2017 (5) TMI 278 - AT - Central Excise

Clandestine removal - associated enterprises - goods cleared without accounting in RG-I register and without raising invoices and making payment of duty - Held that - From the explanation of each record/private entries made by the appellant comparing the entries with the CENVAT invoices leads to a probable conclusion that the private records do not reflect dispatch or clearance of goods per se - there is no evidence of receipt of any excess quantity of raw materials for the alleged excess production which the department alleges to have been clandestinely removed by the appellant. Being bulk drugs/intermediaries the department has to establish the receipt of raw materials for the production of the goods. The raw materials of such specialized products cannot be considered to be easily available in local market. The sellers who supplied the excess raw materials are not in picture. There is no evidence of extra usage of electricity or any evidence for transportation of such clandestinely removed goods. There is no evidence for payment/receipt of money for excess inputs, extra labour and also payments made from the buyers end. In Dekon India Vs CCE, Kolkata-II 2004 (2) TMI 181 - CESTAT, KOLKATA the Bench held that entries made in the plan diary cannot be basis to conclude that goods have been clandestinely removed. When the department is relying on private entries in some loose sheets/note books, the department has to complete the chain of purchase of inputs to production and removal in respect of the figures found in such private records. It is settled law that allegation of clandestine production and clearance is to be made only when the department has concrete evidence of un-accounted receipt of raw materials, its consumption and un-accounted production. The clandestine clearance has to be supported by evidence of transportation of material and also flow back of cash - there is no evidence to establish clandestine clearance of goods - demand is unsustainable - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Allegation of clandestine clearance of goods.
2. Allegation of fraudulent availment of CENVAT Credit.
3. Discrepancies in private records and statutory documents.
4. Rivalry between company directors affecting the case.
5. Reliability of evidence and statements recorded.

Detailed Analysis:

1. Allegation of Clandestine Clearance of Goods:
The main appellant, SS Organics Ltd. (SSOL), was accused of clandestine clearance of bulk drugs to Coral Drugs Ltd. (CDL) without proper invoicing and duty payment. The investigation revealed that SSOL did not account for finished products in their RG-I registers, cleared goods without raising invoices, and collected sale proceeds in cash. The original authority confirmed a duty demand of ?30,08,927/- along with interest and imposed penalties on the company and its directors.

2. Allegation of Fraudulent Availment of CENVAT Credit:
The original authority also confirmed a demand of ?11,95,213/- towards CENVAT Credit fraudulently availed by SSOL. However, the Commissioner (Appeals) set aside the demand related to fraudulent availment of CENVAT credit, which was upheld by the Tribunal in a separate appeal (Appeal No.E/884/2009).

3. Discrepancies in Private Records and Statutory Documents:
The appellant argued that the allegations were based on loose papers and private records maintained by quality control staff, which were not verified against statutory records. The Commissioner (Appeals) had directed the adjudicating authority to verify actual clearance with private records and allow cross-examination, which was allegedly not complied with during denovo proceedings. The appellant provided detailed replies and charts comparing private records with excise invoices, showing that the quantity cleared by issuing excise invoices was higher than the quantity alleged to be cleared clandestinely.

4. Rivalry Between Company Directors Affecting the Case:
There was a noted rivalry between the directors of SSOL, with Sh. Subba Reddy having taken control of the company during the relevant period and making statements incriminating Sh. V.N. Sunanda Reddy. The Tribunal acknowledged that the rivalry could have influenced the evidence, as noted in the Final Order No.A/31388/2016 dated 15.12.2016.

5. Reliability of Evidence and Statements Recorded:
The Tribunal emphasized that private records alone, without corroborative evidence such as excess raw material purchase, power consumption, or transportation records, were insufficient to prove clandestine clearance. The appellant argued that the private records were scribblings by quality control staff and not dispatch records. The department did not conduct investigations with buyers like Cipla and Dr. Reddy’s Laboratories to verify the alleged clandestine clearances. The Tribunal referenced similar cases where demands based on private records were not upheld due to lack of supportive evidence.

Conclusion:
The Tribunal found that the evidence presented, primarily private records and statements influenced by internal rivalry, was insufficient to establish clandestine clearance. The demand of ?30,08,927/- was deemed unsustainable, and the impugned order was set aside, allowing the appeals with consequential reliefs. The judgment highlighted the necessity of concrete evidence to support allegations of clandestine production and clearance.

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