2017 (9) TMI 982 - AT - Central Excise

Clandestine removal - case of Revenue is that Assessee-respondent failed to prove that it had not followed questionable modus operandi - Cross verification of investigation result with evidence gathered from the premises of third party corroborated the malafides of the respondent proving evasion - Held that - It is strange to notice that learned Commissioner (Appeals) did not look into the incriminating evidence gathered by investigation in the course of search. He superficially held that private records do not establish the clandestine removal since those are not considerable as evidence - If certain materials are of inevitable necessity for somebody, he keeps such materials with him for which he is answerable when the contents in the said materials have nexus to the clandestine removal. Investigation has brought out that the real data relating to clandestine removals were concealed in a games file known as Games LX 01-02. Such symbolic abbreviation was the design of the respondent to retrieve the data for its own use. Ld. Commissioner (Appeals) failed to appreciate that respondent had not accounted for fabric processed by it and cleared the same without payment of duty. He has only worked hard with a misplaced sympathy to grant relief to the respondent without testing the intensity and gravity of the seized electronic record as well as statements recorded having bearing to the contents therein. The chain of evidence brought out by investigation were given burial death by ld. Commissioner (Appeals). When clandestine removal was backed by plethora of evidence, gathered by investigation, it was the respondent who was to defend its case leading evidence to discard the same. Burden of proof was not discharged by it to rebut the allegations of Revenue based on evidence nor the respondent came out with clean hands to prove that it was innocent and there was no clandestine removal. Appeal allowed - decided in favor of Revenue.

Issues Involved:
1. Allegations of clandestine removal of excisable goods.
2. Manipulation of records to evade Central Excise duty.
3. Financial involvement and connivance with other entities.
4. Failure to account for processed fabrics and comply with Central Excise Act.
5. Invocation of extended period for demand under Section 11A.
6. Imposition of penalties under various provisions of the Central Excise Act and Rules.
7. Evaluation of evidence by the Commissioner (Appeals).

Issue-wise Detailed Analysis:

1. Allegations of Clandestine Removal of Excisable Goods:
The investigation revealed that M/s. QP had intentionally manipulated their records to clear goods clandestinely, showing lesser amounts of processed fabrics than actually processed. This was done to evade Central Excise duty. Two separate accounts of processed fabrics were maintained in their computer, one reflecting discharged CE duty and another hidden account found in a folder named "Games Lx 01-02." The hidden account did not match the statutory records, indicating clandestine clearances without payment of duty. This manipulation was corroborated by the CD found at the premises of Marudhar Fabrics, which matched the hidden computer records.

2. Manipulation of Records to Evade Central Excise Duty:
M/s. QP failed to account for processed fabrics and cleared them without payment of Central Excise duty, thereby suppressing information from the authorities. This attracted the first proviso to Section 11A for the extended period of demand. The investigation highlighted that M/s. QP manipulated records by keeping two separate accounts, one for statutory purposes and another hidden account for actual clearances.

3. Financial Involvement and Connivance with Other Entities:
The investigation established that M/s. QP was financially closely involved with M/s. MF and M/s. MI. It was found that M/s. QP was essentially a creation of M/s. MF/MI, with financial transactions and reporting directed to Shri Gautam Salecha. The CD containing data on clandestine clearances was sent to Shri Salecha, indicating his involvement and financial interest in the operations of M/s. QP.

4. Failure to Account for Processed Fabrics and Comply with Central Excise Act:
The adjudicating authority found that M/s. QP had failed to comply with the requirements under the Central Excise Act, 1944, and the Rules made thereunder. This included not maintaining proper records, not filing correct declarations, and not accounting for the processed fabrics cleared without payment of duty. The evidence showed that M/s. QP, along with other entities, had contravened various provisions of the Act and suppressed facts about the illicit removal of goods.

5. Invocation of Extended Period for Demand under Section 11A:
Given the suppression of facts and clandestine removal of goods, the proviso to Section 11A of the Central Excise Act, 1944, was invoked for the extended period of demand. The adjudicating authority confirmed the demand for recovery of duty evaded by M/s. QP.

6. Imposition of Penalties under Various Provisions of the Central Excise Act and Rules:
The adjudication resulted in the imposition of Central Excise duty of ?48,87,050 on M/s. QP, along with a penalty of an equivalent amount under Section 11AC. Additionally, penalties were imposed on various individuals and entities involved, including Shri Gautam Salecha and others, under Rule 209A of the Central Excise Rules, 1944, read with Rule 26 of the Central Excise Rules, 2001/2002.

7. Evaluation of Evidence by the Commissioner (Appeals):
The learned D.R. argued that the Commissioner (Appeals) erred in evaluating the material facts and evidence. The investigation had gathered cogent and credible evidence, including oral and documentary evidence, as well as computer records, proving the clandestine removal of goods. However, the Commissioner (Appeals) set aside the adjudication without properly considering this evidence. The appellate authority failed to appreciate the relevancy and admissibility of the seized electronic records and statements, leading to the reversal of the adjudication order.

Conclusion:
The adjudication order, which was based on critical findings and credible evidence of clandestine removal and evasion of duty, was maintained. The appellate order was set aside, and the Revenue's appeal was allowed, reinforcing the findings of the adjudicating authority.

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