2017 (2) TMI 1333 - AT - Central Excise

Clandestine manufacture and removal - demand based on loose papers (recovered in search/inspection) - shortage of raw material, HDPE Granules - It is the contention of the respondents from the very beginning that the papers do not belong to them and appears to be left by some visiting client, which they are unable to identify - Held that - revenue have not brought on record any material to show the purchase of raw materials or sale of alleged finished goods. Further, non availability of production capacity, work force and the very fact that the loose papers actually related to some other factory who was engaged in manufacture of holo laminated films exclusively, on the power generated by D.G. set. Whereas the respondents are using power, the generator was used only for emergency as a standby. The Department has not succeeded in establishing that the loose papers actually belonged to the respondents. Agreeing to the manner of calculation with respect to the loose papers, does not amount to categorical admission of clandestine removal by the director of the respondent s company. Moreover, there have been repeated retraction, verifying the position and as such the alleged admission is of no help to revenue. The comparative study clearly sets out that the loose papers found at the time of inspection or search do not belong to the respondents and as such the learned Commissioner appeals have rightly set aside the demand based on the loose papers. Further, it is settled legal position that the documentary evidence prevails over the oral evidence - the Department has not discharged the burden of proof, as required in the matters of alleged clandestine removal. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Allegation of clandestine removal and/or manufacture based on loose papers.
2. Shortage of raw materials (HDPE Granules) and its implications.
3. Validity and reliability of statements and retractions made by the directors.
4. Examination of corroborative evidence and its sufficiency.
5. Adjudication and imposition of penalties.

Detailed Analysis:

1. Allegation of Clandestine Removal and/or Manufacture Based on Loose Papers:
The central issue was whether the allegation of clandestine removal and/or manufacture based on loose papers recovered during a search was proven. The Tribunal found that the entire case of the Revenue was based on these loose papers, which were found in the office of one of the directors. The respondents consistently contended that these papers did not belong to them and might have been left by a visiting client. The Tribunal noted that the Revenue failed to provide any material evidence linking the purchase of raw materials or the sale of the alleged finished goods to the respondents. The Tribunal concluded that the Department did not succeed in establishing that the loose papers actually belonged to the respondents.

2. Shortage of Raw Materials (HDPE Granules) and Its Implications:
During the search, a shortage of 123 bags of HDPE Granules was found, valued at ?1,15,312.50, with a CENVAT Credit involvement of ?18,450. The respondents admitted the shortage and debited the amount involved. The Tribunal upheld the demand related to the shortage of HDPE Granules, as the respondents did not contest this specific issue.

3. Validity and Reliability of Statements and Retractions Made by the Directors:
The statements made by the directors, particularly Shri Manish Agarwal and Shri Siddhartha Gupta, were scrutinized. Initially, Shri Manish Agarwal confirmed that the documents related to unaccounted production and clearances. However, Shri Siddhartha Gupta retracted his statement the next day, claiming the papers did not belong to the company. Later, he retracted the retraction, confirming his earlier statement. The Tribunal noted that the statements were made under pressure and that the directors were not examined during adjudication, violating Section 9D of the Act. The Tribunal found that the alleged admissions were unreliable and insufficient to support the clandestine removal charge.

4. Examination of Corroborative Evidence and Its Sufficiency:
The Tribunal examined the corroborative evidence, including the production capacity, work force, power consumption, and the nature of the loose papers. It was found that the loose papers indicated production carried out exclusively using a generator, while the respondents used electrical power with generators as a standby. The Tribunal also noted the lack of material mismatch in the production records and the Chartered Engineer's certificate verifying the machinery's power consumption. The Tribunal concluded that the loose papers did not belong to the respondents and that the Revenue failed to provide positive, cogent, and affirmative evidence to prove clandestine removal.

5. Adjudication and Imposition of Penalties:
The Additional Commissioner initially confirmed the proposed demand and imposed penalties. However, the Commissioner (Appeals) allowed the appeals in part, reducing the demand and penalties. The Tribunal upheld the Commissioner (Appeals)'s decision, dismissing the Revenue's appeal. The Tribunal emphasized that the burden of proof in cases of alleged clandestine removal lies with the Department, which failed to discharge this burden.

Conclusion:
The Tribunal upheld the impugned Order-in-Appeal, dismissing the Revenue's appeal. The respondent-assessee was entitled to consequential benefits in accordance with the law. The Tribunal concluded that the Department failed to prove the allegations of clandestine removal and/or manufacture based on loose papers and other evidence presented.

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