2017 (3) TMI 763 - AT - Central Excise

Cigarettes - clandestine manufacturing and removal under own Brand Name - allegation on the basis of the details contained in the laptops seized from the possession of Shri Marvin Ali, General Manager. In the statement recorded from Shri Marvin Ali initially he had accepted the clandestine removal of cigarattes. However, ld. Commissioner dropped the demand citing the reason that Shri Marvin Ali has retracted his statements. Also during his cross-examination before the adjudicating authority he has denied his earlier statements and claimed that these have been taken under duress. Held that - Section 14 of the CEA empowers the departmental officers to record the statement of witnesses which are formally admissible as evidence. However, in the present case almost all the statements have been categorically retracted. We also observe that the details are available in the laptop only for a period of three months. Section 36B specifies that computer printout will be admissible only when it is established that the computer has been used regularly in the ordinary course of activities to store such information. Since, this aspect has not been established; the adjudicating authority has rightly chosen to disregard this piece of evidence. Whenever allegations of clandestine clearances are made, the onus is clearly on the Revenue to establish the clandestine manufacture and clearance of the goods on the basis of tangible and reliable evidence. The onus on the department is even more in the case of units which are under physical control such as the respondent s factory which is manufacturing cigarettes - Revenue has failed to prove conclusively that the respondent has clandestinely manufactured and removed cigarettes and evaded the Central Excise duty. The evidence marshalled by the Revenue has been proved to be grossly inadequate to discharge the burden of conclusively establishing clandestine clearance. The evidence on record at best raises a doubt in our mind but fails to establish the charge of clandestine clearance. The evidence is proved to be grossly inadequate even by the yardstick of preponderance of probability. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Allegation of clandestine manufacture and removal of cigarettes.
2. Validity of statements recorded under duress and their subsequent retraction.
3. Admissibility and reliability of computer printouts as evidence.
4. Evaluation of transportation documents and efficiency reports.
5. Physical control of the factory and the role of departmental officers.
6. Procurement of raw materials for alleged clandestine manufacture.
7. Evidence of payments for raw materials and receipt of payments for clandestine sales.

Detailed Analysis:

1. Allegation of Clandestine Manufacture and Removal of Cigarettes:
The primary allegation was that the respondent clandestinely manufactured and removed cigarettes without paying the requisite Central Excise duty. The quantification of the alleged clandestine clearances was based on computer printouts from a laptop seized from Shri Marvin Ali, General Manager of the respondent's factory. However, the statements initially admitting to clandestine clearances were later retracted, and during cross-examination, Shri Ali asserted that his statements were recorded under duress.

2. Validity of Statements Recorded Under Duress and Their Subsequent Retraction:
The Commissioner found that the statements of Shri Marvin Ali, which were initially used to support the allegations, were unreliable due to his retraction and claims of coercion. The retraction was made before a civil court, and the Commissioner held that no credence could be given to such retracted statements.

3. Admissibility and Reliability of Computer Printouts as Evidence:
The computer printouts were deemed inadmissible under Section 36B of the Central Excise Act since it was not established that the computer was used regularly in the ordinary course of activities to store such information. The Commissioner thus disregarded this piece of evidence.

4. Evaluation of Transportation Documents and Efficiency Reports:
The transportation documents (GRs) recovered from M/s Shalimar Cargo and Seva Roadways did not specify the description of goods transported. The Commissioner observed that on the basis of such evidence, a duty demand could not be raised. Additionally, the efficiency reports for July and August 2003, which allegedly showed higher production, were explained during cross-examination as involving machines capable of producing both filter and non-filter cigarettes interchangeably.

5. Physical Control of the Factory and the Role of Departmental Officers:
The factory was under physical control, with departmental officers supervising clearances. The Commissioner noted that there was no evidence of collusion between the officers and the respondent. The officers' statements supported the respondent's claim that no clandestine removal occurred.

6. Procurement of Raw Materials for Alleged Clandestine Manufacture:
The Commissioner highlighted that no evidence was presented regarding the procurement of raw materials necessary for the alleged clandestine manufacture of cigarettes. The investigation failed to establish how the respondent procured such materials without detection.

7. Evidence of Payments for Raw Materials and Receipt of Payments for Clandestine Sales:
There was no evidence of payments made for the purchase of raw materials or receipts from the sale of alleged clandestinely removed cigarettes. The Commissioner concluded that without such evidence, the charge of clandestine removal could not be substantiated.

Conclusion:
The Commissioner concluded that the investigation failed to produce tangible and concrete evidence to prove the clandestine manufacture and removal of cigarettes by the respondent. The demand for Central Excise duty amounting to ?5,40,66,655 was dropped, and no penalties were imposed on the respondent or other co-noticees. The appeal filed by Revenue was dismissed, upholding the impugned order.