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2025 (4) TMI 365 - AT - Central ExciseClandestine removal - shortage of finished goods - existence of corroborative evidence or not - absence of adverse materials in support of the charge of clandestine removal - interest ad penalties - Imposition of Personal penalty on Managing Director of the appellant company under Rule 25 of Central Excise Rules 2002. Demand of Central excise duty of Rs. 6, 60, 030/- confirmed based on the purported computer printout Sales Ledger A/c - HELD THAT - It is found that during the course of the same investigation proceedings were also initiated against the sister concern Vinayak Agro Industries based on the same documentary evidences. The proceedings initiated against the sister concern relating to the issue of clandestine removal has been already settled by this Tribunal in favour of the sister-concern - As the demand of central excise duty on the allegation of clandestine removal has been set aside against the sister concern the demands of central excise duty confirmed on the allegation of clandestine removal of the goods against the appellant company on the basis of the same evidences also does not survive. Accordingly the demand confirmed in the impugned order on this count set aside. Demand of Rs. 2, 07, 803/- confirmed on account of the shortage of 46.359 MT of finished products (MS Flats/Squares/Rods) allegedly detected during physical verification - HELD THAT - The shortage of stock is on account of the differential methodologies of accounting adopted while recording the same in its books of accounts. The stock in books was maintained on the basis of average weight per piece of the finished goods while the physical stock was taken on actual weight basis. This discrepancy is entirely normal and expected in the steel industry where each piece of MS Ingot naturally varies in weight due to manufacturing tolerances. In his statements dated 03.08.2012 and 03.07.2013 the Appellant No. 2 explained that the Appellant no. 1 maintains the Daily Stock Register on the basis of weight per piece of the finished goods which generally varies from piece to piece. This might have caused the apparent difference between the actual physical stock and the stock recorded in the Daily Stock Register. Thus the same cannot be held to be due to clandestine removal of goods. Reliance in this regard is placed on the ruling in the case of Commissioner v. Prem Industries 2007 (3) TMI 649 - CESTAT AHMEDABAD . It is also found that Appellant No. 2 never admitted to having removed any finished products clandestinely. Thus the alleged shortage represents a mere accounting discrepancy not evidence of clandestine removal. The charge of clandestine manufacture and clearance is a serious charge which is required to be established with positive/affirmative/tangible evidence and the burden of establishing the said charge lies heavily upon the revenue. Further no demand of clandestine manufacture and clearance can be confirmed purely on conjectures surmises assumptions and presumptions. In the present case the Appellate Authority has upheld allegations of clandestine removal without any corroborative evidence. There has been no seizure of unaccounted goods or interception of consignments cleared without payment of duty. The department has failed to present any affirmative evidence such as records indicating unaccounted procurement of raw materials excess production or unrecorded sales to substantiate its claims. Furthermore the investigating agencies have made no effort to establish the existence of unaccounted manufacturing activities - the finding relating to clandestine removal by the Appellant no. 1 is grossly untenable and liable to be set aside. Accordingly the demand of Central Excise duty of Rs. 2, 07, 803/- confirmed in the impugned order on account of the shortage of 46.359 MT of finished products set aside. Interest and penalties - HELD THAT - Since the demand of central excise duty against the appellant is not sustained the question of demanding interest and imposing penalties against appellant no.1 does not arise. Imposition of Personal penalty on Managing Director of the appellant company under Rule 25 of Central Excise Rules 2002 - HELD THAT - The allegation of clandestine clearance against the appellant company is not sustained. Accordingly I hold that the role of the appellant in the alleged offence of clandestine removal is not established. Thus there is no material evidence available on record to implicate the appellant no. 2 in the alleged offence. Thus the penalty imposed on the appellant no.2 set aside. Conclusion - i) The demands based on pen drive data are not sustainable as the printouts were not obtained in compliance with mandatory conditions. ii) The shortage of stock was due to accounting discrepancies not clandestine removal. iii) Since the demand of central excise duty was not sustained the question of demanding interest and imposing penalties do not arise. iv) The personal penalty on the Managing Director also set aside as the allegation of clandestine clearance was not established. The impugned order set aside - appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS Clandestine Manufacture and Removal Relevant Legal Framework and Precedents: The burden of proof for clandestine manufacture and removal lies with the revenue, requiring affirmative and tangible evidence. Precedents cited include decisions from the CESTAT and various High Courts emphasizing the necessity of concrete evidence rather than assumptions. Court's Interpretation and Reasoning: The Tribunal found that the revenue failed to present sufficient evidence to prove clandestine activities. The evidence relied upon, such as computer printouts and pen drives, was deemed inadmissible as they did not comply