2025 (3) TMI 1098 - AT - Central Excise

Clandestine manufacture and removal - MS ingots - recovery of incriminating records seizure of one pen drive one computer and a hard disk and various other incriminating documents - existence of corroborative evidence or not - admissibility of the printed material under Section 36B of CEA - Mandatory complaince with Section 9D by the Adjudicating Authority or not - non-compliance with the mandate of Section 9D(2) be raised at the Appellate Stage when not raised before the Adjudicating Authority - electronic evidence collected admissible given the absence of certificate issued under Section 36B(4) or not - HELD THAT - Both S.14 and S.9D of the CE Act are pari-materia with S.108 and S.138B of the Customs Act respectively and therefore judicial pronouncements in respect of these provisions of Customs Act 1962 would also hold good for the pari-materia provisions of Central Excise Act 1944. A three judge bench of the Honourable Supreme Court in K. I. Pavunny v Asst.Collr.(H.Q)., C.Ex.Collectorate Cochin 1997 (2) TMI 97 - SUPREME COURT had an occasion to consider whether the confessional statement of the appellant therein given to the Customs officers under Section 108 of the Customs Act 1962 (for short the Act ) though retracted at a later stage is admissible in evidence and could form basis for conviction and whether retracted confessional statement requires corroboration on material particulars from independent evidence. The Supreme Court in Ram Bihari Yadav vs. State of Bihar 1998 (4) TMI 578 - SUPREME COURT itself has observed that more often than not the expressions relevancy and admissibility are used as synonyms but their legal implications are distinct and different from for more often than not facts which are relevant are not admissible; so also facts which are admissible may not be relevant for example questions permitted to put in cross examination to test the veracity or impeach the credit of witnesses though not relevant are admissible. The probative value of the evidence is the weight to be given to it which has to be judged having regards to the fact and circumstances of each case. Since the adjudicating authority has not followed the mandate of Section 9D (2) in the instant case and had not given an opportunity to the affected party to make submissions post intimation of his intent to rely on such materials duly stating the reasons why he intends to arrive at the said opinion. We are therefore of the considered view that the adjudicating authority has grossly erred in placing reliance on the statements recorded under Section 14 without following the mandate of Section 9D of the CEA. The reliance placed by the adjudicating authority on all these untested statements cannot sustain. This has rendered the case of clandestine removal made against the appellants wholly unsustainable on this ground alone. Whether the electronic evidence collected during investigation in this case is admissible given the absence of certificate issued under Section 36B? - HELD THAT - Given that the Adjudicating Authority despite noticing the protestations of the appellants regarding noncompliance of Section 36B (4) and even after the law was laid down in P.V. Anvar s case 2014 (9) TMI 1007 - SUPREME COURT yet chose not to cure the same we refrain from embarking on this course of remand as it would tantamount to affording a second opportunity that was undeserved not to mention the prolongation of the litigation which the appellants do not deserve. Moreso since it is conscious that there are balance the rights of the parties before us and such conscious non-compliance by the adjudicating authority has to be considered adversely to the detriment of the Revenue and the benefit thereof should then enure to the appellants. The standard of proof denotes the level of conviction or the decisional threshold that enables the court to decide whether the party who shoulders the burden of proof has discharged the same. In customs and excise matters where the assessee can be visited with financial penal consequences Courts have always tried to apply a qualified preponderance of probabilities standard - The allegations of mala fides are often more easily made than proved and the very seriousness of such allegations demand proof of a high order of credibility. Thus while the general standards of proof for civil cases are the preponderance of probability and the standards for criminal cases are beyond reasonable doubt these standards have also been eschewed in favour of clear and convincing evidence when the allegations are of more serious nature and also attract heavy financial consequences. Having detailed some of the lacunae and shortcomings in the investigation supra as well as the standard of proof required to be adduced by Revenue in clandestine removal matters as aforementioned we shall now deal with the evidence relied upon qua each of the demands confirmed in the impugned order and examine whether the evidence relied upon meet the standard of clear and convincing evidence to establish the case of clandestine removal and to establish the availment of cenvat credit without actual receipt of inputs. The Department has not let in any evidence in the form of unaccounted procurement of the other raw materials required for manufacture of MS Ingots evidence of their procurement evidence of the quantum of fuel/ electricity labour etc. used the examination or test evaluation of the production capability and capacity of the Appellant s factory etc. There are no quarrel with the proposition of the Authorised representative in his contention that as per Section 61 of the erstwhile Evidence Act 1872 it is necessary that the contents of a document has to be proved either by primary or secondary evidence and that the evidence of the contents contained in a document is hearsay evidence unless the writer thereof is examined before the court and further that as per section 67 of the erstwhile Evidence Act 1872 the signature or handwriting of the person alleged to have signed the whole or part of the documents has to be proved. These contentions are precisely in tandem with our findings supra on the manner in which the adjudicating authority has to evaluate the statement under Section 14 for its relevance as per the mandate of Section 9D(2). However the reliance placed by the authorised representative on Section 36A (1) and 36A(2) are misplaced in that these presumptions would apply only in a proceedings before the Court being rebuttable presumptions. However unlike Section 9D (2) or Section 36B which deems a document to be admissible in any proceedings under the Act when accompanied with the certificate mandated under Section36B(4) Section 36A does not permit the presumption to be drawn in adjudicatory proceedings under the Act and is confined only to Court proceedings. There is no justification available either in the show cause notice or in the impugned order to explain the absence of statements of most relevant persons or the reasons for delay in conducting follow up searches. The transporters who actually transported the goods have also not been questioned. In short the investigation has failed to establish the allegations raised in the show cause notice and the findings of the adjudicating authority are also decidedly untenable in the light of discussions regarding the lack of demonstrable reliable and corroborative evidence. Conclusion - The finding of the adjudicating authority that the main appellant has indulged in clandestine manufacture and clearances of MS ingots during period February 2010 to February 2012 and the consequent demand of duty made is untenable; the demand of cenvat credit availed for the period February 2010 to May 2010 by the main appellant terming it ineligible is incorrect; the demand made on M/s. SKSRM for clearances of TMT Rods alleged to have been cleared without payment of duty and allegedly made out of MS ingots procured from the main appellant without payment of duty as confirmed in the impugned Order in Original is untenable and consequently the penalties imposed on the appellants are unsustainable. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

