2017 (8) TMI 778 - AT - Central Excise

Clandestine removal - On physical verification of stock of finished goods shortage of finished products to the extent of 88.209 MT was noticed - demand confirmed on the basis of the kachha slips and inculpatory statements given by Sh. J. D. Pant General Manager as well as Sh. Prem Chand Jain Director - Held that - since the adjudicating authority has given detailed findings that all the goods covered by 25 kachha parchis have been cleared on payment of duty we find no reason to take a different view. The allegation of clandestine removal has been upheld in respect of goods mentioned in the seven parchis only on the basis of inculpatory statements given by Sh. J.D. Pant General Manager and Sh. P.C. Jain Director. We find from the record that Revenue has not undertaken any verification either with the buyers or even with the transporters. No investigation appeared to have been carried out to prove that such goods were manufactured in the factory but not accounted for. Clandestine clearance is a serious allegation and needs to be established on the basis of tangible evidence. It is well established fact that only on the basis of the inculpatory statement the charges of clandestine clearance cannot be upheld - The inculpatory statements given by the General Manager and Director also do not specifically cover the seven parchis. In the absence of any corroborative evidence to indicate that the goods covered by seven parchis were cleared by the appellant we are of the view that the charge of clandestine clearance and demand of duty cannot be sustained. Appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Alleged clandestine removal of finished goods without payment of duty.
2. Validity of statements recorded under Section 14 of the Central Excise Act.
3. Correlation of physical verification report with modus operandi.
4. Discrepancy in slips and invoices leading to duty demand.
5. Imposition of penalties under Section 11AC and Rule 26.

Issue 1: Alleged clandestine removal of finished goods without payment of duty

The Central Excise Officers conducted search operations based on information regarding clandestine removal of finished goods without duty payment. Physical verification revealed a shortage of finished products, leading to a demand of Central Excise duty. The demand was contested on the grounds that some slips correlated with excise invoices, indicating duty paid clearances, while others did not materialize due to reasons like order cancellations. The Commissioner upheld a demand of ?30,01,451 for clandestine clearance, dropping a demand of ?30,85,849. Penalties were imposed on the General Manager and Director.

Issue 2: Validity of statements recorded under Section 14 of the Central Excise Act

The appellant contested the relevance of statements recorded under Section 14 without cross-examination, alleging coercion and lack of summons during recording. The Commissioner considered these statements along with physical verification reports. The appellant argued that the statements did not specifically cover certain slips, and without corroborative evidence, the charge of clandestine clearance could not be sustained. The Tribunal noted that charges of clandestine clearance require tangible evidence and cannot solely rely on inculpatory statements.

Issue 3: Correlation of physical verification report with modus operandi

The appellant raised concerns about the physical verification report not being correlated with the modus operandi, lacking details on the method of verification. The Commissioner, however, examined the slips and invoices, finding correlation in 25 cases where goods were cleared on duty payment. The Tribunal upheld the dropping of demand for these cases, as the goods were cleared with duty payment as per records.

Issue 4: Discrepancy in slips and invoices leading to duty demand

The demand was based on 32 slips recovered during search proceedings. The appellant demonstrated that 25 slips correlated with invoices, indicating duty paid clearances. However, for seven slips, the appellant could not provide proof of goods clearance under invoices without duty payment. The Commissioner upheld the demand for these seven slips based on inculpatory statements. The Tribunal found that the charge of clandestine clearance lacked corroborative evidence and could not be sustained.

Issue 5: Imposition of penalties under Section 11AC and Rule 26

Penalties equal to the confirmed duty were imposed on the General Manager and Director under Section 11AC and Rule 26. The Tribunal allowed the appeals filed by the appellant-assessee, General Manager, and Director, rejecting the Revenue's appeal. It emphasized the need for tangible evidence to establish charges of clandestine clearance and upheld the dropping of demand where goods were cleared with duty payment.

This detailed analysis of the judgment highlights the key issues, arguments presented, findings of the Commissioner, and the Tribunal's decision on each aspect of the case.