2013 (6) TMI 3 - HC - Central Excise

SSI Exemption - requirement of registration and maintenance of the accounts for the purpose of central excise - clandestine removal - reliance upon the statement - held that - the statement in question was too weak to be relied on as evidence on law in absence of any corroboration thereof by cogent evidence. - The solitary statement could not be said to be a cogent and convincing piece of evidence which validly corroborate the confessional statement in the statement of the Director more particularly when the said statement of M/s. Harish Metals was not referred to and discussed in the show cause. - Moreover the confessional statement was retracted within reasonable time. Therefore also the said confession could not have been used as a piece of evidence and there was no basis for inference and conclusion about clandestine removal of goods thereof. Regarding maintenance of records - held that - The regular accounts under the excise law were not maintained by the assessee considering that since the exemption limit in the said Notification applied to it maintaining of accounts for the excise purpose was not required. It is not disputed that the assessee was otherwise maintaining the accounts for the purpose of other laws like Sales Tax Act Sales Tax Registration and its accounts were audited in accordance with the provisions of the Companies Act 1956. In the Order-in-Original dated 17-6-2009 the adjudicating authority itself observed that there were no statutory records or excise records as they were dispensed with by the department since 2000 as a measure of simplification and the every manufacturer was required to maintain his own records and to device to his own record keeping method depending upon the accounting requirements. In this view and given the facts and circumstances of the case the conclusion that the assessee had deliberately not maintained the accounts under the excise law could not stand and such a finding could be said to be baseless. Value of clearance - held that - Even if the case of the department is taken at its best value admittedly the total clandestine clearance was below the limit of 1.5 crores specified in the notification dated 1-3-2003. The approach of the Central Excise Authority was erroneous and the findings arrived at by the learned Tribunal were not tenable at law. Once the sole basis of confessional statement adopted by the Authority in basing the case against the assessee was found to be an unreliable piece of evidence inferences and conclusions about clandestine removal of goods fail to sustain. - Demand and penalty set aside - decided in favor of assessee.

Issues Involved:
1. Applicability of Notification No. 8 of 2003-C.E., dated 1st March 2003, exempting clearance.
2. Applicability of Rule 25 of Central Excise Rules, 2002 to the appellant's case.
3. Validity and reliability of the confessional statement of the Director.
4. Maintenance of accounts by the appellant under the Central Excise law.
5. Alleged clandestine removal of goods.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 8 of 2003-C.E., dated 1st March 2003, exempting clearance:
The appellant contended that as a Small Scale Industry (SSI), its total clearances were below the exemption limit of Rs. 1.5 crores as per Notification No. 8 of 2003. Therefore, it was not necessary for them to maintain accounts for the purpose of central excise. The court noted that the aggregate clearance value was indeed below the prescribed limit. Consequently, the exemption under the said notification was applicable to the appellant, and the Tribunal committed a substantial error of law by overlooking this fact.

2. Applicability of Rule 25 of Central Excise Rules, 2002 to the appellant's case:
The Tribunal's decision rested on the reasoning that the appellant had not maintained accounts under the excise law and that there was clandestine removal of goods, making it liable for confiscation and penalty under Rule 25 of the Central Excise Rules, 2002. However, the court held that in view of the exemption provided by Notification No. 8/2003-C.E., Rule 25 would not be applicable to the appellant's case.

3. Validity and reliability of the confessional statement of the Director:
The primary basis for the Department's action was the confessional statement of the Director, recorded under Section 14 of the Central Excise Act, 1944. This statement was later retracted by the Director, who claimed it was made under coercion, threat, and duress. The court emphasized that a retracted confession must be corroborated by independent and cogent evidence. In this case, there was no corroborative evidence to support the confessional statement, making it unreliable. The court found that the statement was too weak to be relied upon as evidence.

4. Maintenance of accounts by the appellant under the Central Excise law:
The appellant argued that it was maintaining accounts for other applicable laws, such as the Sales Tax Act, and its accounts were audited under the Companies Act, 1956. The court noted that the adjudicating authority itself observed that statutory records or excise records were dispensed with by the department since 2000 as a measure of simplification. Therefore, the conclusion that the appellant deliberately did not maintain accounts under the excise law was baseless.

5. Alleged clandestine removal of goods:
The Department's case was based on the statement of the Director and the failure to produce accounts during the investigation. The court found that there was no material or evidence establishing the actual clearance of goods, much less clandestine clearance. Even if the maximum value of goods allegedly cleared clandestinely was considered, the total value was still below the exemption limit of Rs. 1.5 crores. The court concluded that there was no basis for the inference and conclusion about clandestine removal of goods.

Conclusion:
The court held that the Tribunal committed substantial errors of law by overlooking the effect of Notification No. 8/2003-C.E. and by wrongly applying Rule 25 of the Central Excise Rules, 2002 to the appellant's case. The confessional statement of the Director was found to be unreliable and uncorroborated, and the appellant was not required to maintain excise accounts due to the exemption. The alleged clandestine removal of goods was not substantiated by evidence. The appeals were allowed, and the orders of confiscation and penalty were set aside. The court rejected the respondent's request to stay the operation of the judgment.

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