Judgment:
1. This appeal is directed against the order dated 8-3-1995 passed by the Collector of Central Excise, Chandigarh, by which a duty demand of Rs. 12,27,194.97 for the period December, 1988 to March, 1992 was confirmed against the appellants and a penalty of Rs. 4 lac imposed on them.
2. The appellants are engaged in the manufacture of LPG Cylinders falling under Chapter 73 of the Schedule to the CETA, 1985. On 25-6-1992, the Police at Nahan District seized 822 Cylinders from a residential house in Village Nariwala. A statement was recorded from one Shri Ram Bilas Choudhary who stated that the Cylinders belonged to the appellants and they were cleared clandestinely from the appellants' factory. On the basis of further investigations and examination of various records collected from the Municipal Barrier at Taruwala at a distance of about one kilometer from the appellants' factory as well as from the Police Barrier at two other points namely, Behral and Kala Amb and also on the basis of entries relating to the movement of trucks belonging to the appellants, it was alleged that the appellants had removed 53 trucks loaded from the appellants' factory without excise documents and without proper G.P. Is. On the basis of information collected by the Central Excise Collectorate a show cause notice was issued to the appellants on 4-1-1994 which related to the alleged removal of excisable goods between the periods December, 1989 and March, 1990.
3. The appellants contested the allegations and were heard by the Collector before passing the impugned order.
4. On behalf of the appellants it was contended that the appellants had nothing to do with the 822 Cylinders seized by the Police on 25-6-1992 and the appellants had been implicated in the matter mainly on the basis of the statement given by Shri Ram Bilas Choudhary who had reason to be biased against the appellants. Shri Ram Bilas Choudhary was an ex-employee of the appellants' firm who had some enmity against the appellants, since his services were terminated. Further, there were contradictions in the statement given by the driver of the truck whose statement has been relied on by the Department. In his first statement dated 9-9-1993, he had stated that he never took any cylinder from the factory without proper documents and in the second statement dated 21-10-1993, he had stated that he had taken the cylinders to a godown at Nariwala without documents and under a wall of secrecy. The driver had also stated that the Municipal Staff at Taruwala Barrier used to verify the goods being transported in the trucks. He had stated that on 7-12-1993 that he used to make false statement at the Barrier and used to pay at the rate of Rs. 6 per loaded truck irrespective of the description, quantity and quality of the goods being carried in the trucks. Further, when the truck was not loaded with the goods no receipt was issued. The appellants further contend that no weightage can be given to the statements given by the three labourers whose statements had been relied upon to show that the appellants were manufacturing illicit cylinders, since the labourers, who were illiterate persons could not be expected to know whether the manufacture was licit or illicit. Also, reliance for the allegations against the appellants had been based on the entries in the records of Municipal Barrier at Taruwala and the Police Barrier at two other places, namely, Behral and Kala Amb. Ld. Counsel for the appellants contended that it was necessary for the purpose of establishing the credibility of the statements to cross examine the witnesses. During the adjudication proceedings, the appellants were not given an opportunity to cross examine the said persons. The Collector had relied on their untested statements, though the appellants had requested for cross examination of Shri Ram Bilas Choudhary, the truck driver, Shri Sarwan Singh and the three workers. Though the Managing Director of the appellants' firm, Shri L.C. Agarwal had reiterated his request for cross examination of the witnesses in the written reply to the Collector, no such opportunity was given at the time of personal hearing held on 22-8-1994. Further, the appellants disputed the correctness of the statement given by the driver of the trucks belonging to the appellants to the effect that the trucks were used exclusively for transportation of cylinders and scrap as also the statement that cylinders were removed clandestinely. They disputed in particular the statement of Shri Ram Bilas Choudhary that 400 Cylinders could be manufactured during the night shift of 12 hours. Another point disputed by the appellants is that the trucks carried 400 Cylinders at a time. The Collector had given a finding that the Municipal authority's record maintained at Barrier cannot be called into the question because the same were being maintained in public interest. The appellants have contended that the allegation of clandestine production and removal of cylinders for prolonged period of four to five years was not