2020 (9) TMI 645 - AT - Central Excise

Clandestine Removal - shortage of finished goods - Kraft Paper - main evidence for making allegation of clandestine removal and raising demand is computer printouts - Corroborative evidences or not - reliability of statements - period from April, 2009 to July, 2012 - HELD THAT - As per section 36B of Central Excise Act, 1944, printed material produced by the computer shall be admissible as evidence only when the condition mentioned in Sub-section (2) and other provision contained in the said section 36B are satisfied. As per the condition laid down in subsection (2) the statement of computer printout must be produced by the computer during the period for which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer. In the present case it is admitted by the revenue itself that the statement was not produced in the computer which was seized, it is only having the backup data the data originally produced in different computer. As per the department the hard disc of the said computer was destroyed. Therefore it is clear that the computer which was seized, the data was not produced on the seized computer. No evidence was brought on record that the data retrieved from the computer was originally produced on different computer and the hard disc of the same was destroyed. It is only as per the statement of the director which was claimed by the appellant having been taken under duress and threat. As per clause (b) of Sub-section (2) of Section 36B the information must be regularly supplied to the computer during that period - In the present case the period involved is April, 2009 to June, 2012 during that period the computer which was seized was not in use therefore, clause (b) is not satisfied. Similarly, since the seized computer was not in use for the material period clause(c) is also not satisfied. Even the seized computer is not the computer to which the data was supplied in the ordinary course of the said activities, therefore, clause (d) is also not satisfied. In the present case also the undisputed fact is that the computer seized by the department, the data was not supplied in the said computer. Therefore, in terms of the Section 36B(2) the computer printout in the present case cannot be accepted as admissible evidence. Reliability on statements - HELD THAT - The Adjudicating Authority has heavily relied upon the statements of directors and various alleged raw material supplier and buyers of goods. We find that the appellant have requested for cross-examination of all the witnesses but none of the witness was allowed to be cross-examined by the adjudicating authority. We find that since the entire basis of demand is computer printout and the statements of third parties, it is incumbent on the adjudicating authority to allow the cross-examination as required not only under Section 9D of the Central Excise Act but also to follow the Principle of Natural justice. As per statutory provision under Section 9D and also settled law, all the statements which were retracted in the form of reply to Show Cause Notice and without allowing the cross-examination of the witnesses cannot be used as admissible evidence, therefore all the statements are discarded. The major demand is based on the computer printout and various statements. Since both are not admissible evidence as discussed above the charge of clandestine removal is not established against the appellant. The appellant also made a submission that they were involved in the trading of kraft paper, since we have discarded the computer printout being not admissible evidence, we need not to discuss about the content of the data available in the printouts therefore, we need not to give finding on the aspect of trading of kraft paper, whether the same was factually carried out by the appellant or otherwise. The charge of clandestine removal in respect of major quantity could not be established by the revenue. Accordingly, consequential demand of duty worked out from computer printout is not sustainable - In respect of the co-appellants a penalty under Rule 26 was imposed. This penalty is consequential to the demand confirmed by the Adjudicating Authority. Since the major demand of duty confirmed itself is not sustainable penalties of co-appellants are also not sustained. Appeal allowed in part.

Summary

Issues Involved:
1. Alleged clandestine removal of excisable goods without issuing invoices and without payment of excise duty.
2. Admissibility and reliability of computer printouts as evidence.
3. Validity of statements recorded under duress and without cross-examination.
4. Shortage of physical stock compared to recorded stock.
5. Trading of kraft paper by the appellant.
6. Imposition of penalties on directors and co-noticees.

Detailed Analysis:

1. Alleged Clandestine Removal of Excisable Goods:
The appellant, M/S. Wilson Paper Mills Pvt. Ltd., was accused of removing excisable goods without issuing invoices and without payment of excise duty, leading to evasion of Central Excise Duty. The investigation revealed alleged shortages of finished goods, recovery of dispatch slips, delivery challans, and computer printouts indicating clandestine clearances. The Show Cause Notice proposed a demand of ?1,15,72,496/- along with interest and penalties for the alleged clandestine clearance of 1,41,72,571 KGs of kraft paper.

2. Admissibility and Reliability of Computer Printouts as Evidence:
The primary evidence for the alleged clandestine removal was the computer printouts obtained from the CPU at the director's residence. The appellant argued that the printouts were inadmissible under Section 36B(2) of the Central Excise Act, 1944, as the data was not produced by the computer during the period it was regularly used. The Tribunal held that the computer printouts were not admissible as evidence because the data was not originally produced on the seized computer, and the conditions under Section 36B(2) were not satisfied. The Tribunal referenced the judgment in PREMIUM PACKAGING PVT. LTD., which supported the inadmissibility of such printouts.

3. Validity of Statements Recorded Under Duress and Without Cross-Examination:
The appellant contended that the statements of directors and other witnesses were recorded under duress and were not voluntary. The Tribunal noted that the statements were not admissible as evidence because the cross-examination of witnesses was denied by the adjudicating authority, violating Section 9D of the Central Excise Act and the principles of natural justice. The Tribunal referenced the judgment in SULEKHRAM STEELS PVT. LTD., which emphasized the necessity of cross-examination for the admissibility of statements.

4. Shortage of Physical Stock Compared to Recorded Stock:
The investigation reported a shortage of 22,481 KGs of kraft paper compared to the daily stock account. The Tribunal found the shortage insignificant relative to the total production capacity and noted that no weighment was carried out to confirm the shortage. Therefore, the shortage alone could not justify the huge demand of excise duty.

5. Trading of Kraft Paper by the Appellant:
The appellant claimed involvement in trading kraft paper, supported by statements from various suppliers. The Tribunal did not delve into the trading aspect in detail, as the primary evidence (computer printouts) was already deemed inadmissible. However, it acknowledged that the appellant's trading activities could not be presumed to be clandestine manufacturing without concrete evidence.

6. Imposition of Penalties on Directors and Co-Noticees:
The Tribunal held that penalties on directors and co-noticees were not sustainable since the primary demand of duty based on computer printouts was not upheld. The Tribunal referenced several judgments, including those in the cases of VISHWA TRADERS PVT. LTD. and RENNY STEEL CASTING PVT. LTD., which emphasized the need for concrete evidence to support allegations of clandestine removal.

Conclusion:
The Tribunal set aside the majority of the demand based on computer printouts, confirming only a small demand of ?58,302/- based on physical evidence (dispatch slips and delivery challans). The penalties on directors and co-noticees were also set aside, and the appeal of M/s. Wilson Paper Mills Pvt. Ltd. was partly allowed.