2019 (12) TMI 280 - AT - Central Excise

Clandestine removal - admissible evidence or not - Section 65B of the Indian Evidence Act 1872 and Section 36B of the Central Excise Act,1944 - demands made on the basis of Ledger Account Pipe Sales retrieved from Pen Drive seized from residence of Bhavesh/Snehal R. Shah is liable to be set aside as the data stored in the Pen Drive is inadmissible as evidence since the requirements of Section 65B of the Indian Evidence Act 1872 and Section 36B of the Central Excise Act,1944 have not been satisfied - cross-examination of third person. HELD THAT - The investigation was initiated by searching the factory premises and office of M/s SSPL and residential premises of Shri Bhavesh/Snehal R. Shah. During search at factory premises of M/s SSPL, no incriminating papers were found nor any discrepancy was observed in raw material/ finished goods stock, their accounting and production/ clearance of finished goods. No document in the form of production record, accounting record or gate register showing unaccounted purchase/ receipt of raw material or unaccounted clearance/sale/ transportation of finished goods was found - Shri Snehal/ Bhavesh Shah in his statement has stated that the Pen Drive ledger pertained to trading done by him of SS Patta, SS Coils and SS Pipes in his personal capacity. The show cause notice and the impugned order has alleged that the persons whose statements have been relied upon has stated that they were doing trading or acting as broker in SS Pipes of M/s SSPL. They have also verified the Pen drive ledger as pertaining to their firm. The Appellant Unit in its reply to show cause notice had challenged the authenticity/ genuineness of such pen drive data on the ground that the same is inadmissible in evidence as the requirements of Section 65B of the Indian Evidence act and procedure required under Section 36B of the Central Excise Act was not followed - Section 36B of Central Excise Act is parimateria to Section 65 of the Indian Evidence Act. As per Section 36B(1) computer printout is considered as document for the purpose of central excise act and rules and is admissible as evidence subject to condition in Section 36 B (2). There is no computer on which the data stored in pen drive was produced. There is also no person was identified and examined who has prepared such data. In such case the pen drive data cannot be considered as admissible evidence - the pen drive data cannot be relied upon without following the requirements Section 36B of the Central Excise Act, 1944. As such the demands based upon pen drive in the present case cannot be confirmed against M/s SSPL. The Appellant during the adjudication proceedings had sought cross examination of persons and officers whose statements were relied upon in show cause notice under Section 9 D of the Central Excise Act. However the same was denied to them. When the demand against M/s SSPL was based upon pen drive and papers seized from residence of third party Shri Bhavesh Shah as well as statements of third party i.e traders/ brokers, in that case it was imperative for the adjudicating authority to allow cross examination of such persons to the Appellant. Since no opportunity to cross examine such persons whose statements has been relied upon was provided to the assessee, the statements given by these persons cannot be considered to uphold the charges of clandestine removal against Appellant Unit - the demands cannot be made on the basis of pen drive data and statements made by third parties. No inculpatory record/ papers were found at the factory of Appellant Unit which could show that any excess raw material has been received by them or any goods has been cleared clandestinely by them. There is no production record or raw material consumption record showing excess unaccounted production. No statement of production incharge or worker is appearing. Except pointing out the transport register of Suvidha Transport and that too for few transports, there is no other independent evidence of transportation of goods - Pertinently, it was found that statements of few traders/ broker were recorded but none of them has provided even a single name of customer or actual buyer. No finished goods alleged to be clandestinely cleared was seized from any alleged buyer. No transport Bilty or octroi receipts/ records has been brought on record to show that the goods were consigned from Chhatral to Mumbai. Thus there is no primary evidence to allege any clandestine clearance. The statements and third party records which are secondary evidence cannot be relied upon to allege clandestine clearance as the same has no independent evidentiary value. Further in case of ARYA FIBRES PVT. LTD. 2013 (11) TMI 626 - CESTAT AHMEDABAD , the tribunal while dealing with the reliability of papers found from the evidence of the buyer held that private records seized from the premises of the buyer cannot be sole basis for demand especially when corroborative evidence like purchase of extra raw material, actual removal of clandestine goods, receipt of sale proceeds, etc. not produced. In the facts of the present case there is no dispute that the documents/records recovered solely from third parties, statements of third parties whose cross examination was not allowed despite it is mandatory under section 9D of CEA, 1944, no incriminating documents recovered from the Appellant SSSPL, no excess/short stock of raw material or finished goods were found; no excess electricity consumption was proved, no evidence of any cash receipt or it s seizure, no excess raw material consumption was found - thus, the clandestine removal without any evidence as narrated above cannot be established. The demands made against the Appellant Unit are not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Admissibility of electronic records (pen drive data) as evidence.
2. Denial of cross-examination of witnesses.
3. Reliance on third-party documents.
4. Evidence of clandestine manufacture and removal.
5. Production capacity and raw material procurement.

