2013 (11) TMI 785 - AT - Central Excise

Clandestine Removal of goods Held that - Charges of clandestine removal are serious charges and cannot be established on the basis of some loose documents of unverified nature Following COMMISSIONER OF C. EX., AHMEDABAD-II Versus TEJAL DYESTUFF INDUSTRIES 2008 (7) TMI 412 - HIGH COURT OF GUJARAT AT AHMEDABAD - having obtained confessional statements, Revenue officers did not carry out the detailed investigations into the relevant aspects of the case, particularly the bank accounts and working of the assessee s factory - recording of a confessional statement would not put an end to investigation and the Revenue officers should be careful to ensure that they are not tricked out of a regular and detailed investigation. Entire Stock lied in the factory to be measured or not Held that - The department has admitted that physical verification of entire stock was not taken - The department itself believes that all fabrics received in the factory are first entered in kachcha chits and thereafter entered in the lot register, therefore, physical stock verification of entire stock was required to be carried out. -This having not been done, the department has not made out a case beyond doubt that there was shortage of particular MMF/CF and certain quantity of these fabrics was in excess. Apart from the loose papers which are held as not carrying much evidentiary value, there is virtually no evidence on record to establish clandestine activities of the respondents Relying upon COMMR. OF C. EX., CUS. & SER. TAX, DAMAN Versus NISSAN THERMOWARE P. LTD. 2010 (12) TMI 487 - GUJARAT HIGH COURT - A case of clandestine removal of goods has to be made out on facts which find corroboration from the material on record - In absence of any corroborative material, no demand could have been raised merely on the basis of a statement recorded under Section 14 of the Act, which had been subsequently retracted Decided against Revenue.

Issues Involved:
1. Recovery and significance of 'kachcha chits'
2. Investigation of buyers
3. Acceptability of retracted statements
4. Corroboration of evidence

Issue-wise Detailed Analysis:

1. Recovery and Significance of 'Kachcha Chits':
The department contended that the 'kachcha chits' recovered during the search operation contained lot numbers and other details that did not match the lot register maintained by the assessee. The respondents argued that since the entire stock was not measured, the case of clandestine removal based on 'kachcha chits' was unsubstantiated. The tribunal found substantial force in the respondents' argument, noting that the department admitted to not conducting a physical verification of the entire stock. Consequently, the tribunal concluded that the department failed to prove beyond doubt the shortage or excess of particular fabrics, thereby weakening the case of clandestine removal.

2. Investigation of Buyers:
The department failed to investigate the 12 buyers whose names appeared on the loose papers or were informed by the Director of the respondent firm. The department argued that since one of the buyers, M/s Ganesh Textiles, was a dummy firm, further investigation was unnecessary. However, the tribunal found that no investigation was conducted regarding the remaining 11 buyers, which was essential to prove the clearance of fabrics to these buyers. The tribunal emphasized that the onus to prove the clearance of fabrics rested on the department, and the lack of investigation at the buyers' premises weakened the department's case.

3. Acceptability of Retracted Statements:
The department contended that the Commissioner (Appeals) did not verify whether the ADG, DGCEI received the affidavit retracting the statements. The respondents argued that Section 37C of the Central Excise Act, 1944, was not applicable to them for filing any document with the Central Excise authorities. The tribunal found that the primary evidence required to demand central excise duty was to prove clandestine removal, which was not established due to the lack of physical verification of stock. The tribunal concluded that the retraction of statements and the delivery of affidavits were secondary issues, as the primary evidence of clandestine removal was absent.

4. Corroboration of Evidence:
The department argued that the 'kachcha slips' recovered from the factory premises were corroborated by the statements of the Excise Clerk and the Director. The respondents contended that there was no corroboration from any buyer for the clandestinely removed fabrics, nor any evidence of unaccounted money received. The tribunal found that the evidence presented by the department, including the statements and annexures, could not independently establish clandestine removal. The tribunal highlighted the importance of investigating the buyers' end to corroborate the evidence in the form of loose slips. The lack of further investigation and corroborative evidence led the tribunal to conclude that the charges of clandestine removal were not substantiated.

Conclusion:
The tribunal emphasized that charges of clandestine removal, which result in criminal liabilities, must be proved by sufficient evidence and cannot be based on unverified documents. The tribunal referred to several precedent decisions, including the majority order in the case of M/s. Tejwal Dyestuff Industries and the Hon'ble Supreme Court's observation that suspicion cannot replace proof. The tribunal concluded that the department failed to produce independent evidence to establish clandestine activities, leading to the dismissal of the department's appeal and upholding the order of the Commissioner (Appeals).

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