• Whether the main appellant, GSPL, indulged in clandestine manufacture and clearance of MS ingots from February 2010 to February 2012, justifying the consequent demand of duty.
• Whether the demand for ineligible CENVAT credit availed by GSPL from February 2010 to May 2010 is lawful.
• Whether the demand made on M/s. SKSRM for clearances of TMT rods allegedly made from MS ingots procured without payment of duty is tenable.
• Whether the penalties imposed on the appellants are legally sustainable.
• Whether the electronic evidence collected during the investigation is admissible, given the absence of a certificate issued under Section 36B(4) of the Central Excise Act.
• Whether compliance with Section 9D of the Central Excise Act is mandatory in adjudication proceedings.
• Whether a plea of non-compliance with the mandate of Section 9D can be raised at the appellate stage.

2. ISSUE-WISE DETAILED ANALYSIS

Clandestine Manufacture and Clearance of MS Ingots

• Relevant Legal Framework and Precedents: The Central Excise Act, 1944, particularly Sections 9D and 36B, and the Indian Evidence Act, 1872, are central to the adjudication of clandestine manufacture and clearance allegations. The precedents set by the Supreme Court in cases like K.I. Pavunny and Tofan Singh were considered to determine the admissibility and relevance of statements and electronic evidence.
• Court's Interpretation and Reasoning: The Tribunal found that the adjudicating authority failed to comply with Section 9D, which mandates the examination of witnesses whose statements are relied upon. The Tribunal emphasized that statements recorded under Section 14 of the Central Excise Act must be substantiated by cross-examination or other corroborative evidence to be admissible.
• Key Evidence and Findings: The Tribunal noted significant procedural lapses in the investigation, including the mishandling of electronic evidence and failure to corroborate statements with tangible evidence. The Tribunal found that the evidence relied upon by the adjudicating authority did not meet the standard of "clear and convincing evidence" required to establish clandestine activities.
• Application of Law to Facts: The Tribunal applied the principles of evidence law to determine the admissibility of statements and electronic records. It found that the absence of a Section 36B(4) certificate rendered the electronic evidence inadmissible.
• Treatment of Competing Arguments: The Tribunal considered the appellants' arguments regarding the mishandling of evidence and the lack of corroborative evidence. It found these arguments persuasive, given the procedural deficiencies in the investigation.
• Conclusions: The Tribunal concluded that the allegations of clandestine manufacture and clearance were not substantiated by reliable evidence, and the demands based on such allegations were unsustainable.

