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2017 (2) TMI 192 - BOMBAY HIGH COURT

2017 (2) TMI 192 - BOMBAY HIGH COURT - TMI - Jurisdisction of CESTAT - Reduction of penalty - 209A of Central Excise Act - 100% EOU - it is the case of the Revenue that no raw material (i.e. yarn of different qualities purchased by the Appellant from 14 suppliers) came into the Appellant's EOU for manufacture of fabrics during the period 1995-1998 - We find considerable force in the argument of Mr Shroff that the Revenue and the Tribunal have totally ignored and/or brushed aside all the document .....

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evidence that has been recorded of the Excise Inspectors themselves, what is clear is that the same is in tune with the documentary evidence - We find that no person has given any statement under section 14 of the Act that the goods were diverted nor any such duty free goods were seized by the Revenue outside the factory of the Appellant - the allegation of diversion was not based on any concrete material but rather only on suspicion and without any real basis. In light of this oral and documen .....

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Appellant - Appeal disposed off. - CENTRAL EXCISE APPEAL NO.213 OF 2007, CENTRAL EXCISE APPEAL NO.105 OF 2010, with CENTRAL EXCISE APPEAL NO.263 OF 2007, - Dated:- 25-1-2017 - S.C. DHARMADHIKARI & B.P. COLABAWALLA JJ. Mr D.B. Shroff, Sr. Counsel with Mr Prakash Shah and Mr Jas Sanghavi i/b M/s PDS Legal for Appellant in CEXA Nos.213/2007, 263/2007 and for Respondent in CEXA No.105/2010. Mr Swapnil Bangur with Mr Sham V. Walve for Respondents in CEXA No.213/2007 and 263/2007 and for Appellant .....

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imposed on Mr Manikchand G. Sharma (a Director of STML) was reduced to ₹ 10,00,000/-. 2. Central Excise Appeal No.213 of 2007 has been filed by STML whereas Central Excise Appeal No.263 of 2007 has been filed by Mr Manikchand G. Sharma (a Director of STML). These Appeals assail the impugned order in so far as they have confirmed the demand of duty as well as imposition of penalty. Central Excise Appeal No.105 of 2010 has been filed by the Revenue in so far as the penalty was reduced not o .....

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on the Appellant? (2) Whether the Appellant as buyer of the goods is liable to pay duty or the duty is payable by the manufacturer EOUs? (3) Whether in the facts and circumstances, the Tribunal is right in holding that the goods after taking delivery are not brought into 100 % EOU export and not used in the manufacture of export? (4) Whether the Tribunal was right in not following the judgment passed by the co-ordinate benches of the Appellate Tribunal passed in the case of Carrier Aircon Ltd. v .....

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imposing the penalty on the Appellant under rule 209A of the Rules in spite of the fact that none of the ingredients of offence under rule 209A exists? 5. Central Excise Appeal No.105 of 2010 is filed by the Revenue. This appeal was admitted on 17th March, 2010 on the following substantial questions of law:- (1) Whether the CESTAT has jurisdiction to reduce the mandatory penalty imposed under section 11AC and Rule 209 of Central Excise Act without assigning any reason? (2) Whether the CESTAT is .....

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as been impugned, for the sake of convenience, we shall refer to the facts and submissions canvassed in Central Excise Appeal No.213 of 2007 filed by STML. Our decision in this Appeal will govern the outcome of the other two Appeals as well. 7. The brief facts giving rise to the present controversy are as under:- (a) The Appellant - STML is a company incorporated under the provisions of the Companies Act, 1956 and is a 100% Export Oriented Unit (for short, EOU ). The Appellant was inter alia eng .....

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- 31.3.1997. Pursuant to the aforesaid, the Ministry of Commerce, Secretariat of Industrial Approval has granted the Appellant permission to operate as a 100% EOU and export its entire production excluding rejects not exceeding 5% for a period of ten years. The Appellant, being a 100% EOU, are allowed to import / indigenously manufactured yarn for use in manufacture of the final products. For these purposes, and the Appellant being 100% EOU, claimed exemption under Notification No.1/95-CE dated .....

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, having jurisdiction over the aforesaid 14 suppliers. Thereafter, for the period between 1st November 1995 to 2000-01, the clearance from the Appellant's unit has been set out in paragraph 11 of the Memo of Appeal. (c) Pursuant to certain intelligence regarding purported diversion by the Appellant of the aforesaid duty free yarn to the Domestic Tariff Area (for short, DTA ), the Officers of the Director General, Central Excise, Intelligence, Mumbai (for short, DGCEI ) visited the factory of .....

