....

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ction (in short ACP) under Rule 96 ZQ of the erstwhile Central Excise Rules, 1944 readwith Section 3A of the Central Excise Act, 1944. On 01.04.2001, Section 3A of the Act, 1944 was omitted on independent processors, and the assessee started to pay duty under Section 3 of the Act, 1944. On 26.11.2001, a team of Central Excise officers headed by the Superintendent, Central Excise, HPIU-IV, Surat-I visited the factory premises of the Assessee and conducted preventive checks in the presence of two .....

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d documents from the factory premises of the assessee. They recorded the statements of various persons including Shri Sandeep Arunkumar Khaitan, and the employees of the Assessee, Transporter, and dealers. 3. A Show Cause Notice Dated 06.07.2006 was issued proposing demand of duty of ₹ 2,14,13,670.00 alongwith interest and to impose penalty on the ground that the Assessee cleared finished MMF(P) measuring 66,91,771.78 L.Mtrs., clandestinely during the period from 28.06.2001 to 25.11.2001 ( .....

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ed during the material period, which are not available physically for confiscation and imposed redemption fine of Rs. One Crore in lieu of confiscation. The amount deposited by the Assessee during the investigation was appropriated. It has also imposed penalty of ₹ 50 Lakhs on Shri Sandeep Arunkumar Khaitan, Director of the assessee company, ₹ 5 lakhs on Shri Mohan Lal Khaitan, Director of M/s Madhav Mukund Finance Ltd and ₹ 50,000 on M/s Koral Prints, both buyers of the Assess .....

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ontested by the Learned Advocate, being a small amount. The other demand of duty is ₹ 17,72,360.00 based on the job cards and after allowing shrinkage to the extent of 5% has alleged that 5,53,862.45 L.Mtrs of MMF(P) has been cleared without payment of duty. He submits that the demand of duty of ₹ 17,72,360.00 is based on theoretical calculation of the job cards, which has no nexus with the physical verification of the stocks. The demand of duty of ₹ 1,81,38,719.00 on 56,68,349 .....

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and the statement dt.22.05.2006 of Shri Sandeep Khaitan. He drew the attention of the relevant portion of the statements of the employees of the transporters as reproduced in the Show Cause Notice. The employees of the transporter merely stated that process of issuing the transport documents. There is no admission by the transporters of delivery of the grey fabrics on the basis of the said rough scribbling. 5. The main argument of the Learned Advocate in respect of demand of ₹ 1,81,38,79.0 .....

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ce of MMF(P) during 6 months (28.06.2001 to 25.11.2001) was 41,21,000.00 L.Mtrs as per Monthly Return filed to the Department. It is submitted that the additional quantity of about 62 lakh Sq.Mtrs alleged clandestine removal, on which duty was demanded, are beyond the manufacturing capacity supported by ACP as determined by the Department. In this context, he relied upon the decision of the Tribunal in the case of Galaxy Indo Fab. Ltd. Vs Commissioner of Central Excise, Lucknow 2010 (258) E.L.T. .....

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the statements very next and duly informed the Department. He drew the attention of the Bench to the letter dt.19.06.2007. He submits the entire case was made out on the basis of the theoretical calculation on input and output ratio and presumpted calculations to finished goods, which cannot be sustained. He relied upon the decision of the Tribunal in the case of Mahavir Metals Industries vs Commissioner of Central Excise & Customs, Daman, Vapi 2014 (313) E.L.T. 581 (Tri.-Ahmd.). He further .....

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E.L.T. 136 (Tri.-Del.) (f) Vikram Cement Ltd. Vs Commissioner of Central Excise 2012 (286) E.L.T. 615 (Tri.- Del.) Commissioner vs Vikram Cement Ltd. 2014 (303) E.L.T. A82 (All.) (g) Suntrek aluminium P. Ltd vs Commissioner of Central Excise 2013 (288) E.L.T. 500 (Guj.) (h) Commissioner of Central Excise vs CMCM (India) 2010 (255) E.L.T. 224 (Guj.) 6. He further submits that the Adjudicating Authority relied upon the statement of the Directors, which are uncorroborative nature and contrary to th .....

