2024 (1) TMI 82 - AT - Central Excise

Clandestine Removal - complete violation of principles of natural justice - Admissibility of evidences - complete relied upon documents not supplied to appellants - cross-examination of witnesses not carried upon - levy of penalty on appellant - HELD THAT - The fact that department has failed to establish that Section 36B was complied while taking the printouts from the hard disk attains significance. It is brought out from evidence that the department has seized the hard disk and taken the print outs by themselves. These print outs were filed as Made-up file with 293 pages. These print outs are the foundation for initiating the investigation. Only after taking the printouts the hard disk has been sent to the DGCEI. In the case of M/S U.P. BONE MILLS (P) LTD., SHRI AAY AGARWAL AND SHRI JAVED RANA VERSUS COMMISSIONER, CENTRAL GST, DEHRADUN 2022 (9) TMI 1210 - CESTAT NEW DELHI it was held that on failure to follow the mandatory procedure prescribed under Section 36B of Central Excise Act, 1944, the electronic evidence cannot be accepted in evidence. Besides, the evidence of the printouts from the hard disk, the other evidence relied by department are the documents seized from Third parties like the Buyers of finished products, Transporters of goods, Suppliers of raw materials etc. Some of these documents are again, pen driver and computer printouts. The department has recorded statements from persons who are running these establishments. But none of them have been examined by the adjudicating authority as required under Section 9D of Central Excise Act, 1944. The appellant has requested for cross examination and the same has not been complied - without examining these persons / witnesses in evidence under summons, third party statements or third party documents cannot be admitted in evidence. In the case of REYNOLDS PETRO CHEM LTD VERSUS C.C.E. S.T. -SURAT-I 2022 (7) TMI 656 - CESTAT AHMEDABAD similar issue was considered and the Tribunal held that the burden of proof to establish the allegations in the SCN is on the department. The seized from the premises of third parties cannot be used without corroboration, and that the presumption under Section 36A would not be applicable unless these persons from whose custody the documents have been seized are made parties to the proceedings. In the present case, the computer hard disk seized from the appellant s factory is the basis for the investigation. The evidences placed on record cannot be relied or admitted in evidence due to non-compliance of mandatory provisions of law. In such circumstances, it is held that the confirmation of duty demand and the penalties imposed require to be set aside. Levy of huge penalty of Rs.50 lakhs on appellant - HELD THAT - The department has not produced any evidence to show that Shri P. Ganesh has made any personal gain from the alleged clandestine clearances. He was a salaried person. Again, there is no proposal in the SCN to confiscate the goods - There are no evidence led by the department, to hold that the appellant has connived or actively involved in any of the allegations raised in the SCN - the penalty imposed on the appellant is not justified. The same requires to be set aside. The impugned order is set aside. The appeals are allowed.

Summary

Issues Involved:

1. Alleged Evasion of Central Excise Duty.
2. Non-supply of Relied and Non-relied Documents.
3. Compliance with Section 36B of Central Excise Act, 1944.
4. Admissibility of Evidence from Third Parties.
5. Imposition of Personal Penalty on the Commercial Director.

Summary of Judgment:

1. Alleged Evasion of Central Excise Duty:
The main appellant, M/s. Hi-Tech Minerals (Covai) Pvt. Ltd., was accused of evading Central Excise duty by suppressing production and clandestine removal of sponge iron and MS ingots/billets. The Directorate General of Central Excise Intelligence (DGCEI) conducted search operations and seized incriminating documents and computer hard disks, revealing unaccounted transactions. The department issued a show cause notice (SCN) alleging clandestine removal of goods without payment of duty and proposed to demand Central Excise duty along with interest and penalties.

2. Non-supply of Relied and Non-relied Documents:
The appellants repeatedly requested the department to return non-relied documents and provide an imaged version of the hard disk seized. Despite multiple requests, the department delayed responding and failed to provide the necessary documents and imaged version of the hard disk, which hindered the appellants' ability to prepare their defense. The Tribunal found a violation of principles of natural justice due to non-supply of complete relied upon documents and not returning the non-relied documents.

3. Compliance with Section 36B of Central Excise Act, 1944:
The Tribunal noted that the department failed to establish compliance with Section 36B while taking printouts from the hard disk. The printouts were taken by the department and filed as a 'Made-up file' with 293 pages, forming the basis of the investigation. The Tribunal cited the case of U.P. Bone Mills (P) Ltd. Vs CGST, Dehradun, emphasizing that electronic evidence cannot be accepted without following the mandatory procedure under Section 36B.

4. Admissibility of Evidence from Third Parties:
The evidence relied on by the department included documents seized from third parties like buyers, transporters, and suppliers. The Tribunal held that these documents could not be used without corroboration and compliance with Section 9D of the Central Excise Act, 1944. The Tribunal cited the case of Reynolds Petro Chem Ltd. Vs CCE & ST, Surat-I, stating that the burden of proof lies on the department, and third-party documents cannot be admitted without examining the persons from whose custody they were seized.

5. Imposition of Personal Penalty on the Commercial Director:
The Tribunal found that the penalty of Rs. 50 lakhs imposed on the Commercial Director, Shri P. Ganesh, was too high and without basis. The department failed to produce evidence showing that Shri P. Ganesh made any personal gain from the alleged activities. The Tribunal concluded that the penalty imposed on Shri P. Ganesh was not justified and required to be set aside.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals with consequential reliefs, if any, due to the violation of principles of natural justice, non-compliance with mandatory legal provisions, and lack of evidence to support the allegations and penalties.