Commissionerate vs M/S. Ashirwad Foundries Private ...
2022 Latest Caselaw 3042 Cal/2

                                                    CEXA NO. 22 OF 2021
                                                        REPORTABLE

        IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
             SPECIAL JURISDICTION (CENTRAL EXCISE)
                          ORIGINAL SIDE



                    RESERVED ON: 28.11.2022
                    DELIVERED ON:16.12.2022



                             CORAM:

           THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
                                AND
      THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA




                        IA NO. GA/02/2021

                       CEXA NO.22 OF 2021


     COMMISSIONER OF CGST AND CENTRAL EXCISE, HOWRAH
                        COMMISSIONERATE
                             VERSUS
   M/S. ASHIRWAD FOUNDRIES PRIVATE LIMITED AND ANOTHERS




Appearance:-
Mr. Uday Sankar Bhattacharyya, Adv.
Ms. Aishwarya Rajshree, Adv.
                                               .....For the Appellant.




Mr. Somak Basu, Adv.
                                            .....For the Respondents.


                             Page 1 of 17
                                                                     CEXA NO. 22 OF 2021
                                                                        REPORTABLE

                                      JUDGMENT

(Judgment of the Court was delivered by T.S.SIVAGNANAM, J.)

1. This appeal filed by the revenue under Section 35G of the Central

Excise Act is directed against the final order passed by the Customs, Excise

and Services Tax, Appellate Tribunal dated 16.12.2020 by which the appeal

filed by the respondent challenging the order passed by the Commissioner of

Central Tax, (GST & CEX) Howrah, Commissionerate dated 28.12.2017 was

allowed setting aside the service tax demanded and deleting the penalty

imposed was deleted in its entirety. The revenue has raised the following

substantial questions of law for consideration:-

(a) Whether the Learned Tribunal is right in allowing CENVAT Credit, so availed by the respondents, as eligible/admissible credit on inputs/raw materials as defined under Rule 9(5) of the CENVAT Credit Rules, 2004 when the respondents could not satisfactorily account for the transportation/receipt of such inputs/raw materials to their premises?

(b) If the answer the question (a) hereinabove is yes, then whether the findings of the Learned Tribunal, which is not in consistent with the said statements/admitted facts, is perverse?

(c) Whether, being the last fact finding authority, the findings of the Learned Tribunal, as regards to the transportation vehicles, is perverse since the said findings overlooked the fact that some of vehicles are three wheelers, moped etc. which cannot be used for transporting the raw materials which are used by the respondents for manufacturing the final products in their factory?

(d) Whether the Learned tribunal is right in not considering that the respondents herein failed to produce any conclusive evidence in relation to inward movement of raw materials?

(e) Whether the Learned Tribunal is right in only pointing out the alleged lacunas in investigation

CEXA NO. 22 OF 2021 REPORTABLE

proceeding of the appellant keeping the moot issue of transportation of raw materials undecided conclusively and thus allowing the entire CENVAT Credit to the respondents?

(f) Whether the statement recorded of a concerned responsible person of an assessee is to be treated as an admitted position of facts when the said person himself never retracted his own statement at any stage of the proceedings?

(g) Whether the Learned Tribunal is justified in not giving due consideration to the two judgments delivered by the Hon'ble Supreme Court as relied upon by the adjudicating authority which lay down the principle that failure to produce best evidence on the part of the assessee implies that the evidence would go against them?

(h) Whether the Learned Tribunal is right in deleting the personal penalty imposed upon the respondent No. 2?

2. We have heard Mr. Uday Sankar Bhattacharyya, assisted by Ms.

Aishwarya Rai, learned junior standing counsel for the revenue and Mr.

Somak Basu, learned advocate appearing for the respondent.

