2019 (7) TMI 101 - AT - Central Excise

Clandestine manufacture and removal - Aluminum profiles/billets/ logs etc. - denial of CENVAT Credit - credit denied on the ground that they have availed cenvat credit without receipt of goods on the basis of Bills of Entry - suppression of production - demand based on various pen drives - presence of corroborative evidences or not. The demands of ₹ 1,76,98,647/- and ₹ 11,62,356/- has been confirmed against the Appellant on account of goods allegedly cleared through M/s Parnami Transport and M/s TCC Carriers - personal pen drive of Shri Sukhdev alias Saral Patidar, diary of Shri Ritesh Gupta, loading challans of M/s Parnami Transport and personal diary of Shri Sunil Atri of TCC Carriers have been relied upon - HELD THAT - The Appellant has challenged the manner of taking the data from pen drive as well as the data of the pen drive itself. The Pen drive data is said to be record of clandestine clearance and the same has been taken from the office computer, but we find that no computer has been identified from which such data was copied. There is no source computer on which such data/ record of alleged clandestine clearances was being maintained by the Appellant concern M/s KLMPL. It leads to serious doubt about the credibility of such data found in pen drive - There is no findings as to on whose instructions such data was maintained by him. Shri Shri Sukhdev alias Saral Patidar has never clarified as to for what purpose the data was copied by him in his pen drive, nor has he said as to from which computer such data was copied. In such facts, the data found in the pen drive is not a reliable piece of evidence. No evidence in the form of checkpost record has been adduced to show that the goods were transported from Pithampur to Indore. Even, the loading challans of M/s Parnami Transport shows transportation of goods from Indore to Delhi and even in such challans Ritesh has been shown as consignee and other parties as consignors, which allegedly has been clarified by the transporter that in the loading challans consignor stands for the recipient and the consignee stands for the supplier, i.e. Shri Ritesh - the loading challans show transportation from Indore whereas the Appellant s factory is located at Pithampur. Further Shri Ritesh Gupta, during recording of his statement, has refused that his diary contains details of clandestine removal of any goods or that the goods covered by such loading challans were cleared by them clandestinely. It is also a fact that no statement of any of the buyers has been relied upon in the show cause notice, though the show cause notice states that the buyers in their statement have accepted receipt of goods. We find that none of the buyers has accepted receipt of alleged clandestinely removed goods by the Appellant. The evidences relied upon by the Revenue are incomplete and do not have any evidentiary value - In absence of any buyer of the goods or transportation evidence, money receipts, the demands based upon alleged clandestine removal of goods, cannot be sustained. Demand of duty of goods said to be transported through TCC Carriers - reliance has been placed only upon the pen drive of Shri Sukh Dev alias Saral Patidar and personal diary of Shri Sunil Atri of M/s TCC Carriers - HELD THAT - The pen drive is not reliable as it is not even known as to from where such data was generated/ copied/ prepared on Pen drive. The pen drive and personal diary of Shri Atri of M/s TCC Carriers are third party documents and do not show any connection with the Appellant for the alleged clandestine clearances. Therefore, there is no reason to demand duty on such alleged clearances. Since none of the procedures under Section 36B has been followed, the data of the pen drive is not admissible as evidence. Some of the demand are confirmed against the Appellant on the basis of data found in personal pen drive of Shri Shailesh Yadav, employee of anodizer/ processor M/s KI. Shri Yadav was also working for M/s Sunshine Marketing - demand on the ground that no invoices towards clearances were found at M/s KI, whereas their records show the receipt of material - HELD THAT - There is no acceptance on the part of the owner of M/s KI, that the data maintained in the pen drive belongs to their concern. It is also a fact that Shri Shailesh Yadav was also working for M/s Sunshine Marketing, as also stated by Shri Dinesh Mittal, partner of M/s Sunshine Marketing. M/s Sunshine Marketing were engaged in anodizing and were undertaking such activity on behalf of other suppliers in addition to M/s KLMPL. Further, even if the data found in the pen drive of Shri Shailesh Yadav is matching with the pen drive data of Shri Sukhdev Patidar, it cannot be a conclusive ground to hold that the goods were clandestinely cleared by M/s KLMPL to M/s KI. It is an accepted fact from the show cause notice that in premises of M/s KI, the goods were also being received from M/s Vimsar, M/s Krishna Profiles as well as other persons. In such case it cannot be alleged that the goods found to be entered in seized records of M/s KI or M/s Sunshine (which was also operating from the same premises) belong to the Appellant - KLMPL. The Pen drive of Shri Shailesh Yadav is his personal pen drive and were not maintained by him under the instruction of Appellant. Nor the same is corroborated with any records of Appellant firm to show that the same were clandestine removed goods. In such case, it cannot be concluded that the clearances by M/s Kuchchal International to M/s H.M. Enterprises were of goods manufactured by the Appellant and cleared clandestinely without payment of duty - when no incriminating evidence at the Appellant end and the buyers end has been found. Neither their statements are inculpatory, in that case on the basis of third party records or