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larly, on 17th September, 1998, the statement of Mr Rajesh Agrawal, Export Executive of the Appellant, was also recorded. During the search conducted, samples were drawn and were sent to Silk and Art Silk Mills Research Association, Mumbai for ascertaining the blend composition and denierage of the yarn contained in the fabrics. The result of the ten samples sent to the said Association was communicated to the Department vide a letter dated 30th December, 1998. Thereafter, further statements of .....

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irst of the show cause notice is dated 5th December, 2000 and the last is dated 30th May 2003, the details of which have been set out in paragraph 22 of the Memo of Appeal. By the aforesaid show cause notices, the Appellant and the suppliers were called upon to show cause as to why (i) the Central Excise Duty leviable on the main goods and which were allegedly diverted into the local market for purposes other than for which they were procured (i.e. for manufacture of export goods), should not be .....

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and considering their representations / replies dated 19th February 2005, 21st February 2005, 15th March 2005 and 18th March 2005, the Commissioner of Central Excise, by his order dated 31st March 2005, inter alia (a) confirmed the demand of duty of ₹ 5,26,56,632/- under section 11A(1) of the Central Excise Act, 1944 read with Rules 156B and 196 of the Central Excise Rules 1944; (b) imposed penalty of ₹ 5,26,56,632/- under section 11AC on the Appellant; (c) ordered the Appellant to p .....

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the demand of duty of ₹ 5,26,56,632/- alongwith interest on the Appellant; (b) set aside the penalty of ₹ 50,00,000/- each on Shri Vinod Kumar Deora and Suresh S. Deora; (c) reduced the penalty imposed on the Appellant to ₹ 25,00,000/- and (d) reduced the penalty on Mr Manikchand G. Sharma to ₹ 10,00,000/-. (g) As mentioned earlier, being aggrieved by this order, the Appellant - STML as well as Mr Manikchand G. Sharma (a Director of STML) is before us in Appeal under sect .....

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Appellant's EOU for manufacture of fabric during the period 1995-1998. Mr Shroff submitted that according to the Revenue, the entire quantity of yarn (raw material) was diverted and that was supported by the fact that there was no evidence of transportation of the yarn from Bhiwandi to the Appellant's factory. He submitted that the Revenue as well as the CESTAT came to the aforesaid conclusion based on certain oral statements recorded of the estranged brother of one of the Appellant' .....

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tutory registers maintained by the Appellant in the usual course of business and as required by law were countersigned by the Excise Inspectors. Further, the detailed Panchanama drawn up at the time of stock verification done during the raid, showed that there was no discrepancy between the stock and the statutory registers and that all the goods shown to be in stock at the time of the raid had been exported. Mr Shroff submitted that the CESTAT accepted that the documentary evidence was in favou .....

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practice and were duly received back; that the fabrics were exported; and that all the statutory registers were signed by them. He submitted that instead of relying upon this material, the CESTAT purported to rely upon the statement of the Appellant's Director's brother who was an estranged relative. The statement given by the said brother was to the effect that his firm never carried out any job work for the Appellant. However, the Tribunal totally ignored the fact that his own employe .....

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Appellant's godown at Bhiwandi and from there it was transported by the Appellant's own transport vehicles. He submitted that the contention of the Revenue that not a single piece of raw material purchased from the 14 suppliers came into the Appellant's EOU for manufacture of fabric during the period 1995- 1998, is manifestly untenable in view of the following facts:- (i) The Appellant's factory was under physical control at all times by the excise authorities and their represent .....

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tted, the Inspectors of Central Excise have categorically stated:- (a) that they used to visit the Appellant's unit and had checked and verified each and every D3 intimation filed by the Appellant; (b) that they verified the receipt of duty free raw materials so received as intimated by the D3; (c) that the Appellant submitted copies of the AR-3 and Central Excise Invoices alongwith the D3 intimations; (d) that some of them had supervised the export of finished products; (e) that they had si .....

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had reported that the Appellant's file was not traceable and that now it is only inferred that there was no such permission, but there was a practice to allow the Appellants to clear the raw materials for job work. 12. Mr Shroff submitted that these statements of the Excise Inspectors recorded under section 14 made it absolutely clear that they had signed these documents because the Appellant had received the raw materials from their EOU suppliers; that the Appellant had sent the goods out .....

