2024 (1) TMI 672 - AT - Central Excise

Clandestine production and removal - demand based on so-called third-party or private records were collected from the Director of the Company (4 notebooks recovered from the residential premises) - onus to prove (shifting burden) - burden to disapprove shifts on the respondents - HELD THAT - The issue of clandestine removal of goods have been considered by the Tribunal in the case of M/S ARYA FIBRES PVT. LTD., M/S NOVA PETROCHEMICALS LTD. AND OTHERS VERSUS CCE AHMEDABAD-II 2013 (11) TMI 626 - CESTAT AHMEDABAD , laying down the parameters to prove clandestine removal of goods where it was held that What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. There is absolutely no evidence that NIPL had received unaccounted raw material from the parties whose names have been mentioned in the various charts drawn by the Department or any details about the transportation of the said raw material or that the payments were made either to the suppliers of unaccounted material or to the transporters. Similarly, there is no evidence on record that NIPL had supplied unaccounted finished goods to various parties or about the receipt of the unaccounted payments from these buyers of the unaccounted finished goods. Nor there is any evidence of transportation of the unaccounted finished goods - in the absence of any such evidence, the allegations of clandestine removal are unsustainable. Private /Third Party Records - sole basis of allegations of clandestine clearance of goods have been made on the notebooks recovered from the residential premises of Sri Sarma - HELD THAT - On comparative assessment of the entries made in the notebooks with the entries made in the statutory records, the department raised the demand of duty on the basis that the entries in the notebooks were not matching with the entries in the statutory records which according to them were unaccounted purchase of raw materials or sale of finished goods leading to the inference of clandestine clearance. The fact is that the entries in the notebooks would not match with the statutory records as they were not actuals but were fabricated or hypothetical as admitted by the writer of these notebooks Sri Sarma. Moreover, no investigation has been made by the department to verify the correctness of the entries. It was obligatory on the department to establish the truthfulness of the entries made in the notebooks by bringing on record independent evidence showing receipt of unaccounted raw material from various parties and also of sale of unaccounted finished goods - The law on the issue is well settled that onus to prove clandestine removal must be discharged by sufficient, cogent and unimpeachable evidence. The contention of the respondent agreed upon that the notebooks are not reliable piece of evidence as the revenue failed to investigate so as to corroborate the entries in the private records. Statement retracted - HELD THAT - On the basis of the statement and cross examination of Sri Sarma, the adjudicating authority rightly concluded that during the period under consideration he was only a paid director in NIPL on salary of Rs. 25,000/ per month and not a promoter director. While working as director, he used to look after work of accounts of incoming of raw materials, verification of sales invoices and banking related matters but there was no permission to him by the company to take the account books at home - In Commissioner of Central Excise, Delhi vs. Vishnu Company Pvt. Ltd, 2015 (12) TMI 593 - DELHI HIGH COURT , the Delhi High Court was faced with a situation where the department relied on the statements made by third parties, which were subsequently retracted or relied from and it was held that it becomes necessary for the department to produce other evidence, which is of an independent nature, which corroborates the retracted statements. No Proper Investigation By Revenue - HELD THAT - In Commissioner of Central Excise, Delhi vs. Vishnu Company Pvt. Ltd., 2015 (12) TMI 593 - DELHI HIGH COURT , Delhi High Court reiterated the principle that it was for the department to explain why the entries in the documents were not further investigated by them and why someone in a responsible position in the company was not examined to establish the link between such evidence and the respondent there. Having held that the department did not carry its investigation to their logical end, the Court concluded that the charge against assessee was not proved. Burden to proof - HELD THAT - It is a settled principle of law that the burden to prove the allegations of clandestine removal lies on the department as the charge of clandestine removal is a grave charge. The submission of the revenue that by the recovery of the notebooks, they have discharged the burden and the onus to prove thereafter shifts on the assessee is erroneous as it has been repeatedly observed that merely on seized records, the charge of clandestine removal is not sustainable unless the same is corroborated by other substantive and independent evidence. The seized record from the residence of Sri S.V.S. Sarma cannot be related to the business accounts of NIPL. In Plama Boards Pvt. Ltd. vs. CCE, Mangalore 2010 (8) TMI 811 - CESTAT BANGALORE , the Tribunal was dealing with a Pocket Diary of the accountant of the assessee and it was observed that diary itself is not an official record of the assessee as it is a private diary and contains personal details including private transactions engaged in by Sri Ashraf, which is not acceptable without corroboration. Thus, it was incumbent on the revenue to have conducted further investigation as per the parameters laid down in various decisions to unearth reliable evidence to corroborate the contents of the notebooks and in the absence thereof the burden is still on the revenue and has not been shifted to the respondents - since the department has failed to discharge its burden to prove the allegations of clandestine removal by any corroborative evidence, the demand is unsustainable. The Adjudicating Authority has dealt in detail the entries made in the statutory records with the private records relating to purchase of Coal, Iron Ore, the basic raw material without which excess quantity of Sponge Iron M.S. Ingots could not have been manufactured and sold and thereby concluded that no inference can be drawn against the respondents - Needless to say, excise duty is chargeable on the manufacturing activity and liability to pay is on the person, who is carrying out the activity of manufacture. Consequently, the demand cannot be raised jointly and severally and hence the same has been rightly set aside by the impugned order - Thus, no reliance can be placed on the statement of Sri Sarma which he retracted later on and also in view of his cross examination - the impugned order is hereby upheld. Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Clandestine Removal of Goods
2. Admissibility of Private/Third Party Records
3. Reliability of Retracted Statements
4. Proper Investigation by Revenue
5. Burden of Proof

