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TMI Blog2024 (7) TMI 1039X X X X Extracts X X X X X X X X Extracts X X X X ..... med and also ordered confiscation of 18,156.96 MT of Sponge Iron alleged to be cleared without payment of duty and imposed a fine of Rs. 10,00,000/- in lieu of confiscation. A penalty of Rs. 10,00,000/- was imposed on Shri Digambar Nandi, Managing Director of VSPL. Aggrieved against the demands confirmed, both the appellant company and its Managing Director has filed these two appeals. 2. The facts of the case are that the appellant, M/s. Virajaa Steel & Power Limited, AT-Sunia Muhan, P.O. - Mancheswar, Via-Chasapara, District: Cuttack, PIN - 754 027, Odisha (hereinafter referred to as 'VSPL') is engaged in the manufacture of Sponge Iron falling under Tariff Item No. 7203 1000 of the Central Excise Tariff Act, 1985. On 30.06.2009, the Officers of the Preventive Unit of Bhubaneswar-I Central Excise Commissionerate searched the factory premises and office of VSPL. The Officers also searched the office of M/s. Deepak Computer Public Weigh Bridge (hereinafter referred to as 'DCPWB') at Jagatpur, Cuttack (Odisha) and transport office of M/s. Hanuman Road Carrier (hereinafter referred to as 'HRC') at Bajarangballi Building, Near Manguli Chowk, NH-5, Cuttack (Odisha). DCPWB is a propriet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2.3. The officers found that DCPWB was owned by Smt. Chunia Nandi, wife of Shri Digambar Nandi, who is the Managing Director of VSPL and accordingly took the view that the premises of DCPWB was used by the appellant-company as an illegal outlet for clearance of Sponge Iron without payment/short payment of duty. 3. The statements of Shri Digambar Nandi, Managing Director of VSPL was recorded on 30.06.2009, 26.02.1010, 14.09.2010, 15.09.2010 and on 28.12.2010, wherein he admitted that the particulars mentioned in the documents seized from DCPWB relates to clearances made by VSPL. He also clarified that the entries marked as 'W' relates to removals without payment of duty and the entries marked as 'I' relates to clearances made on payment of duty or cleared on under valuation. 3.1. Shri Gopabandhu Pradhan and Shri Bhabani Sankar Mohanty, Assistant Accountant have in their statements dated 30.06.2009 (Ref. Q. No. 10 & 11 of statement of Shri Pradhan and Ref. Q. No. 10 of the statement of Shri Mohanty recorded under Section 14 of the Act have respectively stated that Shri Nandi, as Managing Director, was responsible for procurement of raw materials, valuation of Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or receipt of party, in the impugned order. They submit that the Department has not collected any evidence or recorded any statement from the said third-parties to whom the appellant was alleged to have made clearance of the goods clandestinely; mere entries of some figures in some Notebooks would not amount to delivery of goods without payment of duty by the appellant. 4.2. The appellants relied on the following decisions in support of their arguments:- * Forward Resources Pvt. Ltd. Vs. Commissioner of Central Excise & Service Tax, Surat-I [2023 (69) G.S.T.L.76 (Tri. - Ahmd.)], wherein it has been held that Section 36A of the Central Excise Act is available only when the documents are produced by or seized from the custody or control of the person concerned. * Krishna & Co. v. Collector of C.Ex., Jaipur [1998 (97) E.L.T. 74 (Tribunal)]: - wherein it was held - demand based on note books without any other evidence of production and clandestine removal is not sustainable. * Metal Fitting (P) Ltd. v. Collector of C.Ex., Delhi [1997 (93) E.L.T. 747 (Tribunal)]: - wherein it was held - entries in private diary and loose papers are not sufficient evidence to establish charge of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 28.12.2010. Accordingly, he supported the impugned order confirming the demands and imposing penalty on the appellants. 6. Heard both sides and perused the appeal documents. 7. We observe that the Officers of the Central Excise Preventive Unit, Bhubaneswar-I Commissionerate searched the factory premises and office of VSPL along with the office of DCPWB, which is a proprietorship concern owned by Smt. Chunia Nandi, wife of Shri Digambar Nandi (Appellant No. 2). During the course of search, two small Notebooks and some loose sheets were recovered from the premises of DCPWB. We observe that the charge of clandestine removal has been made and the entire demand in the impugned order has been arrived at on the basis of the entries available in the two notebooks and loose sheets seized from the premises of DCPWB on 30.06.2009. The ld. adjudicating authority has considered the above Notebooks and loose papers as the rough accounts of the appellant-company in the impugned order. The appellant submitted that the premises of DCPWB, from where the relied upon documents were recovered, belongs to the Smt. Chunia Nandi, wife of Shri Digambar Nandi, and that the said concern is an independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the document in evidence, notwithstanding that it is not duly stamped, if such document is otherwise admissible in evidence." 7.2. A perusal of the provisions of Section 36A reveals that the documents seized from another premises can be admitted as evidence provided the author of the entries made in the documents has been identified. Once the identity of the person in whose handwriting the documents are written is established and his statement is taken admitting that it is his handwriting, then the documents can be admitted as evidence. However, in this case, we observe that the entries in the note books/loose papers, written mostly in pencil, by unknown and unidentified persons. Shri Nandi has not identified the person who has written those entries. Accordingly, we hold that the requirements as provided under Section 36A are not fulfilled in this case and hence the seized documents cannot be presumed to be documents relating to the appellant company and relied upon to demand Central Excise Duty from the appellant-company. 7.3. In support of the above contention, the appellant relied upon the decision of the Tribunal Ahmedabad in the case Forward Resources Pvt. Ltd. Vs. