2018 (10) TMI 634 - AT - Central Excise

Clandestine removal - removal of goods without cover of invoices - issuance of goodless invoices - fake invoices to avail excess credit - undervaluation - entire case has been built up against the appellants on the basis of data retrieved from pen drives, which were recovered from private persons - Section 36 B of Central Excise Act, 1944 and Section 65 B of Indian Evidence Act, 1872 - cross-examinations denied - demand based on production capacity also. Held that - In this case during the course of investigation neither stock variations were found and nor any incriminating documents were recovered during the search of factory premises of appellants. Only two pen drives were recovered from the possession of Ms. Priyanka Jain in the joint office of the appellant and data has been retrieved and on that basis, the case has been made out against the appellant. Section 36B of the Central Excise Act, 1944 deals with the situation of admissibility of documents and computer print outs as evidence. The procedure has been prescribed under Section 36B of the Act - In this case, the procedure laid down under Sub-sections 2, 3 & 4 of section 36B, has not been followed, in that circumstances, the data gathered from pen drives relied in toto and some of the invoices, are not admissible evidence. Therefore, on this sole ground, the show cause notice is not sustainable. Production capacity - Held that - As per ER-7 returns, the appellant has shown their production capacity during the impugned period and as per the ER-7 returns it is clear that the maximum production capacity of the appellant is 3500 MT without any break. Admittedly, no factory work on 100% production capacity due to wear and tear. The production capacity on which the impugned order is demanding duty works out to 6430.1705 MT during the impugned period. By no stretch of imagination, such quantity of clandestinely cleared goods by the appellants could be manufactured during the impugned period. Invoices - Held that - On the one hand it has been alleged that the appellant is clearing goods without cover of invoices and on the other hand it is alleged that the appellant is issuing with goodless invoices. In fact, the duty has to be demanded on the goods manufactured by the appellants. If the appellant is an issuing goodless invoice which means no goods have been manufactured by the appellant. Therefore, on that account, no duty can be demanded against the appellants - the appellant has explained the issue of goodless invoices but the adjudicating authority has not considered the defense reply of the appellant, therefore, also the impugned order lacks merits. Cross-examination of persons, whose statements were relied upon, not provided - Held that - No cross examination of the persons whose statements have been relied upon by the adjudicating authority during the course of adjudication has been granted, therefore, the said statements cannot be relied upon as admissible evidence - the statements recorded during the course of adjudication are not admissible evidence in terms of Section 9 (D) of the Act. Therefore, on that account also, the demand is not sustainable. Undervaluation - Held that - As the appellant has shown invoices, the price of the goods and corresponding invoices has been recovered which is having higher price to the same party of the same quantity, in that circumstances, the issue of undervaluation has been proved, therefore, on account of undervaluation, the appellants are liable to pay duty alongwith interest - demand upheld. Appeal allowed in part.

Issues Involved:
1. Clandestine removal of goods.
2. Issuance of goodless invoices.
3. Undervaluation of goods.
4. Admissibility of evidence from pen drives.
5. Compliance with Section 36B of the Central Excise Act, 1944.
6. Invocation of extended period of limitation.
7. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Clandestine Removal of Goods:
The appellants were accused of clandestine removal of goods based on data retrieved from pen drives. The data suggested that M/s P.S. had cleared 1824.872 MT of goods without payment of duty amounting to ?2,47,19,535/-. The adjudicating authority also alleged that M/s P.S. had cleared 679.99 MT of goods valued at ?9,96,18,864/- without payment of duty amounting to ?95,52,999/-. However, the Tribunal found that no stock variations or incriminating documents were discovered during the search. The Tribunal emphasized that the production capacity of the appellant was insufficient to support the alleged clandestine clearances, and the Revenue failed to provide evidence of excess raw material procurement, labor employment, or electricity consumption for such production. Consequently, the demand for duty on clandestine removal was deemed unsustainable.

2. Issuance of Goodless Invoices:
The appellants were alleged to have issued goodless invoices to facilitate the availing of inadmissible CENVAT credit. The Tribunal noted that the adjudicating authority had not considered the defense reply of the appellant and failed to appreciate that the Delhi Office and M/s SSPL were not registered dealers and could not avail CENVAT credit. The Tribunal concluded that the issuance of goodless invoices could not be substantiated, and no duty could be demanded on this account.

3. Undervaluation of Goods:
The appellants were accused of undervaluing goods, leading to a duty demand of ?28,13,716/-. The Tribunal found that the appellants had issued invoices at lower rates while receiving higher payments, thereby proving the charge of undervaluation. The Tribunal confirmed the duty demand of ?28,13,716/- along with interest and reduced the penalty to 25% of the duty confirmed, considering that the appellants had already paid ?39,50,000/- during the investigation.

4. Admissibility of Evidence from Pen Drives:
The Tribunal highlighted that the entire case was built on data retrieved from pen drives recovered from a private person. The data was not sent to any accredited government laboratory for forensic examination, making it inadmissible under Section 36B of the Central Excise Act, 1944, and Section 65B of the Indian Evidence Act, 1872. The Tribunal ruled that the data from the pen drives could not be relied upon as evidence.

5. Compliance with Section 36B of the Central Excise Act, 1944:
The Tribunal found that the procedure prescribed under Section 36B of the Central Excise Act, 1944, was not followed. The conditions under Sub-sections 2, 3, and 4 of Section 36B were not met, rendering the data from the pen drives inadmissible. Consequently, the show cause notice based on this data was deemed unsustainable.

6. Invocation of Extended Period of Limitation:
The Tribunal did not specifically address the invocation of the extended period of limitation in detail. However, the overall findings suggest that the lack of admissible evidence and failure to establish clandestine removal or issuance of goodless invoices rendered the extended period of limitation inapplicable.

7. Imposition of Penalties:
The Tribunal set aside the penalties imposed on the co-appellants, considering the lack of admissible evidence and failure to prove clandestine removal or issuance of goodless invoices. The penalty related to undervaluation was reduced to 25% of the duty confirmed, acknowledging the appellants' payment during the investigation.

Conclusion:
The Tribunal confirmed the duty demand of ?28,13,716/- on account of undervaluation along with interest and reduced the penalty to 25% of the duty confirmed. The rest of the demand based on clandestine removal and issuance of goodless invoices was set aside due to non-compliance with Section 36B of the Central Excise Act, 1944, and lack of substantive evidence. The appeals were disposed of accordingly.

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