2018 (11) TMI 1278 - AT - Central Excise

Clandestine removal - Pig Iron - it was alleged that the appellant has recorded lower quantity of finished goods in the Daily Stock Account (DSA) and has clandestinely removed the final products i.e. Pig Iron without payment of duty - allegations mainly based on private records - Held that - The entire case is based on the alleged SMS exchanged between the executives of the company. During the visit to the factory on 07.08.2008, the mobile phones of some of the executives were seized and taken away. After several months, the department on their own efforts produced listing of the purported SMS and its contents showing certain figures, which the SCN described as clandestine production and removal - That apart, the fact that the contents of the SMS were discretely ascertained is evident from the comments of Mr. Dipak Pradhan, employee handling IT issues of the assessee company in saying only print outs taken before me . Thus, it appears that the entire SMS listing is unverified and does not bear any authentication or signature of any authority competent to do so and is not specifically admitted by any of the executives of the company. No discrepancy has been found in the stock of finished goods or in procurement in the factory and the entire production has been recorded against serially numbered casting slips, with supporting weighment slips. It is a well settled principle that to establish clandestine removal, tangible, strict, positive, concrete, direct, circumstantial and corroborative evidences are required which must form a complete chain to rule out any preponderance of probabilities and lead to inescapable conclusion - While in the instant case allegations have been made solely on the basis of tentative private records and data and no discrepancy has been noticed in the procurement of raw materials/power or stock of raw materials/finished goods. The allegation has been raised on the basis of hypothetical and illogical input-output ratio of iron ore to pig iron at 1.233 MT, which if compared with the average ratio of comparable manufacturing units, is much lower. Ratio of 1.233 MT is practically impossible to achieve not only for NML but also for any other company in the same industry - It is an admitted position that the company had consumed during the impugned period 90722.88 MT of iron ore (on net basis). This itself leads to an impossibility that the total production of hot metal is more than iron ore consumed. This clearly indicated that the contention of the revenue is not sustainable. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged clandestine removal of Pig Iron without payment of duty.
2. Validity and reliability of evidence (SMS data, private records).
3. Discrepancies in production records and alleged parallel invoices.
4. Burden of proof for clandestine removal.
5. Alleged alteration of production records and input-output ratio.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Removal of Pig Iron Without Payment of Duty:
The appellants were accused of recording lower quantities of finished goods in their Daily Stock Account (DSA) and clandestinely removing Pig Iron without paying the required duty. The Adjudicating Authority confirmed the demand of duty along with interest and imposed penalties on the appellant company and its executives.

2. Validity and Reliability of Evidence (SMS Data, Private Records):
The entire case was based on alleged SMS exchanges between the company executives. The SMS data was retrieved by the department after seizing the executives' mobile phones. However, the cell phone service providers could not provide backup data, and the SMS listings lacked authentication or signatures from any competent authority. The tribunal found that the SMS data was unverified and not admitted by any company executives, making it unreliable.

3. Discrepancies in Production Records and Alleged Parallel Invoices:
The tribunal noted that the actual production figures were recorded in the Cast Wise Register and DSA. The statements recovered from Mr. Gulati’s laptop referred to "theoretical production," not actual production. No discrepancies were found in the stock of finished goods or raw materials. The tribunal also addressed the issue of parallel invoices, explaining that the invoices were canceled due to disagreements over the rate of Pig Iron and were being sent to the Head Office for cancellation. The tribunal found no evidence that goods were delivered against these invoices.

4. Burden of Proof for Clandestine Removal:
The tribunal emphasized that clandestine removal is a serious charge that requires tangible, strict, positive, concrete, direct, circumstantial, and corroborative evidence. The tribunal cited the case of Commissioner of Central Excise, Patna Vs. Universal Polythene Industries, stating that the charge must be proved by the Revenue with sufficient and tangible evidence. The tribunal found that the allegations in this case were based on tentative private records and data, with no discrepancy in the procurement of raw materials or stock of finished goods.

5. Alleged Alteration of Production Records and Input-Output Ratio:
The tribunal addressed the allegation that the appellant altered the format of PCM slips to effect clandestine clearance. It found that the production quantity was recorded by computerized weighment slips, and the change in format was to minimize duplication of work, not for clandestine removal. The tribunal also found that the input-output ratio used by the Revenue was hypothetical and illogical. The actual consumption of iron ore and production of Pig Iron indicated that the Revenue's contention was unsustainable.

Conclusion:
The tribunal set aside the impugned order and allowed the appeals filed by the appellants, concluding that the allegations of clandestine removal were not substantiated by reliable evidence. The judgment emphasized the need for concrete and corroborative evidence to prove such serious charges.