2022 (8) TMI 494 - AT - Central Excise

Clandestine Removal - shortages of finished goods vis- -vis stock recorded in the Daily Stock Account - retraction of statements - prescriptions of Section 9D of the Act, not adhered - levy of personal penalties - HELD THAT - The Commissioner had erred by holding that the retractions were belated, did not inspire confidence of bona fides and that the claim of retraction was after-thought under legal advice. The Commissioner had also erred by relying upon a host of judicial decisions without discussing their individual factual situations, as is apparent from a bare perusal of paragraph no. 8.4 at pages 15-17 of the impugned order, and the said findings in this behalf are liable to be held as untenable. On a query from this Bench, the Ld.Advocate submitted that necessary averments as to the retraction of the aforesaid purported statements had been made in the replies to the show cause notices and other communications of the appellants/noticees - the adjudicating authority would not have reached a different conclusion in this regard, had the retractions been produced before him by the co-appellants/ deponents concerned. In any case, the inherent contradictions and discrepancies in the statements given by each co-appellant/ noticee, as elaborated in page nos. 11-13 of the Company s Written Submissions, militate against the evidentiary value attached to the purported incriminating statements, even if the original statements were to be held as admissible. Failure on part of the adjudicating authority to adhere to prescriptions of Section 9D of the Act - HELD THAT - Section 9D(1) of the Act sets out the circumstances in which a statement made and signed before a Gazetted Central Excise officer shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the truth of the facts contained in the statement made during the course of enquiry/investigations before a Gazetted Central Excise officer, has to be proved by evidence other than the statement itself - the adjudicating authority could not have straightaway relied on the purported incriminating statements of Sri Sanjib Mahapatra, Sri Prahraj Swain and Sri Sanjay Gadodia aforesaid (assuming that the subsequent retractions were invalid) without legitimately invoking Section 9D(1)(a) of the Act. All the said purported statements, thus, have to be eschewed from consideration. Levy of personal penalties - HELD THAT - As the principal demands against the Company have failed, the imposition of personal penalties against Sri Sanjay Gadodia, Sri Sanjib Mahapatra and Sri Prahraj Swain aforesaid cannot be sustained. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Validity of the Panchnama.
2. Reliability of the stock verification process.
3. Admissibility and reliability of incriminating statements.
4. Compliance with Section 9D of the Central Excise Act.
5. Sufficiency of evidence for clandestine removal.

Detailed Analysis:

1. Validity of the Panchnama:
The appellants argued that the Panchnama dated November 5, 2008, was inadmissible due to non-compliance with Sections 12F and 18 of the Central Excise Act, read with Section 100 of the Code of Criminal Procedure, 1973. They contended that the Panchnama was prepared with witnesses who were not from the locality and lacked complete details, casting doubt on its legality. However, the Tribunal was not inclined to declare the Panchnama inadmissible solely based on these grounds but acknowledged a significant defect: the Panchnama was silent about the weighment of three out of four items in question (M.S. Angles, M.S. Ingots, and M.S. Scrap). The Tribunal found this omission serious enough to question the reliability of the Panchnama.

2. Reliability of the Stock Verification Process:
The appellants challenged the stock verification process, arguing that it was conducted using a malfunctioning Weigh Bridge and lacked proper documentation. The Tribunal noted that the Commissioner had failed to address the objections raised by the appellants regarding the stock verification process. The Tribunal found that the stock verification was not conducted lawfully or reliably, as the Weigh Bridge was malfunctioning, and the physical weighment of nearly 650 MTs of materials in a short span of 6-7 hours was improbable. The Tribunal concluded that the revenue had not established a case of clandestine removal based on the alleged shortages.

3. Admissibility and Reliability of Incriminating Statements:
The appellants argued that the incriminating statements obtained from their personnel were retracted and obtained under threat and coercion. The Tribunal found that the purported incriminating statements lacked corroborative evidence and were retracted by the deponents. The Tribunal held that the statements could not form the substantive basis of the charge without corroborative evidence, citing several judicial decisions supporting this view.

4. Compliance with Section 9D of the Central Excise Act:
The appellants contended that the adjudicating authority failed to follow the provisions of Section 9D of the Central Excise Act, which sets out the circumstances under which a statement made before a Gazetted Central Excise officer is relevant. The Tribunal agreed with the appellants, noting that the adjudicating authority could not rely on the purported incriminating statements without invoking Section 9D(1)(a) of the Act. The Tribunal held that the statements had to be eschewed from consideration.

5. Sufficiency of Evidence for Clandestine Removal:
The Tribunal found that the revenue's case lacked tangible evidence to support the charge of clandestine removal. There was no seizure of offending goods, no statement from an identified buyer, no evidence of flow-back of funds, and no follow-up investigation at the end of the Company's regular transporters or major buyers. The Tribunal concluded that the charge of clandestine removal could not be confirmed based on the available evidence.

Conclusion:
The Tribunal allowed the appeals filed by the Company and its personnel, setting aside the impugned Order-in-Original dated March 26, 2010. The Tribunal dismissed the Department's Cross Objections and allowed all appeals with consequential relief as per law.

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