credible, since the factory was under the supervision of the Officers of Indian Standards Institution who were present whole time in the factory when the manufacture of cylinders took place. The several processes like drawing and cutting of sheets, bending, cut pieces welding, heat treatment, metal bending, etc. were carried under supervision of the said Officers and the entire process took two to three days. Besides, Representative of the buyer company, like Indian Oil Corporation, also simultaneously took samples of the final products from each batch to ensure quality control. The appellants did not dispute the fact that the trucks carrying the cylinders have to pass through Municipal Barrier at Taruwala where the receipt for Rs. 6 was issued for each truck passing through the Barrier. Thereafter the trucks had to pass the Sales Tax Barrier before arriving at the Police Barrier at Behral and Kala Amb. Particulars of the truck and the goods being transported are recorded at the Sales Tax Barrier and the required Sales Tax form had to be submitted for verification before the trucks can move from the said Barrier. The Police Barrier at Behral or Kala Amb recorded the particulars of vehicle with the goods for the purpose of security only. It was contended on behalf of the appellants that since no tax was payable at the Municipal Barrier or Sales Tax Barrier when the trucks were passing without goods and since the Police records showed the only passage of the trucks from the Barrier, where there is no entry in the Sales Tax Barrier or at the Municipal Barrier about the passage of a truck, it would mean that no goods were transported by the trucks at the reported date and time. It was, therefore, necessary to see the records of Municipal Barrier and the Sales Tax Barrier whether payment of duty had been made or the requisite Sales Tax form had been filed on any date given date. Only when the relevant Sales Tax form or the entry in the register maintained at the Municipal Barrier showed the contents of the trucks as cylinders, it can be conclusively said that the cylinders had been transported on any given date and time. From the examination of the entries contained in documents at Annexures 1 to 5 to the SCN purporting to show the transport of cylinders, it was apparent from Column 3 of the Annexures that the transport was without payment of duty. It was also contended that on behalf of the appellants that the Director of the Company, Shri Agarwal had in his very first statement dated 15-12-1992 stated that 822 cylinders seized at the Village Nariwala did not belong to the appellants. As regards the Collector's findings that the trucks belonging to the appellants were used exclusively for transportation of cylinders and scrap basing his observation on the statement of Shri K.C. Kohli, Manager of the appellants firm, it was contended that Shri Kohli's statement could not be relied upon in its entirety since another Director of the appellant Company, Shri Goel had in his statement dated 16-8-1993 stated that sometimes the trucks were also lent to other parties for transporting stones, etc. As regards the assumption of the Collector that the trucks carried 400 cylinders each time, reference was made to Annexures 1 to 4 of the SCN to show that the trucks did not contain 400 cylinders each time it had moved. In this connection, ld. Counsel referred to the Serial Nos. 1,6 and 8 of Column No. 5 of the Annexure 1, Serial No. 1 of Annexure 2 Serial Nos. 2, 10 and 11 of Annexure 3, Serial Nos. 1 and 2 of Annexure 4 and Serial No. 5 of Annexure 5. The appellants also strongly disputed the assumption of the Collector that 400 cylinders could be manufactured within a period of 12 hours in a night shift.
They contend that the manufacture of Cylinders takes two or three days and it was impossible to complete all the processes within a period of 12 hours in a night shift.
5. On behalf of the Department, ld. SDR submitted that there was enough evidence on record to show that the appellants had received large amount of sheets illegally. This tallied with the number of cylinders for which the appellants have been charged with unaccounted production.
Further, it was an admitted fact that 822 cylinders were recovered from Nariwala godown used by the appellants. The records maintained at the Municipal Barrier as well as Sales Tax Barrier contained the entries relating to the movement of the trucks used by the appellants for transporting the cylinders. The illegal production and removal were further substantiated by the statement of a former employee of the appellants as well as the truck driver and workers engaged in the appellants' factory. As regards the allegation that the appellants were not allowed to cross examine the witnesses at the time of initial adjudication proceedings, he referred to the observation made by the Collector in the impugned order that though the appellants had initially sought cross examination of certain persons, they did not press for cross examination at the time of personal hearing.
