2019 (12) TMI 587 - AT - Central Excise

Clandestine Removal - inputs - search and seizure in the factory premises - shortage of finished excisable goods - Computer printouts - third party documents - admissible evidence or not - Section 36B of Indian Evidence Act - time limitation - whether the search and seizure operation were made according to the provisions of Section 100 of the Cr.P.C. read with Section 18 of the Act or not? - HELD THAT - The search and seizure proceedings are made in violation of Section 100 of Cr PC read with Section 18 of the Act, for the reason that department has failed to follow the provisions of Section 36-B of the Act. Also, at the time of sealing and desealing of the external data storage device as well as the time of obtaining printouts therefrom, a certificate should have been obtained as per the provision of Section 36-B of the Act. No such certificate has been brought on record without which the evidentiary value of these printout get vitiated. As no certificate from the responsible person of the Appellant was obtained by the department, the credibility of the computer printout gets vitiated. Hon ble Apex Court in case of ANVAR P.V VERSUS P.K. BASHEER AND OTHERS 2014 (9) TMI 1007 - SUPREME COURT has held that the computer printout can be admitted as evidence only if the same are produced in accordance with the provisions of Section 65B(2) of the Evidence Act. A certificate is also required to accompany the computer printouts as prescribed under Section 65B(4) of Evidence Act, 1972. It has been clearly laid down in para 15 of this judgment that all the safeguards, as prescribed in Section 65B(2) (4), of the Act, is required to be met so as to ensure the source and authenticity, pertaining to electronic record sought to be used as evidence. Electronic records being more susceptible to tempering, alteration, transposition, excision etc. without such safeguards, the whole trial based on proof of electronic records can lead to travesty of justice. The provisions of Section 65B of Indian Evidence Act and Section 36B of Central Excise Act, 1944 of the Act are parimateria. The shortage was detected on the basis of eye estimation and also on average weight without physical weighment. The department failed to gather any of documents from the factory of the appellant or elsewhere. Further, the loose documents which were recovered from the residence of Shri Ravi Bhushan Lal were not put to test for ascertaining to the authorship of these documents. Moreover, these documents could not be proved with the corroborative evidences. The investigating authority failed to elucidate the system adopted for the preparation of the relied upon documents which were allegedly based on these documents. The details contained on the loose sheets and third party documents are actually not comprehensible and, therefore, cannot be accepted as admissible piece of evidence. The charges of clandestine removal of the goods cannot be upheld merely on assumptions and presumptions, but has to be proved with positive evidence such as purchase of excess raw materials, consumption of excess electricity, employment of extra labour, seizure of cash, transportation of clandestinely removed goods etc. - The shortage which was detected by the officers is based on average weight method basis and, therefore, mere admission by the directors, who deposited the duty for the shortage, is not enough to proof that the goods were clandestinely cleared from the appellant factory - thus, the shortage was detected on average basis is not sustainable. Penalty - HELD THAT - There is no no material evidence was brought on record to prove the charges to attract penalty against them, except the statements which were relied upon by the department without following the mandate of Section 9-D of the Act - penalties set aside. A similar issue has come up for consideration of this Tribunal in case of BIHAR FOUNDARY CASTINGS LTD., M/S. GAUTAM FERRO ALLOYS VERSUS COMMISSIONER OF CENTRAL EXCISE SERVICE TAX, RANCHI 2019 (8) TMI 527 - CESTAT KOLKATA . The Tribunal has held that in view of non-compliance of mandatory requirement of 36-B of the Act the case the clandestine removal cannot be made applicable merely based on the printouts taken from the laptop computer obtained during the search. And the appeals were allowed by setting aside the order passed by the Adjudicating Authority - The ratio of this case is applicable in toto in case at hand also thus the demand is not sustainable and liable to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legality of search and seizure operations.
2. Admissibility of electronic evidence.
3. Admissibility of third-party documents.
4. Requirement of corroborative evidence for clandestine removal.
5. Denial of cross-examination.
6. Methodology of stock verification.
7. Bar of limitation for demand.

Detailed Analysis:

1. Legality of Search and Seizure Operations:
The appellants argued that the search and seizure operations were conducted in violation of Section 100 of the Criminal Procedure Code, 1973, read with Section 18 of the Central Excise Act, 1944. The search lacked proper documentation, such as a search warrant, and the sealing of electronic devices was not properly authenticated. The Tribunal agreed with the appellants, noting that the search and seizure proceedings were not conducted in compliance with Section 100 of Cr.P.C. and Section 18 of the Act. The panchanamas were not reliable as the cross-examination of panch witnesses was denied, making the veracity of the search proceedings doubtful.

2. Admissibility of Electronic Evidence:
The appellants contended that the electronic evidence (computer printouts) was inadmissible as the requirements under Section 36B of the Central Excise Act were not met. The Tribunal concurred, emphasizing the necessity of a certificate under Section 36B to authenticate electronic records. The Tribunal cited the Supreme Court's judgment in M/s. Anwar P.V. Vs. P.K. Basheer, which mandates compliance with Section 65B of the Evidence Act for electronic records to be admissible. The lack of such certification rendered the electronic evidence inadmissible.

3. Admissibility of Third-Party Documents:
The appellants argued that documents recovered from the residence of an employee (third party) were inadmissible. The Tribunal agreed, stating that the documents lacked corroborative evidence and the authorship was not established. The Tribunal referred to previous judgments, including Santosh Tobacco Vs. Commissioner of Central Excise, Delhi-I, and Commissioner Of Central Excise, Delhi-I Vs. Vishnu & Co. Pvt. Ltd., which held that third-party documents without corroborative evidence are insufficient to prove charges of clandestine removal.

4. Requirement of Corroborative Evidence for Clandestine Removal:
The Tribunal noted that the department failed to provide corroborative evidence such as excess raw material purchase, extra electricity consumption, or employment of additional labor to substantiate the charge of clandestine removal. The Tribunal emphasized that mere assumptions and presumptions are not enough; tangible and direct evidence is required. The Tribunal cited judgments such as Commissioner Of C. Ex., Coimbatore Vs. SVA Steel Re-Rolling Mills Ltd. and Chandan Tobacco Company Vs. Commissioner Of C. Ex., Vapi, which highlight the necessity of corroborative evidence.

5. Denial of Cross-Examination:
The appellants argued that the denial of cross-examination of key witnesses violated their right to a fair trial. The Tribunal agreed, stating that the statements of witnesses could not be relied upon without cross-examination. The Tribunal referred to Section 9D of the Act and judgments like G-tech Industries Vs. Union of India, which mandate cross-examination to test the veracity of statements.

6. Methodology of Stock Verification:
The appellants contended that the stock verification was based on average weight and eye estimation, which is not reliable. The Tribunal agreed, noting that the stock verification lacked actual weighment and was insufficient to prove shortages. The Tribunal cited cases like CCE Lucknow Vs. Sigma Castings and RHL Profiles Vs. CCE Kanpur, which held that stock verification based on average weight is not sustainable.

7. Bar of Limitation for Demand:
The appellants argued that the demand was barred by limitation as the show cause notice was issued beyond the stipulated period. The Tribunal did not specifically address this issue in detail, but the overall findings led to the setting aside of the demand.

Conclusion:
The Tribunal set aside the impugned order, allowing all the appeals with consequential benefits. The search and seizure operations were found to be illegal, the electronic evidence was inadmissible, third-party documents were unreliable, and the requirement for corroborative evidence was not met. The denial of cross-examination further weakened the department's case, and the methodology of stock verification was deemed insufficient.