2016 (12) TMI 716 - AT - Central Excise

Shortages in stock - shortages of 1,236.240 MT of sponge iron - clandestine removal of 495.240 MT of sponge iron - demand of duty along with interest and penalty - Held that - even if the assessee fails to explain the shortages themselves, the charge of clandestine removal cannot be imputed in absence of independent investigation to corroborate the allegation. As rightly observed by the Commissioner (Appeals), the investigations have failed to bring the charge of clandestine removal by leading evidences in the form of statement of buyers, transporters, flow back of funds, extra use of electricity, etc. He has rightly concluded that huge quantity of sponge iron would require a large fleet of lorries/trucks for their transportation and in the end in the absence of any such evidence on record, the findings of clandestine removal cannot be upheld. I also note that the Revenue has not produced any evidence for procurement of such a huge raw-material to manufacture the said quantum of assessee s final product. Before the final product is removed, the same is required to be manufactured. As such, heavy onus is placed upon Revenue to establish the manufacture of the said goods. There are no statements on records, either admitting the manufacture of the said goods or removal of the same in clandestine manner. As such, I fully agree with the Commissioner (Appeals) that the findings of clandestine removal based solely on the shortages detected by the officers cannot be upheld. As regards Revenue s allegation for clandestine manufacture and removal of 495.000 MT of sponge iron during the period of three days preceding to the visiting of officers, I find that the Commissioner (Appeal) has discussed each and every document recovered by the visiting officers and has held that the same cannot be made the basis. The Commissioner (Appeals) has taken into account all the relevant facts, discussed the various documents and has decided the issue on the basis of precedent decisions of the Tribunal. It is a fact that even deponents of the statements at the time of recording, have nowhere admitted the fact of clandestine removal. The entire case of the Revenue is based upon the assumptions and presumptions. Ld. Departmental Representative has argued that the appeal should be decided on the basis of preponderance of probability and Revenue cannot be expected to substantiate its case by arithmetical precision. However, I find that in the present case, the Revenue has failed to produce the evidences, even to tilt the weight of the evidences in their favour. Recovery of documents if any may be the starting point of investigation and it is expected from the investigating agency to go ahead to make enquiries from relevant factors. In the present case, Revenue s entire case is based upon the recovery of certain loose sheets or non-statutory documents, which admittedly require corroboration. No such corroboration being provided by Revenue, I am of the view that the findings arrived at by the Commissioner (Appeals) are appropriate and do not require any interference - appeal rejected - decided against Revenue.

Issues Involved:
1. Shortages of Sponge Iron
2. Alleged Clandestine Removal of Sponge Iron
3. Validity of Evidence (Documents, Computer Printouts)
4. Method of Stock Verification
5. Burden of Proof on Revenue

Issue-wise Detailed Analysis:

1. Shortages of Sponge Iron:
The central excise officers conducted a stock verification at the respondent’s factory, which allegedly resulted in shortages of 1,236.240 MT of sponge iron. The original adjudicating authority confirmed the duty of ?20,98,248/- based on these shortages. However, the respondents challenged the accuracy of the stock verification method, arguing that the method of measurement and weightage was improper and lacked actual weighment. The Commissioner (Appeals) observed that the method used (dip-reading) to determine the stock was not reliable and could not result in an accurate stock determination. The Commissioner (Appeals) noted that the stock taking method was objected to later, and the shortages were assessed based on guesswork and eye estimation.

2. Alleged Clandestine Removal of Sponge Iron:
The officers also alleged that the respondents clandestinely cleared 495.240 MT of sponge iron without payment of duty. The Commissioner (Appeals) found that the evidence provided by the Revenue, such as computer printouts and loose documents, was insufficient to prove clandestine removal. The Commissioner (Appeals) emphasized the necessity of corroborating evidence such as statements from buyers, transporters, or evidence of extra use of electricity, none of which were provided. The Tribunal agreed, stating that mere shortages detected during the officers' visit, without corroborative evidence, could not substantiate the charge of clandestine removal.

3. Validity of Evidence (Documents, Computer Printouts):
The Commissioner (Appeals) scrutinized the documents and computer printouts recovered during the investigation. It was noted that the computer printouts lacked evidentiary value as the requirements of Section 36B of the Central Excise Act, 1944, were not complied with. The printouts were obtained from devices not regularly used by the appellant, and the data was not authenticated properly. The Tribunal supported this view, indicating that the evidence relied upon by the Revenue was not credible or sufficient to prove the allegations.

4. Method of Stock Verification:
The method used to verify the stock was critically examined. The Commissioner (Appeals) found that the officers did not follow a proper metric system and relied on declarations by the respondent’s manager. The stock was determined using a dip-reading method, which was not accurate. The Tribunal upheld this finding, agreeing that the method used was flawed and could not be the basis for confirming shortages.

5. Burden of Proof on Revenue:
The Tribunal emphasized that the burden of proof lies heavily on the Revenue to establish the manufacture and removal of goods clandestinely. In this case, the Revenue failed to provide corroborative evidence such as statements from buyers, transporters, or proof of extra use of electricity. The Tribunal noted that the entire case was based on assumptions and presumptions without substantial evidence. The Commissioner (Appeals) rightly concluded that the findings of clandestine removal could not be upheld based solely on the shortages detected.

Conclusion:
The Tribunal found no merit in the Revenue’s appeal and upheld the decision of the Commissioner (Appeals), who had set aside the order of the original adjudicating authority. The Tribunal concluded that the Revenue failed to produce sufficient evidence to substantiate the allegations of clandestine removal and improper stock verification. The appeal was accordingly rejected.

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