2018 (11) TMI 1081 - AT - Central Excise

Clandestine manufacture and removal - unaccounted purchase of raw materials - Department has heavily relied on the data retrieved from the pen drive and the CPU/HD of the PCs kept in the factory-cum-office - Section 36B of the Central Excise Act, 1944 read with Section 65B of the Evidence Act, 1872. Held that - The appellant has no grouse that the condition in clause (1) of Section 36B for retrieving the data from the pen drive/computer is not complied with. The only grievance put forward is that these being private documents and not documents kept in ordinary course of business, cannot be relied. From the facts, it is brought out that Shri Vivek Agarwalla, CEO of the appellant-company has deposed on several occasions that the details were entered by him in the pen drive seized by officers and the same were maintained for the purpose of reporting to Ms. Uma, DGM (Finance) in their head office at Chennai. This being the fact, it cannot be stated that the data was not part of the day-to-day activities of the company. Section 36B does not mention the word private documents , but provides that the computer printout contained in the statement was produced by the computer which was used regularly to store or process information for the purposes of activities regularly carried over by the person having lawful control over the use of the computer . It can be reasonably understood that in clandestine clearances, the assessee will have hidden or parallel transactions, which are not reflected in the statutory records or records submitted before the authorities. Merely because such accounts are hidden from the authorities would not make the records unreliable. It is also pertinent to mention that the pen drive etc., was submitted before Government Examiner of Questioned Documents and a report called for. It is not reported that the data contained therein was tampered in any manner - the contention of the appellant that the data retrieved from the pen drive is private records and, therefore, not admissible as per section 36B is unacceptable. Apart from the pen drive, the departmental officers also recovered spiral pad, my writing pad, notebook which were seized under a mahazar from the factory of the appellants. Shri Vivek Agarwalla stated that in spiral pad, bills for the period 01.01.2008 to 18.03.2008 were entered. The document, namely, my writing pad and notebook contained the bills for the period Jan 08, Feb. 08 and Mar, 08. He has admitted that these were handwritten by him - Another evidence, which is relied by the department is the weighment slip books, which contains details of inward movement of ingots/raw materials and outward movement for TMT bars end melting etc., and finished products. Shri Mantu is the person in-charge of weighment. It can be seen that apart from statements, the documents recovered from the appellant s-factory supports the case of clandestine clearance alleged in the show-cause notice. The argument of the learned counsel that the whole case is based on statements only and not supported by any corroborative evidence is, therefore, without any factual basis. Quantification of demand in SCN - Held that - The appellants have adopted the opening balance of raw material from Form-IV register maintained by them. When the unaccounted purchase of raw materials has been brought to light from the data retrieved from pen drive as well as the data recovered from M/s. Hitech Industries P. Ltd., and other evidences, the strong inference that can be drawn is that the entries in the statutory register such as, Form-IV register cannot be relied or adopted. Therefore, the conclusion of the adjudicating authority that the worksheet prepared by the appellant adopting the figures of Opening Stock as in Form-IV cannot represent the actual receipt and issue of raw material finds favour. Time limitation - Held that - The bench made a specific query as to whether the appellants contend that these are illegal gratifications made by appellant to the department. The learned counsel for the appellant opted not to answer to such query. If the appellant is not able to explain the figures, then there is no cause of alleging that these are amounts paid to the department and, therefore, department was in full knowledge of their clandestine activities. In any case, this is not sufficient ground to hold that the appellant has not suppressed any facts - the appellant has miserably failed to establish that the demand is ht by limitation. The demand of duty and interest thereon as well as equal penalty imposed under section 11AC does not call for interference - the penalty of ₹ 30,00,000/- imposed on Shri Vivek Agarwalla and ₹ 10,00,000/- imposed on Shri Sanjay Agarwalla under Rules 26 of Central Excise Rules, 2002 is on the higher side, and the same is reduced - appeal allowed in part.

Summary

Issues Involved:
1. Admissibility of evidence retrieved from electronic devices.
2. Alleged clandestine manufacture and clearance of goods.
3. Quantification of duty demand.
4. Limitation period for issuing the show-cause notice.
5. Penalties imposed on individuals.

Issue-wise Detailed Analysis:

1. Admissibility of Evidence Retrieved from Electronic Devices:
The primary evidence relied upon by the department included data retrieved from a pen drive, CPUs, hard disks, and various handwritten documents. The appellant contended that these were private documents not maintained in the ordinary course of business and thus inadmissible under Section 36B of the Central Excise Act, 1944. However, it was established that the data was regularly entered by the CEO for reporting to the head office, making it part of the business activities. The Tribunal held that clandestine records, even if not reflected in statutory records, are admissible if maintained in the ordinary course of business. The data was also corroborated by the Government Examiner of Questioned Documents, confirming no tampering.

2. Alleged Clandestine Manufacture and Clearance of Goods:
The department's investigation revealed unaccounted transactions through data in the pen drive marked as "K" (Kacha) for unaccounted transactions and "P" (Pucca) for accounted transactions. Statements from suppliers and buyers corroborated these findings. The Tribunal found that the evidence from the pen drive, along with corroborative documents and statements, sufficiently established the clandestine activities of the appellant.

3. Quantification of Duty Demand:
The appellant argued that the duty demand was based on erroneous calculations, leading to a negative balance of raw materials. The Tribunal noted that the appellant's worksheet adopted figures from statutory records, which were unreliable given the proven unaccounted transactions. The department's quantification, based on data from the pen drive and corroborative evidence, was upheld as accurate.

4. Limitation Period for Issuing the Show-Cause Notice:
The appellant argued that the extended period of limitation was inapplicable as the department was aware of the activities, citing entries in the pen drive indicating payments to Central Excise officials. The Tribunal dismissed this argument, finding no evidence that these entries indicated departmental knowledge of clandestine activities. The extended period was justified due to the suppression of facts.

5. Penalties Imposed on Individuals:
The Tribunal upheld the penalties imposed under Section 11AC of the Central Excise Act, 1944, on the appellant company. However, it found the penalties on individuals to be excessive. The penalty on Shri Vivek Agarwalla was reduced from ?30,00,000 to ?5,00,000, and on Shri Sanjay Agarwalla from ?10,00,000 to ?1,00,000.

Conclusion:
The Tribunal concluded that the demand of duty and interest, as well as the penalty under Section 11AC, were justified and did not warrant interference. The penalties on individuals were reduced, and the appeals were partly allowed with consequential reliefs.