2018 (11) TMI 1514 - HC - Central Excise

Clandestine removal - reliance placed on the statement of the Director of Appellant - Section 9D of the Central Excise Act, 1944 - penalty - time limitation - Section 35 G of th Central Excise Act, 1944. Did the Tribunal act contrary to the law relying on the statement of the Director of Appellant to decide the appeal against the Appellant herein? - Is the procedure adopted by the Appellate Tribunal contrary to Section 9D of the Central Excise Act, 1944? - Held that - The adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice - The statement of the Director could not be treated as relevant piece of evidence nor could be relied upon without compliance of Section 9D of the Act. Did the Tribunal act in accordance with law in upholding the penalty equal to duty under Section 11AC of the Central Excise Act, 1944 and the penalty under Rule 25 of the Central Excise Rules 2002? - Held that - Revenue does not seriously dispute the submission that the circular containing aforesaid clarification was issued in exercise of statuary powers under Section 37 B of the Act of the 1944 - If that be so, the adjudicating authority could not have proceeded to impose penalty simultaneously under Section 11 AC of the Act and Rule 25 of the Rules of 2002 - the Customs, Excise and Service Tax Appellate Tribunal/adjudicating authority was not justified in law in imposing penalty simultaneously under Section 11 AC of the Act of 1944 and under Rule 25 of the CEC Rules 2002, in view of the specific Bar created under clause 2.2 of the statutory circular issued by CEC, in view of 37 B of the Act of 1944. Was the demand barred by limitation period of one year under Section 11AC(1) of the Central Excise Act, 1944? - Held that - The period of limitation would begin to run from the date of carrying out search and seizure operation and in that case, the extended period of limitation can not be taken recourse to as the proceeding, in any case, were required to be initiated within a period of one year - The show cause notice, in so far as the proceedings in respect of shortage/ excess of stock as is concerned were initiated beyond this period and is therefore, required to be held beyond the authority of law - levy of interest and penalty is also held illegal. On the facts and in the circumstances of the case, can the finding rendered by the Tribunal be treated as perverse warranting interference under Section 35 G of th Central Excise Act, 1944 on any ground referable as substantial question of law? - Held that - Once we have held that the statement of the Director could not be admitted as relevant piece of evidence, there is no question of there being any admission on the statement of the Director of the company. Then the only other material left is unverified private document in the form of certain entries made in the note book, seized during search operations - without there being clinching evidence much less relevant admissible evidence on record, the adjudicating authority drew an inference of clandestine removal which cannot be sustained in law - the Tribunal committed perversity in law in coming to the conclusion that there existed relevant and material evidence to draw inference of clandestine removal. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Admissibility of the Director's statement.
2. Compliance with Section 9D of the Central Excise Act, 1944.
3. Legality of simultaneous penalties under Section 11AC and Rule 25.
4. Applicability of the limitation period.
5. Validity of the Tribunal's findings on clandestine removal.

Detailed Analysis:

Admissibility of the Director's Statement and Compliance with Section 9D:
The primary issue was whether the Tribunal acted contrary to law by relying on the Director's statement recorded during the investigation. The court clarified that under Section 9D of the Central Excise Act, a statement made before a Central Excise Officer is relevant only if the person who made the statement is examined as a witness before the adjudicating authority. The legislative intent is to ensure that statements obtained during investigation, potentially under coercion, are not used without proper examination. The court held that the adjudicating authority and the Tribunal erred in relying on the Director's statement without compliance with Section 9D, rendering the statement inadmissible.

Simultaneous Penalties under Section 11AC and Rule 25:
The court examined whether penalties could be imposed simultaneously under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules. Referring to a statutory circular issued by the CBEC, which states that if a penalty is imposed under Section 11AC, a penalty under Rule 25 should not be imposed, the court held that the adjudicating authority and the Tribunal were not justified in imposing both penalties. The circular issued under Section 37B of the Act prohibits such simultaneous imposition, and the penalties under both provisions were thus deemed impermissible.

Applicability of the Limitation Period:
The court addressed whether the demand was barred by the limitation period. It was noted that the search operations conducted on 06/06/2003 revealed shortages and excesses in stock, which the assessee admitted and paid additional duty for. The Supreme Court's decision in CCE Vs. PAL Microsystems Ltd. established that the limitation period begins from the date of the search operation. Since the show-cause notice was issued beyond the one-year limitation period, the court held that the extended period of limitation could not be invoked, making the proceedings and consequent penalties and interest illegal.

Validity of the Tribunal's Findings on Clandestine Removal:
The court scrutinized whether the Tribunal's finding of clandestine removal was perverse. It was argued that the notebook containing entries of clandestine removal was a private document, and its author was not examined. The court agreed that without the author's statement, the notebook could not be considered reliable evidence. Citing consistent views of the Tribunal and other High Courts, the court emphasized that clandestine removal must be proven with substantial evidence, including stock records, raw material purchases, and other corroborative details, which were absent in this case. The court concluded that the Tribunal's inference of clandestine removal was not supported by legally admissible evidence, rendering the finding perverse.

Conclusion:
The appeal was allowed, setting aside the order of the Customs, Excise, and Service Tax Appellate Tribunal and restoring the order of the Commissioner (Appeals). The court held that the Director's statement was inadmissible, simultaneous penalties under Section 11AC and Rule 25 were impermissible, the demand was barred by limitation, and the finding of clandestine removal was unsupported by substantial evidence.

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