pen drive, the duty cannot be demanded from the Appellant. Demand of ₹ 8,09,315/- has been made on the basis of pen drive of Shri Sukhdev alias Saral Patidar on alleged clearance of Aluminium dross - HELD THAT - No investigation seems to have been undertaken to locate the buyer of such goods or transportation. Thus the allegations lack the corroboration, and in absence of same the demand of ₹ 8,09,315/- is not sustainable Further dross being a waste product, the same is not dutiable. Demand of ₹ 7,47,242/- has been confirmed against Appellant concern on the ground that the pen drive of Shri Shailesh Yadav and records of M/s Sunshine show the receipt of such goods - HELD THAT - M/s Sunshine was receiving goods from other parties also viz. M/s Vimsar, M/s Ravi Enterprises, M/s Hindustan Marketing amongst others. In absence of any corroborative evidence of removal of goods from the Appellant (KLMPL) factory, it cannot be said that the records of M/s Sunshine Marketing or pen drive of Shri Shailesh Yadav point to removal of goods without payment of duty by KLMPL - the charges are mainly based upon the pen drive of Shri Shailesh Yadav employee of M/s KI and who was also maintaining records/ stock of M/s Sunshine Marketing. In case where the demands are based upon the pen drive and such records are third party records and in absence of any affirmation by the Appellant, it cannot be concluded that the Appellant has removed the goods without payment of duty. In case of M/S HINDUSTAN MACHINES AND OTHERS VERSUS CCE, DELHI 2013 (5) TMI 543 - CESTAT NEW DELHI it was held that the internal records maintained by a worker in his private capacity is not sufficient to alleged clandestine removal. The show cause notice has relied upon the statement of driver of vehicle no. MP-09-KA-4616 Shri Raghuvir Maurya, that he was transporting goods from the Appellant factory to premises of M/s KI. However as pointed out by the ld. Counsel no record of such clearance has been brought on record. Merely on the basis of statement of Shri Raghuvir Maurya, it cannot be said that the goods were transported clandestinely through such vehicle and therefore there is no ground to demand duty. Demand of ₹ 21,24,217/- on the ground that the Appellant had availed credit of duty on the basis of bills of entries of the goods, i.e. Aluminum Scrap, shown to have been purchased on high sea sale basis from M/s Moongad Aluminium and also on the basis of invoices issued by M/s Satya Sales Corporation, Mumbai - HELD THAT - The allegation of clandestine production vis- -vis allegation of non-receipt of raw material is contrary to each other. The payment against the purchase of imported scrap has been legally made against valid documents for availing credit and even if the goods have first reached Indore and then brought to Appellant s factory, it does not cast a doubt on non-receipt of imported goods. In such view of the facts, we find that the credit availed by the Appellant on imported scrap cannot be denied - In case of credit of ₹ 2,41,739/-, the adjudicating authority has denied the same on the invoice issued by M/s Satya Sales, Belapur. It is alleged that as the invoices do not show mode of transportation and vehicle registration numbers and therefore, it cannot be presumed that the goods were delivered to the Appellant. The invoice issued by M/s Satya Sales Corporation is a valid invoice issued in the name of the Appellant and in absence of any significant evidence, the credit available to the Appellant cannot be denied on the basis of irregularity committed by the supplier. Further in case of cenvat demand no diversion of goods by M/s Moongad Aluminium or M/s Satya Sales Corporation, has been shown. Hence there cannot be any demand against M/s KLMPL. Demand of ₹ 1,53,163/- made against the Appellant on the ground that they have cleared the goods to M/s Kuchchal International, M/s Sunshine Marketing and M/s Baser Sales Corpn - HELD THAT - We find that the demand has been made on the basis of alleged receipt of goods at the job workers / processors premises, i.e. anodizers or dealers premises. However, no investigation has been conducted at the Appellant s end or their factory and the demand is based on the records of such alleged job workers. Only on the basis of documents of the third parties, without any corroborative evidence at the end of the manufacturers, the demand does not sustain. In case of M/s Sanmati Fabricators, we find that they could not submit the invoice being the job worker. However, this cannot be a reason that such goods were cleared clandestinely by the Appellant. The charges of clandestine removal must be proved with independent / cogent / clear and tangible evidence in the form of receipt of raw material, utilization of such raw material for clandestine manufacture of finished goods, manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing materials used, discrepancy in raw material and final product, clandestine removal of goods with reference to entry of vehicles in the factory premises, loading of goods, transporters documents such as LRs, statements of drivers, entries at check-posts and the receipt of goods by the consignees, amount received from the consignees, statement of consignees admitting receipt as well as receipt of sale proceeds by the consignor and its disposal. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved
1. Alleged clandestine removal of finished goods without payment of duty.
2. Denial of Cenvat credit on inputs due to alleged non-receipt of goods.
3. Confiscation of goods found at third-party premises.
4. Admissibility of electronic evidence (pen drive data).
5. Procedural lapses in the retrieval and use of electronic data as evidence.
6. Reliability of third-party records and statements.
7. Confirmation of demands based on assumptions and presumptions.