Summary:

A. Clandestine Removal of Goods:
The Revenue alleged that the respondents indulged in clandestine removal of raw material and finished goods based on notebooks recovered from the residence of Sri Sarma. The Tribunal referenced the case of Arya Fibres Pvt. Ltd. vs. CCE, Ahmedabad, which outlined parameters to prove clandestine removal, including tangible evidence of unaccounted raw materials, actual removal of unaccounted finished goods, and receipt of sale proceeds. The Tribunal found no evidence of unaccounted raw material receipt, unaccounted finished goods supply, or transportation, nor any allegations of higher electricity consumption or labor employment. Therefore, the allegations of clandestine removal were deemed unsustainable.

B. Private/Third Party Records:
The Tribunal considered whether the notebooks recovered from Sri Sarma's residence were admissible as substantive evidence. These notebooks were private records and not the business records of NIPL. The Tribunal emphasized that the entries in the notebooks were fabricated or hypothetical, as admitted by Sri Sarma. The Tribunal cited several precedents, including Commissioner of Central Excise vs. Saakeen Alloys Pvt. Ltd. and Mahesh Silk Mills vs. Commissioner of Central Excise, which held that mere reliance on private records without corroborative evidence is insufficient to prove clandestine removal.

C. Statement Retracted:
Sri Sarma initially stated that the notebooks related to party-wise finished goods sold and payments received. However, he later retracted his statement, admitting that the entries were fabricated to take revenge on the company. The Tribunal noted that retracted statements require corroboration by independent evidence, as observed in Commissioner of Central Excise, Delhi vs. Vishnu & Company Pvt. Ltd. The Tribunal found no such corroborative evidence, rendering the retracted statements unreliable.

D. No Proper Investigation by Revenue:
The Tribunal criticized the Revenue for not conducting a thorough investigation. It noted that the department failed to investigate other transport companies or interrogate truck owners/drivers. The Tribunal referenced Continental Cement Company vs. Union of India and Commissioner of Central Excise, Delhi vs. Vishnu & Company Pvt. Ltd., which emphasized the need for proper investigation and corroborative evidence to prove clandestine removal.

E. Burden of Proof:
The Tribunal reiterated that the burden of proof lies on the department to prove allegations of clandestine removal with sufficient, cogent, and unimpeachable evidence. The Tribunal found that the notebooks recovered from Sri Sarma's residence could not be related to NIPL's business accounts and that the department failed to conduct further investigation to corroborate the notebook entries. The Tribunal cited Plama Boards Pvt. Ltd. vs. CCE, Mangalore and Ashutosh Metal Industries vs. Commissioner of C.EX & ST, Delhi, which held that private records without corroboration are insufficient to prove clandestine removal.

Conclusion:
The Tribunal upheld the impugned order, dismissing all appeals and miscellaneous applications filed by the Department, and disposing of the cross objections. The Tribunal concluded that the allegations of clandestine removal were unsustainable due to the lack of corroborative evidence and proper investigation by the Revenue.