Dismissed

commissisoner of centrl excise v. usha fashions Pvt. Ltd.

Bombay HC17 Sept 2021CEXA/104/2008

Case brief

AI extract

What is this about?

This appeal tested when the right to cross-examine a witness becomes absolute. The High Court held that since the department's case relied solely on the uncorroborated statement of the transporter who was not allowed to be cross-examated, natural justice demands that such statement cannot be relied upon, leading to dismissal of the appeal.

What did the court decide?

The demand for duty, penalties, and confiscation were set aside by the CESTAT majority, and the High Court affirmed this outcome by answering the framed questions in the affirmative.

commissisoner of centrl excise Vs usha fashions Pvt. Ltd. — Cheque Dishonour | Bombay HC (2021)

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CEXA 104.08.doc

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Urmila Ingale

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Digitally signed by URMILA URMILAPRAMOD PRAMOD INGALE INGALE Date:2021.09.24 13:39:31 +0530

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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CENTRAL EXCISE APPEAL NO. 104 OF 2008

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The Commissioner of Central Excise
Thane - II Commissionerate,
Navprabhat Chambers,
Ranade Road, Dadar (West)
Mumbai - 400 028... Appellant

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Vs.

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1. Kamal Singhania,
Director of M/s.Usha Fashions Pvt. Ltd...Respondent No.1

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2. M/s.Usha Fashions Pvt. Ltd.
Plot No.E-42, M.I.D.C. Industrial Area,
Tarapur, Boisar, District Thane ..Respondent No.2

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3. M/s.S.P. Thakkar Transport Company,
174, Gaiwadi, Caval Cross Lane,
7th Galli, Kalbadevi, Mumbai 400 002. .. Respondent No.3

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Mr.Swapnil Bangur a/w Mr.Siddharth Chandrashekhar i/b
Mr.Siddharth Chandrashekhar for Appellant.
Mr.Darius Shroff, Senior Advocate a/w Mr.Jas Sanghavi i/b
PDS Legal, for Respondents No. 1 & 2

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CORAM : K.R.SHRIRAM, J.
 M. S. KARNIK, J.

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 DATE: 17th SEPTEMBER 2021

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CEXA 104.08.doc

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ORAL JUDGMENT (PER K.R.SHRIRAM, J.) :

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1.This is an Appeal preferred by the Commissioner
of Central Excise, Thane-II under the provisions of Section
35G of the Central Excise Act, 1944 impugning the order
dated 22/09/2006 passed by the Central Excise and Service
Tax Appellate Tribunal, WZB, Mumbai allowing a bunch of
Appeals preferred by respondent nos.1 & 2.

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2. The Appeal came to be admitted on 24/09/2008 and the following questions of law were framed.

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1.Whether CESTAT is right in law in setting aside penalties
of Rs. 5,00,000/- imposed on Kamal K. Singhania under Rule 26
of the Central Excise Rules, 2002 as also Rs. 1,00,000/- imposed
under Rule 26 of the Central Excise (No.2) Rules, 2001/Central
Excise Rules, 2002 read with Rule 209A of the Central Excise
Rules, 1944.

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2. Whether CESTAT is right in law in

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i) setting aside central excise duties of Rs.4,16,73,971/- and
Rs.2,17,005/- levied under section 11A(2) of the Central
Excise Act, 1944 on account of clandestine removal of
processed fabrics.

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ii)reducing equal penalty imposed under section 11AC of
the Central Excise Act, 1944 from Rs. 4,30,85,195/- to Rs.
3,00,000/- inspite of confirming / sustaining central excise
duty of Rs. 11,94,219=20.

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iii) setting aside find/penalty of Rs. 4,28,68,190/- imposed
under section 34 of the Central Excise Act, 1944 and Rule
25(1) of the Central Excise (No.2) Rules, 2001 / Central

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CEXA 104.08.doc

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Excise Rules, 2002 read with Rule 173Q(1) of the Central
Excise Rules, 1944.

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iv) setting aside fines of Rs. 8,00,000/- and Rs. 90,000/-
imposed under section 34 of the Central Excise Act, 1944
being an option given to pay find in lieu of confiscation.

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v) setting aside interest levied under section 11AB of the
Central Excise Act, 1944.

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vi) setting aside penalty of Rs. 3,00,000/- imposed under
Rule 25 of the Central Excise rules, 2002.

