2023 (8) TMI 989 - AT - Central Excise

Clandestine removal of goods - evidences available on record substantiate that the Appellants are the owners of the two pen drives and the data contained therein or not - reliability of computer printouts taken from the pen drives recovered during the search, as evidence - conditions mentioned in Section 36B has been followed in this case or not, relying on computer printouts - procedure as set out in Section 9D of the Central Excise Act, 1944 was followed or not - retraction of statements - corresponding investigation to corroborate the claim, at the receiver's end or not - absence of any evidence of procurement of the major raw materials such as Iron Ore and Coal, without invoices - penalty on Appellant companies and it's Director. Whether evidences available on record substantiate that the Appellants are the owners of the two pen drives and the data contained therein? - HELD THAT - It is on record that the entire duty demand, except for 01-07-2014 to 16-07-2014, is based on the two pen drives recovered on the date of search on 17.07.2014, resumed from the shirt pocket of Shri. Sushil Kumar Roy. The computer printouts have been taken on three dates, namely, 17-07-2014, 28-11-2014 and 11-03-2015. The Forensic Examination of both the pen drives was conducted on 05-072021, though without the presence of the Appellants. A perusal of this report reveals that no printouts were taken from the two pen drives on any of the above three dates. The Appellants stated that they have made detailed submission about this Forensic Report in their further submissions dated 27-05-2022, but the same have not been taken into account by the adjudicating authority - It is observed that this Forensic Report was obtained by the department from their own expert and hence it became part of the adjudication proceedings. It is observed that the entire duty demand is based upon the computer printouts taken from these two pen drives, The Forensic Report questions the very existence of the computer printouts and the adjudicating authority has not given any finding on this report. Not giving any finding on the Forensic Report dated 05.07.2021 would only lead to the conclusion that the said Report did not support the case of the department and hence the adjudicating authority ignored the same and has not give any finding on it. When the Forensic Report dated 05.07.2021 revealed that some files were accessed on 17-07-2014, 28-11-2014 and 11-03-2015 but it did not show that on the said three dates any printouts were taken, the investigation should have ascertained the reasons for this discrepancy. When the Appellant raised the issue before the adjudicating authority, she should have given a finding on this point, as the data available in the pen drives is the basis for the entire demand. However, the adjudicating authority has chosen not to give any findings on this report. In view of the above, we hold that the Revenue has not established the ownership of the pen drives and consequently the existence of such computer printouts and the data contained therein. Accordingly, the answer to question is negative. Whether the computer printouts taken from the pen drives recovered during the search can be relied upon as evidence to demand duty? - Whether conditions mentioned in Section 36B has been followed in this case to rely upon the computer printouts as evidence? - HELD THAT - A perusal of sub section (2) of Section 36B of the Act, clearly mandates that the same can be admitted as evidence only when the computer in which the data was fed is owned by the person against whom the evidence is being used. It is observed that the department did not identify any computer in which the information was allegedly fed by JBIL-III or JBIL-IV. The department relied upon the data resumed form two pen drives. The pen drive is a floating device and has no evidentiary value on its own and can be admitted as evidence only when it strictly fulfills the conditions specified in Section 36B of the Central Excise Act - It is observed that the Hon'ble Apex Court in the case of Tukaram S. Dighole vs. Manikrao Shivaji Kokate 2010 (2) TMI 1130 - SUPREME COURT held that electronic devices such as Pen Drive with fast development in the electronic techniques, are more susceptible to tampering and alterations by transposition, excision, etc which may be difficult to detect and therefore such evidence has to be received with caution. It is observed that pen drive is not a substantial evidence in the absence of corroborative evidence. The Appellants contended that corroborative evidences such as consumption of unaccounted materials, production of unaccounted finished goods, extra labour, extra consumption of electricity, clearance of goods from the factory, receipt of cash on account of alleged clandestine sales are required to substantiate clandestine clearance. We observe that all the above factors are conspicuous by its absence in the present proceedings. The investigation has not established the availability of any of the above mentioned corroborative evidences, to substantiate their allegations. It is observed that JBIL-III and JBIL-IV have vehemently denied ownership of these two pen drives and the authenticity of the data therein. Only two statements of Shri Sushil Kumar Roy, Associate (Commercial) of JBIL-III and one statement of Shri Kanhaiya Agarwal, weighbridge in-charge of JBIL-III were recorded. The statement of Shri Sushil Kumar Roy regarding clandestine clearances in respect of entries in the computer printouts was not categorical - There was no categorical admission by him. He also says that inrespect of some of such cases bills might have been issued from JBIL IV, but entries were made in the pen drives only to keep account. This statement was given on the date of search om 17.07.2017. However, we observe that this averment of Shri Sushil Kumar Roy was not probed further. Section 65B of Evidence Act is parimateria with Section 36B of the Central Excise Act, 1944 - it is found that unless the conditions of Section 65B(2) of the Evidence Act, which is parimateria with Section 36B(4) of the Central Excise Act are complied with, no reliance can be placed on any computer printouts . Admittedly, the procedure set out in Section 36B has not been followed in this case. Thus, following the judgement of the Hon ble Apex Court and the other decisions, it is held that the data resumed from the computer print out alone cannot be relied upon to demand duty, without any corroborating evidence. Whether the procedure as set out in Section 9D of the Central Excise Act, 944 was followed in this case or not? If not followed, then whether the statements recorded under Section 14 of the Central Excise Act, 1944 can be relied upon to demand duty? - Whether the statements not retracted within a reasonable time, but retracted at the time of cross examination, has any evidentiary value? - HELD THAT - It is observed that during the course of cross examination, most of the persons who have given the statements retracted their statements. In the impugned order, the adjudicating authority has held that if the statements were recorded under threats and duress, it is not understood as to what prevented them from retracting their statements within a reasonable period of time. She further held that all the statements of the concerned persons were supported by documentary evidences. Accordingly, she justified in demanding duty by relying upon these statements. However, a perusal of Section 9D of the Central Excise Act, 1944 clearly establishes that unless a person who has made the statement is examined as a witness before the Adjudicating Authority, no reliance can be placed on any statement recorded under section 14 of the Central