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Vira Industries, Shri Amit Jain, Shri Rajneesh Jain Versus CCE, Ludhiana And Vice-Versa

2017 (11) TMI 257 - CESTAT CHANDIGARH

Clandestine manufacture and removal - auto parts for two wheelers and three wheelers - scope of SCN - parties to the SCN - corroborative evidences. - Held that: - the documents were recovered from the custody of Shri Naveen Sharma of M/s.Lakhanpal Auto who is also dealer of auto parts and no statement of Shri Naveen Sharma was recorded which shows that the department was having some interest in Shri Naveen Sharma. As he was not the party to the show cause notice. Further Shri Sanjay Sharma, .....

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onducted by the Revenue was to drag M/s.Vira in litigation to allege clandestine removal of the goods. - There is positive observations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the imp .....

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vate/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. - Although the adjudicating authority has touched certain points for consideration of charge of clandestine removal and held that the Revenue has failed to prove the sources of procurement of .....

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e evidence, the charge clandestine removal is not sustainable on the basis of the third party evidence. - Appeal allowed - decided in favor of appellant. - Appeal No. E/1678-1680/2009-Ex (DB), Appeal No. E/2100/2009-Ex (DB) - Final Order No. 62053-62056/2017 - Dated:- 2-11-2017 - Mr. Ashok Jindal, Member ( Judicial ) And Mr. Devender Singh, Member ( Technical ) For the Appellant : S/Shri Rupender Sinhmar & Abhinav Kansal, Advocates and vice versa For the Respondent : Shri V.Gupta AR and .....

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port and domestic trading of the said auto parts. M/s. Vira is a proprietary concern of Shri Ravinder Jain since 1985 and prior to that it was a partnership firm started in 1969. M/s.Vira is using Vira brand under the name of its proprietor since 1973. Under a family settlement deed dated 25.3.2001, the said brand name is also used by another partnership firm established in the year 1980 named M/s.Shanu Auto Traders (Shanu). Shanu is a partnership firm of Shri Amit Jain, Smt.Gyani Devi and Shri .....

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dence of the proprietor, premises of various dealers across the country dealing with goods supplied by M/s.Vira and Shanu and few of the transporters transporting goods supplied by M/s.Vira and Shanu. They also visited and searched another premises in Ludhiana occupied by Shri Darshan Lal and his sons Shri Sanjay Sharma and Shri Naveen Sharma which is registered premises of M/s. Lakhnapal Auto under the proprietorship of Sh. Naveen Sharma, engaged in the trading of auto parts, similar to what ar .....

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have abbreviations such as VI and SAT. For the purpose of raising the demand, department has picked up invoices of given date and compared the same with the details for the same date given on the such loose papers, kachaparchis and note pads and alleged that Appellant has cleared goods clandestinely and have raised invoices for 1/3rd of the actual goods cleared. Thereafter, based on the statement of Sh. Sanjay Sharma and aforementioned document seized from the premises of M/s. Lakhan Pal Auto, .....

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7; 7.62 Crores on the basis of resumed documents having no reference either of M/s.Vira or Shanu and presumed to be clandestinely cleared by M/s.Vira. 4. The matter was contested by M/s.Vira and after detailed examination of arguments advanced by M/s.Vira, the adjudicating authority held that the goods worth ₹ 9.53 crores on the basis of resumed documents having reference VI on the documents have been cleared clandestinely by M/s.Vira without payment of duty. Aggrieved with the order, M/s. .....

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proprietor of M/s. Lakhanpal Auto. No statement of Sh. Naveen Sharma was recorded nor any investigation with respect to the conduct of M/s. Lakhanpal Auto carried out by the Department. (iii) Show cause notice does not propose any clubbing of clearances of M/s.Vira and Shanu. (iv) Not even a single live consignment was seized from any transporter or any dealer across the country under invoices related to M/s.Vira. All such goods were under the invoice of Shanu. (v) All the dealers have retracte .....

