2016 (4) TMI 605 - AT - Central Excise

Clandestine removal - lack of investigation - whether the main appellant has indulged in clandestine manufacture and clearances of finished goods? - whether revenue is able to make out a case of clandestine removal and whether penalties are to be imposed on the appellants? - Held that - The position with regard to the demand which is based on the copies of Truck Destination Register maintained by another transporter, namely M/s Akola Goods Transporter, Chandrapur, is no different. Here again, no investigation seems to have been conducted at the end of the alleged consignees whose name appear in the said Truck Destination Register. The actual receipt of the goods by the consignees is thus not established. No investigation was undertaken to bring on record the author of the said truck destination register. The said statement of Mr. Shakheel Khan shows that M/s Akola Transport Co was only acting as a commission agent and were merely arranging for transportation rather than actually transporting the goods themselves in their own trucks. No investigations have been conducted with the actual transporters engaged by M/s Akola Transport Co. The Books of Account of M/s Akola Transport Co have also not been examined to find out the names of the actual transporters. In any case it is settled law laid down by the Hon ble High Court of Patna in CCE v. Brims Products (2008 (9) TMI 603 - PATNA HIGH COURT ), that allegation of clandestine removal cannot be sustained based merely on transporters records which are not corroborated by any other evidence. Even in regard to the smaller demand of ₹ 10.58 lakhs based on the alleged shortage of raw materials/finished goods, the explanation given by the appellant on the very next day of the Panchnama wherein the shortages were disputed have not been countered or dealt with in the notice. Further the Panchnama as clearly record that the stock positions have been worked out based on theoretical calculations by assuming the length, breadth, width of the raw materials/finished goods. Such theoretical calculations cannot be the basis for foisting demand on account of shortages. In short, the investigation has failed to establish the case of clandestine removal. - Decided in favour of assessee

Issues Involved:
1. Allegation of clandestine removal of goods.
2. Sufficiency of evidence for clandestine removal.
3. Reliability of documents and statements obtained from third parties.
4. Admissibility of photocopies and cloned hard disks as evidence.
5. Denial of cross-examination of witnesses.
6. Imposition of penalties on appellants.

Detailed Analysis:

1. Allegation of Clandestine Removal of Goods:
The main appellant, M/s. Shree Sidhbali Ispat Ltd., was accused of clandestine removal of finished goods based on various documents and statements obtained during searches. The Central Excise officers conducted surprise visits and found discrepancies in stock records, leading to the issuance of a show-cause notice demanding Central Excise duty of approximately ?2.82 Crores, along with interest and penalties.

2. Sufficiency of Evidence for Clandestine Removal:
The Tribunal noted that the evidence relied upon by the Revenue was insufficient to establish clandestine removal. The investigation lacked corroborative evidence such as unaccounted procurement of raw materials, fuel, labor, receipts of unaccounted cash, and proof of actual transportation of goods. The Tribunal emphasized that tangible evidence is required to prove clandestine removal, as outlined in the case of M/s. Nova Pharmaceuticals Pvt. Ltd. v. CCE.

3. Reliability of Documents and Statements Obtained from Third Parties:
The Tribunal found several shortcomings in the investigation, including the reliance on documents seized from third-party premises without proper corroboration. For instance, the Lorry Receipts (LRs) and Daily Account Book Register seized from the premises of Mr. K.K. Pandey were not supported by statements from the consignees or the actual transporters. The Tribunal held that the burden of proving that the documents pertain to the appellant lies with the Revenue, which was not satisfactorily discharged.

4. Admissibility of Photocopies and Cloned Hard Disks as Evidence:
The Tribunal rejected the reliance on photocopies of documents obtained from the Octroi department, as they were neither authenticated nor supported by any covering letter or panchanama. Additionally, the Tribunal questioned the admissibility of evidence obtained from cloned hard disks, which were cloned by a private organization, not in accordance with Section 36B of the Central Excise Act, 1944.

5. Denial of Cross-Examination of Witnesses:
The Tribunal criticized the denial of cross-examination of transporters and other witnesses whose statements were relied upon by the adjudicating authority. It held that cross-examination is a fundamental right, and its denial renders the statements unreliable. The Tribunal cited the case of Andaman Timber Industries, where the Supreme Court held that an opportunity for cross-examination should be granted if sought.

6. Imposition of Penalties on Appellants:
Given the lack of sufficient evidence to prove clandestine removal, the Tribunal found that the imposition of penalties on the main appellant and other appellants was unjustified. The Tribunal set aside the penalties, emphasizing that penalties cannot be sustained if the demand itself is not sustainable.

Conclusion:
The Tribunal allowed all the appeals, set aside the impugned order, and held that the investigation failed to establish the case of clandestine removal against the appellants. The Tribunal highlighted the importance of tangible evidence and proper investigation procedures in such cases.

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