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Advocate submits that the penalty imposed on the buyers cannot be sustained as there is no material available to impose penalty on them. 7. On the other hand, the Learned Authorised Representative on behalf of the Revenue reiterates the findings of the Adjudicating Authority. He submits that the Director of the assessee company in their statements accepted the clandestine removal of the goods, and therefore, there is no need to produce further evidences. He relied upon the decision of the Hon b .....

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materials as evident from the Lot Register, which was accepted in the Panchnama by the Director of the Assessee. Hence, the demand of duty of ₹ 14,65,949.00 on 4,82,220.00 L. Mtrs., grey fabrics is liable to be upheld. He further submits that the shortage of the said quantity was accepted by the Director of the assessee company, and therefore, there is no need to place any further evidences for clandestine removal. The job cards were recovered from factory, would show unaccounted raw mate .....

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he transporter. He further submits that the submission of the appellants is that they are not able to manufacture huge quantity, cannot be accepted for the reason that ACP determined under Compounded Levy Scheme has no relation to this case. He strongly relied upon the decision of the Tribunal in the case of M/s. Salasar Ispat Pvt. Ltd. Vs Commissioner of Central Excise & Customs, Nasik 2015-Tiol-2108-CESTAT-MUM and particularly relied upon the observation of the Learned Third Member. He fur .....

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epartment could not collect the evidence regarding supply of the finished goods. 9. Heard both the sides and perused the records. 10. The main contention of the learned Advocate on behalf of the Appellants is that they were having 2 Stenter machines of different make with 4 chambers each (i.e. total 8 chambers). They were working under Compounded Levy Scheme under Rule 96ZQ of the erstwhile Central Excise Act, 1944 upto 28.02.2001. With effect from 01.03.2001, Section 3A of the Act, 1944 was omi .....

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nter on the basis of ACP. The Appellant by letter dt.31.03.2000, in terms of Notification No.19/2000-CE (supra), declared the total quantity of processed fabrics produced or manufactured in the preceding financial year 1998-1999 was 54,51,127.00 L.Mtrs. A Trade Notice No.17/2000, dt.03.03.2000 was issued by the Surat-I Commissionerate, determined the production capacity of a chamber in terms of quantity shall be deemed to be 1 lakh Sq.Mtrs per chamber per month. In view of the said Trade notice .....

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ant portion of the said Panchnama dt.26.11.2001 is reproduced below:- Shri Khetan had also stated that his Mill has also got registration of the Department of Central Excise Duty and the registration number is BRL/CH-34/01/96 and in order to have production work, they get Grey MMF from different parties and thereafter, they are doing processing and dyeing work on the said MMF in the Mill and they again returned the said processed goods to the parties. They are doing this work on job-work basis. .....

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Trade Notification No.17/2000 (supra). In this context, the learned Advocate strongly opposed the demand of duty of ₹ 1,99,11,079.00 on 62,22,212.25 L.Mtrs on alleged clandestine removal of goods on the basis of scribbling papers, job cards and statements of transporters. It is submitted that during the relevant period of 6 months, the appellant manufactured and cleared about 41 lakhs Sq.Mtrs on payment of duty as evident from the monthly return out of capacity of 48 L.Mtrs. Hence, the al .....

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Representative for the Revenue to take instructions from the Commissionerate as to how the demand of duty on huge quantity of MMF(P) for 6 months was raised on alleged clandestine removal of goods, appears to be contrary to the Annual Capacity of Production as determined by the Commissioner, which was applicable just before few months. The Learned Authorised Representative produced the letter F. No. V(Misc)2-58/RC/2014-15, dt.26.11.2015 of the Additional Commissioner, Central Excise, Customs &a .....

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e unit would be at least 78 Lakhs L. Mtrs (approx.). So, the demand of duty on about 62 Lakhs L. Mtrs MMF(P) for 6 months in addition to about 41 Lakhs L.Mtrs, which was cleared on payment of duty, is beyond the manufacturing of capacity. It is apparent from the records that the Assessee was not capable to manufacture huge quantity of finished MMF(P), as supported by the ACP fixed by the Commissioner earlier, and the alleged manufacture and clandestine removal of MMF(P) worked out as about 62 La .....

