2013 (9) TMI 245 - AT - Central Excise

Clandestine removal - demand based on confessional statement - M/s Centurian Laboratories (hereinafter referred to as M/s CL) are having factory at Vadodara and are engaged in manufacture of P&P medicines falling under Central Excise Chapter Heading No.30 of first schedule of Central Excise Tariff Act, 1985 and are registered with the authorities Held that - There is nothing on record as to unrecorded purchases or consumption of various other raw material in the manufacture of Frit, there is also nothing on record to indicate that the appellant had purchased the Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite and without accounting them used for the manufacture of Frit for clandestine removal. There is also nothing on record nor there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials - There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil Jadav and whose evidence has been discarded for having not been produced for cross examination; in the absence of any other tangible evidence to show that the appellant had been procuring the other major raw materials required for manufacture of Frit without recording in books of accounts, we are unable to accept the contentions of Revenue. Held that - In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises, demand of duty along with penalty and interest is not sustainable - appellant has not made any clandestine manufacture, which he has removed clandestinely and on which the duty was payable Relying upon the judgment of Tejal Dyestuff Industries 2008 (7) TMI 412 - HIGH COURT OF GUJARAT AT AHMEDABAD , wherein it is held that recording of confessional statements would not be an end to the investigation and Revenue officers should be careful to ensure that they are not tricked out of regular and detailed investigation by making strategical confession which are retracted by an affidavit soon after they are made and which affidavit are again strategically held from the Revenue officers so that they become complacent and do not carry out fuller investigation, thinking that the confessional statements are made and not retracted was already done. - In the absence of any corroborative evidence, as to there being clandestine manufacturing and clearance of P&P medicaments, for the foregoing reasons, the impugned orders in our view are not sustainable Decided in favor of Assessee.

Issues Involved:
1. Allegation of suppression of production and clandestine removal of goods.
2. Evidentiary value of statements and retractions.
3. Corroborative evidence supporting clandestine activities.
4. Compliance with statutory requirements and maintenance of records.
5. Assessment of penalties and interest.

Issue-wise Detailed Analysis:

1. Allegation of Suppression of Production and Clandestine Removal of Goods:
The case involved allegations against M/s Centurian Laboratories (M/s CL) for suppression of production and clandestine removal of finished goods without accounting them in statutory records. During a search operation, incriminating documents were seized, leading to a show cause notice demanding duty on the purportedly clandestinely manufactured and cleared goods. The adjudicating authority confirmed the demand along with interest and penalties.

2. Evidentiary Value of Statements and Retractions:
The adjudicating authority relied heavily on the statements of key personnel from M/s CL, including Shri Shah, Shri A.D. Parmar, and Shri A.V. Patel. The appellants contended that these statements were retracted immediately through affidavits. The Tribunal noted that the adjudicating authority did not adequately consider these retractions, which were communicated to the DGCEI soon after the statements were recorded. The Tribunal emphasized that mere confessional statements, especially when retracted, are insufficient to substantiate allegations of clandestine removal.

3. Corroborative Evidence Supporting Clandestine Activities:
The Tribunal found that the Revenue failed to provide corroborative evidence to support the allegations. It highlighted the absence of statements from raw material suppliers or purchasers of the finished goods. The investigation did not extend to verifying statutory records required by the Food & Drug Administration (FDA), which could have provided critical evidence. The Tribunal noted that the records maintained by M/s CL were consistent with statutory requirements and there was no evidence of unaccounted raw materials or finished goods.

4. Compliance with Statutory Requirements and Maintenance of Records:
The Tribunal scrutinized the records maintained by M/s CL, including batch registers and RG-1 registers. It found that the theoretical batch sizes recorded did not necessarily reflect actual production due to potential losses during manufacturing. The Tribunal criticized the lack of investigation into FDA-mandated records, which are crucial for pharmaceutical manufacturers. The absence of discrepancies in these records further weakened the Revenue's case.

5. Assessment of Penalties and Interest:
Given the lack of substantial evidence and the reliance on retracted statements, the Tribunal concluded that the penalties and interest imposed were unsustainable. It underscored the need for tangible evidence to support allegations of clandestine activities. The Tribunal's decision to set aside the impugned order and allow the appeals with consequential relief was based on the principle that allegations must be substantiated by credible and corroborative evidence.

Conclusion:
The Tribunal's judgment emphasized the importance of corroborative evidence in cases of alleged clandestine removal and highlighted the inadequacy of relying solely on retracted statements. The decision underscored the necessity for thorough investigations and adherence to statutory requirements in substantiating such allegations. The appeals were allowed, and the impugned order was set aside, providing consequential relief to the appellants.

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