Detailed Analysis

1. Alleged Clandestine Removal of Finished Goods Without Payment of Duty
The demands against the appellant, M/s KLMPL, were based on data from a pen drive recovered from an employee, Shri Sukhdev alias Saral Patidar. The tribunal found the data unreliable as it was not corroborated by any independent evidence, such as statements from buyers or transportation records. The tribunal emphasized that the data's source was not verified, and no computer from which the data was allegedly copied was identified. The tribunal noted that the loading challans from transporters were internal documents without acknowledgment from the appellant and lacked independent verification like statements from drivers or check-post records. The tribunal held that the demands based on alleged clandestine removal could not be sustained due to the lack of corroborative evidence.

2. Denial of Cenvat Credit on Inputs Due to Alleged Non-Receipt of Goods
The tribunal addressed the denial of Cenvat credit on the basis of Bills of Entry and invoices from M/s Satya Sales Corporation. The tribunal found that the goods were purchased on a high-seas sale basis, and payments were made through banks. The tribunal held that the small procedural lapses, such as non-mentioning of vehicle numbers on invoices, could not be a reason to deny credit. The tribunal noted that no evidence showed the goods were not received in the appellant's factory, and the credit availed could not be denied on the basis of irregularities committed by the supplier.

3. Confiscation of Goods Found at Third-Party Premises
The tribunal found that the confiscation of goods from third-party premises, such as M/s Sanmati Fabricators and M/s Kuchchal International, was based on assumptions and lacked corroborative evidence. The tribunal noted that no investigation was conducted at the appellant's end, and the demands were based solely on third-party records. The tribunal emphasized that the discrepancies in records at the anodizers' premises could not conclusively prove clandestine removal by the appellant.

4. Admissibility of Electronic Evidence (Pen Drive Data)
The tribunal held that the pen drive data was not admissible as evidence because the procedures under Section 36B of the Central Excise Act were not followed. The tribunal noted that the data retrieval was not signed by panchas or the appellant's representative and lacked the required certification. The tribunal relied on precedents, such as Shivam Steel Corporation and Premium Packaging Pvt Ltd, to emphasize that electronic records must be authenticated and corroborated by independent evidence to be admissible.

5. Procedural Lapses in the Retrieval and Use of Electronic Data as Evidence
The tribunal highlighted that the retrieval of data from the pen drive did not follow the statutory procedures under Section 36B. The tribunal noted that the data was not signed by panchas or the appellant's representative, and no certificate was issued as required. The tribunal concluded that the data could not be treated as authentic and legally valid evidence.

6. Reliability of Third-Party Records and Statements
The tribunal found that the reliance on third-party records, such as the pen drive of Shri Shailesh Yadav and the records of M/s Sunshine Marketing, was not sufficient to prove clandestine removal. The tribunal noted that the records were not corroborated by any evidence from the appellant's premises or independent verification. The tribunal emphasized that third-party records, without corroborative evidence, could not be the sole basis for demanding duty.

7. Confirmation of Demands Based on Assumptions and Presumptions
The tribunal held that the demands based on assumptions and presumptions, such as the alleged excess consumption of electricity or discrepancies in stock records, could not be sustained. The tribunal emphasized that the charges of clandestine removal must be proved with tangible evidence, such as procurement of raw material, production records, transportation documents, and statements from buyers. The tribunal found that the revenue failed to provide such evidence, and the demands were based on mere assumptions.

Conclusion
The tribunal set aside the impugned order and allowed the appeals filed by M/s KLMPL and other appellants. The tribunal held that the demands based on alleged clandestine removal, denial of Cenvat credit, and confiscation of goods were not sustainable due to the lack of corroborative evidence and procedural lapses in the retrieval and use of electronic data as evidence.