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e not at all entered in the Form-IV register, whereas only the grey fabrics received under resumed grey purchase invoices were entered in the statutory records and this fact was admitted by Shri Deepak Srivastava, Excise Assistant, and Shri B.P. Singh, Folding Master, of the appellants. Further, the Commissioner has held that, the statements recorded of the Director of the appellants as well as the employees of the appellants established the clandestine removal of finished fabrics without comply .....

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n 3A of the Act, 1944 was less than the quantity as determined in the Show Cause Notice. The relevant portion in the case of Galaxy Indo Fab Ltd (supra) are reproduced below:- 9. Perusal of records apparently disclose that the appellants had specifically raised the point relating to the impossibility of production capacity from the appellants factory to the extent of demand made by the Department. However, the adjudicating authority seems to have totally ignored the said specific ground of defen .....

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by the Department had fixed the annual capacity of the production by the appellants unit and had determined their monthly liability to the tune of ₹ 15 lacs and the same was communicated to the appellants under letter dated 18th December, 1998. This point was specifically raised by the appellants but has not at all been considered by the adjudicating authority, though the fact that the said point had been raised in defence was clearly recorded in the order itself. 10. The said point in re .....

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g the period from August to November, 1998, and that too without any documentary or other cogent materials in support thereto, can be accepted as true and correct calculations of the production from the appellants factory and corresponding duty liability of the appellants. It is nobodys case that subsequent to the day of raid, the appellants had reduced their production capacity. At the same time, undisputedly, the Department had not verified in the course of the investigation the production ca .....

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ailable and the allegations in that regard are made solely on the basis of the calculations done by the Department on the basis of certain statements by the employees of the appellants and the information gathered from the Directors of the Company in the course of the investigation. As rightly pointed out by the learned advocate for the appellants such calculations are not corroborated by any cogent and independent material on record. The statements of the employees were stated to have been rece .....

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total production of the factory was ascertained and/or verified. Not even an attempt in that regard was ever made. No records regarding the electricity consumption were either checked or even perused. No records regarding the staffing pattern and the labour employment was ever gathered. No measurements of the space available for stocks or for stocking the raw-materials and the final product was verified. No account books and bank records of the appellants were checked to ascertain about the flow .....

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rted and half-backed. In the present case, it is revealed from the Panchnama dt.26.11.2001 that there were only two stentor machines having four chambers in each machine installed in the factory, which are capable to manufacture 8 lakhs L.Mtrs per month. It is on record that during the six months in dispute, the Appellant cleared about 41 lakhs L.Mtrs on payment of duty and allegation of additional clandestine clearance of about 62 lakhs L.Mtrs is impossible. The Central Excise officers had not .....

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In that case, the assessee was engaged in the manufacture of TMT/CTD bars. On 18.12.2006, the DGCEI officers conducted a raid in the factory of the appellant. The appellant took a stand that the production capacity was fixed in the year 1998 under the scheme of compounded of levy and the production capacity was fixed at the rate of 4441 MT per year and thereafter, there is no change in pattern of production. The Learned third Member observed that as far as the determination of annual production .....

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e present case, the officers visited the assesses factory on 26.11.2001 just after few months of withdrawal of compounded levy scheme. It is evident from the Panchnama dt.26.11.2001, as quoted above that there was no change of machineries. Hence, the decision as relied upon by the Learned Authorised Representative cannot be applicable in this case. 16. The Adjudicating authority proceeded on the basis of rough scribbling recovered from the factory premises of the assessee. The Learned Authorised .....

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signee copy of LR/Letter pad/bond were not available with them. Similarly, Shri Harandra D. Kotwala Accountant of M/s. South Gujarat Transport Service, Surat in his statement dated 29.05.2006 stated that they do not have consignee copy or letter pad on the basis of which delivery of grey fabrics were made in year 2001-02. It is seen from the Show Cause Notice that all the employees of the transporters in their statements categorically stated that the copy of LRs or letter pad as shown to them we .....

