2024 (5) TMI 375 - AT - Central Excise

Suppression of production and clandestine removal of excisable goods without payment of duty - demand confirmed on the basis of certain loose sheets/documents recovered from the trading firm located in the same premises where the appellant-company is also located - demand also based on statements recorded from the Director Shri Amit Agrawal - corroborative evidences or not - Penalty imposed on Shri Amit Agrawal, Director - HELD THAT - The installed capacity of the unit was 6,000 M.T. only. As per the records, the appellant has produced 5377.140 M.T. of the goods and cleared the same on payment of duty. There is no evidence brought on record to show any increase in the installed capacity of the unit during the material period. There is no evidence available regarding excess consumption of electricity or procurement of raw material or utilization of labour to produce excess goods clandestinely. If the excess production of 1365.257 M.T. is added, then that would amount to production of 6742.397 M.T. (5377.140 M.T. 1365.257 M.T.) by the appellant during a period of 11 months, whereas the installed capacity of the unit itself is only 6,000 M.T. per annum. The adjudicating authority has not given any finding as to how it is possible to produce excess quantity beyond the installed capacity. Thus, the demand has been confirmed much beyond the installed capacity of the unit without adducing any evidence in support of clandestine manufacture and clearance. The entire allegation is based on certain loose sheets / documents recovered during the course of search. The clandestine removal has not been corroborated with any other evidence. The burden of proving clandestine removal with positive, tangible and cogent evidence is on the Department, to establish that the appellant has manufactured and clandestinely cleared the goods. For the purpose of establishing clandestine clearance, there must be documentary evidence, to support the said allegation. The entire demand in this case has been made only on the basis of some loose sheets and the statement of Shri Amit Kumar Agrawal. Oral statements being secondary evidence, cannot prevail over documentary evidences. There is no shortage or excess of raw material or finished goods found at the time of search in the factory of the appellant. No parallel invoice was found during the course of search operations. There is no verification done at the customer s end regarding receipt of the clandestinely manufactured and cleared goods.In the absence of any such evidence, the allegation of clandestine removal cannot be substantiated only on the ground of assumptions and presumptions. In the entire records of proceedings, there is no evidence to indicate that there was clandestine manufacturing. There is no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory - There is also no cogent evidence of disproportionate and unaccounted receipt and consumption of the basic raw materials and packing material, required for manufacturing alleged quantity of unaccounted finished goods. There are no tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material - thus, the unaccounted production in the factory of the appellant-company has not been established. There is no corroborative evidence brought on record to substantiate the allegation of clandestine manufacture and clearance of finished goods by the appellant. In the absence of such corroborative evidence, the demand of central excise duty confirmed in the impugned order is not sustainable. In view of the above discussions and the decisions, the demand of Rs.56,52,591/- confirmed in the impugned order, on the basis of the loose sheets/documents found in the trading firm is not sustainable. and hence we set aside the same. As the demand itself is not sustainable, the question of demanding interest and imposing penalty on the appellant does not arise. Penalty imposed on Shri Amit Agrawal, Director - HELD THAT - It is observed that a Statement dated 26.02.2009 was recorded from him by showing 5000 pages of loose sheets after conclusion of search operation at 9.15 pm on 26.02.2009. and it cannot be considered as a certificate of correctness of each and every transaction appearing in loose sheets. Hence, the statement given by him cannot be considered as an admission of his guilt. Since the offence alleged to have been committed by the appellant company is not established, it is held that imposition of penalty on the basis of the same allegation is not sustainable. In the absence of any evidence to show specific role played by a Director and his active involvement, in the commission of the offence, penalty cannot be imposed under Rule 26 of the Central Excise Rules, 2002. The allegations of clandestine removal and clearance of goods without payment of duty has not been established - the role of the Director in the alleged clandestine manufacture and clearance of the goods is not established - no penalty is imposable on him under Rule 26 of the Central Excise Rules, 2002. Accordingly, the same is set aside. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Suppression of production and clandestine removal of excisable goods.
2. Imposition of penalty on the Director of the appellant-company.

Summary:

Issue 1: Suppression of Production and Clandestine Removal of Excisable Goods
The appellant, a manufacturer of M.S. Rods, Flats, Angles, etc., was subjected to a search by DGCEI, leading to the seizure of certain loose sheets and documents from a trading firm in the same premises. A Show Cause Notice (SCN) was issued demanding Central Excise Duty of Rs.3,39,76,566/-. The Commissioner confirmed a demand of Rs.56,52,591/- along with interest and penalty, while dropping the demand of Rs.2,83,23,975/-.

The appellant argued that the allegations were based on loose sheets/documents which did not belong to them and were not corroborated with concrete evidence. They contended that the burden of proof lies with the Department to establish clandestine removal with positive, tangible, cogent, and unimpeachable evidence.

The Tribunal observed that the Commissioner had accepted the appellant's argument regarding the installed capacity and lack of evidence for excess consumption of electricity, raw material, and labor. The Commissioner found that the seized handwritten chits could not substantiate the demand and dropped a significant portion of it. However, the Commissioner still confirmed Rs.56,52,591/- based on the same documents, which the Tribunal found contradictory.

The Tribunal held that the entire allegation was based on assumptions and presumptions without corroborative evidence. There was no evidence of excess consumption of raw materials, labor, or electricity, nor any parallel invoices or unaccounted cash. The Tribunal cited several case laws emphasizing that suspicion cannot replace proof and that documentary evidence must be corroborated by other evidence.

The Tribunal concluded that the demand of Rs.56,52,591/- was not sustainable as it was based on loose sheets and assumptions without corroborative evidence. Therefore, the demand was set aside.

Issue 2: Imposition of Penalty on the Director
The penalty of Rs.1,00,000/- was imposed on the Director, Shri Amit Agarwal, based on his statement recorded during the search. The appellant argued that the statement was made under duress and without verifying each transaction due to his health condition.

The Tribunal observed that the statement was recorded late at night and could not be considered a certificate of correctness for each transaction. Since the main allegation of clandestine removal was not established, the penalty on the Director was also not sustainable. The Tribunal emphasized that without evidence of the Director's specific role and active involvement, penalty under Rule 26 of the Central Excise Rules, 2002, could not be imposed.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals filed by the appellants, and concluded that both the demand and the penalty were unsustainable.