Issue-wise Detailed Analysis:

1. Admissibility of electronic records (pen drive data) as evidence:
The Appellant challenged the authenticity and admissibility of the pen drive data, citing non-compliance with Section 65B of the Indian Evidence Act and Section 36B of the Central Excise Act. The Tribunal concurred, stating that none of the conditions under these sections were satisfied. Specifically, there was no identification of the computer on which the data was produced, nor was there any person identified who prepared the data. The Tribunal referenced the Supreme Court judgment in Anvar P.V. and other relevant cases to assert that the pen drive data could not be considered admissible evidence without proper certification and adherence to legal requirements.

2. Denial of cross-examination of witnesses:
The Appellant sought cross-examination of individuals whose statements were relied upon in the show cause notice, which was denied. The Tribunal emphasized that when demands are based on third-party statements, cross-examination is imperative. Citing the High Court of Delhi in Basudev Garg and the High Court of Allahabad in Premier Alloys Ltd., the Tribunal held that the denial of cross-examination rendered the statements inadmissible, thus invalidating the charges of clandestine removal.

3. Reliance on third-party documents:
The Tribunal noted that the show cause notice and impugned order heavily relied on documents and statements from third parties, such as the pen drive data and transport register from Suvidha Roadways. The Tribunal reiterated that third-party records could not be solely relied upon without corroborative evidence from the Appellant's unit. The Tribunal referenced several judgments, including Arya Fibres Pvt. Ltd. and Charminar Bottling Co. (P) Ltd., to support the view that third-party documents without corroboration cannot substantiate allegations of clandestine removal.

4. Evidence of clandestine manufacture and removal:
The Tribunal found no evidence of unaccounted raw material procurement, excess electricity consumption, or production capacity to support the alleged clandestine manufacture and removal. The Tribunal highlighted the lack of primary evidence such as production records, gate registers, or statements from production in-charges or workers. The Tribunal referenced numerous cases, including Vishwa Traders Pvt. Ltd. and Arya Fibres Pvt. Ltd., to assert that substantial evidence is required to prove clandestine manufacture and removal, which was absent in this case.

5. Production capacity and raw material procurement:
The Appellant argued that their factory did not have the capacity to manufacture the alleged quantity of SS pipes clandestinely cleared. The Tribunal noted that no evidence was presented to show excess raw material procurement or production capacity. The Tribunal referenced the case of Nissan Thermoware Pvt. Ltd., where the High Court of Gujarat held that the absence of evidence regarding raw material procurement and production capacity invalidates allegations of clandestine manufacture.

Conclusion:
The Tribunal concluded that the demands against the Appellant unit were unsustainable due to the inadmissibility of electronic records, denial of cross-examination, reliance on third-party documents without corroboration, and lack of evidence for clandestine manufacture and removal. Consequently, the penalties against the co-appellants, being consequential to the main appellant, were also set aside. The appeals were allowed, and the impugned order was set aside.

Pronouncement:
The judgment was pronounced in the open court on 06.12.2019.