3. The respondent is a manufacturer of castings falling under Chapter 73

of the First Schedule to the Central Excise Tariff Act, 1985. A notice to show

cause was issued to the respondent alleging that they have contravened the

provisions of Rule 4, 6, 8 and 12 of the Central Excise Rules, 2002, read

with Rule 3, 4 and 9 of the CENVAT Credit Rules, 2004 in as much as they

fraudulently reaped financial gain by availing inadmissible CENVAT Credit

of Rs. 5,57,78,466/- on the basis of fake Central Excise invoices issued by

fictitious and non-existent manufacturers, during the financial year 2013-

2014 and 2014-2015 and utilized the inadmissible CENVAT Credit for

payment of central excise duties against clearances of their final products,

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hence the said sum has to be recovered from the respondent in terms of

Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A/Section

11A(4) of the Central Excise Act, 1944 along with appropriate interest.

4. The respondent submitted their reply dated 15.12.2017 and participated

in the adjudication proceedings conducted. The Commissioner of Central

Tax by order dated 28.12.2017 confirmed the proposal in the show cause

notice. Aggrieved by the same, the respondent filed appeal before the learned

tribunal which was allowed.

5. On going through the order passed by the learned Tribunal, we find that

what weighed in the mind of the tribunal was that during the course of

search at the factory premises of the respondent incriminating documents

were not recovered nor any shortage/excess of raw materials/finished goods

were found by the officers of the anti evasion wing. Further the tribunal held

that the statement recorded under Section 14 of the Act cannot be relied

upon as the evidence unless the provisions of the Section 9D of the Act had

been followed. It referred to a decision of the Tribunal and that of the High

Court of Punjab and Haryana in the case of G-Tech Industries Versus

Union of India and Others 1, and held that the adjudicating authority is

required to first conduct examination in chief of the witness whose

statement is relied upon by the department and then to form an opinion

whether the statements of the witness is admissible in evidence with respect

to the facts and circumstances of the case and then only the witness shall

be offered for cross examination. Having found that no such examination in

chief had been conducted by the adjudicating authority, the statement of

2016 (339) ELT 209 P&H

CEXA NO. 22 OF 2021 REPORTABLE

the witnesses were held to be inadmissible. With regard to the vehicles

which were stated to have transported the goods, the tribunal "picked holes"

in the order of adjudication as to the manner in which the Commissioner

has proceeded to conclude the case against the respondent. Further the

tribunal held that payment of tax during the course of investigation would

not amount to acceptance of any allegations as mentioned in the show

cause notice.

6. Mr. Uday Sankar Bhattacharyya, learned Senior Standing Council

submitted that the order passed by the learned tribunal is perverse, it failed

to take into consideration, the voluntary statement given by the Director of

the respondent which was recorded in August 2015, and there was no

retraction or denial of the statements and even in the reply to the show

cause notice which was given after more than two years, no such retraction

has been made by the Director and therefore the question of rejection of

those statements which are admissible in evidence does not arise. That

apart, the ground raised before the tribunal on which the tribunal had

granted relief was never the case of the respondent when the reply to the

show cause notice was submitted nor when the case was adjudicated. In

support of his contention, the learned counsel placed reliance on the

decisions in the case of:-

 Naresh J. Sukhwani Versus Union of India 2,

 Gulam Hussain Shaikh Chougule Versus S. Reynolds, Supd. Of

Cus., Marmgoa 3,

1996 (83) ELT 258 (SC) (Guj)

2001 (134) ELT 3 (SC)

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 Percy Rustomji Basta Versus State of Maharashtra 4,

 Veera Ibrahim Versus State of Maharashtra 5,

 Surjeet Singh Chhabra Versus Union of India 6,

 Judgment of the High Court of Telangana in WP No. 18081 of

2020 dated 06.11.2020,

 Judgment of the High Court of Madras in WA Nos. 360 and 363

of 2021 dated 04.03.2021 in Stalin Joseph Versus Commissioner

of Customs (Airport),

 Manidhari Stainless Wire Private Limited Versus Union of India

7,

 Kanungo & Company Versus Collector of Customs, Calcutta and

Others 8,

 C. Sampath Kumar Versus Enforcement Officer (Directorate),

Madras 9,

 Assistant Collector of C.EX., Rajamundry Versus Duncan Agro

Industries Limited 10,

 A.L. Jalaludeen Versus Dy. Dir. Of Enforcement Directorate,

Chennai 11,

 Kishanlal Agarwalla Versus Collector of Land Customs 12, Patel

Engineering Limited Versus Union of India 13,

1983 (13) ELT 1443 (SC)