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he employees of transporter. In any event, the statements of the transporter are not corroborative with any evidence, and therefore, the said statements has no evidentiary value. The Tribunal in the case of Tejwal Dyestuff Industries (supra) observed that recording of confessional statement would not put an end to investigation particularly when such strategic confessional statement retracted. The relevant portion in the case of Tejwal Dyestuff Industries (supra) is reproduced below:- 54. It app .....

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by preparing affidavits soon after they are made and which affidavits are again strategically withheld from the Revenue Officers, so that they become complacent and do not carry out a fuller investigation. It appears that the Revenue Officers in the present case have fallen victim to this type of strategic confessional statements which have been retracted soon after they were made in the affidavits which were withheld by the deponents till the proceedings came up before the Commissioner, by whic .....

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A (Collectively) show that at least for seven final products, LAB and Soda Ash were used as inputs, besides other inputs enumerated in the description of inputs in the declarations dated 22-2-1999, 3-4-2000, 12-4-2000, and 12-6-2000. It is not disputed that the returns were regularly filed and the fact that these inputs were used for the final products was mentioned from the very inception in the declarations made and the returns filed by the assessee before the Revenue authorities. The copies .....

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ory records and invoices, as to what exact quantity of raw material was used in the final products, and that in how many final products such inputs could have been used, existence of the particulars in the RG-23 Register reflecting the invoices and the existence of octroi receipts as also the expert opinion in respect of LAB having been used in the final product, altogether create a doubt as to the correctness of the contents of the statements of Naresh, Hitesh and Ilesh. The pre-ponderance of p .....

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orage capacity can be judged with reference to the quantity of inputs received at a particular point of time and not with reference to the total inputs received over the period of two years. It is difficult to come to the conclusion, in the face of the evidence that has come on record that, the transactions of inputs covered under the invoices in question, were not genuine. The demand of ₹ 1,09,35,008/-confirmed against the appellant, M/s. Tejal Dyestuff Industries as well as penalty impos .....

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, there was a system of checking the real weight of the product prior to the stage of clearance, and that the real weight of the product was taken only at the time of despatch. This is why ONCBS, which was a product, which was not yet tested and the real weight of which was yet to be ascertained, was not entered in RG-1 Register. Since the explanation of the assessee was plausible, the confiscation of the excess goods cannot be sustained. 17. The other aspect in respect of demand of duty on abou .....

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orters and none of them placed iota of evidence of supply of grey fabrics and delivery of the finished goods. The Tribunal in the case of M/s. Mahavir Metal Industries (supra) observed the allegation of clandestine removal cannot be sustained in the absence of evidence of clandestine manufacturing. The statements were uncorroborative nature and could not be made sole basis for holding against the assessee. Their veracity has to be gauged from accompanying circumstances and corroborated by indepe .....

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t the entire charge of clandestine removal of the finished goods is based upon the theoretical working of calculating the consumption of inputs and presumptive clearance of the finished goods from the factory premises of the appellant. The assumptions which have been considered by the Revenue authorities are totally faulty inasmuch as that the charge of clandestine removal is first to be established based upon the clandestine manufacture and removal of the goods. In the instant case, except for .....

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apart from the input-output ratio, there is no evidence on record to show clandestine manufacture and clearance of the goods. Such cases are required to be established beyond doubt on the basis of concrete and positive evidences. We accordingly set aside the impugned order and appeals are allowed with consequential relief. 17. My view as regards there cannot be allegation of clandestine removal unless there is an evidence to indicate that there was clandestine manufacturing, is fortified by the .....

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he revenue, except for placing reliance upon the statement of the Director recorded during the course of the search proceedings, no evidence has been pointed out which corroborates the fact of clandestine manufacture and removal of final products. In the circumstances, on the basis of the material available on record, it is not possible to state that the Tribunal has committed any legal error in giving benefit of doubt to the assessee. 18. In view of the foregoing and there being no concrete evi .....

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t time being available with the investigating agency. In the present case, we find that the Central Excise Officers visited the assessee factory on 2001 and no initiative was taken for verification of the records, electricity consumption etc. The statements of the employees of the transporters were recorded in 2006, which are uncorroborative nature. In the case of Aum Aluminium Pvt. Ltd. (supra), the Tribunal held as under:- 60. I have considered the submissions made by both sides and perused th .....

