2018 (9) TMI 740 - AT - Central Excise

Clandestine manufacture and removal - shortage of raw materials, shortage of finished goods, unaccounted HDPE bags - Exoneration of accused - Held that - After appreciating entire evidence which is the fulcrum of allegations and the adjudication proceedings against the assessee and Shri M.M. Reddy, the Special Judge acquitted the assessee and Shri M.M. Reddy the offences which are alleged under the provisions of the Section 9 and Section 9 -AA of Central Excise Act, 1944. The law is fairly settled in such situation wherein, the criminal proceedings as well as adjudication proceedings are based upon the same set of evidences and if entails an exoneration by one court, it can be considered to exonerate from other proceedings. It has to be recorded here that in the cases in hand before me, the evidences relied upon by the Revenue in the adjudication proceedings were the same as were relied upon before the Learned Special Judge for Economic Offences. The law on the point of exoneration in criminal proceedings, which requires standard of proof beyond all reasonable doubts, has to be considered as yardstick to come to the conclusion proceedings before the Tribunal - In the case in hand, since, prosecution launched against the assessee and the Shri M.M. Reddy was quashed and they were acquitted, the reliance placed by the Revenue in the same set of evidence cannot hold ground to confirm the demands raised along with interest and imposed penalties on appellants. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Confirmation of demands raised with interest and imposition of penalties.
2. Penalty on the Managing Director under Rule 209A of CE Rules, 1944.
3. Confiscation of unaccounted bags under Rule 173Q of CE Rules, 1944.
4. Exoneration in criminal proceedings and its impact on adjudication proceedings.

Issue-wise Detailed Analysis:

1. Confirmation of Demands Raised with Interest and Imposition of Penalties:
The appellants were engaged in the manufacture of cement and were paying duty at a concessional rate. Based on intelligence reports, departmental officers conducted a search and found discrepancies in the physical stock and records, including unaccounted HDPE bags and a shortage of gypsum. The scrutiny revealed suppressed manufacture of cement, leading to a demand of ?17,24,138 for the years 1997-98 and 1998-99. The Additional Commissioner confirmed the demand, imposed interest under Section 11AB, and levied penalties equal to the duty amount under Section 11AC of the Act. The appellants contended that the proceedings were based on presumptions and requested to drop the proceedings, explaining the discrepancies due to evaporation, handling losses, and non-accountal of rejected bags.

2. Penalty on the Managing Director under Rule 209A of CE Rules, 1944:
The Managing Director, Shri M.M. Reddy, faced a personal penalty of ?5,00,000 under Rule 209A. The appellants argued that the case against the Managing Director was weak as the non-accounting of HDPE bags and raw materials could not be considered as evidence of clandestine manufacturing and clearing of cement. They highlighted that the prosecution launched against the Managing Director in the Special Judge for Economic Offences court resulted in acquittal, as there was no incriminating evidence found.

3. Confiscation of Unaccounted Bags under Rule 173Q of CE Rules, 1944:
The Additional Commissioner ordered the confiscation of 20,450 unaccounted PP bags found in the factory. The appellants explained that the bags were purchased from middlemen, and the discrepancies were due to repeating figures and non-accountal of rejected bags. The First Appellate Authority upheld the confiscation order.

4. Exoneration in Criminal Proceedings and its Impact on Adjudication Proceedings:
The appellants argued that the same evidence used in the adjudication proceedings was also used in the criminal prosecution, which resulted in acquittal. The Special Judge for Economic Offences found no material incriminating the accused and acquitted them of the charges under Sections 9(1)(b) and 9(1)(bb) of the Central Excise Act, 1944. The Tribunal considered the judgment of the Special Judge, which appreciated the entire evidence and concluded that the prosecution's case was based on assumptions. The Tribunal referred to the Supreme Court's judgment in Radheshyam Kejriwal v. State of West Bengal, which held that exoneration in adjudication proceedings on merits should influence the criminal proceedings if the allegations are identical.

The Tribunal also referred to the judgment of the Madras High Court in Commissioner of Customs (Import), Chennai v. A. Mohammed, which held that exoneration in criminal proceedings should impact the adjudication proceedings if based on the same set of facts and evidence. The Tribunal concluded that since the prosecution was quashed and the accused were acquitted, the reliance on the same evidence in the adjudication proceedings could not hold ground to confirm the demands and penalties.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals, noting that the exoneration in criminal proceedings influenced the adjudication proceedings. The entire Order-in-Appeal was set aside, and the demands, interest, and penalties were annulled. The Tribunal did not record findings on other submissions made by both sides, as the exoneration point itself was sufficient to decide the case.

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