2008 (7) TMI 163 - AT - Central Excise

Clandestine removal - appellants had imported subassemblies and components of second-hand photocopiers - printouts of data retrieved from the CPUs seized - data showed transactions by appellants in the names of dummies also MD is admitting the fact that goods were cleared without following Central Excise formalities and payment of duty - evasion of massive amounts of duty clandestine activity proved demand of duty is sustainable

Summary

Issues Involved:
1. Illegality of Show Cause Notice
2. Admissibility of Evidence
3. Denial of Manufacture

Detailed Analysis:

1. Illegality of Show Cause Notice:

The appellants argued that no Show Cause Notice had been issued to the alleged dummy units whose value of clearances had been clubbed with those of CFI, rendering the proceedings illegal. They cited various decisions, particularly the Tribunal's decision in Poly Resins v. CCE, which held that non-issuance of Show Cause Notice to the alleged dummy units proposing clubbing of their clearances with those of the principal unit would vitiate the proceedings.

2. Admissibility of Evidence:

The evidence was contested in three parts:

a. Computer Printouts:
The appellants contended that the printouts were not taken in accordance with Section 36B of the Act. They argued that the conditions for admissibility under Section 36B were not satisfied, particularly the lack of a certificate from the person who operated and was in charge of the computer during the material period. They relied on the case of Premier Instruments and Controls Ltd. v. CCE, which emphasized the necessity of compliance with Section 36B.

b. Statements of Shri K.A. Shabu:
CFI argued that Shri K.A. Shabu had no locus standi in the affairs of the company, as he had resigned. His statements were disowned, and it was claimed that his statement that he was the Chairman of CFI was obtained under duress. The buyers cross-examined deposed that they transacted only with one Shri P. Joseph, contradicting their earlier depositions.

c. Statements from Employees of CFI and CHA of CFI:
The appellants argued that the statements of employees and the CHA could not be relied upon as they were obtained under duress and were not corroborated by other evidence. They contended that the investigation did not collect evidence from the person who entered data into the computer, making the computer printouts unreliable.

3. Denial of Manufacture:

The appellants denied the manufacture of photocopiers, arguing that there was no evidence to show that the seized photocopiers had been assembled from the imported sub-assemblies. They contended that the number of sub-assemblies imported did not match the number of photocopiers allegedly manufactured. They also argued that the Commissioner did not establish the purchase of other parts required to make a complete photocopier.

Findings:

1. On the Illegality of Show Cause Notice:
The Tribunal found that no show cause notices were issued to the dummy units floated by CFI, making the demand on CFI bad in law for the photocopiers relatable to the dummies. They cited several case laws supporting the view that non-issuance of show cause notice to the alleged dummy units proposing clubbing with the principal unit would vitiate the proceedings.

2. On the Admissibility of Evidence:

a. Computer Printouts:
The Tribunal found that the computer printouts were taken in the presence of CFI employees and were corroborated by bank statements. They held that the requirements of Section 36B(2) were met and that the printouts were admissible as evidence.

b. Statements of Shri K.A. Shabu:
The Tribunal found that the initial confessional statements given by Shri K.A. Shabu were reliable evidence. His retraction after four years was not accepted. The statements of other employees corroborated the manufacture and disposal of photocopiers by CFI.

c. Statements from Employees of CFI and CHA of CFI:
The Tribunal found that the statements of employees and the CHA were corroborated by other evidence, including bank records and computer data. The retractions by the employees were ignored.

3. On the Denial of Manufacture:
The Tribunal found sufficient evidence of the manufacture of photocopiers by CFI, including the seizure of 94 pieces of photocopiers from CFI's premises and the statements of employees and buyers. They rejected the appellants' argument regarding the number of sub-assemblies and found that the evidence supported the finding of manufacture.

Conclusion:
The Tribunal upheld the confiscation of the 94 pieces of photocopiers but set aside the fine imposed. They found that the demand of duty on CFI and penalties imposed on all appellants were not sustainable due to the non-issuance of show cause notices to the dummy units. The case was remanded for fresh proceedings following the principles of natural justice.