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3. Whether the order of CESTAT setting aside central excise
duties, interest, penalties, confiscation as also reducing penalty
under section 11AC of the Central Excise Act, 1944 was based
on no evidence or partly relevant or partly irrelevant evidence
and is otherwise perverse, arbitrary and vitiated in law ?

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4.Whether CESTAT is right in law in setting aside penalty of
Rs. 35,000/- imposed on S.P. Thakkar Transport Company under
Rule 26 of the Central Excise Rules, 2002 as also Rs.
40,00,000/- imposed under Rule 26 of the Central Excise (No.2)
Rules 2001 / Central Excise Rules 2002 read with Rule 209A of
the Central Excise Rules, 1944 ?"

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3.This Appeal was to be heard along with Central
Excise Appeal No. 261 of 2007.

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4.The facts in brief are that respondent no.2 who
was earlier called Indo Green Textiles Pvt. Ltd. was engaged
in the processing of Man Made Fabrics classifiable under
Sections 54 and 55 of the First Schedule of the Central Excise

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CEXA 104.08.doc

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Tariff Act, 1985. Its factory premises was put to search on
21/05/2002 which resulted in seizure of documents/records/
computer floppies etc. Proceedings relating to physical stock
inventory of grey fabrics resulted in shortages of processed
fabrics totally valued at Rs.74.63 lakhs (approximately).
Another quantity of processed Man Made fabrics totally
valued at Rs.31.80 lakhs (approximately) were found to be
excess than the recorded balance which was seized. Similarly
search was conducted in the office premises of the appellant
resulting in seizure of documents/ records. It is alleged that
one of the directors of the Company, Shri Kamal Singhania,
respondent no.1, accepted the shortages and excess and also
deposited an amount of Rs. 10 lakhs towards duty.

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5.Apart from searches conducted at factory and
office premises of respondent no.2, searches were conducted
at the office premises of respondent no.3 - M/s.S.P. Thakkar
Transport Company (hereinafter referred to as ‘Thakkar’), the
transporter, situated at Bhiwandi and Kalbadevi. The records
maintained by Thakkar were taken into custody.

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CEXA 104.08.doc

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Simultaneous searches were also made in the residential
premises of the director of respondent no.2 as also in the
factories of merchant manufacturers. The statements of
many persons were recorded.

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6.Based on the above, proceedings were initiated
against the respondents by issuing show cause notices. Show
cause notice dated 15/11/2002 proposed confiscation of the
seized goods and show cause notice dated 30/03/2004
proposed confirmation of demand of duty of Rs.
4,30,85,194.84 along with imposition of personal penalty.
The following demands were raised in the show cause notice
dated 30/03/2004.

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"(i) processed fabrics found short in the factory during stock
verification carried out on 21/22-05-2002 (involving duty of
Rs.11,94,219.20)

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(ii) processed fabrics seized from the premises of Merchant
Manufacturers and transporter (involving duty of
Rs.2,17,004.64), and

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(iii) processed fabrics detailed in Annexure 'B' to the show
cause notice as clandestinely cleared by M/s.Indo Green
(involving duty of Rs.4,16,73,971.00)"

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7.After due adjudication proceedings, the demand

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stood confirmed and various penalties were imposed. All

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CEXA 104.08.doc

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those aggrieved by the order passed by adjudicating authority
filed Appeal before the Customs Excise and Service Tax
Appellate Tribunal (CESTAT). At the stage of Appeal, the
respondents did not contest the demand mentioned at serial
no. (i) above in the show cause notice dated 30/03/2004 on
account of the small amount involved. As regards the
demand against serial no.(ii), the same was stated to be
included in serial no.(i). Hence, that also was not contested.
What was contested was the demand at serial no.(iii), i.e.
'processed fabrics detailed in Annexure 'B' to the show cause
notice as clandestinely cleared by respondent no.1 involving
duty of Rs.4,16,73,971.00'. After hearing the counsel for the
parties, the Member (Judicial) set aside this demand of Rs.
4,16,73,971.00 on the ground that there was no positive
evidence on record. The Member (Technical), however,
upheld the demand and confirmed the order passed by the
adjudicating authority.

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8.In view of this difference of opinion between the
two Members who presided over the matter, the matter was

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CEXA 104.08.doc

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referred to a third Member for her opinion on the following

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question :-

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" Whether the demand of duty to Rs.4,30,85,192/- is
required to be set aside on the ground of insufficient evidence
to establish the clandestine removal as held by the Ld.Member
(Judicial) or the same is required to be confirmed in terms of
the order of Member (Technical).