Ineligible CENVAT Credit

• Relevant Legal Framework and Precedents: Sections 9D and 36B of the Central Excise Act, 1944, and relevant case law regarding the admissibility of electronic evidence and the burden of proof in fiscal matters.
• Court's Interpretation and Reasoning: The Tribunal emphasized the need for corroborative evidence to support allegations of ineligible CENVAT credit. It found that the evidence presented did not meet the required standard of proof.
• Key Evidence and Findings: The Tribunal noted inconsistencies and gaps in the evidence presented by the Department, particularly regarding the alleged non-receipt of inputs.
• Application of Law to Facts: The Tribunal applied the principles of evidence law to determine that the electronic evidence relied upon was inadmissible due to the absence of a Section 36B(4) certificate.
• Treatment of Competing Arguments: The Tribunal considered the appellants' arguments regarding the lack of evidence for the alleged non-receipt of inputs and found them compelling.
• Conclusions: The Tribunal concluded that the demand for ineligible CENVAT credit was not substantiated by reliable evidence and was therefore unsustainable.

Demand on M/s. SKSRM

• Relevant Legal Framework and Precedents: The Central Excise Act, 1944, and relevant case law regarding the burden of proof in fiscal matters.
• Court's Interpretation and Reasoning: The Tribunal found that the evidence against M/s. SKSRM was based on assumptions and lacked corroborative evidence.
• Key Evidence and Findings: The Tribunal noted the absence of evidence regarding the actual transportation of goods and the lack of corroborative evidence for the alleged clandestine clearances.
• Application of Law to Facts: The Tribunal applied the principles of evidence law to determine that the evidence presented was insufficient to sustain the demand.
• Treatment of Competing Arguments: The Tribunal considered the appellants' arguments regarding the lack of evidence and found them compelling.
• Conclusions: The Tribunal concluded that the demand on M/s. SKSRM was not substantiated by reliable evidence and was therefore unsustainable.

Penalties Imposed on Appellants

• Relevant Legal Framework and Precedents: The Central Excise Act, 1944, particularly Section 11AC, and relevant case law regarding the imposition of penalties in fiscal matters.
• Court's Interpretation and Reasoning: The Tribunal found that the penalties were based on unsustainable demands and lacked legal justification.
• Key Evidence and Findings: The Tribunal noted the lack of evidence to support the imposition of penalties, given the deficiencies in the investigation.
• Application of Law to Facts: The Tribunal applied the principles of evidence law to determine that the penalties were unsustainable.
• Treatment of Competing Arguments: The Tribunal considered the appellants' arguments regarding the lack of evidence and found them compelling.
• Conclusions: The Tribunal concluded that the penalties imposed on the appellants were unsustainable and should be set aside.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the demands confirmed in the impugned order were unsustainable due to the lack of reliable evidence and procedural deficiencies in the investigation.
• The Tribunal emphasized the mandatory nature of compliance with Section 9D of the Central Excise Act in adjudication proceedings.
• The Tribunal reiterated the requirement for a certificate under Section 36B(4) for the admissibility of electronic evidence.
• The Tribunal set aside the impugned order and allowed the appeals with consequential relief as per law.
• The Tribunal directed the Registry to send a copy of the order to the Chairman, CBIC, for appropriate action to ensure adherence to the mandates of law as laid down by higher judicial forums.