with the statutory requirements under Section 36B of the Central Excise Act. Key Evidence and Findings: The Tribunal noted the absence of corroborative evidence such as unaccounted raw materials, excess production, or unrecorded sales. The alleged sales ledger from the pen drives did not match the official invoices, and there was no evidence of unaccounted manufacturing activities. Application of Law to Facts: The Tribunal applied the principle that serious charges like clandestine removal require substantial evidence. The lack of such evidence led to the conclusion that the charges were untenable. Treatment of Competing Arguments: The Tribunal considered the appellant's arguments regarding the inadmissibility of the computer printouts and the lack of corroborative evidence, which were found persuasive. Conclusions: The Tribunal concluded that the charges of clandestine manufacture and removal were not substantiated and set aside the demands based on these allegations. Admissibility of Evidence Relevant Legal Framework and Precedents: Section 36B of the Central Excise Act outlines the conditions for admitting computer-generated evidence. The Tribunal referenced precedents that emphasize compliance with these conditions. Court's Interpretation and Reasoning: The Tribunal found that the printouts were not obtained in compliance with Section 36B, as they were not generated from a regularly used computer and lacked necessary certification. Key Evidence and Findings: The Tribunal observed that the pen drives were not sealed properly, and the printouts were taken after the panchnama proceedings, raising questions about their authenticity. Application of Law to Facts: The Tribunal applied the statutory requirements for admissibility and found the evidence lacking in authenticity and reliability. Treatment of Competing Arguments: The Tribunal agreed with the appellant's contention that the evidence was inadmissible due to procedural lapses. Conclusions: The Tribunal ruled the evidence inadmissible, undermining the basis for the demands. Shortage of Finished Goods Relevant Legal Framework and Precedents: Mere detection of shortages does not prove clandestine removal without corroborative evidence, as held in various judicial decisions. Court's Interpretation and Reasoning: The Tribunal accepted the appellant's explanation that discrepancies arose from different accounting methodologies rather than clandestine removal. Key Evidence and Findings: The Tribunal noted the lack of evidence indicating unaccounted manufacturing activities or discrepancies in inventory management. Application of Law to Facts: The Tribunal applied the principle that shortages must be supported by additional evidence to substantiate clandestine removal claims. Treatment of Competing Arguments: The Tribunal found the appellant's explanation plausible and unsupported by contrary evidence from the revenue. Conclusions: The Tribunal set aside the demand related to the alleged shortage of finished goods. Penalties and Interest Relevant Legal Framework and Precedents: Penalties and interest are contingent upon the establishment of the underlying duty demand. Court's Interpretation and Reasoning: With the setting aside of the duty demands, the Tribunal found no basis for penalties and interest. Key Evidence and Findings: The Tribunal found no evidence supporting the imposition of penalties given the lack of substantiated clandestine removal. Application of Law to Facts: The Tribunal applied the principle that penalties require a valid duty demand, which was absent in this case. Treatment of Competing Arguments: The Tribunal did not find the revenue's arguments for penalties compelling in the absence of a duty demand. Conclusions: The Tribunal set aside the penalties and interest imposed on the appellants. Cross-Examination and Natural Justice Relevant Legal Framework and Precedents: Denial of cross-examination rights is a violation of natural justice principles, as established by the Supreme Court and other judicial bodies. Court's Interpretation and Reasoning: The Tribunal found that the denial of cross-examination constituted a breach of natural justice. Key Evidence and Findings: The Tribunal noted that the appellant's requests for cross-examination were unjustly denied, impacting the fairness of the proceedings. Application of Law to Facts: The Tribunal applied the principles of natural justice, finding the proceedings flawed due to the denial of cross-examination. Treatment of Competing Arguments: The Tribunal favored the appellant's arguments regarding the necessity of cross-examination for a fair trial. Conclusions: The Tribunal's findings on natural justice further supported the setting aside of the demands and penalties. Extended Period of Limitation Relevant Legal Framework and Precedents: The extended period of limitation applies in cases of willful suppression or fraud, which must be substantiated by evidence. Court's Interpretation and Reasoning: The Tribunal found no evidence of willful suppression or fraud justifying the extended period. Key Evidence and Findings: The Tribunal noted the absence of evidence indicating intentional evasion of duty. Application of Law to Facts: The Tribunal applied the statutory criteria for the extended period, finding them unmet. Treatment of Competing Arguments: The Tribunal did not find the revenue's justification for the extended period persuasive. Conclusions: The Tribunal ruled that the extended period was inapplicable, further supporting the dismissal of the demands. SIGNIFICANT HOLDINGS The Tribunal established several core principles:
Final determinations included the setting aside of all demands, penalties, and interest against the appellants, with the Tribunal allowing the appeals in full.
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