1983 (13) ELT 1590 (SC)

1997 (89) ELT 646 (SC)

2018 (360) ELT 255 (AP)

1983 (13) ELT 1486 (SC)

1997 (96) ELT 511 (SC)

2000 (120) ELT 280 (SC)

2010 (261) ELT 84 (Mad)

AIR 1967 Cal 80

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 Tapan Kumar Biswas Versus Union of India 14.

7. Mr. Somak Basu, after elaborately referring to the findings rendered by

the tribunal supported the decision of the learned tribunal by referring to

the decisions which were cited by the respondent before the tribunal as to

how there has been violation of Section 9D of the Act and to support such

contention placed reliance on the decision in Hi Tech Abrasives Limtied

Versus Commissioner of Central Excise and Customs, Raipur 15 .

Further it is submitted that denial of cross examination has taken away a

valuable right to the respondent which was considered by the tribunal and

the relief was granted. In this regard, reliance was placed on the decision

in:-

 Basudev Garg Versus Commissioner of Customs 16,

 Andaman Timber Industries Versus Commissioner of C.Ex,

Kolkata -II 17,

 Swadeshi Polytex Limited Versus Collector of Central Excise,

Meerut 18,

 Arya Abhushan Bhandar Versus Union of India 19,

 J & K Cigarettes Limited Versus Collector of Central Excise 20,

 M/s. Fine Aromatics Versus Union of India and another 21.

2014 (307) ELT 862 (Bom)

1996 (63) ECR 546 Calcutta

2018 (362) ELT 961 (Chattisgarh)

2013 (294) ELT 353 (Del)

2015 (324) ELT 641 (SC)

2000 (122) ELT 641 (SC)

2002 (143) ELT 25 (SC)

2009 (242) ELT 189 (Del)

2016 SCC Online P&H 4781

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8. It is further submitted that the allegation of clandestine removal had

been made against the respondent based on surmises and conjectures and

there was no material available with the department to support such stand.

To support this argument, reliance was placed on the decision in

Commissioner of C.Ex, Coimbatore Versus Sva Steel Re-Rolling Mills

Limited 22. Further it is submitted that all the payments have been made

through banking channel and the allegations of clandestine removal is

wholly untenable and therefore the learned tribunal rightly granted relief to

the respondent. To support such contention, reliance was placed on the

decision in Commissioner Versus Motabhai Iron and Steel Industries 23.

Further it is contended that the extended period of limitation could not have

been invoked more particularly, when two scrutiny were conducted by the

department. To support such contention, reliance was placed on the

decision of the Hon'ble Supreme Court in Collector of Central Excise

Versus Chemphar Drugs and Liniments 24 and Prayagraj Dyeing &

Printing Mills Private Limited Versus Union of India 25.

9. After we have elaborately heard learned counsels for the parties and

considered factual position, we wish to point out the legal principle as to

whether there is a vested right on the respondent to seek for cross

examination of any of the third party witnesses. The issue has been well

settled and is no longer res integra. The statement recorded from the

Director of the respondent is admissible in evidence and the provisions of

Section 164 of the Criminal Procedure Code are not applicable. Further it

2018 (362) ELT 411 (Mad)

2015 (316) ELT 374 (Guj)

1989 (40) ELT 276 (SC)

2013 (290) ELT 61 (Guj)

