2018 (5) TMI 820 - HC - Central Excise

Clandestine removal - validity of evidences - Whether ld. CESTAT, New Delhi has erred in brushing aside the vital evidences in the form of voluntary statements of the Director of the assessee respondent Company which was corroborated by the reports of the test samples and in turn setting aside the order of the Adjudicating Authority? - penalty on assessee u/r 26 of CER, 2002. Held that - in the statement of Director and laboratory report, there is nothing on record to establish that the manufacturing process has taken place either by way of electricity bills, labour charges, transport charges or any corroborative piece of evidence is available. The department has not gone beyond the approximation and the statement of Shri Agarwal. Any prudent person would not so conclude on extra production by approximation and by a mere statement of the Director of the company. Unless there are further corroborations in the form of documentary evidences, which could be like despatch details for the production, receipt details of the said material, transactions of the sale money, transportation details of such goods, details of additional consumption of electricity for such suppressed production a prudent individual would not agree with the present conclusions of the Revenue. There is nothing on record from the Revenue side to come to a reasonable conclusion to say that there has been preponderance of probability of such suppressed production on the part of the appellant - The evidences in the form of approximation and averaging production as 77.6% and one statement of Shri Agarwal, Director of the appellant company cannot be called a prudent conclusion of the production estimate. Impugned order set aside - appeal dismissed - decided against Revenue.

Issues Involved:
1. Whether the CESTAT erred in disregarding the voluntary statements of the Director of the assessee company corroborated by test sample reports and setting aside the order of the Adjudicating Authority.
2. Whether the CESTAT erred in deleting the penalty levied upon the assessee under Rule 26 of the Central Excise Rules, 2002.

Detailed Analysis:

Issue 1: Disregarding Voluntary Statements and Test Sample Reports
The appellant challenged the tribunal's decision to partly allow the assessee's appeal, arguing that the tribunal erred in brushing aside the voluntary statements of the Director of the assessee company, which were corroborated by test sample reports. The Director had stated that the yield of zinc oxide from zinc was 120% and that the minimum content of zinc in various forms imported was 70%. Test reports confirmed zinc content of 81.50% and 96.40%. The Anti-Evasion team inferred that the minimum output should have been 84% of the inputs used. However, it was found that the assessee had suppressed the production of 1,545.047 MT of zinc oxide, valued at ?14,12,68,835, evading central excise duty amounting to ?2,30,39,602.

The tribunal's reliance on the judgment of the Allahabad High Court in Continental Cement Company vs. Union of India was contested by the appellant. The appellant argued that the tribunal's decision was based on an incorrect application of the law and that the voluntary statements and corroborative test sample reports were substantial evidence of suppressed production and evasion of duty.

Issue 2: Deletion of Penalty Under Rule 26
The appellant also challenged the tribunal's decision to delete the penalty levied upon the assessee under Rule 26 of the Central Excise Rules, 2002. The tribunal concluded that the department had not provided sufficient corroborative evidence to support the allegations of suppressed production and clandestine removal. The tribunal noted that the department's case was primarily based on approximations and the Director's statement without further documentary evidence such as dispatch details, receipt details, transaction records, or additional consumption of electricity.

The tribunal's decision was supported by several judgments, including:
1. Krishna Screen Art vs. Commissioner of Central Excise: The tribunal's conclusions were based on multiple factors and not solely on the proprietor's statement.
2. Commissioner of Central Excise vs. Sarin and Sarin: The tribunal erred in ignoring material evidence and setting aside penalties without proper justification.
3. Tulip Lamkraft Pvt. Ltd. vs. Commissioner of Central Excise: Unretracted confessional statements and matching diary entries were sufficient evidence of clandestine removal.
4. Subodhchandra and Co. vs. Dy. Commissioner of Income Tax: The tribunal must consider new evidence produced for the years under consideration.
5. Commissioner of Central Excise vs. Kalvert Foods India Pvt. Ltd.: Voluntary statements made to Central Excise Officers could be relied upon unless obtained through coercion.
6. Commissioner of C. Ex., Madras vs. Systems and Components Pvt. Ltd.: Admitted positions by the party need not be proved.
7. K.I. Pavunny vs. Asstt. Collr. (HQ), C.Ex. Collectorate, Cochin: Retracted confessional statements require corroboration but can form the sole basis for conviction if voluntary and truthful.
8. Collector of Customs, Madras and Ors. vs. D. Bhoormall: Circumstantial evidence can suggest illicit importation if it reasonably points towards such a conclusion.

The tribunal concluded that the department failed to provide sufficient corroborative evidence to prove suppressed production and clandestine removal. The reliance on approximations and the Director's statement without further documentary evidence was insufficient to sustain the allegations. Consequently, the tribunal set aside the duty demand and penalties, except for the duty on short-found inputs, which was sustained.

Conclusion:
The appeals were dismissed, and the issues were resolved in favor of the assessee, with the tribunal's decision to set aside the duty demand and penalties being upheld. The tribunal's reliance on the judgment of the Allahabad High Court and other supporting judgments was deemed appropriate, and the department's failure to provide sufficient corroborative evidence was a critical factor in the decision.

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