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the goods. 6. He further submitted that the allegation of clandestine removal is not proved. He also submitted that an unaccounted amount of ₹ 62.40 lakh in cash was recovered from the residential premises of Sh. Ravinder Jain, which was alleged to be sale proceeds of clandestinely manufactured and sold auto parts. To counter this allegation, Appellant has explained cash of ₹ 47.40 Lakh belonged to M/s. R.C.Jain Charitable Trust. To that effect, he has submitted that the said amount .....

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nd consumption of raw materials, consumption of consumables, the fact of recovery of sale proceeds. Therefore, the charge of clandestine removal is not sustainable in the light of the judgement of this Tribunal in the case of Arya Fibres Pvt. Ltd.-2014 (311) ELT 529 (Tri-Ahd.) He also relied on the decision of the Tribunal in the case of Davinder Sandhu Impex Ltd.-2016 (337) ELT 99 (Tri.Del.). He relied on the decision of the Tribunal in the case of M/s. R.A.Casting Pvt. Ltd. Vs. CCE, Meerut-I, .....

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mpletion of chain, the allegations of clandestine of removal cannot be confirmed against the appellant. He further submits that the charge of clandestine removal cannot be based merely on assumption and presumption and the same has to be substantiated with complete chain of corroborative evidences. In the present case, department has failed miserably on this count. Few of the cases on this legal principle are as under: a. Century Metal Recycling Pvt. Ltd. Vs. CCE, Delhi IV, 2016(333)E.L.T.483(Tr .....

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demand on the charge of clandestine manufacture in view of the Tribunal in the case of Bearing Manufacturing Company- 2000(123) ELT 1148 wherein it has been held that charges of clandestine removal based only private records of an employee made for his own purpose are not sustainable unless corroborative evidences are found. He also relied on the decision of the Tribunal in the case of Savitri Concast Vs. CCE, Jaipur, 2015 (329) ELTT2 13(Tri. DEL), Someshwara Cement & Chem Ltd. Vs. CCE, Hyde .....

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nd interestingly he confirmed the demand on the basis of documents having reference VI solely on the basis of the statement of Sh. Sanjay Sharma. Although, the adjudicating authority has categorically held that department has conducted biased investigation and have shown partiality towards Shri Sanjay Sharma and his family. He further submits that the department has failed to prove that Shri Sanjay Sharma as authorized representative of the M/s.Vira. He submits that as no evidence has been produ .....

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shows prejudice and biased mind of the adjudicating authority against M/s.Vira. 12. With regard to the appeal filed by the Revenue in which the grounds of appeal has stated that the reasons on which demand has been confirmed against the M/s.Vira were sufficient for confirming the balance demand, which was dropped. He submits that the department in their grounds of appeal has not mentioned or referred to single evidence which could confirm allegations of clandestine removal against the M/s.Vira a .....

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M/s.Vira. Moreover, all those dealers have retracted from their earlier statements, therefore, the demand is not sustainable. He also submitted that there is no proposal in the show cause notice to club clearances made M/s.Vira with Shanu. Moreover, it has been held that SHANU is a separate legal entity having its own trading business and as per the statutory records, it has 99% purchases from sources other than M/s.Vira. As Shanu is legally using the Vira brand, it cannot be alleged that all t .....

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g reference VI is to be set aside. Consequently, the penalties are also set aside. He also prayed that the appeal filed by the Revenue is to be dismissed. 16. On the other hand, learned AR submits that the adjudicating authority has examined the issue and on the basis of evidence on record confirmed the demand with reference of VI and without assigning the reason dropped the part of the demand as proposed in the show cause notice. As no specific reason assigned by the adjudicating authority , th .....

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Sharma. Thereafter, Shri Sanjay Sharma investigated, he stated that he was authorized representative of M/s.Vira and the documents have been prepared by him on the instruction of Shri Ravinder Jain of M/s.Vira. On the basis of these documents, further investigation conducted with the transporters and the dealers and it was found in the case of live consignments seized during the investigation, the invoices are in the name of Shanu and corresponding goods were found with the invoices were of dif .....

