2022 (11) TMI 858 - AT - Central Excise

Clandestine Removal - reliance on private records - 1964.970 MT of C.I. Mould - existence of corroborative evidences or not - burden to prove - non-compliance with Section 9D of the Central Excise Act, 1944 - HELD THAT - In the course of the search operation, no parallel invoices or challans were found. All the invoice books found in the search operation were found to be unused. It is held in the impugned Order that the said invoices were intended to be used - the six statements of three persons Sri Pitabas Chhotray dated 23-03-2011 20-01-2012 , Sri Anirudha Sutar dated 23-03-2011 21-09-2011 and Sri Ajay Kumar Das dated 23-03-2011 19-09- 2011 are not examined and cross examined by the adjudicating authority, hence, by operation of Section 9D of the Central Excise Act, 1944, said six statements have become irrelevant piece of material, and therefore, have to be eschewed from evidence. In the instant case the entire case is based on the private records seized from the residence of the employee Shri Anirudha Sutar and office of the Appellant. There is considerable force in the contention of the Appellant that the private records relied upon by the Revenue cannot be a basis to uphold the serious charge of clandestine clearance. It is settled legal position that charge of clandestine clearance is a serious charge and the onus to prove the same is on the Revenue by adducing concrete and cogent evidence. In the absence of corroborative evidence, the issue in the instant case i.e. the charge of clandestine clearance cannot be labeled against the assessee. The allegation of clandestine manufacture and removal of finished goods by the Appellant made in the Show Cause Notice, is merely on assumption and presumption, without sufficient material evidence corroborating the said allegations - impugned order is set aside - penalty imposed under Rule 26 of the Central Excise Rules, 2002 on Shri Pitabhas Chhotray, Director of the Appellant Company is also set aside - appeal allowed.

Issues Involved:
1. Validity of evidence based on unauthenticated private records.
2. Compliance with Section 9D of the Central Excise Act, 1944.
3. Adequacy of corroborative evidence for the charge of clandestine removal.
4. Legitimacy of demand based on visual stock inspection.
5. Applicability of the limitation period under Section 11A of the Central Excise Act, 1944.

Detailed Analysis:

1. Validity of Evidence Based on Unauthenticated Private Records:
The Appellant contended that the allegations were based on unauthenticated private records without tangible, cogent, and affirmative evidence. The Show Cause Notice was issued based on two private records and purported shortages of C.I. Moulds. The Tribunal noted that the entire case relied on private records seized from the residence of an employee and the office of the Appellant. The Tribunal emphasized that the charge of clandestine clearance is serious and requires concrete evidence, which was lacking in this case. The Tribunal cited several judgments supporting the view that private records alone cannot substantiate such serious charges without corroborative evidence.

2. Compliance with Section 9D of the Central Excise Act, 1944:
The Appellant argued that the statements recorded under Section 14 of the Central Excise Act were irrelevant due to non-compliance with Section 9D. The Tribunal found that the six statements of three individuals were neither examined nor cross-examined by the adjudicating authority, making them irrelevant under Section 9D. The Tribunal referred to the judgments of the High Courts of Chhattisgarh and Punjab & Haryana, which emphasized the mandatory nature of Section 9D and the need for strict compliance. The Tribunal concluded that the statements could not be relied upon without proper examination and cross-examination.

3. Adequacy of Corroborative Evidence for the Charge of Clandestine Removal:
The Appellant highlighted the absence of corroborative evidence such as excess raw material, installed capacity, manufacture of finished goods, clearance of finished goods, and flow back of funds. The Tribunal agreed, noting that the case was based solely on private records without any corroborative material. The Tribunal reiterated that the charge of clandestine removal requires tangible evidence, including details of raw material purchase, production, transportation, and sale proceeds, which were not provided in this case. The Tribunal cited several judgments reinforcing the need for concrete evidence to substantiate such charges.

4. Legitimacy of Demand Based on Visual Stock Inspection:
The Appellant challenged the demand based on purported shortages detected through visual inspection rather than actual weighment. The Tribunal noted that the stock taking was not done by actual weighment but by visual inspection, which is not a reliable method for determining shortages. The Tribunal referred to judgments of the Delhi High Court and Orissa High Court, which held that tax liability cannot be based on visual estimates without actual weighment. The Tribunal concluded that the demand based on visual inspection was not proper.

5. Applicability of the Limitation Period under Section 11A of the Central Excise Act, 1944:
The Appellant argued that the demand was barred by the normal limitation period of one year under Section 11A(1)/11A(4). The Tribunal noted that the dispute related to the period from 17.10.2009 to 31.03.2011 and the Show Cause Notice was issued on 24.12.2012, beyond the normal limitation period. The Tribunal concluded that the entire demand was barred by limitation.

Conclusion:
The Tribunal held that the allegations of clandestine manufacture and removal were based on assumptions and presumptions without sufficient material evidence. The Tribunal set aside the impugned order and the penalty imposed on the Director of the Appellant Company. The Appeals filed by the Appellants were allowed with consequential relief as per law. The judgment underscores the importance of concrete evidence and strict compliance with statutory provisions in adjudication proceedings.

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