2022 (9) TMI 737 - AT - Central Excise

Clandestine removal of finished goods - suppression of production - duty paying invoices - third party evidences/corroborative evidences or not - Department observed that the appellant has cleared sponge iron, Billets and TMT Bars and coal without issuing invoices with the sole intention to not to pay the requisite Central Excise Duty on those clearances - HELD THAT - There are no admission as has been observed by Commissioner (Appeals) in any of these statements, as far as the allegations in Show Cause Notice are concerned. None of these statements amounts to corroboration of DCS or of the recovered loose sheets. The findings of Commissioner (Appeals) confirming the demand holding the DCS/ loose sheets admissible into evidence in the light of the statements on record, are not sustainable. It thus becomes clear that for the support of those documents, Commissioner (Appeals) has laid utmost emphasis upon the statements recorded during the investigation but it is observed that the procedure as prescribed under Section 9 D of Central Excise Act has not been followed. The plain reading of sub section (1) of section 9D of the Act makes it clear that clause (a) and (b) of the said section sets out following circumstances in which a statement made and sanctioned by a person before Central Excise Officer of a gazetted rank during the course of inquiry or proceedings under the Act, shall be relevant for the purpose of proving the truth of the facts contained therein - departmental investigating agencies as well as the adjudicating agencies have not yet started observing compliance of mandatory statutory provisions i.e. section 9D of Central Excise Act, 1944 and section 138 B of Customs Act, 1962 without which the statement recorded at the stage of inquiry / investigation will not be relevant for the purpose of proving the truth of requisite facts during prosecution. It is observed that the documents recovered at the investigation stage are nothing but third party evidence for want of their author not being investigated / examined by the Department. Third party evidence cannot be relied upon to confirm the allegations as that of clandestine removal - Otherwise also there is no corroborative evidence as is required to prove the charges of clandestine removal. The demand based on the documents, also has wrongly been confirmed by Commissioner (Appeals) - appeal allowed.

Summary

Issues Involved:
1. Allegations of clandestine removal of goods without payment of Central Excise duty.
2. Admissibility of evidence (daily cost sheets and loose sheets).
3. Compliance with Section 9D of the Central Excise Act, 1944.
4. Reliance on third-party evidence.
5. Corroborative evidence to prove clandestine removal.

Issue-wise Detailed Analysis:

1. Allegations of Clandestine Removal:
The appellants, manufacturers of sponge iron, M.S. Billets, and TMT Bars, were accused of clandestine removal of finished goods without invoices and without paying Central Excise duty. The intelligence led to a search and seizure operation at the appellants' factory premises, resulting in the recovery of loose sheets and daily cost sheets (DCS) from the desktop of an employee. The Department alleged that these documents indicated the clandestine removal of goods.

2. Admissibility of Evidence:
The Original Adjudicating Authority dropped a part of the demand based on the scrutiny of DCS and loose sheets, finding them inadmissible as evidence. However, the Commissioner (Appeals) reversed this decision, holding that these documents were admissible and reflected the alleged shortages and clandestine removal. The Tribunal noted that the DCS and loose sheets were not directly linked to the appellants as their authors were not examined, making them inadmissible as evidence.

3. Compliance with Section 9D of the Central Excise Act, 1944:
The Tribunal emphasized the importance of compliance with Section 9D, which prescribes the conditions under which statements recorded during an investigation can be admitted as evidence. The Tribunal found that the procedure under Section 9D was not followed, as the individuals who made the statements were not examined as witnesses before the adjudicating authority. This non-compliance rendered the statements inadmissible for proving the truth of their contents.

4. Reliance on Third-Party Evidence:
The Tribunal held that the documents recovered during the investigation were third-party evidence, as their authors were not investigated or examined by the Department. It was noted that third-party evidence cannot be relied upon to confirm allegations of clandestine removal without corroborative evidence. The Tribunal cited relevant case laws to support this position.

5. Corroborative Evidence:
The Tribunal observed that there was no corroborative evidence to support the allegations of clandestine removal. The Department did not investigate critical aspects such as excess production details, raw material purchases, dispatch particulars, sale proceeds, finished product receipts, or excess power consumption. The absence of such corroborative evidence meant that the charges of clandestine removal could not be substantiated.

Conclusion:
The Tribunal set aside the order of the Commissioner (Appeals), finding that the demand was wrongly confirmed based on inadmissible evidence and lack of corroborative proof. The appeal was allowed, and the order under challenge was annulled. The Tribunal also highlighted the need for the Department to comply with statutory provisions and guidelines to ensure the validity of investigation efforts.