2019 (8) TMI 1022 - AT - Central Excise

Search and Seizure - Clandestine removal - admissible evidence in according to the provisions of Section 36(B) of the Central Excise Act,1944 - cross-examination of witnesses - HELD THAT - It is evident from the panchnama dated 07.08.2012 that the shortage was detected on the basis of eye estimation and also on average weight without physical weighment. The department failed to gather any of documents from the factory of the appellant and also from the residential premises of the Director of the appellant. Further the loose documents which were recovered from the car of the accountant were not put to test for ascertaining to the authorship of these documents. Moreover, these documents could not be corrected with the corroborative evidence. The investigating authority failed to elucidate the system adopted for the preparation of the relied upon documents which were allegedly based on these documents. The details contained on the loose sheets and third party documents are actually not comprehensible and, therefore, cannot be accepted as admissible piece of evidence. Moreover, the Panchnama proceedings have been challenged on the ground of that the Panch-witnesses were not present at the time of the resumption of the evidence. Also, during the cross-examination the Accountant has categorically stated that he has already retracted his earlier statements and he has never stated that the said document pertains to production and clandestine removal of the goods from the appellant factory. The learned Commissioner not only denied the cross- examination of officers who has conducted the raid, but also of other persons whose cross-examination was sought by the appellant. We have also seen that the contents of cross-examination were not at all considered by the learned Commissioner while adjudicating the case. We have also seen from the record that the statements were relied upon by the adjudicating authority without conducting examination in chief of the matter which is the basic requirement of provision of Section 9D. The charges of clandestine removal of the goods cannot be upheld merely on assumptions and presumptions, but has to be proved with positive evidence such as purchase of excess raw materials, consumption of excess electricity, employment of extra labour, seizure of cash, transportation of clandestinely removed goods etc. It has also been held that onus of proof of bringing clinching evidence is on the Revenue. It has been held that the clandestine manufacturing and removal of excisable goods is to be proved by tangible, direct affirmative and incontrovertible evidence relating to receipts of raw materials inside the factory premises, and non-accountal thereof in the statutory records, utilization of such raw materials for clandestinely manufacture of finished goods. manufactured of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, amount received by the consignees, statement of the consignees, receipts of sale proceeds by the consignor and its disposal - All these material evidence are missing in the present case and the evidences brought into the record by the department are incomplete, inconsistent and not a reliable piece of evidence to prove charges of clandestine removal. The shortage which was detected by the officers is the on average weight method basis and, therefore, mere admission by the directors, who deposited the duty for the shortage, is not enough to proof that the goods were clandestinely cleared from the appellant factory. Thus, the shortage was detected on average basis is not sustainable. No material evidence except few statements was brought on record to prove the charges against them. Most of the raw material supplier have enclosed their invoices on the basis of which the goods were cleared by them to the appellant after payment of Central Excise duty. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Legality of the search and seizure operations.
2. Admissibility of computer data as evidence.
3. Reliability of loose sheets and third-party documents.
4. Cross-examination of witnesses and compliance with Section 9D.
5. Limitation period for issuing the demand.
6. Shortage of goods and its verification method.
7. Penalties imposed on other appellants.

Detailed Analysis:

1. Legality of the Search and Seizure Operations:
The appellants challenged the search and seizure operations conducted by the Central Excise Officers, claiming violations of Section 100 of CrPC and Section 18 of the Central Excise Act. The Tribunal found that the search and seizure operations were conducted beyond normal working hours and without independent witnesses. The panch witnesses were employees of the appellant company, and their signatures were obtained without explaining the contents of the panchnama. Thus, the Tribunal concluded that the search and seizure operations were not conducted in accordance with the law.

2. Admissibility of Computer Data as Evidence:
The Tribunal examined the admissibility of computer data retrieved from the appellant's factory. The data was copied onto CDs without the presence of a computer expert or obtaining the necessary certification under Section 36B of the Central Excise Act. The Tribunal referred to the Supreme Court's judgment in M/s. Anwar P.V. Vs. P.K. Basheer, which emphasized the need for strict compliance with Section 65B of the Evidence Act for electronic records to be admissible. The Tribunal found that the data was not authenticated and could not be relied upon to prove the charges of clandestine removal.

3. Reliability of Loose Sheets and Third-Party Documents:
The loose sheets and third-party documents recovered from the accountant's car were challenged by the appellants. The Tribunal noted that the documents were not authenticated, and the authorship was not verified. The documents were not corroborated with other evidence, such as raw material quantity, electricity consumption, or transportation records. The Tribunal held that the loose sheets and third-party documents could not be used as evidence to prove the charges of clandestine removal.

4. Cross-Examination of Witnesses and Compliance with Section 9D:
The appellants argued that they were denied the opportunity to cross-examine certain witnesses, and the statements relied upon by the department were not supported by examination-in-chief. The Tribunal found that the adjudicating authority failed to follow the mandate of Section 9D of the Central Excise Act, which requires examination-in-chief and cross-examination of witnesses. The Tribunal held that the statements could not be relied upon without proper cross-examination.

5. Limitation Period for Issuing the Demand:
The appellants contended that the demand was barred by limitation as the department had knowledge of the facts through regular audits and returns. The Tribunal did not specifically address the limitation issue in detail but set aside the demand based on other grounds.

6. Shortage of Goods and Its Verification Method:
The shortage of goods was detected based on average weighment and eye estimation. The Tribunal found that the method used for stock verification was not reliable. The shortage was not corroborated with any other evidence, and the admission by the directors was not sufficient to prove clandestine removal. The Tribunal set aside the demand related to the shortage of goods.

7. Penalties Imposed on Other Appellants:
The penalties imposed on other appellants, including raw material suppliers and purchasers, were based on loose sheets and statements without corroborative evidence. The Tribunal found that there was no material evidence to prove the charges against them. The Tribunal set aside the duties and penalties imposed on the other appellants.

Conclusion:
The Tribunal set aside the impugned order and allowed all the appeals, granting consequential benefits to the appellants. The judgment emphasized the need for proper adherence to legal procedures and the requirement of corroborative evidence to prove charges of clandestine removal.

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