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has been held that a confession statement made before the Customs Officer

though retracted within the period of 6 days is an admission and binding

since the customs officers are not police officers, and also as could be seen

from the language of Section 108 of the Customs Act. Further, under the

scheme of the Act the right to cross examination is not absolute and denial

of cross examination was held to be valid upon sound logic and if the same

had been done such orders of adjudication have been upheld. Further it has

been pointed out that natural justice must not be strained to become

artificial justice; procedural justice according to statutes or under statutory

rules are different from concepts of natural justice and the procedure under

the statute or the rule must governed and if the customs officers (or the

Central Excise Officers) were to conduct himself to a regular court of law

hearing formal cross examination and applying Evidence Act and Civil and

Criminal Procedure Code then it will be physically and literally impossible

for him to function as an adjudicating authority. Thus, the underlying legal

principle is that each case has to be decided on its own facts and we are to

consider as to whether the plea raised by the respondent before the Tribunal

that cross examination was not permitted could have been raised by the

respondent.

10. The most important and crucial fact which is undisputed and not

denied is that the conclusion of the adjudicating authority is not based only

on third parties statements to fix the respondent of the charge of fraudulent

transactions. In the year 2015, statements had been recorded from none

other than the directors and the office staff of the respondents. The director

in clear terms has accepted that the suppliers are non-existent, they were all

CEXA NO. 22 OF 2021 REPORTABLE

fraudulent entities and other statements which clearly go to show that the

transactions were fully fictitious. This statement given by the director has

been extensively relied on by the adjudicating authority. At no point of time,

the director has retracted the statement. We have gone through the reply

dated 15.12.2017 submitted to the show cause notice even in the said reply

there is no denial nor any other allegations made against the department

while recording the statements. Therefore, it is not clear as to how the

learned tribunal embarked upon the exercise to consider as to whether

Section 9D of the Act was violated or not. In fact, that was never the case of

the respondent either at the time of investigation or when reply to show

cause was submitted nor when the show cause notice was adjudicated.

Such a plea was never canvassed. Assuming the respondent was entitled to

canvass such an issue stating that it is a legal issue, it has to be seen

whether at all such legal issue arises in the case on hand. We say so,

because it is the statement of the director which had been reckoned apart

from other documents. The respondent has not pointed out as to which

other statements the adjudicating authority had relied upon in

contravention to Section 9D. That apart nowhere it has been stated as to

whom the respondent proposes to cross examine. Nor it has been stated that

chief examination ought to have been done on certain other witnesses who

appear to be non-existent. Therefore, in our view the question of examining

as to whether Section 9D was attracted in the case on hand does not arise

in the given facts. There have been statements of other entities as well. The

respondent has not sought for cross examination of any of them. In

paragraph 4.26 of the order of adjudication dated 28.12.2017, the

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adjudicating authority clearly records that certain technical points were

submitted during the course of hearing but the respondent has not touched

upon the factual position. They never argued authenticating the availment

and utilization of CENVAT Credit by them. They never disputed the non-

existing status of noticee No. 2 to Noticee No. 7. The adjudicating authority

reiterates that the submissions of the respondent was by using technical

words and relying upon certain decisions which do not have any bearing on

the facts of the case. Based on documents, the adjudicating authority

concluded that noticees no. 2 to 7 obtained Central Excise Registration for

manufacture of mainly iron and steel items but issue cenvatable invoices

without manufacturing anything and passed a considerable large amount of

CENVAT Credit to various dealers and manufacturers. Furthermore, the

respondent could not establish by any record to show that the noticees 2 to

7 were existing and carrying on operations. Furthermore, the respondent

has accepted the fraudulent nature of the invoices. In the course of

adjudication of the show cause notice a faint plea has been raised stating

that the vehicles owners have to be cross examined. We find from the order

of adjudication details of approximately 300 vehicles have been taken up for

scrutiny and upon verification of the registration details through the web

portal "VAHAN" it had been found that the vehicles are not trucks but are

different vehicles, they are non-transport vehicles, three wheelers, mopeds

etc. Undoubtedly, the adjudicating authority is not conducting a criminal

trial. The decree of proof required in such matters is preponderance of

probabilities and not proof beyond the reasonable doubt. Therefore, while

examining the correctness of the order of adjudication, the tribunal or the

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court should not apply the yardstick which a court would apply to a

subordinate court which has arrived at a conclusion after a full-fledged trial.

