2024 (3) TMI 558 - HC - Central Excise

Clandestine removal - evasion of duty - clearance of branded Khaini - recovery of central excise duty allegedly short paid - burden to prove on Revenue - Present appeal has been filed against the majority view of the Tribunal - substantial question of law was framed as follows Whether the majority opinion is right in accepting the appeal and deleting the entire addition and whether the majority opinion is perverse? HELD THAT - The charges of clandestine removal of goods connotes accusations of serious nature. If the charges are of serious nature, evidence should also be equally strong to substantiate the charges, and therefore, the evidence needs careful scrutiny and appreciation. There is no dispute that in adjudication proceedings to establish the charge of clandestine removal and undervaluation, Revenue is not required to prove the case with mathematical precision. Such charges are to be established on the basis of preponderance of probabilities. However, the conclusions to be arrived at are necessarily to be logical and not on the basis of presumptions and assumptions. Suspicion, howsoever grave, cannot replace the test of proof. It is a settled law that there cannot be clandestine removal of the goods unless the assessee manufactures the same clandestinely and for that purpose, procures raw material clandestinely and uses it without disclosing its utilization. Admittedly, there is no evidence of purchase of major raw material like supari, tobacco etc even in the loose sheets/Hisaba Books recovered in the search. Revenue has not produced any evidence about the procurement of raw material which may be regarded as sufficient for the manufacture of the final product, which is alleged to have been clandestinely removed. In the present case, there is no evidence to show that the basic raw material required for the manufacture of huge quantity of Gutkha and Khaini was procured by the respondents. Tribunal also found no tangible evidence of removal from the factory of unaccounted goods allegedly manufactured by loading from factory and transportation there from. Tribunal found no reliable evidence of the actual customer/recipient of the clandestinely removed goods with their confirmation of unauthorized payment towards unaccounted purchase of goods allegedly manufactured and removed in a clandestinely manner from the factory of the respondents. Tribunal also found no recovery of any unaccounted sale proceeds or substantial cash in the factory or office premises or anywhere else in control of the respondent company, backed by any confirmation, oral or written, from the person giving such cash against the goods removed in clandestine manner without payment of duty from the factory of the respondents. The burden of proving the clandestine removal was on the Revenue. The credibility of the documentary evidence i.e. seizure memos, the loose sheets, Hisaba Books for proving the involvement of respondents in the clandestine activities was required to be duly established - There is no proof that the contents of the documents are accurate. Further, the proper procedures for the seizure of the documents to ensure the authenticity and integrity of the seized material has also not been followed by the Revenue and this includes the proper sealing and protection from tampering. The charges of clandestine removal and under valuation against the respondents in this case cannot be sustained merely on the basis of assumptions and presumptions. The absence of direct, credible evidence linking the respondents to the alleged offences necessitate the dismissal of the charges. The decision is grounded on the principles of justice and the requirement for the burden of proof to be satisfactorily met by the party alleging the wrong doing. Thus, it is evident that learned President (Judicial) and Member (Judicial) conducted a meticulous exercise to examine and appreciate the evidence on record in the light of the settled principles and came to a categorical finding that in the absence of cogent evidence on record, charges of clandestine removal against the respondents cannot be said to have been proved. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of the respondents, in the facts and circumstances of this case, the impugned majority order of the CESTAT does not suffer from serious error and does not merit any interference. The appeal is therefore dismissed.

Summary

Issues Involved:

1. Alleged clandestine removal of goods and evasion of duty by KTPL and KI.
2. Validity of the evidence relied upon by the Revenue.
3. Admissibility and credibility of retracted statements.
4. Procedural correctness in the seizure and reliance on documents.
5. Standard of proof in adjudication proceedings.
6. Majority vs. minority opinion in CESTAT's decision.

Summary:

1. Alleged Clandestine Removal of Goods and Evasion of Duty:
The Revenue alleged that KTPL and KI were involved in the clandestine removal of goods and evasion of duty. Searches conducted at various premises led to the seizure of materials, documents, and cash. Show Cause Notices were issued demanding recovery of short-paid central excise duty, confiscation of property, and imposition of penalties.

2. Validity of the Evidence Relied Upon by the Revenue:
The main pieces of evidence relied upon by the Excise Department included statements of Mool Chand Malu and Vikas Malu, documents such as Kachcha challans and Hisaba books, and physical seizures. The Revenue argued that these documents were linked to the respondents and supported the allegations of clandestine removal.

3. Admissibility and Credibility of Retracted Statements:
The respondents retracted their statements, arguing they were not voluntary and lacked independent corroboration. The majority view of the CESTAT found the retracted statements unreliable, noting that the burden of proof was on the Revenue to establish the statements were made without coercion. The minority view upheld the statements and the penalties imposed.

4. Procedural Correctness in the Seizure and Reliance on Documents:
The majority opinion highlighted procedural flaws in the seizure of documents, noting that the authors were not examined, and the documents were not recovered from the respondents' premises. The documents' authenticity and integrity were questioned, and the evidence was deemed insufficient to establish clandestine removal.

5. Standard of Proof in Adjudication Proceedings:
The court emphasized that while the standard of proof in adjudication proceedings is based on the preponderance of probabilities, the conclusions must be logical and not based on assumptions or suspicions. The evidence must be strong enough to substantiate the charges.

6. Majority vs. Minority Opinion in CESTAT's Decision:
The CESTAT had a split decision, with the President (Judicial) and the third Member (Judicial) finding the evidence unreliable and uncorroborated, leading to the dismissal of the charges. The minority opinion by the Member (Technical) upheld the penalties and the findings of clandestine removal.

Conclusion:
The High Court upheld the majority view of the CESTAT, concluding that the evidence presented by the Revenue was unreliable and insufficient to prove clandestine removal and under-valuation. The appeal was dismissed, emphasizing the need for tangible evidence rather than assumptions to substantiate serious charges of evasion and clandestine removal.