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is also dealer of auto parts and no statement of Shri Naveen Sharma was recorded which shows that the department was having some interest in Shri Naveen Sharma. As he was not the party to the show cause notice. Further Shri Sanjay Sharma, authorized representative of M/s.Vira has admitted that he had prepared all the documents. Interestingly, Shri Sanjay Sharma was not the party to the show cause notice as he was involved in the activity of clandestine removal of the goods on the basis of inves .....

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alleged that a sum of ₹ 62.40 lacs unaccounted cash (sale proceeds of clandestinely manufactured and sold auto parts) was recovered during search operations at the residential premises of Sh Ravinder Jain and the same was subsequently deposited as Central Excise Liability by the Noticee vide TR-6 challan No. 1/2005-06 dated 5.7.2005. In this regard the Noticee has pleaded that out of the said amount, ₹ 47.40 lacs belonged to M/s Dr R. C. Jain Charitable Trust with its office at 164-G .....

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and Income Tax Act, 1961, cash-book, income & expenditure account and balance sheet for the year 2005-06. I observe that the registrations had been recorded much before the date of search at the residential premises of Sh. Ravinder Jain. Sh. Ravinder Jain being associated with the said trust as Trustee President was authorized to handle such cash on behalf of the trust. I have perused the documents and the documents confirm the explanation of the Noticee. 3.16 Regarding the rest of ₹ .....

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ed that they had paid ₹ 15 lacs to Sh. Ravinder Jain as an advance payment for purchase of the said plot. The documentary proof appear to be in order under the prevalent acts governing such transactions. I have perused the documents and the documents substantiate the explanation of the Noticee. At the same time I observe that Sh. Ravinder Jain got so many opportunities but he never explained the sources of large amount of cash that was recovered from his house. The present explanation comi .....

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Jain now prop of M/s Vira Scooters has started using a slightly different brand as VIRA-S. And as per a family settlement document dated 25.3.2001 produced before me, Sh Ravinder Jain has allowed his son Sh Amit Jain (a partner of M/s Shanu Auto Traders) to use brand VIRA for his commercial operations including use in trading of auto parts. The packing of auto parts in brand owned by some other person did not amount to manufacture under Section 2(f) the Central Excise Act, 1944 during the releva .....

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and authority to collect government duties. Collection of Central Excise duties is a tax levied on production and clearance. It implies that some product specified in the First Schedule of the CETA must be manufactured for enabling the tax enforcing authorities to levy and collect Central Excise duties. The basic five parameters of production are being examined & considered in succeeding paras in context of provisions of Central Excise Law.: 3.19 PROCUREMENT OF RAW MATERIAL : As per SCN, th .....

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have been formed as basis of evidence of purchase of raw material or any other person has neither been questioned about the procurement of raw material. The noticee in reply to this have contended that no unaccounted raw material was detected during the visits of the DGCEI officers to their factory premises. No enquiry was conducted in respect of procurement of raw materials. There is no evidence of procurement of unaccounted raw materials. I have perused the said statement. I reproduce the rele .....

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and the actual wording used in the statement have different meaning. No where in the show cause notice or investigation, it has emerged that the dealers of the auto parts were supplying unaccounted raw material to the Noticee No. 1. Further, I observe that the said statement dated 5.4.2007 was also retracted on 6.4.2007 as typed, un voluntary, recorded under threat etc. The unit of the Noticee was searched on 30.6.2005. There is nothing on record to suggest that the stock taking of raw material .....

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en retracted the very next day. The statement in these circumstances looses its evidenciary value because no other corroborative evidence has been placed on record to substantiated the charge of unaccounted purchase of raw materials. Sh.Sanjay Sharma, hwo claimed to have managed all the transactions of M/s.Vira Industries, did not threw any light on the operations connected with procurement of unaccounted raw material or the sources of supply of unaccounted raw materials. From the proceedings, i .....

