2017 (7) TMI 1027 - AT - Central Excise

Clandestine manufacture and removal - undervaluation - shortages and excesses of raw material and finished goods - Held that - the learned Commissioner has erred in his findings based on the submissions and admission made by the appellant-RPIL before Settlement Commission, which are wholly against Section 32 E(1) of the Act. The learned Commissioner has also erred in relying on the case made out by the investigation, in view of the glaring fact that Shri. S.G. Gupta has stated that the said private record contains entries relating to RPIL-appellant, Premier Polyfilm Ltd. and his personal affairs. No effort was made by investigation in segregating entries with respect to particular company and/or the appellant leading to erroneous conclusion by declaring all the transactions recorded in the said diary/private ledgers as attributable to appellant RPIL. Further, Shri. S.G. Gupta has categorically stated that no clearance have been made by RPIL without issuance of invoice. Further, during entire investigation or even till the adjudication, no person other than Shri S.G. Gupta had admitted the case of clandestine removal or under valuation by RPIL. There is no evidence produced to establish that there has been flow back of any funds to establish under valuation and therefore under valuation is also not established in the present case. Therefore, while setting aside the demand of duty raised on account of clandestine removal or under valuation, we also set aside the impugned order. As regard confiscation, we found that the Panchnama does not refer to any method of verification of stock, which was otherwise not possible in such a short span of time. Further, the show cause notice referred to statements of Shri Dwarika Dhish Sharma and Shri S.G. Gupta on the spot in this regard whereas no such statement was produced or found on record (RUD). The goods were very well in the factory and not even a single roll was found kept outside or in concealed manner or loaded on vehicle for removal without duty. Mere holding of the explanation as afterthought was not sufficient to confiscate the goods. As regard demand of duty on account of shortage during stock verification, we set aside the same also on the basis of observation made above. We also set aside the confiscation and we hold that the penalties as imposed under Rule 26 are erroneous. As regards under valuation, it is observed that but for the entries in the records of Shri S.G. Gupta, no other evidence is adduced by the Department. None of the customers or even any other employee of RPIL had accepted the same. Here again it is observed that when the personal records of Shri S.G. Gupta were having information mainly of PPL, no case otherwise could be made against the appellant, as no incriminating document or corroborating evidence of whatsoever nature was brought on record against RPIL. We also fail to understand as to why Department did not make enquiry against PPL in spite of having such information at the beginning of their investigation. Therefore, we hold that the department has miserably failed to make out case against the appellant. It is a well settled law that the charge of clandestine removal and under valuation being serious charge, the department is required to produce corroborative evidence, which the department has failed in the instant case. Accordingly, we allow all the appeals. The penalty under Rule 26 is not warranted against all co-appellants in view of there being no proposal of confiscation in the relevant show cause notice, apart from our findings given above that no case of demand of duty and penalty is otherwise made out. Appeal allowed - decided partly in favor of appellant.

Issues Involved:
1. Clandestine manufacture and clearance of finished products.
2. Undervaluation of clearances.
3. Liability for duty regarding shortages and excesses of finished goods and raw materials.
4. Confiscation of excess goods and raw materials.
5. Validity of evidence and statements used in the adjudication process.
6. Imposition of penalties under Rule 26 of CER, 2002.

Issue-wise Detailed Analysis:

1. Clandestine Manufacture and Clearance of Finished Products:
The main appellant, RMG Polyvinyl India Limited (RPIL), was accused of clandestinely manufacturing and clearing finished products, resulting in a duty demand of ?3,98,60,686/-. The investigation revealed discrepancies in the stock records and private ledgers seized from the premises, indicating possible clandestine activities. However, the Tribunal found that the evidence was insufficient to prove clandestine manufacture and clearance. The statements of Shri S.G. Gupta, the Executive Director, and other employees did not conclusively establish clandestine activities. The Tribunal emphasized that no corroborative evidence, such as unaccounted raw materials or finished goods, was found to support the allegations.

2. Undervaluation of Clearances:
RPIL was also accused of undervaluing clearances, resulting in a duty demand of ?7,18,574/-. The investigation relied on private ledgers and writing pads that allegedly recorded higher values than the statutory invoices. However, the Tribunal noted that the evidence was not corroborated by any other records or statements from customers. The Tribunal found that the private records contained entries related to both RPIL and Premier Polyfilm Ltd. (PPL), and no effort was made to segregate the entries. Therefore, the allegations of undervaluation were not substantiated.

3. Liability for Duty Regarding Shortages and Excesses of Finished Goods and Raw Materials:
The investigation found discrepancies in the stock of finished goods and raw materials during physical verification. RPIL was held liable for duty on the shortages and excesses detected. However, the Tribunal found that the method of stock verification was not adequately explained, and the explanations provided by Shri Dwarika Dish Sharma, Store Manager, were not properly considered. The Tribunal held that the discrepancies in stock were not sufficient to establish liability for duty without corroborative evidence.

4. Confiscation of Excess Goods and Raw Materials:
The investigation led to the confiscation of excess finished goods valued at ?1,13,97,502/- and raw materials valued at ?54,146/-. The Tribunal found that the confiscation was not justified as the goods were found within the factory premises and not in a concealed manner. The Tribunal set aside the confiscation and the associated penalties, noting that the explanations provided by RPIL regarding the excess goods were not adequately considered.

5. Validity of Evidence and Statements Used in the Adjudication Process:
The Tribunal found that the evidence and statements used in the adjudication process were not reliable. The statements of Shri S.G. Gupta were recorded in Hindi and translated into English, leading to discrepancies. The private records seized from Shri Gupta's briefcase contained entries related to both RPIL and PPL, but no effort was made to segregate the entries. The Tribunal also noted that the reliance on submissions made before the Settlement Commission was not permissible under the law.

6. Imposition of Penalties Under Rule 26 of CER, 2002:
Penalties were imposed on RPIL and its directors under Rule 26 of CER, 2002. The Tribunal found that the penalties were not justified as the allegations of clandestine manufacture, clearance, and undervaluation were not substantiated. The Tribunal also noted that the penalties were imposed based on the statements of Shri S.G. Gupta, which were not reliable. The Tribunal set aside the penalties imposed on RPIL and its directors.

Conclusion:
The Tribunal allowed the appeals filed by RPIL and its directors, setting aside the demand of duty, confiscation of goods, and penalties imposed. The Tribunal held that the evidence was insufficient to prove clandestine manufacture, clearance, and undervaluation. The explanations provided by RPIL regarding the discrepancies in stock were not adequately considered, and the reliance on submissions made before the Settlement Commission was not permissible. The Tribunal emphasized the need for corroborative evidence to establish allegations of clandestine activities and undervaluation.

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