2019 (1) TMI 493 - AT - Central Excise

Clandestine removal - variation with respect to stocks under WIP at the 9 manufacturing plants of the appellants - no such investigation has been carried by the investigating agency - shortages of goods - Held that - It is evident from the records of the case that the stock taking was conducted by visiting officers of the DGCEI with respect to a stock, WIP and finished goods. The samples were also drawn at the time of initial search and more discrepancies were reported at the first instance. When the officers visited next time for collection of adequate sample , another stock taking was also conducted and the shortage was alleged with respect to aforementioned products. It is evident from the adjudication order as well as the appeal papers that no efforts were made by the department to find out as which product has been manufactured out of alleged shortage of the three aforesaid products and subsequent clearance thereof without payment of duty - It is also not forthcoming from the adjudication order as to how this product was cleared and to whom it was cleared. The department has also not investigated the mode of transport of the alleged clandestine removal of the goods from the transporters. It has been held by the various Courts as well as this Tribunal that clandestine removal is a very serious allegation and required to be proved beyond reasonable doubt, which has not been done in this case. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legitimacy of the demand and penalty imposed under the Central Excise Act, 1944.
2. Validity of the stock taking process and alleged shortages.
3. Admissibility of statements and evidence under Section 9D of the Act.
4. Allegations of clandestine removal of goods.

Detailed Analysis:

1. Legitimacy of the Demand and Penalty:
The appellants challenged the impugned order wherein the Ld. Commissioner confirmed a demand of ?4,62,04,200/- along with an equal penalty and interest under Section 11A(4), Section 11AA, and Section 11AC(1)(e) of the Central Excise Act, 1944. Additionally, a penalty of ?1 lakh was imposed on the Managing Director under Rule 26 of the Central Excise Rules. The appellants contested these penalties, arguing that the demand was based on assumptions and lacked concrete evidence.

2. Validity of the Stock Taking Process:
The case arose from a search conducted by DGCEI officers on 12.02.2013, revealing discrepancies in stock levels of raw materials, work-in-progress (WIP), and finished goods at the appellant's nine manufacturing plants. The appellants argued that the stock taking was based on statements made by the company and that no physical measurement was possible due to the nature of the materials in various reactors. They claimed that no actual shortage was identified during the initial visit.

3. Admissibility of Statements and Evidence:
The appellants contended that the statements recorded by the DGCEI officers were not admissible as evidence under Section 9D of the Act, which requires the adjudicating authority to form an opinion on the admissibility of evidence. They cited case laws like CCE vs. Balajee Perfume and SK Garg & Sons vs. CCE to support their argument that statements alone, without corroborative evidence, cannot substantiate allegations of clandestine removal.

4. Allegations of Clandestine Removal:
The appellants argued that the allegations of clandestine removal were based on presumptions without any substantial evidence. They pointed out that the statements of their employees did not unequivocally admit to such removal. Specifically, they highlighted the statements of Sh. Y.K. Bansal and Sh. Parnav Gupta, which suggested that the discrepancies could be due to other reasons like incineration or storage in sterile areas. They emphasized that no parallel investigation was conducted to verify these claims, and no efforts were made to trace the alleged finished goods or their buyers.

Tribunal's Findings:
The Tribunal noted that the stock taking by DGCEI officers did not conclusively prove the alleged shortages or the clandestine removal of goods. It emphasized that the department failed to investigate critical aspects such as the actual manufacture and clearance of finished goods, the mode of transport, and the identity of buyers. The Tribunal reiterated that allegations of clandestine removal must be proven beyond reasonable doubt with tangible, direct, and affirmative evidence, citing the cases of M/s R.A. Casting Pvt Ltd and M/s Arya Fibers Pvt Ltd.

Conclusion:
The Tribunal concluded that the impugned order was not sustainable due to the lack of concrete evidence and proper investigation. Consequently, it set aside the order and allowed the appeals with consequential relief.

Result:
The appeals were allowed, and the demand and penalties imposed in the impugned order were set aside.