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stigating officers questioned him. But investigating officer did not make any efforts to unravel truth about procurement of raw materials. Not even a single source of inputs has been identified. For manufacturing such a large quantity of goods, there has to be a multiple number of units/persons brokers, transporters who might have been involved in supplying goods. The show cause notice does not throw light as to whether any effort was made in this regard or not. By not conducting any investigati .....

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ring unit. There is nothing on record to suggest the mode of transportation of unaccounted raw material to the factory premises of M/s.Vira Industries. Regarding other inputs, the show cause notice mentions that private documents (ledger account) pertaining to the expenses borne by M/s.Vira Industries were recovered during search operations. The show cause notice alleges that he Noticee had spent huge amount . As an indication of scale of expenses incurred by the Noticee No.1 during the seven mo .....

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77; 53.58 and for a production of ₹ 53.58 lacs, expenditure of ₹ 41.58 lacks apparently unproportionate. The Noticee has pointed out that total production and sale during the year 2004-05 was ₹ 91,86,420/- (domestic sale) and ₹ 3,43,248/- (export sale). Surprisingly, the investigating agency has not taken into account the export sale while appointing the expenditure towards production. For a total production and sale of auto parts collectively valued at ₹ 4,35,83,66 .....

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dmitted that the auto parts cannot be sold all over India without proper packing. The packing has to be quite elaborate. First of all the auto parts are wrapped and packed in corrugated boxes. Such boxes are further packed in wooden boxes for safety of auto parts. The Noticee No 1 has worked out details of volume of packing as per Cubic meters (CBM). A working of total CBM of corrugated boxes used for packing of number of auto parts sold by M/s.Vira Industries and total CBM of wooden cases and c .....

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the Noticee No.1. I have perused the said statement. The details regarding number of persons exactly working in the packing section have not been sought from him. The details of unaccounted purchase of packing material, if any, have not been gathered by the investigating officer and are not reflected in the show cause notice. A very important fact that has emerged from his statement recorded on the spot is that they used to hand over packed goods to Sh.Sanjay Sharma at the factory gate after pac .....

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ad informed on 30.6.2005 that all parts purchased by them were packed in VIRA packing and sold. It show that there is evidence regarding clearances of unpacked auto parts from M/s.Vira Industries but there is evidence of parts being purchased and packed by M/s.Shanu Auto Traders. To prove the allegation as detailed in the show cause notice, the proof regarding movement of unpacked auto parts from M/s.Vira Industries to M/s.Shanu Auto Traders would have been convincing. The other possibility coul .....

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to parts valued at ₹ 35.64 crores, a large number of packers were required in M/s.Vira Industries. Evidence regarding sufficient number of packers working in M/s.Vira Industries is also not available. 13.23 In paara 35 (ii) (vi) of the show cause notice, it is also mentioned that M/s.Vira Industries employed 58 persons during the period and record of overtime payments, 58 employees handling 105 machines in the unit of Noticee No.1 appears quite reasonable. Out of these some were looking af .....

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yments in their records. It shows that workers were asked to do overtime and get additional payments. Asking the existing workers to put in more work hours is the easiest method of getting extra work done from them. I observe that there was definitely some practice of overtime payments in M/s.Vira Industries. 3.24 AVAILABILITY OF PRODUCITON CAPACITY: The next step of the manufacturing process is the availability of manufacturing capacity available with the manufacturing unit and its actual utili .....

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y to manufacature and clear goods as worked out in the show cause notice. In reply to this charge, Noticee has pointed that statement of Sh.Ravinder Jain has been misquoted. Sh.Ravinder Jain had stated that they had apex 105 machines and not 150 machines, as mentioned in the show cause notice. The Noticee has not further disputed the existence of 105 machines. The reference to the website of the Noticee also metions the types and variety of machines available with the Noticee. Other than this th .....

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rst report has been prepared by Technical Experts from Guru Nanak Dev Engineering College, Gill Road, Ludhiana. The team of experts conducted a study from 24.8.2007 to 31.12.2007 and obsersved the types of raw materials used, electricity consumed to manufacture different parts. The notice has produced their electricity consumptions figures which are as follows: Year Electivity Bill amount (Rs.) 2002-03 16,75,571/- 2003-04 22,26,512/- 2004-05 24,26,792/- 3.26 They worked out of details of materia .....

