2022 (9) TMI 622 - AT - Central Excise

Clandestine Removal - Confectionery Items - suppression of actual production and by purchasing raw material in cash without cover of documents such as invoices - demand based on third party evidences - corroboration of evidences - penalty u/r 26 of CER - Time Limitation - HELD THAT - The element of clandestine removal are the serious allegations and are required to be established beyond doubt by production of sufficient and positive evidence. The apprehension however strong cannot be converted into evidence so as to confirm the demand. In the present case, it is observed that there is no inculpatory statement by any of the representative of the manufacturers; the department had not conducted any investigation to prove clandestine manufacture - It is well settled law that neither the shortage/ excess of one or more of the raw material nor the unaccounted finished goods found lying in the premises of manufactures during the course of search can lead to inevitable conclusion of clandestine manufacturer and removal. In the present case also, there are no evidence which establishes beyond doubt or which is a positive evidence to establish beyond doubt the allegation of clandestine removal of the finished goods by the appellants manufactures. The doubt and apprehension as mentioned in the show cause notice remains incorroborated due to the lack of any evidence. The Adjudication Authority below while confirming the demand have given their finding on the fact that manufacturer failed to produce any relevant document either in the form of invoices / bill or in the form of stock register / RG I register but non production of these documents cannot be sole basis for demanding duty on the allegations of clandestine removal. Thus, the allegations of clandestine removal of the goods against both the manufactures and their office bearers/ owner (also appellants herein) are without any cogent basis and accordingly, are not sustainable. Imposition of penalties upon the office bearers/ incharge of the manufacturers - HELD THAT - It has been settled law that the mens rea is a pre-condition and is normally required to be shown that there was n intent to evade the duty. It is this mens rea which is utmost relevant for the imposition of penalty - It is observed from the statement of Shri Shankar Lal Dhingra dated 23.10.2013 that he informed the officers about the maintaining the computerized record. Otherwise also this manufacturer was availing SSI exemption benefit due to which there was no necessity to prepare the statutory records. The department had put no effort to examine the computerized records. There is no evidence even about any cash flow which may prove the element of any mens rea / bad intention to evade the duty, question of imposition of penalty does not at all arise. There is no proof of any willful mis-conduct on part of these manufacturers-appellants nor there has been any show cause notice for confiscation of the goods. These observations are sufficient to hold that penalty upon the manufactures and their office bearers / incharge/ owner has wrongly been imposed in terms of Rule 26 of Central Excise Rules, 2002. Penalty under Rule 26 is otherwise imposable upon any firm or company. Penalty upon the dealers of the manufactures who are M/s. Amber Sales Corporation and M/s. Satyam Traders - HELD THAT - It is a fact on record that Shri Parmamnad Jha, incharge of godown informed the officers that the main office of the firm is at Azad Market and all the goods were received and dispatched under proper invoice/bills. But the departmental officers had put no efforts to collect the documents from the said office. They normally proceeded based on their apprehensions about the dealers role in holding the manufacturer for clandestine removal of their excisable goods. Penalty under Rule 25 / Rule 26 of Central Excise Rules, 2002 cannot be imposed even upon these dealers also for the reasons as are mentioned in the findings in respect of imposition of penalty upon the manufactures - imposition of penalty upon the non registered dealers herein that too under Rule 25 and Rule 26 of Central Excise Rules is absolutely unreasonable, infact is beyond the statutory provisions. Accordingly, the same is to be set aside. Imposition of penalty upon the truck driver, Shri Jhabbu Singh - HELD THAT - The imposition of penalty upon him under any of the Rules or both of these Rules is highly illegal. Above all, there is no corroboration to his statement which has been considered as the sole basis for confirming the duty demand on the allegation of clandestine removal. The penalty against him is also therefore, liable to be set aside. None of the deponent has been examined by the Adjudicating Authority as is mandatorily required in terms of section 9D of Central Excise Act, 1944. In absence of said compliance the contents of the statements cannot be the proof of relevant fact. Confirmation of demand and imposition of penalty based on such statements which have not put to test of veracity is highly uncalled for and is actually against the statute. Appeal allowed.

Summary

Issues Involved:
1. Whether the manufactured goods of confectionery items were meant for clandestine removal and if the demand of duty was rightly confirmed.
2. Whether the penalties imposed on the manufacturers, their incharge, and the unregistered dealers under Rule 25/Rule 26 of Central Excise Rules, 2002, were justified.

Issue-wise Detailed Analysis:

1. Clandestine Removal of Goods:
The Department alleged that the manufacturers, M/s. M G Food Products and M/s. Monty Confectionary, were involved in the clandestine removal of confectionery items without proper documentation and payment of duty. Searches conducted on 23.10.2013 revealed unaccounted finished goods and raw materials in excess of recorded stock. The goods were detained on suspicion of being non-duty paid.

However, the Tribunal highlighted that allegations of clandestine removal require concrete evidence, such as proof of excess production, raw material purchase, transportation, and sale proceeds. In this case, no inculpatory statements from the manufacturers' representatives or thorough investigations into raw material procurement and transportation were presented. The Tribunal noted that mere discrepancies in stock or unaccounted goods found during searches do not conclusively prove clandestine removal.

The Tribunal referenced several judicial precedents, including the cases of Continental Cement Company and Auto Gollon Industries P Ltd., which emphasized the necessity of substantial evidence to support allegations of clandestine removal. The Tribunal concluded that the Department's apprehensions were not corroborated by sufficient evidence, and the allegations against the manufacturers were unfounded.

2. Imposition of Penalties:
The Tribunal examined the imposition of penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002. It was observed that penalties under Rule 26 require proof of willful misconduct and knowledge that the goods were liable for confiscation. In this case, no evidence of willful misconduct or intent to evade duty was found. The manufacturers' representatives had informed the officers about maintaining computerized records, and no efforts were made by the Department to examine these records.

The Tribunal also noted that penalties under Rule 25 could only be imposed on registered dealers, and the non-registered dealers, M/s. Amber Sales Corporation and M/s. Satyam Traders, did not fall under this category. The Tribunal relied on the decision in R K Induction Industries P Ltd., which held that penalties could not be imposed on non-registered dealers.

Furthermore, the Tribunal observed that the penalties were imposed without specifying the relevant clauses of Rule 25 or Rule 26, which is mandatory for the assessee to be aware of the exact nature of contravention. The Tribunal cited the case of Amrit Foods, where the lack of specific clause mention led to the setting aside of penalties.

Conclusion:
The Tribunal concluded that the allegations of clandestine removal were not supported by sufficient evidence, and the penalties imposed on the manufacturers, their incharge, and the unregistered dealers were unjustified. The Tribunal set aside the order of the Assistant Commissioner dated 5.06.2020 and allowed all ten appeals, emphasizing the importance of concrete evidence and adherence to statutory provisions in imposing penalties.