2019 (1) TMI 770 - AT - Central Excise

Clandestine removal - demand based on data / computer print outs retrieved from the computers which was used in head office / factory etc. - Admissibility of micro films, facsimile copies of documents and computer print outs as documents and as evidence - Section 36B of the Central Excise Act, 1944 - Held that - The mahazars dated 11.9.2007 and 17.9.2007 prepared at the appellant premises and office of DGCEI respectively would show that employees of the appellant viz. Ashok Kumar, Anil Kumar, Selvaraj were present. They have endorsed signature in the mahazar. The question is whether such endorsement of signature would fulfill the condition required in sub-section (4) of Section 36B. Any statement / print out taken out of the computer would be admissible in evidence only if it is supported by a certificate as required under sub-section (4) of Section 36B. There is no such certificate stating that it is prepared as per the requirement of Section 36B. Further, though all the persons who have endorsed signature in the mahazar dated 17.9.2007 at the office of DGCEI were present at the appellant s premises on 11.9.2007 at the time of search, instead of retrieving the data from the appellant premises itself, the computers as a whole have been seized and taken to the office of DGCEI. Thus, evidently, the Commissioner admits that the condition in Section 36B have not been complied with respect to the data retrieved from the computer. On such score, the evidence said to be retrieved from the computer cannot be relied upon at all. The ld. AR has argued that even though the computer print outs are not admissible in evidence, the statements of the witnesses would support the computer print outs and therefore the evidence of clandestine manufacture and clearance is established. The statements of persons have to be subjected to examination-in-chief as well as cross-examination as per the provision under section 9D of Act in order to be admissible as evidence. The statements cannot be considered as standalone documents to prove the allegations in the show cause notice. The evidence put forth is too flimsy to establish a serious charge of clandestine manufacture and clandestine clearance of goods. Though the department need not establish clandestine clearance with mathematical precision, the evidence should establish a probability of such clandestine clearance. On appreciating the facts of the present case, the Commissioner himself having found that the main evidence relied for quantification of duty i.e. computer print outs being not admissible in evidence, the demand could not have been confirmed. The department has miserably failed to establish the allegations raised in the show cause notice - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Alleged suppression of production and clandestine removal of excise goods.
2. Admissibility of computer printouts as evidence under Section 36B of the Central Excise Act, 1944.
3. Admissibility of statements recorded during the investigation under Section 9D of the Central Excise Act, 1944.
4. Validity of other documentary evidence such as personal diaries and loading lists.
5. Consideration of trading activities in the assessment of excise duty.

Detailed Analysis:

1. Alleged Suppression of Production and Clandestine Removal of Excise Goods:
The appellants, manufacturers of furniture, were accused of suppressing production and clandestinely removing excise goods without issuing invoices and without payment of central excise duty. Specific intelligence led to search operations on 11.9.2007, resulting in the seizure of incriminating documents and computers (hard disks) evidencing such activities. A show cause notice was issued demanding excise duty of ?68,77,758/- for the period 2004-05 to 2007-08, along with interest and penalties. The Commissioner confirmed the demand and imposed penalties, which the appellants contested.

2. Admissibility of Computer Printouts as Evidence:
The main evidence relied upon by the department was the computer printouts retrieved during the investigation. However, the procedure prescribed under Section 36B of the Central Excise Act, 1944, was not followed. Section 36B outlines specific conditions for the admissibility of computer printouts, including the need for a certificate as per sub-section (4). The Commissioner admitted in Para 72 of the impugned order that these conditions were not met, rendering the computer printouts inadmissible as evidence. The Tribunal upheld this view, emphasizing that the lack of compliance with Section 36B disqualified the computer printouts from being considered reliable evidence.

3. Admissibility of Statements Recorded During Investigation:
The statements recorded from various individuals during the investigation were also relied upon by the department. However, these statements were not admissible since the examination-in-chief was not conducted by the adjudicating authority as required under Section 9D of the Central Excise Act, 1944. Additionally, some witnesses retracted their statements, and one key witness, Shri V. Arun, was not made available for cross-examination. The Tribunal cited several judicial pronouncements, including Jindal Drugs Pvt. Ltd. and Shiv Shakthi Earthmovers, to support the principle that statements must be subjected to examination-in-chief and cross-examination to be admissible as evidence.

4. Validity of Other Documentary Evidence:
Other documentary evidence, such as personal diaries maintained by Shri Sashangan and loading lists, was also presented by the department. However, these documents did not conclusively establish the charge of clandestine manufacture and sale of furniture for cash. The Tribunal found that the evidence was too flimsy to support such serious allegations. The balance sheets of the appellant indicated engagement in trading activities, which the show cause notice failed to consider. The Tribunal reiterated that charges of clandestine removal must be proven with cogent evidence and cannot be based on presumptions and assumptions.

5. Consideration of Trading Activities:
The appellant argued that their trading activities were wrongly interpreted as sales of manufactured items without payment of duty. The Tribunal noted that the show cause notice ignored the appellant's trading activities, which were evident from their balance sheets. This oversight further weakened the department's case, as the evidence presented did not account for the legitimate trading activities of the appellant.

Conclusion:
The Tribunal concluded that the department failed to establish the allegations of clandestine manufacture and clearance of goods. The main evidence, computer printouts, was inadmissible due to non-compliance with Section 36B. The statements recorded were also inadmissible without proper examination under Section 9D. Other documentary evidence was insufficient to prove the charges. Consequently, the impugned order was set aside, and the appeals were allowed with consequential relief as per law. The Tribunal's decision emphasized the need for strict adherence to legal procedures and the requirement for substantial evidence to support allegations of clandestine activities.

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