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lectricity motors. The electricity consumption by the Noticee No.1 could have been an important indication of scale of production. I observe that this aspect has not been touched upon in the show cause notice except for the 7 month s electricity expenses details of ₹ 14,08,158/-. The evidence regarding capacity of generator installed in the factory premises of M/s.Vira Industries and the quantity of diesel consumed during the relevant period is not available, except for the seven months, i .....

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t, the Noticee s unit is ajob-shop company and requires frequent changes of the setups and utilizes approx. 85% of the machinery installed which is considered to be satisfactory in such types of industries. The Noticee by relying upon the findings of this report has tried to prove that the installed capacity was sufficient only for the production of the actual sale which is recorded in the books of account. 3.28 On the basis of the assessment/verification of the installed production capacity of .....

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parchies =Rs.9,53,51,933 on which the code VI is mentioned (b) Value worked on the basis of kach parchies = ₹ 12,40,46,200 on which the code SAT is mentioned (c) Value worked out on the basis of kacha parchies =Rs.7,62,77,614 on wilch no code is mentioned. 3.30 In this regard the contention of the Noticee has been that the show cause notice has alleged a total production and sale of domestic clearances worth ₹ 29,56,75,747 during the period 1.4.2002 to 30.6.2005. In addition to this .....

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ed purchase of raw materials, adequate installed machinery, manpower, proof of electricity consumption or generator expenses, other consumables and packing materials. The Noticee pleaded that these factors have not been taken into consideration before creating tax liability against them. 3.31 No production records (pacca or kacha), slips, pads, register etc. were resumed/recovered during search operations. I observe that the investigation has not even got the production capacity of the unit asse .....

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servations of the adjudicating authority in favour of the appellants have not been controverted by the Revenue have not been challenged the same in the appeal before us. But the appellant have heavily relied on the observations made by the adjudicating authority in the impugned order and controvered the observations of the adjudicating authority in para 3.16 in the impugned order that the appellants were given many opportunities but never explained the sources of large amount of cash that was re .....

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de by the appellant is not sustainable without controverting his observations recorded in the proceedings paragraphs. 24. Further, we find that in the case of R.A.Castings (supra), this Tribunal has observed as under: The clandestine manufacture and removal of excisable goods is to be proved by tangible act, direct, affirmative and incontrovertible evidences relating to: (i) Receipt of raw material inside the factory premises, and non-accountal thereof in the statutory records; (ii) Utilization .....

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such as LR, statements of lorry drivers, entries at different check posts, forms of Commercial Tax Department and the receipt by the consignees; (v) Amount received form the consignees, statement of the consignees, receipt of sale proceeds by the consignor and its disposal. 25. Further, we find that in the case of Arya Fibres Pvt.Ltd. time and again, the Tribunal has observed as under: 40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine man .....

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ory records; (b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him; (f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and va .....

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s held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences ref .....

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ed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the presen .....

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he light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclu .....

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s failed to prove the sources of procurement of raw materials, consumption of raw material, consumption of consumables, production capacity and transportation of the goods, etc. Therefore, the charge of clandestine removal of the goods is not sustainable against M/s.Vira and co-noticees. 27. We also find from the above investigation, the following questions remained unanswered: (a) Why the statement of Shri Naveen Sharma was not recorded when the document recovered from his custody (b) Why Shri .....

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ira and clearance thereof. In the absence of positive evidence, the demands are not sustainable against M/s.Vira. 29. We further find that in the case of Davinder Sandhu Impex Ltd (supra), the main thrust of the Revenue that during the course of investigation some inculpataroy statement has been given by Shri Davinder Sandhu on the basis of that case has been made. In the case of Davinder Sandhu Impex Ltd., this Tribunal has held as under: 11. In this case also, we find that the case has been ma .....

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