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ing some credible evidence in respect of the fact in issue. 60.2 Plethora of case law has been cited by both the sides, and ratio of these case laws has been duly considered by me. To arrive at a finding as to whether there has been clandestine removal and undervaluation, essentially peculiar facts of the case and the evidence relied upon in the background facts, have been seen. 60.3 As rightly observed by the Honble Member (J), it should not be forgotten that the charge of clandestine removal .....

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the two show cause notices. 60.5 As per the Revenue, the above evidence is sufficient to sustain the charge. I find that at first blush, it may appear to be sufficient, however a deeper scrutiny reveals to the contrary. The above evidence is not relevant and credible material evidence, sufficient to establish the case against the appellant company even applying the test of preponderance of probability and requires too many assumptions and presumptions to uphold the allegation of clandestine remo .....

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ose of corroboration is not to give validity or credence to evidence which is deficient or suspect or incredible but only to confirm and support that which as evidence is sufficient and satisfactory and credible; and corroborative evidence will only fill its role if it itself is completely credible There can be, therefore, no corroboration of evidence, which is itself unworthy of credence. 60.7 In the entire records of proceedings, there is no evidence to indicate that there was clandestine manu .....

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uch movement. 60.8 I do not find cogent evidence of disproportionate and unaccounted receipt and consumption of the raw materials required for manufacturing alleged quantity of unaccounted finished goods. I do not find tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material. I do not find cogent evidence of disproportionate power consumption, capacity utilization and labour employed, or any cogent evidence of clandestine manufacture of unaccounted .....

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e of all such major raw matei1als . 22. In a case of clandestine removal the department should produce positive evidence to establish the same. In the absence of corroborative evidence, a finding cannot be based on the contents of loose chits of uncertain authorship. Department has not produced evidence of use of inputs to prove that there was manufacture of unaccounted finished product. ... Moreover, in the case of Atlas Conductors [2008 (221) E.L.T. 231 (Tri.-Mum.)], this Tribunal has taken a .....

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law on the issue, clandestine removal is required to be established by production of tangible and positive evidences. As such, the chits in question were required to be corroborated by other evidence indicating clandestine activity on the part of the appellant. As already observed, neither of the statements accepted any clandestine removal. Further, the appellants have strongly contended that the payments made to folding clerk by way of cheques also matches with the RG-1 register entries. The el .....

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ents of various persons admitting clandestine removal on the ground that the allegations of clandestine removal requires sufficient and strong evidence, which must corroborate. 20. In the case of Vikram Cement (P) Ltd. (supra) the Tribunal held that evidentiary value of the statement of the Director, in the absence of any other evidence cannot be established the guilt of the assessee. The burden of proof is on Revenue and it is required to be discharged effectively. Half-hearted investigation by .....

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though admissible in evidence, the Court has to test whether the inculpating portions were made voluntarily or whether it is vitiated on account of any of the premises envisaged in Section 24 of the Evidence Act. The relevant portion of the said decision is reproduced below:- 6.7 More importantly the statement in question was too weak to be relied on as evidence on law, in absence of any corroboration thereof by cogent evidence. The show cause notice mentioned the details of different firms such .....

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practice and competition without bills. The solitary statement could not be said to be a cogent and convincing piece of evidence which validly corroborate the confessional statement in the statement of the Director, more particularly when the said statement of M/s. Harish Metals was not referred to and discussed in the show cause. Therefore, it was the sole statement of the Director Sandip bhai which was uncorroborated, and which was taken as base for the action against the appellant, when no e .....

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ed. But, we find force in the submission of the Learned Authorised Representative for the Revenue in respect of demand of duty of ₹ 14,65,949.00 on 4,82,220.00 L. Mtrs of grey fabrics. It is seen that there was shortage of 4,82,220,00 L. Mtrs of grey fabrics during the physical stock verification. The appellants failed to give a proper reason. Thus, the demand of duty on the shortage of the raw material is justified. The Learned Authorised Representative cited various decisions on this iss .....

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