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egard, he submitted the following:- The yarn was received in the factory alongwith an invoice and AR 3A form. This form was signed by the Excise Officer as also the Appellant's authorised signatory. One copy was kept with Appellant. One copy was sent to the Range Jurisdictional Officer in charge of the suppliers' factory. Within 24 hours of receipt of the goods the Appellant intimated the Department through a D3 Intimation, i.e. the document showing the receipt of raw materials of their .....

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the Issue Slip Register, which is signed by the Excise Officer. The yarn is knitted and stitched and then exported. Some yarn was sent for job work. For that purpose a delivery challan is issued, which is signed by the Appellant's Range Excise Officer and the entry is made in the Job Work Register. This register was countersigned by the Excise Officer. The delivery challan was sent in quadruplicate. One is kept by the job worker and three are sent back with a rubber stamp showing the quanti .....

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ed by the anti-evasion wing. 14. Looking to all these facts, Mr Shroff submitted that considering all the statutory documents alongwith the statements recorded of the Central Excise Inspectors, clearly established that there was no evasion of duty whatsoever. The Appellant received the raw materials, converted it into fabrics and thereafter completed their export obligation. Furthermore, Mr Shroff submitted that during the investigation and raids, the Department conducted a complete and thorough .....

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bric manufactured therefrom. So also, the Receipt Register showed the quanitity of yarn received by the Appellant during the aforesaid period. Mr Shroff submitted that this huge quantity of finished goods weighing approximately 4.66 lac kgs could not have arrived at the Appellant's factory unless the yarn had not been transported to the factory. Mr Shroff submitted that the transportation of yarn upto Bhiwandi was through the suppliers' transporters and thereafter, from Bhiwandi to the f .....

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es not carry the case of the Department any further. This is more so when one takes into consideration the voluminous documents that clearly establish that the raw materials reached the Appellant's factory which was thereafter used for the manufacture of final products and which were then exported, was the submission. 15. Mr Shroff further submitted that what is also important to note is that the entire export obligation of the Appellant was completed by them and no dispute in that regard ha .....

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e Revenue as well as the finding of the CESTAT that not a single piece of raw material reached the factory of the Appellant is totally baseless and wholly without any merit. 16. Lastly, Mr Shroff submitted that it is well settled that documentary evidence has to prevail over oral statements, especially when they are inconsistent with the documentary evidence. In this regard Mr Shroff relied upon the following decisions:- R.P. Industries v/s Collector, reported in (82) ELT 129(T); Raj Petroleum P .....

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Bhiwandi. The fact that the raw materials were supplied by the suppliers' transporters upto Bhiwandi was not a fact that was disputed by the Appellant. It was the Appellant's case that these raw materials were thereafter transported from Bhiwandi to the Appellant's factory by their own transport vehicles. This is established by the fact that all this material was found not only during the raid conducted by the Department but also evidenced by the stock registers and other documents .....

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uty free yarn was supplied by them upto Bhiwandi as per the request of the Appellant. In fact, in two cases yarn was picked up from the premises of the supplier by the Appellant. Statement of transporters who stated that they have delivered the duty free goods upto Bhiwandi, at the transporters/suppliers premises or claimed to be that of the Appellant. The vehicles in which yarn is said to have been transported from Bhiwandi to Mumbai are not corroborated by the octroi records, nor there are any .....

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ppellant. The fourth unit claimed to have done job work for the Appellant, but the transporter by whom the goods were claimed to have been transported denied the transportation of the same. The Appellant claimed to have permission of job-work issued by the jurisdictional Assistant Commissioner, but could not produce the same. Further the jurisdictional assistant Commissioner has denied giving any permission of job work to the Appellant. The composition of fabrics declared in the shipping bills a .....

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er section 11AC of the Central Excise Act, 1944. Further, the Commissioner also levied a penalty of ₹ 50,00,000/- each, on Shri Vinod Deora, Shri Suresh Deora and Shri Manik Sharma respectively, under Rule 209A. All the aforesaid persons preferred an Appeal to the CESTAT. The CESTAT vide its order dated 28th May, 2007 considered all the facts tendered by the Appellant as well as the Revenue and confirmed the duty amount of ₹ 5,26,56,632/-. However, it reduced the mandatory penalty to .....

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Sharma are concerned, Mr Bangur submitted that the facts mentioned earlier, have been considered at length by the authorities below and a reasoned order has been passed covering all the facts brought out by the show cause notice. Further, the Appellant was given all the record and an opportunity to defend themselves, which is clear from the order passed by the Commissioner. The fact that the Appellant was not given an opportunity to cross-examine Mr N.P. Deora was also considered by the Commissi .....