The facts of the case clearly shows that sufficient material was available

with the adjudicating authority which came to the notice of the authority

much later upon such operations being conducted and therefore the

invocation of the extended period of limitation for initiating proceedings was

fully justified.

11. Mr. Basu contended that all payments were made through banking

channels and service tax has also been remitted for the transport services

availed. Payment through the banking channel and voluntary payment of

service tax by the service recipient will not make the transactions genuine.

The department had sufficient material to establish the case of fraudulent

availment of credit. Thus, the department has discharged the burden of

proof cast upon them and thereafter the burden shifts on the respondent to

show that the transactions were genuine. The facts of the case clearly

demonstrate that the respondent miserably failed to discharge the burden

cast upon them. Therefore, we are of the considered view that the learned

tribunal has misconstrued the factual position and applied Section 9D

though such was never the plea of the respondent ever since the issuance of

the show cause notice and consequently the conclusion arrived at by the

tribunal was erroneous.

12. As mentioned earlier, the tribunal had "picked holes" in the

adjudication process forgetting that the Commissioner of Central Excise is

not a court but an adjudicating authority. On going through the order and

also the materials which were placed on record, we are fully convinced to

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hold that there was sufficient material available with the adjudicating

authority to make out a case of fraudulent availment of credit and

consequently, the tribunal erred in reversing the order passed by the

adjudicating authority.

13. Mr. Basu placed reliance on the decision of the Hon'ble Supreme

Court in Nirmal Singh Pehlwan Versus Inspector, Customs, Customs

House Punjab 26 and contended that the statements recorded from his

client under Section 108 of the Customs Act is not admissible in evidence

and the same could not have been used. For the same proposition, reliance

was also placed on the decision of the High Court of Andhra Pradesh in the

case of The Assistant Collector of Central Excise, Rajahmundry

Division Versus Duncan Agro Industries Limited 27. Mr. Bhattacharya,

learned standing counsel appearing for the respondent had referred to

various paragraphs of both the above mentioned judgments and submitted

that both the judgments the case was relating to criminal prosecution and

in the decision in the case of Nirmal Singh Pehlwan, it was the

prosecution initiated under the provisions of the Narcotic Drugs and

Psychotropic Substances Act, 1985 and those decisions will not have any

application to the facts of the case. The learned senior standing counsel

referred to the decision in the case of Sandeep Mahendrakumar Sanghavi

Versus Union of India 28 for the proposition that the Customs/DRI officers

conducting an enquiry under Section 107 or 108 of the Customs Act is not a

police officer and the person against whom such enquiry is made is not an

2011 12 SCC 298

1991 SCC Online AP 161

2021 376 ELT A18 (Guj)

CEXA NO. 22 OF 2021 REPORTABLE

accused and therefore statements made before them is not inadmissible in

terms of Section 25 of the Evidence Act.

14. As rightly pointed out by Mr. Bhattacharyya, the decision in the case

of Nirmal Singh Pehlwan was an appeal challenging the concurrent

judgments of the courts sentencing the appellants therein to undergo 10

years rigorous imprisonment for having violated the provisions of Section 22

of the Narcotic Drugs and Psychotropic Substances Act, 1985. During the

course of investigation, the appellant therein had made a confession under

Section 108 of the Customs Act admitting his guilt. The matter was

ultimately taken up for trial and the case ended in conviction and while

doing so, the trial court held that the case against the appellant therein had

been proved beyond doubt more particularly as he had made a confession

under Section 108 of the Customs Act which was admissible in evidence as

the Customs Officer was not a police officer and that the provisions of

Section 50 of the Narcotic Drugs and Psychotropic Substances Act had been

complied with as a consent memo was drawn. The decision of the trial court

was affirmed on appeal and the matter was carried on appeal to the Hon'ble

Supreme Court. Considering the facts and circumstances of the case, the

issue which was framed for consideration was whether the consent memo

had conveyed the information to the appellant therein that he had a right to

be searched in the presence of a Magistrate or the Gazetted Officer and

whether the consent memo amounted to full compliance of Section 50 of the

Narcotic Drugs and Psychotropic Substances Act. Reliance was placed on

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the decision in the case of Noor Aga Versus State of Punjab 29. To support

the arguments that the confession made to the customs officer was hit by

Section 25 of the Evidence Act and was therefore not admissible in evidence.