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Whether the confiscation of the goods found in appellants
premises in excess of the recorded balance in RG1 register is
required to be set aside as held by Member (Judicial) or
confiscation is to be upheld in terms of the order of Member
(Technical).

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Whether penalty is to be set aside on the Director of the firm
Shri Kamal K.Singhania as held by Member (Judicial) or the
same is required to be imposed as opined by Member
(Technical)"

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9.The third Member after hearing the parties
concurred with the view expressed by Member (Judicial) and
held that duty of demand of Rs. 4,16,73,971/- can not be
sustained.

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10.In view of the majority view, the duty of
Rs.4,16,73,971/- came to be set aside. The duty of
Rs.11,94,219.20 was upheld because it was not contested by
respondent no.1. The penalty imposed on respondent no.1,

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CEXA 104.08.doc

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respondent no.3, respondent no.2 etc. were all set aside.
Aggrieved by this majority view, appellant has approached
this court and the questions of law as noted in para (2) above
came to be framed.

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11.We have perused the orders passed by all the
three Members of CESTAT with the assistance of the learned
counsel for the appellant. The entire basis for making this
demand on respondent no.1 and for imposing penalty on
respondent no.3 is the statement of Thakkar indicating that
one 'S One Tex/Dying' relates or belongs to respondent no.2.
Before the adjudicating authority, counsel for respondent nos.
1 and 2 had sought leave to cross examine Thakkar which
was denied by the Commissioner on the ground that the
same amounts to delaying tactics on the part of respondent
nos. 1 and 2. The majority view has concluded that as the
entire case of the Revenue is based upon the statement of
Thakkar, refusal of his cross examination was detrimental to
the case of respondent nos. 1 and 2 and therefore Thakkar's
statement cannot be taken into consideration. We also feel

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CEXA 104.08.doc

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that if the statement of Thakkar is taken out of records, there
is no other evidence to show that the said code number 'S
One Tex/Dying' belongs to respondent no.2. The statement
of Thakkar being in the nature of statement of co-accused
cannot be made a sole basis for confirming the charge of
clandestine removal against respondent no.2 and its director
in the absence of any other corroborative evidence. Though
statements of the other directors have been recorded, all
those persons have retracted their statements. In the
majority view, the Members have also gone into the other
facts, i.e., considered records which were confiscated from
Thakkar and observed that there are some other code names
mentioned which have not been investigated into and no
statement of the transporter in respect of other persons is
recorded.

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12.Mr.Bangur submitted, relying on the findings of
the Member (Technical), i.e., the minority view, that even
respondent no.1 - director of respondent no.2 had accepted
the shortages and excess and also deposited an amount of Rs.

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CEXA 104.08.doc

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10 lakhs towards duty. Even for a moment, if we accept that
that should be enough to substantiate appellant's case, that
would still relate to only processed fabrics found short in the
factory during the stock verification involving duty of
Rs.11,94,219.20, which as recorded in the order of the
Member (Judicial) was not contested on account of small
amount. This fact of respondent no.1 depositing Rs. 10
lakhs towards duty cannot by any stretch of imagination
justify that the account maintained by Thakker for 'S One
Tex/Dying' belongs to respondent no.2. This is because it is
only the statement of Thakkar which explains that 'S One
Tex/Dying' is the code name of respondent no.2, and request
to cross examine Thakkar was not granted by the
adjudicating authority.

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13. The Apex Court in 1Andaman Timber Industries

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Vs. Commissioner of C.EX., Kolkata-II held that not allowing
a party to cross examine witnesses of the Adjudicating
Authority whose statement was the basis of the show cause
notice to demand duty is a serious flaw in as much as it

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1 2015(324) E.L.T.641(S.C.)

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CEXA 104.08.doc

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amounted to violation of principles of natural justice. We
have to note that the Commissioner refused permission to
cross examine Thakkar notwithstanding the request made by
respondent nos.1 and 2. In our view, permission to cross
examine Thakker should have been granted mainly in view of
the fact that appellant was relying on the statement of
Thakkar and documents which were seized from Thakkar.
Paragraphs 3 and 6 to 8 of this judgment read as under :

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"3. Insofar as the plea of the appellant that it was not allowed
to cross-examine the dealers whose statements were relied
upon by the Adjudicating Authority in passing the orders, the
Tribunal [2006 (205) E.L.T. 831 (Tribunal)] rejected its plea in
the following manner :-

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 "6. The plea of no cross-examination granted to the
various dealers would not help the appellant case since the
examination of the dealers would not bring out any
material which would not be in the possession of the
appellant themselves to explain as to why their ex-factory
prices remain static. Since we are not upholding and
applying the ex-factory prices, as we find them
contravened and not normal price as envisaged under
section 4(1), we find no reason to disturb the
Commissioners orders."

