2018 (10) TMI 1199 - AT - Central Excise

Clandestine removal - the entire case of the Revenue is based upon the hand written rough entries made in the two registers - Held that - It is seen that apart from the said rough entries made in the two sheets, there is virtually no other evidence to establish that the appellant manufactured and cleared their final products in a clandestine manner. Even Vinod Kumar has disputed the fact that the said entries were in his hand writing - there is no evidence of receipt of excess raw material, there conversion into final products and there clearance to the identified buyers. It is well settled law and does not require the support of any precedent decision that such rough entries in the register found from the residential premises, by itself, without their being any corroborative evidences cannot lead to the findings of clandestine activities. Appeal allowed - decided in favor of appellant.

Issues:
1. Confirmation of demand against M/s Good Kare Medico Pvt. Ltd.
2. Imposition of penalty on M/s Good Kare Medico Pvt. Ltd.
3. Imposition of penalty on Shri Vinod Kumar, Director.
4. Allegations of clandestine clearances based on rough entries.
5. Lack of corroborative evidence for clandestine activities.
6. Compliance with Small Scale Exemption Notification.

Confirmation of demand against M/s Good Kare Medico Pvt. Ltd.:
The appeals arose from the confirmation of a demand of ?21,50,736 against M/s Good Kare Medico Pvt. Ltd., along with an identical penalty. The company was engaged in manufacturing allopathic medicines under Chapter Heading No.3004 and availed the benefit of a Small Scale Exemption Notification. Central Excise Officers conducted checks at their unit and the residence of the Director, Shri Vinod Kumar, where hand-written sheets suggesting clandestine clearances were found. The Revenue initiated proceedings based on these findings, leading to the impugned order.

Imposition of penalty on M/s Good Kare Medico Pvt. Ltd. and Shri Vinod Kumar, Director:
In addition to the demand confirmation, penalties were imposed on M/s Good Kare Medico Pvt. Ltd. and Shri Vinod Kumar under Rule 26 of Central Excise Rules, 2002. The penalties were of identical amounts, with an extra ?5,00,000 imposed on Shri Vinod Kumar. The penalties were a result of the alleged clandestine activities based on the hand-written sheets found during the searches.

Allegations of clandestine clearances based on rough entries:
The Revenue's case primarily relied on rough entries in two registers found during the searches. The Commissioner (Appeals) noted that these entries lacked details about the products and production, questioning the authenticity of the records. The absence of separate records for production and clearances of generic medicines raised doubts about the appellant's compliance as an SSI Unit. The entries found at Shri Vinod Kumar's residence were considered as evidence of clandestine clearances, leading to the demand confirmation and penalties.

Lack of corroborative evidence for clandestine activities:
The Tribunal observed that besides the rough entries, there was a lack of substantial evidence to prove clandestine manufacturing and clearances. Shri Vinod Kumar disputed the handwriting on the entries, and there was no evidence of excess raw material receipt, conversion into final products, or clearance to buyers. The Tribunal emphasized that rough entries alone, without corroborative evidence, cannot establish clandestine activities, leading to the decision to set aside the impugned order and allow both appeals.

Compliance with Small Scale Exemption Notification:
The appellant's argument of being a Small Scale Industry (SSI) Unit and not required to maintain records in a specific format was dismissed by the Commissioner (Appeals) due to the fundamental importance of recording production and clearances. The lack of proper records raised concerns about compliance, contributing to the allegations of clandestine activities. However, the Tribunal found no substantial grounds to uphold the impugned order, ultimately allowing both appeals.

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