The Hon'ble Supreme Court had noted the earlier decisions in the case of

Kanhaiyalal Versus Union of India 30 and Raj Kumar Karwal Versus

Union of India 31 wherein it was held that the officers of the Revenue

Intelligence and the officers of the Customs Department could not be said to

be police officers and a confession before them would not be hit by Section

25 of the Evidence Act. The Hon'ble Supreme Court concluded by holding

that in the decision in Kanhaiyalal, the Court had not examined the

principles and the concept underlining Section 25 of the Evidence Act vis-à-

vis Section 108 of the Customs Act and the power of Customs Officer who

could investigate and bring for trial an accused in a narcotic matter. The

decision in Noor Aga which was a later judgment was held to be more

elaborate on that issue. Therefore, it was held that the provision of Section

850 of the Narcotic Drugs and Psychotropic Substances Act has to be

mandatorily complied with. Thus, the facts clearly show that the Hon'ble

Supreme Court was considering a case as to whether, a person could be

bound over by his statement recorded by the Customs Officer under Section

108 of the Customs Act while he is being charged of an offence under the

provisions of Narcotic Drugs and Psychotropic Substances Act. The other

question which was the crux of the issue before the Hon'ble Supreme Court

was whether the mandate under Section 50 of the Narcotic Drugs and

(2008) 16 SCC 417

(2008) 4 SCC 668

(1990) 2 SCC 409

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Psychotropic Substances Act was complied with as it was held that the

procedure therein is mandatory. Ultimately, the Hon'ble Supreme Court held

that a consent memo which was drawn and exhibited as Exhibit PA will not

confirm to the provisions of the Section 50 of the Narcotic Drugs and

Psychotropic Substances Act. Thus, the decision in Nirmal Singh Pehlwan

is wholly distinguishable on facts and cannot be applied to the case on

hand. Likewise, the decision in the case of Duncan Agro Industries is also

is a case of criminal prosecution under the provisions of the Central Excise

Act and the department filed an appeal before the High Court contending

that the trial court committed an error in discarding the statements

recorded by the Central Excise Officers under Section 15 of the Central

Excise Act from the witnesses and also from the person who subsequently

became accused. While considering the said contention, the court had taken

note of Section 145 of the Evidence Act and Section 9D of the Central Excise

Act and it was held that the statement of the witnesses recorded by Central

Excise Officers under Section 14 of the Central Excise Act and who are alive

cannot be treated as substantial evidence in the criminal prosecution in

view of Section 9D of the Act. Further we note that in the said case the

accused had retracted those confessional statements. Thus, the decision in

Duncan Agro is also distinguishable on facts and cannot be applied to the

case on hand. In Sandeep Mahendrakumar Sanghavi it had been pointed

out that the officers of Customs and Revenue Intelligence conducting an

enquiry under Section 107 or Section 108 of the Customs Act are not police

officers and the statements made before them is not inadmissible in terms of

Section 25 of the Evidence Act.

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15. In the preceding paragraphs, we have elaborately discussed the facts

of the case and we have pointed out that at no point of time there has been

any retraction of the statements recorded under Section 108 of the Customs

Act. Therefore, we are of the view that those statements could be relied upon

and for the other reasons we have given above, we are inclined to interfere

with the order passed by the learned tribunal.

16. Thus, for all the above reasons the appeal is allowed. The order

passed by the learned tribunal is set aside and the order passed by the

adjudicating authority is restored and the substantial questions of law are

answered in favour of the revenue. No Costs.

(T.S. SIVAGNANAM, J.)

I Agree.

(HIRANMAY BHATTACHARYYA, J.)

(P.A- SACHIN)