2018 (4) TMI 106 - AT - Central Excise

Clandestine removal - Revenue entertained a view that the manufacturing units engaged in the manufacture of Footwear Soles were clearing their final product in a clandestine manner - the entire case of the Revenue is based upon the print outs taken from the Pen drives seized and recovered from the premises of one M/S. BES Traders Agara. Held that - Admittedly the factories of TFEPL and RCI were also visited by the central excise officers on the same very day and searches were conducted. No discrepancy either in the stock of the raw material/inputs/packing goods or in the final product was detected by the visiting officers. The entire case of the Revenue is based upon the prints outs seized from the premises ofM/s.BES, which is a third party premises - It is well settled law that the documents recovered from the premises of the third parties are required to be dealt with, with a caution and requires further corroboration in the shape of the evidences directly related to the manufacturing units in question. The pen drives recovered from the premises of an independent trader cannot be held to be proper evidence for arriving at the findings of clandestine removal Revenue has not made any efforts to establish the factum of clandestine manufacture of the goods by the appellants. No investigations stand made by the Revenue as regards procurement of the huge raw material, as also the packaging material and their actual manufacture in the appellant's factory. Statement of neither of their employees or production manager stand recorded. Apart from the fact that the Revenue has failed to establish the allegation of clandestine removal, it is also noted that the appellant have produced on record the Chartered Accountant certificate submitting that the production capacity of both the factories was incapable of producing such huge quantum of excisable goods as alleged by the Revenue. It is well settled law that the onus to prove clandestine activities is on the Revenue and is required to be discharged by producing positive, cogent and justifiable evidences - In the present case, no such evidence being available, the findings of clandestine removal cannot be upheld against the two manufacturing units. Penalty on Directors - Held that - having held that the clandestine removal findings are unsustainable, penalties imposed on the Directors are also set aside. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Admissibility and reliability of evidence from pen drives.
2. Status of M/s BES Traders as an independent entity or a dummy unit.
3. Compliance with Section 36B of the Central Excise Act.
4. Lack of corroborative evidence for clandestine removal.
5. Imposition of penalties and confiscation of goods.

Issue-wise Detailed Analysis:

1. Admissibility and Reliability of Evidence from Pen Drives:
The department's case was primarily based on printouts from pen drives seized from M/s BES Traders. The appellants argued that the pen drives from which the printouts were taken were different from those seized, indicating substitution. The Tribunal found merit in this argument, noting discrepancies in the make of the pen drives. It was held that such printouts could not be relied upon without fulfilling the conditions of Section 36B of the Central Excise Act.

2. Status of M/s BES Traders:
The Revenue contended that M/s BES Traders was a dummy unit controlled by the appellants. However, the Tribunal found that M/s BES Traders was an independent entity based on documentary evidence such as VAT returns, Income Tax returns, and balance sheets. The Tribunal criticized the adjudicating authority for not examining the proprietor, Shri Surinder Khanna, and disregarding documentary evidence in favor of retracted statements.

3. Compliance with Section 36B of the Central Excise Act:
The Tribunal emphasized that for computer printouts to be admissible as evidence, the conditions under Section 36B must be strictly complied with. The Tribunal noted that the Revenue failed to meet these conditions, rendering the printouts inadmissible. Previous case law, such as Ambica Organics and Premier Instruments & Controls Ltd., was cited to support this position.

4. Lack of Corroborative Evidence for Clandestine Removal:
The Tribunal observed that the Revenue did not produce any corroborative evidence to support the allegations of clandestine removal. No discrepancies were found in the stock of raw materials or finished products during the search. There was no evidence of unaccounted raw material procurement, additional electricity consumption, or cash transactions. The Tribunal held that assumptions and presumptions could not replace tangible evidence.

5. Imposition of Penalties and Confiscation of Goods:
Given the lack of evidence for clandestine removal, the Tribunal set aside the penalties imposed on the appellants and their directors. The confiscation of goods from M/s BES Traders and the trading premises was also set aside due to the absence of evidence linking the goods to the appellants' manufacturing units. The Tribunal reiterated that the onus to prove clandestine activities lies with the Revenue, which failed to discharge this burden.

Conclusion:
The Tribunal set aside the impugned order in its entirety, allowing the appeals with consequential relief. The judgment emphasized the necessity of adhering to legal standards for evidence and the requirement for positive, tangible proof in cases of alleged clandestine activities.

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