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he jurisdictional Central Excise Officers; D-3 Intimation filed with the Department; documents regarding removal of yarn and receipt of ready-made fabrics from job workers which were countersigned by the Central Excise Officers and shows that the goods were received and duly consumed within the factory for discharging the export obligation. In this regard, Mr Bangur submitted that the Commissioner has opined that though the unit was supposed to be in physical control of the Excise Officer, no Ex .....

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tion being unloaded from or loaded into the vehicles. The Commissioner has further opined that neither the Officer nor their superiors ever felt any need of drawing samples and getting the same tested. The Commissioner therefore concluded that in retrospect it was apparent that if testing was done, the same might have given some early clues to the fraudulent activities of M/s STML. The Commissioner finally concluded that the Re-warehousing Certificates and the signatures in various records were .....

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d after considering all the facts and circumstances of the case, was the submission of Mr Bangur. Consequently, the Appeals filed by STML and Mr Manik Sharma have not merit and ought to be dismissed with costs was the concluding argument on behalf of the Revenue. 21. In support of his submissions, Mr Bangur relied upon the following decisions:- (1) Sneh Enterprises v/s Commissioner of Customs, New Delhi, reported in 2006 (202) ELT 7 (SC); (2) CCE, Cochin v/s BPL System and Projects, reported in .....

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t case, it is the case of the Revenue that no raw material (i.e. yarn of different qualities purchased by the Appellant from 14 suppliers) came into the Appellant's EOU for manufacture of fabrics during the period 1995-1998. According to the Revenue, the entire quantity of raw material was diverted as there was no evidence of transportation of raw material from Bhiwandi to the Appellant's factory. To come to the aforesaid conclusion, the Revenue and the CESTAT purported to rely upon the .....

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me to the conclusion that the raw materials purchased by the Appellant from the 14 suppliers never reached the factory of the Appellant but in fact were wrongly diverted. 23. We find considerable force in the argument of Mr Shroff that the Revenue and the Tribunal have totally ignored and/or brushed aside all the documentary evidence that was produced by the Appellant to negate the aforesaid contention. On carefully going through the documentary evidence, we find that all the statutory registers .....

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ved at the factory premises of the Appellant and which fact is even recorded in the impugned order, there have been statements that have been recorded of the Excise Inspectors under section 14 of the Act who have categorically stated that they have verified the raw materials received in the factory, that some goods were sent for job work as per standing practice, that the fabrics were exported and that all the statutory registers were duly signed by them. In this regard, it would be apposite to .....

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00% EOU (Export Oriented Unit) they used to procure raw materials such as Polyester Yarn and Cotton Yarn from other 100% EOU, they used to procure these raw materials duty free under CT3/AR3 procedure. After receipt of such goods, they used to file D3 intimation and I used to visit the unit and verify the goods so received, I have also supervised export of finished products such as bed covers etc. Q.4 M/s Santogen Textile Mills Ltd. 100% EOU were granted licence for private bonded warehouse unde .....

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extile Mills Ltd. 100% EOU in verification of receipt of duty free raw material as intimated by D-3 filed by them. I have also attended to exports of the above said party as and when intimated to me. Within the premises of M/s Santogen Textile Mills Ltd. 100% EOU a small portion was kept under lock and key wherein one set of keys were kept in the range office. Q.6 What documents you used to receive alongwith D-3 intimations? How D-3 was handed over to you? Had you kept any D-3 Register in range .....

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ist of D3 verified ? Ans. Yes I have verified and checked the receipt of goods in the factory premises of M/s Santogen Textile Mills Ltd. a 100% EOU. I have checked and verified each and every D3 intimation filed by the party. I have prepared a list of D3 intimations received and verified by me on the basis of the records shown to me. I am producing the said list (3 pages). 24. Thereafter, a further statement of the said Shri Moholkar was recorded on 20th September, 2001 wherein he stated as und .....

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e. Q.3 Did you check the Denier of yarn received by M/s STML and tallied with receipt documents? Ans. The goods received were checked and tallied as per the documents accompanied with them. 25. A further statement was again recorded of the said Shri Moholkar on 21st September, 2001 wherein he stated as under:- Q.3 In respect of goods said to have been checked and verified by you covered under D3 nos.60/31.3.97, 59/27.3.97, 61/17.4.97, 60/23.4.97, 64/30.4.97, 65/2.5.97 & 63/24.4.97, please pe .....

