2023 (10) TMI 289 - AT - Central Excise

Clandestine removal of manufactured goods - Penalty - corroborative evidences - evidence of excess procurement of raw material, additional consumption of power and manpower needs to be adduced - Department has not established the production capacity of the appellant to support their allegation - HELD THAT - The entire case started with the information received by the Central Excise authorities from the Income Tax Department regarding the unaccounted sales, purchase and production of goods in form of soft copies of the data of Tally and Visual Udyog Software, the scan copies of the lose papers and diaries seized by the income tax department and photocopies of the Panchnama and the statements recorded by the Income Tax authorities of persons namely Shri Shankarbhai Mehta, M.D., Shri Vikram Mehta Supervisor, Shri Sachin Shah working in dispatch sections of the accounts department preparing the sales invoices and Shri Pravinchandra Shah. Further statements were recorded by the Central Excise authorities and on conclusion of the statements, a show-cause notice was issued to Appellant. Department has not brought out any independent facts or evidence such as who is the buyers of clandestine removed goods, whether the transactions shown in the Tally Data and Visual Udyog Software data pertaining to actual removal of goods or otherwise and no corroborative evidence produced in support of details mentioned in the said data. In the present matter clandestine removal of a huge quantity of 92,352.04 MT. valued at Rs. 5,10,02,81,112/- in respect of clandestine manufacture and removal of goods involved. However not a single rupee of unaccounted cash was found during the search conducted by the Income-tax. Sub-section (4) of Section 36B requires issue of a certificate in this behalf by a person occupying the responsible official position in relation to the operation of the relevant device or the management of the relevant activity (whichever is appropriate) shall be evidence in any matter stated in the certificate and for the purpose of the sub-section, which shall be sufficient for a matter to be stated to the best of the knowledge and the belief of the persons stating it - In the present case, firstly the Central Excise department has not taken the data from the computer, moreover revenue has not stated that how the income tax officers took the print out of data stored in the computer and hard disc. It is on records that the officers had not obtained any certificate as required under Section 36B of the said Act. It is also noted that none of the conditions under Section 36B(2) of the Act, 1944 was observed. In the case of PREMIER INSTRUMENTS CONTROLS LTD. VERSUS COMMR. OF C. EX., COIMBATORE 2004 (12) TMI 200 - CESTAT, CHENNAI , the Tribunal has held that the printout of the personal computer of the company s officer, had not fulfilled the statutory condition laid down under Section 36B(2) of the Act and the demand is not sustainable. In the present matter undisputedly the above prescribed certain guidelines were not followed by the Revenue during the investigation of impugned matter before accepting electronic documents as an admissible piece of evidence - Upon perusal of the judgment of the Hon ble Supreme Court in the case of Anvar P.V. 2014 (9) TMI 1007 - SUPREME COURT , it is noted that the Apex Court has categorically laid down the law that unless the requirement of Section 65B of the Evidence Act is satisfied, such evidence cannot be admitted in any proceeding. Section 36B of the Central Excise Act is pari materia to Section 65B of the Evidence Act. Consequently, the evidence in the form of computer printouts, etc., recovered during the course of investigation can be admitted as in the present proceedings only subject to the satisfaction of the condition of Section 36B - In the present case, the main evidence on which, Revenue has sought to establish the case of clandestine manufacture and removal of goods is in the form of the computer printouts taken out from the Computer and other electronic devices seized by the Income tax authorities and shared to the revenue in respect of which the requirement of Section 36B has not been satisfied. It is observed that the allegation of suppression of production and clandestine removal is a serious allegation and it has to be established by the investigation by affirmative and cogent evidence. CESTAT in the case of SOBER PLASTICS PVT. LTD. VERSUS COMMISSIONER OF C. EX., JAIPUR 2001 (10) TMI 420 - CEGAT, NEW DELHI has held that demand based on weighment slips, slips recovered from Dharamkanta etc. relied upon for raising demand not verified with reference to transactions is not sustainable. Further, it is settled position of law that proof and evidence of purchase of raw materials and sell of final product clandestinely is necessary in to establish the allegation of suppression of production and clandestine removal of goods and that the allegation are to be proved with affirmative evidences. Since the investigation has failed to adduce evidences to establish suppression of production and clandestine removal of the goods and failed to discharge the onus to prove the allegations, the allegations are not sustainable - the allegation of clandestine removal of 92,352.04 MTs of finished goods is not established. Hence, the impugned demand of central excise duty is liable to be dropped for lack of evidences. The charges of clandestine removal against M/s. Rajputana Stainless Ltd. are not sustainable - the impugned order is not sustainable - Appeal allowed.

Summary

Issues Involved:
1. Reliance on Income Tax Department's Investigation and Data
2. Production Capacity and Evidence of Cladestine Manufacture
3. Admissibility of Electronic Evidence
4. Statements and Cross-Examinations
5. Personal Penalty on Co-Appellants

Summary:

1. Reliance on Income Tax Department's Investigation and Data:
The appellants contended that the Central Excise Department's investigation was solely based on the data and documents provided by the Income Tax Department without any independent verification. The Tribunal observed that the Central Excise authorities did not conduct an independent investigation to corroborate the data from the Income Tax Department. The Tribunal cited the Gujarat High Court's decision in State of Gujarat v. Novelty Electronics to emphasize that findings from Income Tax authorities should only be a starting point for inquiry and cannot be solely relied upon for excise duty evasion cases.

2. Production Capacity and Evidence of Cladestine Manufacture:
The appellants argued that their production capacity did not support the alleged quantity of clandestine removal. They presented a Chartered Engineer's certificate and other evidence, including the Gujarat Pollution Control Board's consent to operate the plant, which indicated a lower production capacity than alleged. The Tribunal noted that the department failed to establish the essential ingredients of clandestine manufacture, such as excess procurement of raw materials, additional power consumption, and manpower. The Tribunal emphasized that the burden of proof lies with the Revenue to substantiate the charge of clandestine removal with tangible evidence, as established in Continental Cement Company vs. Union of India.

3. Admissibility of Electronic Evidence:
The Tribunal highlighted the requirements under Section 36B of the Central Excise Act for the admissibility of computer printouts as evidence. The Tribunal found that the printouts from Tally and Visual Udyog Software did not meet these statutory conditions, including the absence of a certificate as required under Section 36B(4). The Tribunal referred to the Supreme Court's guidelines in M/s. Anvar P.V. v. P.K. Basheer for the admissibility of electronic records and concluded that the electronic evidence in this case was not reliable.

4. Statements and Cross-Examinations:
The Tribunal noted that the statements recorded by the Income Tax authorities could not be used as evidence in excise duty cases as per Section 132(4) of the Income-tax Act. During cross-examinations, key individuals clarified that no clearances were made without excise invoices and payment of duty. The Tribunal emphasized that mere statements are insufficient to establish clandestine manufacture and removal without corroborative evidence.

5. Personal Penalty on Co-Appellants:
The Tribunal held that the imposition of personal penalties under Rule 26 of Central Excise Rules on co-appellants was not justified as the primary charge of clandestine removal was not established. The Tribunal cited relevant judgments, including Giriraj Iron Steel Company Pvt. Ltd. vs. CCE, to support this conclusion.

Conclusion:
The Tribunal set aside the impugned order, holding that the charges of clandestine removal against M/s. Rajputana Stainless Ltd. were not sustainable due to lack of independent investigation, insufficient evidence, and non-compliance with statutory requirements for electronic evidence. Consequently, the penalties on co-appellants were also set aside, and all appeals were allowed with consequential relief as per law.