6. We have considered the submissions and have perused the records. The appellants have contested the allegations of clandestine manufacture and removal. Their contention is that their factory was under the physical control of an Officer of the Bureau Indian Standards who was present wholetime in the factory and it would not have been possible for them to manufacture any goods clandestinely without the knowledge of the said Officer. The Department has relied on the statement given by Shri Ram Bilas Choudhary, their Ex-Supervisor, stating that clandestine production was resorted to by the appellants during the night shift and holidays when the officer was not present. They have further contended that the process of manufacture involving several processes like drawing, cutting, bending, welding, etc., would take at least two to three days and this could not have been done in one shift of 12 hours. They have also stated that usually only 300 cylinders were manufactured per day. We are not able to agree with the said contention of the appellants for the reason that though it may be true that the manufacture of one piece may take two to three days from the stage of cutting of sheet to final testing, since the cylinders are manufactured in batches as admitted by them, the possibility of the processes being completed in one shift for an entire batch and transported thereafter cannot be ruled out. The presence of the Officers of Bureau of Indian Standards cannot also be equated with the presence of an officer of Central Excise when a factory is under the physical control regime of the Central Excise Rules. However, we observe that the entire case of the Department has been built on the entries maintained at the Police Barrier, Sales Tax Barrier and Municipal Barrier. The records maintained by these barriers record the movement of vehicles for the purpose of collecting octroi in the case of Municipal barrier and Sales Tax in the case of Sales Tax barrier. At the Police barrier the check is admittedly for routine security purposes. As has been given out in the statement of the driver of the trucks, the entries are made mostly on the basis oral declarations as to the contents of the goods carried in the vehicles at any given time. It cannot, therefore, be categorically stated that each time a vehicle passed through a barrier, the vehicle carried cylinders at the optimum number 400 cylinders. The appellants have disputed the findings of the Collector that the two trucks belonging to the appellants were used exclusively for transporting the cylinders and scrap. They have contended that there was no admission to that effect in the statement of Shri Kohli, Manager of the appellant firm since Shri Kohli was concerned with the production of cylinders. Further, one of the Directors of the appellant firm, Shri Goel had stated that on 16-8-1993 that the trucks were also lent to other parties for transporting stones, etc. It cannot, therefore, be stated with any certainty that each passage of the trucks related to clandestine removal of cylinders at the rate of 400 cylinders per truck. The Collector had observed that the entries recorded in the register maintained at the Police Barrier cannot be discarded merely for the reason that they were not maintained for the purpose of tax control. However, it cannot also be concluded therefrom, that the entries made in these records always tallied with the optimum number of cylinders carried by the vehicle each time. As regards reliance placed on the statement given by Shri Ram Bilas Choudhary and the two truck drivers, the appellants have been able to show that the statement given by Shri Ram Bilas Choudhary may not be free from personal bias against the appellants by reason of his services being terminated by the appellants. As regards the statements of the two truck drivers namely Shri Sarwan Singh and Shri Sukhdev Singh, we find that there were some contradictions in the statements given by Shri Sukhdev Singh inasmuch as he had stated that he has taken out the vehicle without proper documents. In addition, the Department has also not been able to substantiate the receipt of the raw materials required for the manufacture of removal of 14,800 cylinders alleged to have been manufactured. The appellants have stated that for the production of the said number of cylinders, 296 MT LPG sheets would be required. The only evidence produced in this behalf is that the appellants had received 52.690 MT LPG sheets for the illicit manufacture of cylinders, whereas the said material was intended for being used for making footrings.
Further, the allegations made by the Department is that the sheets had been received under fictitious names. The appellants have denied this charge and have stated that the sheets used for making LPG cylinders are manufactured only by reputed manufacturers of steel namely, M/s.
SAIL and TISCO and they were not available from any other sources. This fact has not been disputed by the Department.
7. Having regard to the facts as emerging from the above discussions, we feel that the allegations against the appellants cannot be stated to have been substantiated to any reasonable extent by any material on record. The Department's case suffers from three major deficiencies, inasmuch as there is no clinching evidence on record to show that the materials required for the manufacture of alleged number of cylinders had been received. Secondly, the statements relied on by the Department and contested by the appellants have not been tested by cross examination. Thirdly, the entries in the Octroi/Sales Tax/Police Barriers do not appear to tally to the extent of showing the actual transportation of 400 cylinders on each trip.
8. As a result, we give the benefit of doubt to the appellants. The impugned order, is in these circumstances, set aside and the appeal allowed.