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U, but goods were delivered upto Bhiwandi. In light of these evidences, please explain how you have checked and verified receipt of goods, in factory of M/s STML ? Ans. Whenever I used to visit the factory to verify the receipt of goods under D-3, the goods used to be unloaded in the factory premises and I have never seen the vehicle in which they were delivered. I would once again like to state that whatever D-3's and AR3A's rewarehousing certificates which have been signed by him are i .....

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by you as per the Proforma shown to you? Ans. I have prepared a statement showing details of D-3s verified by me, I am producing the same before you. 27. Thereafter, a statement of Shri Arvind Rabhaji Said, Inspector, Central Excise, Bhandup Division, Mid-town Plaza, Mulund Check Naka, Mulund (West) was recorded on 9th August, 2000. His evidence also corroborates the case of the Appellant as can be discerned on the following questions:- Q. Apart from the purpose of D-3 verification for what othe .....

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ed in the said register vide challan nos.35 to 61 and 68 to 70. I have put my signature in the said register against relevant entries. Q. You have allowed clearance of yarn for job work as permitted by Ac division vide letter no.C.Ex/Santogen/EOU/95-96 dt. 22.1.96. Pl. state whether you have seen this permission letter? Pl. also produce a copy thereof. Ans. I have not seen such a letter. A copy is not available with me. I allowed the clearance as per practice followed by the earlier officers. 28 .....

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Ltd., MIDC, Murbad. For this movement of raw material, they are preparing annexure to challans. For this clearance also I have attended factory of M/s Santogen Textile Mills Ltd. (100% EOU) each and every time when they have intimated the clearance. I have countersigned Annexure II challans, as well as issue register at the time of delivery to the job worker. Now you have shown me the file containing pages 1 to 288 having delivery challan/annexure II challans and Part C challans to be filled by .....

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lled by sub-contractor) have been made after verifying the receipt of process goods and waste shown in the respective Part C challan. I have also countersigned the production register after verifying processed goods received in the factory premises of M/s Santogen Textile Mills Ltd. (100% EOU). 29. Looking at all this evidence that has been recorded of the Excise Inspectors themselves, what is clear is that the same is in tune with the documentary evidence. The preponderance of probabilities is .....

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the Revenue outside the factory of the Appellant. In fact, during stock taking, the Officers of the Revenue found goods in different form lying in the factory in various stages. This would further caste grave doubts on the allegation of diversion. In fact, there was no dispute that the supplier had supplied the goods and its receipt by the Appellant. Further, there was no dispute on payment for the transportation of the said goods from the supplier to Bhiwandi. All this clearly establishes that .....

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the estranged brother of one of the Directors of the Appellant who stated that his firm never carried out any job work for the Appellant; and (ii) on the basis of the statements recorded of the transporters of the 14 suppliers who stated that they had transported the raw material only upto Bhiwandi. We find that the heavy reliance placed on these statements, and ignoring everything else, is wholly incorrect and erroneous for more than one reason. Firstly, it is not in dispute and in fact even a .....

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to by us, clearly indicates otherwise. Secondly, the evidence (documentary and oral) would clearly go to indicate that the stand of the Revenue that no raw material ever reached the Appellant s factory cannot be sustained. It is not the case of the Revenue that the Excise Inspectors who were in-charge of the Appellant's factory and who have signed the various statutory registers and documents in anyway connived with the Appellant. Neither is it the case of these Officers that they were misl .....

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e suppliers (to come to the conclusion that the raw material - yarn had been diverted), was wholly erroneous and contrary to all well known settled legal principles. It is now trite law that documentary evidence has far greater weightage against oral evidence especially when the oral evidence is contrary to the documentary evidence. This position in law is very well settled but if one needs to refer to any authority on the subject, it would be apposite to refer to a decision of the Privy Council .....

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, and looking to the totality of the facts of the case, we have no hesitation in setting aside the impugned order. 32. Lastly we must state that considering the view that we have taken, we feel that no useful purpose will be served in individually dealing with the decisions cited by Mr Bangur. They are wholly inapplicable to the facts before us. None of these decisions lay down any law which would enable the CESTAT or the authorities below to ignore documentary evidence and only rely upon the or .....

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and in favour of the Appellant and against the Revenue. 2 Whether the Appellant as buyer of the goods is liable to pay duty or the duty is payable by the manufacturer EOUs ? In the negative and in favour of the Appellant. 3 Whether in the facts and circumstances, the Tribunal is right in holding that the goods after taking delivery are not brought into 100% EOU export and not used in the manufacture of export? In the negative and in favour of the Appellant and against the Revenue. 4 Whether the .....

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