2020 (11) TMI 549 - AT - Central Excise

Clandestine Removal - 13683.05 MT of MS Billets - cogent, positive and concrete evidence to prove the said allegation, present or not - unaccounted purchase of various raw materials - reliability of third party documents - HELD THAT - It is found from the show cause notice, that the allegation itself was that in the specific question set out before him as to how he would disprove the facts of such clandestine clearance of their finished goods side by side their authorised clearance, whereas both of which have candidly confessed by M/s SPRML. Shri Mahapatra miserably failed to disprove the same whereby it led to the natural conclusion of conscious and organized modus operandi to evade legitimate Govt revenue in the guise of transaction that they have pretended to project themselves in clearing only authorised clearance of goods with M/s SPRML. It can be made out that the Notice means to say that Shri Mahapatra could not disprove the allegation; it was accepted by Shri Debasis Samal and Shri Anil Jain of M/s SPRML and that in spite of the same Shri Mohapatra maintained that they have not cleared any goods other than those shown in authorised clearances. We find that the above is only an allegation and the department has not adduced any evidence whatsoever to establish the case of clandestine removal against the appellants. It was incumbent upon the department, who are alleging, to prove the same with evidence. The reliability of such an evidence becomes weak as the same comes from a third party. It has been alleged that the appellants have clandestinely removed 13,683.05 MT of MS Billets without payment of duty. The allegation is only based on the data set to have been recovered from the secret office of M/s SPRML and no other evidence has been put forth. We find that as averred by the learned Counsel for the appellants, reliance cannot be placed only on the evidence available with the Third Party. The appellants have alleged that while obtaining the electronic record at M/s SPRML, department did not adhere to the provisions of 36(B) of the Central Excise Act, 1944 and a certificate as required under Section 36B(4) is not issued. It is found that neither the SCN nor the adjudication order have dealt with the facts relating to this issue and from the records of the case, it cannot be made out whether the same were followed. The learned commissioner did not controvert the allegations in the adjudication order. Therefore, the reliance on the records thus seized from M/s SPRML alone, do not help the case of department, unless the same are corroborated by other evidence. We agree to the proposition of the learned Commissioner that the department is not required to prove clandestine removal by mathematical precision. However, the instant case, we find that not even single evidence has been brought on record to show clandestine removal, conclusively establishing at least in a sample transaction. We find that the Annexure-H contains alleged receipts by M/s SPRML date wise from the appellants - Having conducted no investigation whatsoever, department cannot confirm the demand only on the basis of documents seized from some other person, more so the contents of which were never accepted by the appellants and cross examination was not allowed. If allegations can be made just on evidence obtained from third parties, there would be no dearth of such cases. We find that leaving alone proof with a mathematical precision, in the instant case, evidence made available is not even enough even for a Gross approximation. The appellant has relied upon a number of cases wherein it was settled that in order to prove the allegations of clandestine removal the department must bring on record cogent, positive and concrete evidence to prove the said allegation, the said allegation cannot be sustained on the basis of assumptions and conjectures. Though, there is no bar in issuing SCNs for the same period covering different aspects backed by different set of evidence, it is not understood as to why the Department chose to issue different SCNs to the appellant on the allegation of clandestine removal when the genesis of both the cases was in the investigation conducted by DGCEI against M/s SPRML. However, as we found that the present SCN is not sustainable on merits, we are not going into the above issue. The appellants have also raised an issue that while the appellants have been issued a SCN alleging clandestine removal to M/s SPRML on the basis of documents alleged to have been recovered from M/s SPRML, M/s SPRML have not been made party to the impugned SCN and thereby, the case suffers from the principle of non-joinder. Appeal allowed.

Issues Involved:

1. Admissibility and sufficiency of electronic evidence from a third party.
2. Compliance with evidentiary procedures for electronic records.
3. Adequacy of evidence for proving clandestine removal.
4. Issuance of multiple show cause notices for the same period.
5. Justification for imposition of penalties.

Detailed Analysis:

1. Admissibility and Sufficiency of Electronic Evidence:
The case originated from a search by DGCEI at M/s SPRML, where external hard drives containing data on unaccounted transactions were seized. The data indicated that the appellant allegedly cleared 13,683.05 MT of MS Billets to M/s SPRML without proper documentation. The appellant argued that the evidence was based solely on third-party records (M/s SPRML), which were not reliable. The tribunal noted that the acceptance of such evidence without corroboration from the appellant or independent verification was insufficient. The principle that "admitted facts need not be proved" was misapplied as the appellant did not admit to any wrongdoing.

2. Compliance with Evidentiary Procedures for Electronic Records:
The appellant contended that the electronic evidence was not obtained in compliance with Section 36(B) of the Central Excise Act, 1944, which requires a certificate under Section 36B(4) for computer printouts to be admissible. The tribunal found that neither the show cause notice nor the adjudication order addressed this compliance. The absence of adherence to these legal provisions weakened the evidentiary value of the electronic records.

3. Adequacy of Evidence for Proving Clandestine Removal:
The tribunal emphasized the need for concrete evidence to prove clandestine removal, such as records of raw material procurement, electricity consumption, labor deployment, transportation, and financial transactions. The department failed to provide such evidence. The tribunal highlighted that mere reliance on third-party records without corroboration from the appellant or physical verification (e.g., stock checks) was insufficient to substantiate the allegations. The tribunal cited several precedents where similar cases were dismissed due to lack of concrete evidence.

4. Issuance of Multiple Show Cause Notices for the Same Period:
The appellant argued that another show cause notice had already been issued by DGCEI for the same period, making the current notice redundant. The tribunal acknowledged that while multiple notices for different aspects might be permissible, the department's approach in this case lacked clarity and coherence, further weakening the case against the appellant.

5. Justification for Imposition of Penalties:
The tribunal found that the imposition of penalties on the appellant and its directors was unjustified. The penalties were based on uncorroborated third-party evidence, and the Managing Director's statement was not even recorded. The tribunal stressed that penalties require a higher standard of proof, which was not met in this case.

Conclusion:
The tribunal concluded that the principles of natural justice were violated as the appellant was not provided with necessary documents, cross-examination was denied, and the adjudication process was flawed. The reliance on third-party records without corroboration and the lack of adherence to legal procedures for electronic evidence rendered the case against the appellant unsustainable. Consequently, the appeals were allowed, and the demands and penalties were set aside.

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