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6. According to us, not allowing the assessee to cross-examine
the witnesses by the Adjudicating Authority though the
statements of those witnesses were made the basis of the
impugned order is a serious flaw which makes the order nullity
inasmuch as it amounted to violation of principles of natural
justice because of which the assessee was adversely affected. It
is to be borne in mind that the order of the Commissioner was
based upon the statements given by the aforesaid two
witnesses. Even when the assessee disputed the correctness of
the statements and wanted to cross-examine, the Adjudicating
Authority did not grant this opportunity to the assessee. It
would be pertinent to note that in the impugned order passed

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CEXA 104.08.doc

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by the Adjudicating Authority he has specifically mentioned
that such an opportunity was sought by the assessee. However,
no such opportunity was granted and the aforesaid plea is not
even dealt with by the Adjudicating Authority. As far as the
Tribunal is concerned, we find that rejection of this plea is
totally untenable. The Tribunal has simply stated that cross-
examination of the said dealers could not have brought out any
material which would not be in possession of the appellant
themselves to explain as to why their ex-factory prices remain
static. It was not for the Tribunal to have guess work as to for
what purposes the appellant wanted to cross-examine those
dealers and what extraction the appellant wanted from them.

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7. As mentioned above, the appellant had contested the
truthfulness of the statements of these two witnesses and
wanted to discredit their testimony for which purpose it
wanted to avail the opportunity of cross-examination. That
apart, the Adjudicating Authority simply relied upon the price
list as maintained at the depot to determine the price for the
purpose of levy of excise duty. Whether the goods were, in fact,
sold to the said dealers/witnesses at the price which is
mentioned in the price list itself could be the subject matter of
cross-examination. Therefore, it was not for the Adjudicating
Authority to presuppose as to what could be the subject matter
of the cross-examination and make the remarks as mentioned
above. We may also point out that on an earlier occasion when
the matter came before this Court in Civil Appeal No. 2216 of
2000, order dated 17-3-2005 [2005 (187) E.L.T. A33 (S.C.),
was passed remitting the case back to the Tribunal with the
directions to decide the appeal on merits giving its reasons for
accepting or rejecting the submissions.

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8. In view the above, we are of the opinion that if the
testimony of these two witnesses is discredited, there was no
material with the Department on the basis of which it could
justify its action, as the statement of the aforesaid two
witnesses was the only basis of issuing the show cause notice."

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14.A Division Bench of this Court (Goa Bench) in

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the case of 2Ciabro Alemao Vs. Commissioner of Customs,

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2 2018 (362) E.L.T.465 (Bom.)

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CEXA 104.08.doc

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Goa has held that a statement, like all testimony, must be
subjected to the rigours of cross-examination and the fact
that a statement is made and recorded may be relevant but
does not mean it is proved. The Division Bench held that the
statement on which a party relied upon cannot be said to
have been proved unless that witness was made available for
cross examination.

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15.We therefore agree with the majority view that
rejection of the request for cross examination of Thakkar
would mean that Thakkar's statement cannot be relied upon.

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16.As regards question no.4, nobody represented
respondent no.3 and infact no submissions were also made
by appellant. In any event, we have to note that the Member
(Judicial) has held without discussion that there is also no
justification for imposition of penalty of Rs. 40 lakhs on
Thakkar. The Member (Technical) has held that the penalty
on Thakkar will also depend on the ultimate determination of
penalty on respondent nos. 1 and 2. Penalty on Thakkar was

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CEXA 104.08.doc

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not the subject matter of reference to the third member. In
view of the above, we would answer question no.4 also in the
affirmative.

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17.In the circumstances, all questions of law
framed, as quoted above, are answered in the affirmative.
Appeal dismissed.

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(M.S. KARNIK, J.) (K.R.SHRIRAM, J.)

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commissisoner of centrl excise v. usha fashions Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

commissisoner of centrl excise v. usha fashions Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

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