2018 (8) TMI 473 - AT - Central Excise

Clandestine removal - paints and varnishes - main evidence which has been relied upon by the Revenue are the computer printouts retrieved from the computers, which were seized from the factory as well as office premises of the appellants - whether the appellants indulged in clandestine clearance of paints and varnishes during the period, 2010-11 to 2013-14 or not? Held that - There are serious irregularities in preparing panchnamas both at the factory premises of the appellants as well as their office on different dates. These irregularities are clearly emerging from the cross examination of the two investigating officers namely Sh. B.C. Aggarwal and Sh. Subodh Tiwari. Thereafter, the cross examination of six panchas was also allowed, out of which three panchas appeared for cross examination and other three panchas who did not appear for cross examination. It is evident from the cross examination of the panchas that two of the three panchas were the employees of the appellants and were illiterate persons. Further, they never witnessed the search operations and were only asked to put their signatures at the time of the conclusion of the search operations. Apart from the irregularities in the panchnama proceedings there are also inherent contradictions in the manner in which the seized computers were sealed and de-sealed. The computer which was handed over by the appellants to the investigating officer on 20.10.2012 was never sealed - the entire computer data which has been relied upon substantiate the duty demand to be highly unreliable for want of procedural irregularities. The computer printouts cannot be held to be an admissible evidence unless the conditions as laid in the provisions of Section 36B of the Central Excise Act are fully complied with. A perusal of section 36B would indicate that the Act has prescribed very stringent conditions for computer printouts to be a piece of admissible evidence - the computer printouts in the facts at hand do not fulfill the mandatory provisions of Section 36B-(2) & (4) of the Central Excise Act, in so far as there are serious irregularities about the manner of sealing of the computers as pointed out hereinabove and one computer not sealed at all. The provisions of Section 36B(4) have also not been fully complied with. The charges of clandestine removal of excisable goods can t be upheld merely on assumptions and presumptions but has to be proved with positive evidence such as purchase of excess raw materials, consumption of excess electricity, employment of extra labour, seizure of cash, transportation of clandestinely removed goods etc. - the onus of proof of bringing clinching evidence is on the Revenue. Duty demand cannot sustain - penalties also set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Alleged clandestine clearance of goods.
2. Admissibility and reliability of computer printouts as evidence.
3. Procedural irregularities in seizure and handling of evidence.
4. Cross-examination of witnesses and its impact on evidence.
5. Corroboration of evidence with independent proof.
6. Compliance with Section 36B of the Central Excise Act.

Detailed Analysis:

Alleged Clandestine Clearance of Goods:
The appellants were accused of clandestine clearance of paints and varnishes during the years 2010-11 to 2012-13. The primary evidence relied upon by the Revenue was the computer printouts retrieved from computers seized from the appellants' premises. It was alleged that the unaccounted sales were recorded in the names of fictitious companies, M/s SMB & Co. and SMB PPC & Co., and that the appellants were not eligible for SSI exemption due to these unaccounted sales.

Admissibility and Reliability of Computer Printouts as Evidence:
The appellants contended that the computer printouts could not be admitted as evidence due to non-compliance with Section 36B of the Central Excise Act. This section prescribes stringent conditions for the admissibility of electronic records. The Tribunal found that the computer printouts did not fulfill these mandatory provisions, making them inadmissible. The Supreme Court's judgment in Anwar P.V. Vs. P.K. Basheer, which emphasizes the need for strict compliance with Section 65B of the Evidence Act for electronic records, was cited to support this view.

Procedural Irregularities in Seizure and Handling of Evidence:
There were serious irregularities in the preparation of panchnamas during the seizure of computers. The cross-examination of witnesses revealed that some panchas were not present during the entire search operation and merely signed the panchnamas later. Additionally, the computers were not properly sealed to prevent tampering. These irregularities cast doubt on the reliability of the seized data.

Cross-Examination of Witnesses and Its Impact on Evidence:
The appellants were allowed to cross-examine eleven persons whose statements were against them, but only six appeared for cross-examination. The Tribunal noted that key witnesses, including the digital evidence analyst who cloned the data, did not appear for cross-examination. This failure to allow cross-examination of crucial witnesses further weakened the case of the Revenue.

Corroboration of Evidence with Independent Proof:
The Tribunal found that the computer printouts were not corroborated by any independent evidence. The statements of sales executives and some buyers did not confirm the entries in the printouts. No evidence was provided to show the procurement of unaccounted raw materials, consumption of extra electricity, employment of additional labor, or handling of large cash transactions. The Tribunal emphasized that charges of clandestine removal must be proved with positive evidence, as established in several judgments.

Compliance with Section 36B of the Central Excise Act:
The Tribunal held that the computer printouts could not be admitted as evidence due to non-compliance with Section 36B(2) and (4) of the Central Excise Act. The provisions of Section 36B require specific conditions to be met for electronic records to be admissible, which were not fulfilled in this case. The Tribunal cited multiple judgments to support the view that electronic records must be produced in accordance with the law to be admissible.

Conclusion:
The Tribunal set aside the duty demand confirmed by the adjudicating authority, except for the amount of ?1,95,227/- related to the shortage of stock found during the search. The penalties imposed on the appellants and their partners were also set aside. The appeals were disposed of accordingly.

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