2014 (10) TMI 805 - AT - Central Excise

Penalty u/s 11AC - Clandestine removal of goods - document evidence to prove - Held that - officers had carried out complete physical stock taking of finished goods, and also verified the production register and tallied with physical stock and concluded there was no difference between physical stock and daily production register. This clearly shows that the officers have not found out any shortage or excess of finished goods other than what was recorded in statutory Register i.e. R.G.1. It is seen that the entire allegation in the SCN was made out only on the basis of salary file recovered from the appellant s premises. in the case of any clandestine removal of excisable goods, it is mandatory on the part of the investigating officers to establish with corroborative evidence of the actual shortage of quantity or excess production and clearance of goods or evidence of payments received, place of delivery to whom the goods are delivered, details of recipients etc. The entire demand of duty has been arrived purely on the basis of quantity shown in salary file and the statement of Shri R.P. Lakshmana Perumal. Apparently, no other evidence has been brought on record to corroborate shortage of quantity as per salary file with daily production register. Entire investigation has relied only on the salary file which only relates to payment of wages for each labourer. In the absence of any other documentary evidence, the quantity mentioned in the foot note cannot be taken as the total quantity produced during that week. Further, as explained above, the said quantity is not only related to finished goods but related to lap stage production. The adjudicating authority in his order had discussed the issue in detail and by relying on the Tribunal s decisions (supra) had rightly dropped the proceedings against the appellant as well as against Shri R.P Lakshmana Perumal, Managing Director of the company. Therefore, respectfully following the Tribunal s decision (supra) I do not find any merit in the impugned order. Accordingly, the impugned order is set aside and the order of the adjudicating authority is upheld - Decided in favour of assessee.

Summary

Issues Involved:
1. Allegation of clandestine removal of goods.
2. Basis and validity of demand for Central Excise duty.
3. Imposition of penalty under Section 11AC.
4. Role and penalty on the Managing Director.
5. Reliability of evidence (salary file and statements).

Issue-Wise Detailed Analysis:

1. Allegation of Clandestine Removal of Goods:
The appellant was accused of manufacturing and clearing 38,370.840 kgs of 10's cotton cheese yarn without payment of duty, based on a salary file recovered during a surprise visit by the Preventive Unit of Rajapalayam Division. The file contained loose sheets signed by the Managing Director, indicating production quantities. The adjudicating authority initially dropped the demand, but the Commissioner (Appeals) later set aside this decision and confirmed the show cause notice (SCN).

2. Basis and Validity of Demand for Central Excise Duty:
The demand for Central Excise duty amounting to Rs. 1,80,036/- was based on the alleged shortage of 38,370.840 kgs of yarn. The appellant argued that the salary file was used solely for wage payments and did not accurately reflect production figures. The department's calculation of the shortage was deemed arbitrary, as it did not conduct further investigations to substantiate clandestine removal, such as verifying higher production, raw material purchases, or monetary transactions.

3. Imposition of Penalty under Section 11AC:
The SCN proposed penalties under Section 11AC for the appellant and the Managing Director. However, the adjudicating authority dropped the proceedings against both parties. The Commissioner (Appeals) confirmed the SCN but did not specify the penalty quantum. The appellant contended that no penalty could be imposed without corroborative evidence of clandestine removal.

4. Role and Penalty on the Managing Director:
The Managing Director, Shri R.P. Lakshmana Perumal, was initially implicated for contravening various rules and faced penalties under Rule 209A read with Rule 26 of CER. However, the Revenue did not appeal against the adjudicating authority's decision to drop proceedings against him. The appellant argued that since the SCN's allegations were based on the Managing Director's statement, which was later retracted, no proceedings could be initiated against the appellant.

5. Reliability of Evidence (Salary File and Statements):
The appellant asserted that the salary file was used for wage payments and not for recording production quantities. The department's reliance on the salary file without corroborative evidence was challenged. The adjudicating authority noted that the physical stock verification matched the daily production register, indicating no shortage of finished goods. The Commissioner (Appeals) relied solely on the Managing Director's statement, which was retracted, and did not provide additional evidence to support the allegations.

Conclusion:
The Tribunal found that the entire investigation relied only on the salary file, which related to wage payments and not actual production quantities. The absence of corroborative evidence, such as raw material purchases, excess production, or monetary transactions, weakened the department's case. The adjudicating authority's decision to drop proceedings was upheld, and the appeal was allowed, setting aside the impugned order.

Pronouncement:
The judgment was pronounced in open court on 1-10-2014, and the appeal was allowed, upholding the adjudicating authority's order.