2019 (12) TMI 546 - AT - Central Excise

Clandestine removal - TMT Tor and Bars - corroborative evidences or not - Department has to establish that the appellant had the manufacturing capacity to produce the goods alleged to have been clandestinely cleared. No evidence has been brought on the record that the appellant had manufacturing capacity beyond the goods cleared with payment of duty. No charges of extra electricity consumption or alternate source of electricity has been alleged. HELD THAT - It is evident from the Panchanama that the Kingston make pen-drive was recovered from the possession of the Director of the company, Shri Pramod Kumar Gupta. Whereas the appendix to the recovery memo clearly indicates that the documents were retrieved and made relied upon were from HP Pen Drive - the contention of the Learned Advocate is agreed upon that the alleged documents were not retrieved from the pen drive recovered from the possession of the Director of the company, Shri Pramod Kumar Gupta. In such circumstances, the charges of clandestine removal are based on the documents which do not belong to the appellant company. There were 5 computers installed in the office when the Panchanama was drawn and it was found that no incriminating documents or data was present in the said 5 computers. This clearly proves that the department does not have any source data of the said pen-drive and in absence of any certification to support the alleged data of the pen-drive, the said electronic data cannot be relied upon to prove the charges of clandestine removal. Hence, demand based on the said alleged pen-drive is not maintainable in the eyes of law and thus liable to be set aside. No evidence as regards to purchase of excess raw material, use of excess electricity, deployment of extra labor force to prove the illicit manufacturing and clearance activity has been brought into the record. No evidence as regards to purchaser of the raw material, transportation of finished goods, receipt of cash payment etc has been brought into the record. The Department is solely relying upon the statement of the Director of the company and only some of their employees. The statement of the Director is not conclusive and mere observatory in nature wherein he has stated that it might be possible that some of the entries will not match the corresponding invoices. Such a statement cannot be said to be of conclusive proof of clandestine removal in absence of corroborative evidence - Similarly, the statement of employees cannot be relied upon when the request of cross-examination has been denied on vague ground. Even otherwise Revenue chose not to examine any witnesses in adjudication, and in such a case their statements cannot be considered as evidence. The demand of duty, penalty and interest against the appellant and its Director is set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Legality of the search and seizure operations.
2. Admissibility and reliability of electronic evidence.
3. Validity of demands based on unauthenticated documents.
4. Requirement of corroborative evidence for charges of clandestine removal.
5. Denial of cross-examination and principles of natural justice.

Detailed Analysis:

1. Legality of the Search and Seizure Operations:
The appellant's factory premises were searched without a warrant, and documents were recovered. Additionally, a pen drive was seized from the Director, but discrepancies were noted between the pen drive mentioned in the Panchanama and the search list. The Panchanama indicated a Kingston make pen drive, while the search list mentioned an HP make pen drive.

2. Admissibility and Reliability of Electronic Evidence:
The demand was primarily based on data retrieved from a pen drive. However, the data was not obtained from the pen drive recovered from the appellant's premises. The appellant argued that the data was inadmissible as the provisions of Section 36B of the Central Excise Act, 1944, were not followed. The Tribunal agreed, stating that the source of the data was unclear, and no certification was provided to support the data's authenticity. Hence, the electronic evidence was deemed unreliable.

3. Validity of Demands Based on Unauthenticated Documents:
The demand also relied on loose sheets and handwritten documents. The appellant contended that these documents were unauthenticated, and their authors were not identified. The Tribunal found that the documents were compared with statutory records as per the department's convenience, without concrete evidence. The Tribunal held that unauthenticated documents could not form the basis of a demand.

4. Requirement of Corroborative Evidence for Charges of Clandestine Removal:
The Tribunal emphasized that charges of clandestine removal must be supported by direct and positive evidence, such as:
- Establishing manufacturing capacity.
- Extra consumption of electricity.
- Employment of extra labor.
- Unaccounted purchase of raw materials.
- Unauthorized payment for unaccounted material.
- Movement of raw materials and final products.
- Evidence of flow back of money/unaccounted sale proceeds in cash.
- Statements of raw material suppliers, purchasers of finished products, transporters, brokers, etc.
The Tribunal found that the department failed to provide such evidence, relying solely on the Director's statement and some employees' statements, which were not corroborated by other evidence.

5. Denial of Cross-Examination and Principles of Natural Justice:
The Tribunal noted that the department did not conduct an examination-in-chief of the deponents and denied the appellant's request for cross-examination. The Tribunal held that statements of witnesses could not be considered as evidence if the witnesses were not examined by the adjudicating authority. The Tribunal cited judgments supporting this view and concluded that the department's actions violated the principles of natural justice.

Conclusion:
The Tribunal set aside the demand of Central Excise duty, penalty, and interest against the appellant and its Director. The appeals were allowed with consequential relief to the appellants. The Tribunal emphasized the need for strict adherence to legal procedures and the requirement of corroborative evidence to substantiate charges of clandestine removal.

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