2020 (1) TMI 479 - AT - Central Excise

Clandestine removal - undervaluation of Silico Manganese - charges merely on the basis of entries in private diary without other corroborative evidence of flow back of fund etc. - HELD THAT - The Ld. Commissioner in the Impugned Order clearly held that there is no evidence available on record to substantiate charges of undervaluation in respect of duty demand of ₹ 2,34,62,483/-. In absence of evidence of flow back of funds over and above the invoice price, which are missing in the instant case, the charge of undervaluation cannot be sustained. There is no material on record to prove that the material supplied by the assessee were not of inferior quality but were prime material. The Department failed to cull out evidence in investigation with the buyers in support of the charge as none of the buyers have accepted payment of any amount over and above the invoice price nor receipt of prime quality materials in the guise of inferior quality material. Further, the entries found in the private diaries were only for the period Jan 2001 to Sep 2001 i.e. eight months - On facts as stated and under the circumstances, there are no hesitation to hold that the order of the Ld. Commissioner is in accordance with law and is upheld and hence the Department Appeal is devoid of any merits. In the case of Good Kare Medico Pvt. Ltd. Vs. CCE 2018 (10) TMI 1199 - CESTAT ALLAHABAD , it is held that order based on rough entries made in two sheets recovered from Director s residence in his own handwriting, when there is no other corroborative evidence, hence merely on the basis of such rough entries without corroborative evidence, clandestine activities cannot be alleged. Since in the instant case the duty demand of ₹ 13,36,476/- is upheld by Ld. Commissioner merely on the basis of entries in the private diary maintained by the Managing Director who never confessed the guilt and whose statement is not tested in accordance with Section 9D of the Central Excise Act, 1944. The Appeal filed by Sri Hari Krishna Budhia, Managing Director and Sri A.D. Singh, Authorised Signatory challenging imposition of penalty under Rule 209A of the Central Excise Rules, 1944/ Rule 26 of Central Excise Rules, 2001 are allowed and the penalty is set aside - Appeal allowed in part.

Summary

Issues Involved:
1. Dropping of central excise duty demand of ?2,34,62,483/- for the period from 1997-98 to 2001-02.
2. Confirmation of central excise duty demand of ?13,60,488/- along with interest and penalty for the period January 2001 to August 2001.
3. Imposition of personal penalties on the Managing Director and Authorized Signatory under Rule 209A of the Central Excise Rules, 1944/Rule 26 of Central Excise Rules, 2001.

Issue-wise Detailed Analysis:

1. Dropping of Central Excise Duty Demand of ?2,34,62,483/-:
The Department appealed against the dropping of the demand, arguing that the assessee had undervalued Silico Manganese by charging significantly lower rates in subsequent years compared to 1996-97. The Department relied on the private diary entries and the Managing Director's statement, who allegedly agreed to pay the differential duty. However, the Tribunal found that the Ld. Commissioner correctly dropped the duty demand due to the absence of evidence of flow back of funds over and above the invoice price. The Tribunal noted that the Department failed to provide corroborative evidence from buyers or prove that the material supplied was not of inferior quality. Thus, the Tribunal upheld the Ld. Commissioner's order, finding the Department's appeal devoid of merit.

2. Confirmation of Central Excise Duty Demand of ?13,60,488/-:
The assessee challenged the confirmation of the duty demand, arguing that the demand was based solely on entries in a private diary without corroborative evidence. The Tribunal examined the statements of buyers and found no evidence that they paid amounts over and above the invoice price. The Tribunal cited multiple precedents, including Hunsur Plywood Works Pvt. Ltd. vs. CCE, Sharma Chemical vs. CCE, and K. Rajagopal vs. CCE, which held that entries in private notebooks without corroborative evidence are insufficient to sustain allegations of undervaluation. Consequently, the Tribunal set aside the demand of ?13,36,476/- but upheld the duty demand of ?24,012/- for the shortage of 10.005 MT of Silico Manganese.

3. Imposition of Personal Penalties:
The Managing Director and Authorized Signatory appealed against the imposition of personal penalties. The Tribunal found that the statements used against them were not tested in accordance with Section 9D of the Central Excise Act, 1944. Additionally, the Tribunal noted that the Managing Director was not in a physical and mental state to tender a reliable deposition due to his severe cardiac condition and imminent bypass surgery. Given these circumstances, the Tribunal set aside the penalties imposed on both individuals.

Conclusion:
The Tribunal upheld the Ld. Commissioner's decision to drop the duty demand of ?2,34,62,483/- and set aside the duty demand of ?13,36,476/- based on private diary entries. The duty demand of ?24,012/- for the shortage of Silico Manganese was upheld. The personal penalties imposed on the Managing Director and Authorized Signatory were set aside. The Department's appeal was dismissed, and the assessee's appeal was partly allowed. All four appeals were disposed of accordingly.