Excise Act. Any statement recorded under Section 14 of the Central Excise Act could be admitted in evidence only after the process of examination and cross examination is completed under Section 9D. Once it duly came on record that various statements recorded from the witnesses were not of voluntary nature but were recorded after putting undue pressure upon the witnesses the same could not be admitted in evidence by the Adjudicating Authority. The same clearly lost its evidentiary value. Once these statements are excluded from evidence no reliance could be placed on the computer printouts and other evidences - the statements recorded cannot be relied upon to demand duty, unless the procedure set out in Section 9D are followed. None of the statements recorded in this case conclusively establish any clandestine clearance. During cross examination all of them retracted their earlier statements. Hence, the evidentiary value of the statements have to be examined. The corroborating evidence relied upon by the Revenue in this case is the data recovered from the pen drives. As discussed, the data available in the pen drives cannot be relied upon as they have not satisfied the conditions set out in Section 36B of the Central Excise Act. Thus, it is observed that there is no corroborative evidence brought in by the Revenue to substantiate the retracted statements. In view of the discussion, it is held that the demands in the impugned order cannot be confirmed on the basis of the statements recorded as they have not fulfilled the procedure set out in Section 9D of the Central Excise Act, 1944 - Thus, the answer to Questions are in the negative. Whether the allegations of clandestine clearance of finished goods JBIL III sustainable without any corresponding investigation to corroborate the claim, at the receiver's end? - HELD THAT - A perusal of various Annexures to the show cause notice where the duty has been demanded shows that all sorts of vehicles were allegedly used to effect clandestine removal as the net weight of such consignments vary from 9 MT to 42 MT. Various types of vehicles ranging from 6 tyres to 14 tyre vehicles are used to transport such materials. A perusal of computer printouts and Annexure 1 to 3 to show cause notice reveal that against all the consignments allegedly cleared without invoices, vehicle numbers on which these consignments were allegedly transported have been duly mentioned therein. If the case of the DGCEI is treated to be true that the DGCEI had an intelligence that JBIL III indulged in clandestine removal of finished goods on regular basis, the investigating agency had an ample opportunity to intercept atleast some of these consignments which were being allegedly cleared without payment of duty. But, DGCEI did not make even a slightest attempt in this direction which was absolute necessary to give any credibility and veracity to these allegations. The investigation has failed to establish the alleged clandestine clearance of goods by the Appellants and hence the demands confirmed in the impugned order are not sustainable. Accordingly, answer to the Question is in the negative. Whether the demands confirmed in the impugned order on clandestine clearance of finished goods is sustainable in the absence of any evidence of procurement of the major raw materials such as Iron Ore and Coal, without invoices? - HELD THAT - The investigation has not brought in any evidence regarding purchase of any of the raw materials required for manufacture of such huge quantity of finished goods. There was absolutely no investigation from any supplier of raw materials that they ever sold the raw materials either to JBIL III or JBIL IV without invoices and received any cash from them. Similarly, no investigation was conducted from any of the transporters to the same effect. There is no scope for procurement of coal as a raw material in clandestine manner. It is observed that unless JBIL III and JBIL IV have received the quantities of raw materials mentioned in the two charts above, they could not have manufactured finished goods and removed the same clandestinely. It is observed that there is absolutely no evidence on record that either JBIL III or JBIL IV received proportionate quantities of raw materials in clandestine manner or without accounting and used the same to manufacture unaccounted finished goods and clandestinely removed the same. No investigation was done to ascertain the procurement of raw materials required for manufacture of such huge quantities of finished goods and its subsequent clandestine clearance. In the case of Mohan Steels Ltd. Vs. Commissioner of Central Excise, Kanpur 2004 (7) TMI 530 - CESTAT, NEW DELHI it has been held that unless department produces evidence, which should be clinching, in the nature of purchase of inputs and sale of the final product demands cannot be confirmed based on some note books. In the absence of any evidence of procurement of raw materials required for the manufacture of the finished goods, the allegation of clandestine clearance in the impugned order is not sustainable. Accordingly, the answer to question is negative. Whether penalty is imposable on the Appellant companies and it's Director, on the basis of the evidences available on record? - penalty equivalent to the duty confirmed has been imposed on both the Appellant companies JBIL III and JBIL IV, in terms of provisions of Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 - Penalty of Rs.5,00,00,000/- was imposed on Shri. Aditya Jajodia ( wrongly mentioned as Ajit jajodia in the impugned order), Director of the Appellant Companies, under Rule 26 of the Central Excise Rues, 2002 - HELD THAT - The allegation against the Appellant companies was that they indulged in clandestine manufacture and clearance of finished goods without payment of Central Excise duty. The discussions clearly establish that the duty demanded on the Appellant companies are not sustainable. Even the duty itself is not sustainable; the demand of interest and penalty on the Appellant companies is also not sustainable. Accordingly, the above said penalties imposed on the Appellant companies JBIL III and JBIL IV are liable to be set aside. Regarding the Penalty imposed on the Director. Shri. Aditya Jajodia, it is found that the Adjudicating Authority has discussed his role in Para 37 of Order-in-Original and held that Shri Aditya Jajodia has failed to participate in the investigation and also failed to come up with proper explanation regarding the documentary evidences recovered during the search and adduce proper evidence to establish that he was not involved in the act of clandestine removal of excisable goods. The investigation has not brought out any evidence against Shri. Aditya Jajodia. There is no evidence on record to show that he was concerned with the clandestine procurement of raw materials or instrumental in clearance of the finished goods in a clandestine manner. Since, the allegation of clandestine clearance itself is not sustained, we hold that the allegation of aiding and abetting the clandestine clearance against the Director also not sustainable. Accordingly, we hold that the penalty imposed on the Director Shri. Aditya Jajodiya is not sustainable, and answer to question is in the negative. The demand of duty confirmed in the impugned order against JBIL III and JBIL IV are not sustainable. Since the demand of duty is not sustainable, the demand of interest and imposition of penalty against the Appellants JBIL III and JBIL IV are also not sustainable. As there is no evidence against the Director, the penalty imposed on him is not sustainable. Accordingly, the demands of duty and penalties related to the aforementioned three Appellants in the impugned order are set aside. Appeal allowed.

