2014 (9) TMI 243 - HC - Central Excise

Clandestine removal of goods - Illegal sale of portland cement - Penalty u/s 11AC - first appellate authority deleted the addition and cancelled the penalties - Tribunal restored addition and penalties - Held thta - No investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s Singhal Cement Agency, M/s Praveen Cement Agency; and M/s Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof. The mischievous role of Shri Anil Kumar erstwhile Director with the assistance of Accountant Sri Vasts cannot be ruled out - when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material out side the books have been proved. no case is made out for extra so called clandestine sale of the Portland Cement to the said parties - Decided in favour of assessee.

Summary

Issues involved:
Quantum of demand under Central Excise Act, penalties imposed on directors, clandestine sale of goods, evidence required to prove clandestine removal, validity of statements from buyers, authenticity of documents, lack of investigation by the Department.

Analysis:

1. Quantum of demand under Central Excise Act:
The appellant/assessee challenged the demand confirmed by the Department under the erstwhile Rule 9(2) of the Central Excise Rules, 1944. The Department imposed penalties under various rules, including Section 11-A-C of the Central Excise Act. The Commissioner (Appeals) initially allowed the appeals, but the Tribunal, ex parte, allowed the Department's appeals. The appellants argued against the penalties and quantum of demand.

2. Penalties imposed on directors:
The counsel for the appellants contended that the penalties levied against the directors were unjustified. They argued that the documents supporting the anonymous complaint were forged by a former director who had a vendetta against the current directors. The Department's reliance on anonymous complaints without corroborative evidence was challenged.

3. Clandestine sale of goods:
The Department justified its actions based on statements from supposed buyers of the goods. However, the appellants argued that no concrete evidence of clandestine removal was provided. The statements from buyers were questioned for lack of supporting documentation.

4. Evidence required to prove clandestine removal:
The Court emphasized the need for substantial evidence to prove clandestine removal, including details such as excess production, raw material purchases, dispatch particulars, sale proceeds realization, power consumption, and finished product receipts. The lack of investigation by the Department in these aspects was noted.

5. Validity of statements from buyers:
The statements from buyers were scrutinized, and their reliability was questioned due to being solely memory-based without documentary proof. The Court highlighted the importance of corroborative evidence to substantiate claims of clandestine activities.

6. Authenticity of documents:
The Court referred to an opinion from a Government Examiner of questioned documents, indicating that the documents were all prepared by the same individual. This raised doubts about the authenticity of the documents presented as evidence.

7. Lack of investigation by the Department:
The Court criticized the Department for not conducting a thorough investigation, particularly regarding electricity consumption, raw material purchases, and transportation payments. The lack of concrete evidence and reliance on presumptions led to the dismissal of the Department's claims.

In conclusion, the Court found that the Department failed to provide sufficient evidence to support the allegations of clandestine sale. The lack of investigation and reliance on unsubstantiated claims led to the Court setting aside the Tribunal's order and restoring the decision of the first appellate authority in favor of the appellants.