Summary

Issues Involved:
1. Ownership and admissibility of pen drive data.
2. Compliance with Section 36B for computer printouts as evidence.
3. Compliance with Section 9D for statements as evidence.
4. Corroborative evidence for clandestine clearance.
5. Procurement of raw materials without invoices.
6. Imposition of penalties on companies and director.

Summary:

1. Ownership and Admissibility of Pen Drive Data:
The Tribunal held that the Revenue failed to establish the ownership of the pen drives and the existence of computer printouts. The forensic report dated 05.07.2021, which questioned the data's authenticity, was ignored by the adjudicating authority. The pen drives were floating devices, and no conclusive evidence linked them to the Appellants. Thus, the data from the pen drives could not be relied upon.

2. Compliance with Section 36B for Computer Printouts as Evidence:
The Tribunal observed that the conditions under Section 36B of the Central Excise Act were not met. The computer printouts lacked the mandatory certification and corroborative evidence. The pen drives' data alone, without fulfilling Section 36B requirements, was insufficient to demand duty.

3. Compliance with Section 9D for Statements as Evidence:
The Tribunal emphasized that statements recorded under Section 14 of the Central Excise Act could not be relied upon unless the procedure under Section 9D was followed. Most witnesses retracted their statements during cross-examination, undermining their reliability. The adjudicating authority's failure to adhere to Section 9D rendered the statements inadmissible for demanding duty.

4. Corroborative Evidence for Clandestine Clearance:
The Tribunal found no corroborative evidence such as unaccounted raw material, extra labor, or electricity consumption to support the allegations of clandestine clearance. The investigation did not establish the clandestine removal of goods through tangible evidence like transportation records or buyer statements.

5. Procurement of Raw Materials Without Invoices:
The Tribunal noted the absence of evidence showing the procurement of raw materials required for manufacturing the alleged clandestine clearances. The investigation did not prove that the Appellants received raw materials without invoices. The demand for duty based on assumed clandestine procurement was unsustainable.

6. Imposition of Penalties on Companies and Director:
Since the duty demands were not sustainable, the penalties imposed on JBIL III, JBIL IV, and their Director, Shri Aditya Jajodia, were also set aside. The Tribunal found no evidence linking the Director to the alleged clandestine activities. The penalties lacked a factual basis and were thus unsustainable.

Conclusion:
The Tribunal allowed the appeals, setting aside the demands of duty and penalties against JBIL III, JBIL IV, and Shri Aditya Jajodia, due to the lack of conclusive evidence and non-compliance with legal procedures.