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision are reproduced below: "6.1 Regarding the second issue, the findings of the Collector are contained in paragraphs 30 to 36. The findings on the 3rd issue are contained in paragraphs 37 to 53 of the impugned orders. The allegation in the show cause notice is that one of the two diaries contains entries of purchase and sale for M/s. Surendra Alloys and that the loose papers seized on 13-1-1989 pertains to the transaction of M/s. Surendra Alloys and M/s. Metal Fittings. It is not the case of the appellants that the diary of Shri L.N. Garg does not contain any entries of transactions of Surendra Alloys; on the other hand, it is their contention that although the diary contains entries to the extent of 40% of the transactions entered in Form IV raw material account of M/s. Surendra Alloys, it is also contains entries of his personal transactions. Shri L.N. Garg has deposed that the pocket ledgers seized by the Department contains entries regarding sales and purchase done by him on commission basis in which he acted as a Commission Agent and received commission. The details of MS scrap purchased by Surendra Alloys but not accounted for in their Form IV register for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate the evidence of transactions between them and M/s. Surendra Alloys which transactions were not reflected in the accounts of M/s. Surendra Alloys. The appellants had furnished statements of purchase of scrap from M/s. Rama Industries and M/s. K.L. Rathi Steels Ltd. which (sic.) certain transactions presumed to be those of M/s. Surendra Alloys and M/s. Metal Fittings are not their transactions. But the Department has not made any enquiries to confirm the fact as to whether M/s. Surendra Alloys had purchased scrap from them as set out in Annexure XVI out of which they are alleged to have manufactured ingots and removed them clandestinely to purchasers listed in XVII. 6.2 We find that Shri L.N. Garg has confirmed during the personal hearing that the diaries and loose papers include his personal accounts and also show his commission and this is confirmed by M/s. Cege & Forging P. Ltd. and Shri S.N. Agarwal. Shri Garg also clarified that the entries in the diaries and loose papers are reflected in quintals and in kgs. and not in Metric Tonnes and consequently the entries at page 156 are to be construed as 18 quintals and 94 kgs. and 1.2 quintals and 1 kgs. One of the basic submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The penalty on Shri S.K. Garg and Shri L.N. Garg is required to be set aside, since no notice was issued to them calling upon them to show cause against imposition of penalty and it is well settled proposition of law that penal liability cannot be fastened without notice therefor." 7.5. In the case of Dulichand Silk Mills (P) Ltd. v. Commissioner of C.Ex., Hyderabad [2001 (133) E.L.T. 468 (Tribunal - Chennai)], it has been held that to establish the allegation of clandestine removal, the statement of manager of the assessee alone not sufficient. The relevant part of the said decision is furnished below: "4. On consideration of the submissions, we find that there is lot of force in the submissions of the learned Consultant. As can be seen from the records, the case proceeds on the basis of presumption and assumption. The figure was given by the manager of the appellants in the factory. The Commissioner had clearly held that this cannot be the basis for clandestine removals, yet he concluded that presumption can be drawn on the basis of the statement of the manager. This finding is not in consonance with the judgment of the Apex Court judgment in the case of Oudh Sugar Mills (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments seized from DCPWB relates to clearances made by VSPL. Shri Sankar Mohanty, Assistant Accountant and Shri Pradhan in their respective statements stated that Shri Nandi, as Managing Director, was responsible for procurement of raw materials, valuation of Sponge Iron and Clearance of Sponge Iron from the factory of VSPL. Thus, we observe that the statement of Shri Nandi is the main evidence based on which the demand has been confirmed. We observe that Shri Nandi has retracted his statements by way of writing letters to the jurisdictional Commissioner and sworn in affidavit before Notary Public. We observe that the first statement of Shri Nandi was recorded on the date of search on 30.06.2009. In his letter dated 02.07.2009, Shri Nandi alleged that his interrogation and recording of statement continued throughout night and he was released only at 2 p.m. on 01.07.2009. In the letter, he alleged that he has been harassed and compelled to sign blank papers and deposit the amount through undated cheques. Thus, it is his contention that the statement recorded under coercion, threat and duress cannot be relied upon to confirm the demands against the appellant company. 8.1. We observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply to the show cause notice and has asked for re-authentication of the stocks as well as the contents of the diary, therefore, the department could not have brushed aside these defence, however, they might be insufficient. The learned Collector ought to have examined all the aspects of the matter and a detailed finding should have been given to arrive at, as to how much quantity was cleared clandestinely, then merely accepting the statements that there has been a clearance of 301.510 MT of M.S. Ingots. The learned Counsel has relied on the judgments noted above and the extracts. From the extract of the judgment, it is clearly held that the department should not base the case solely on the private diary but there has to be sufficient corroboration and such corroboration can also be obtained from the seized record itself with verification from the statutory registers and also from the details of electricity consumed and input registers maintained by them. The learned Counsel submits that all these registers are still available and the department are at liberty to carry out a second verification for which the assessee does not have any objection. The learned Counsel further submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, - (a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or (b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. (2) The provision of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court." 5. A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in the said sub-section, which are contained in clauses (a) and (b) thereof. 11. Clause (a) of Section 9D (1) refers to the following circumstances : (i) when the person who made the statement is dead, (ii) when the person who made the statement cannot be found, (iii) when the person who made the statement is incapable of giving evidence, (iv) when the person who made the statement is kept out of the way by the adverse party, and (v) when the presence of the person who made the statement cannot be obtained without unreasonable delay or expense. 12. Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is self-evident inference that the decision flowing from the exercise of such discretion, i.e., the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of sub-section (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioner has also invited attention to an unreported short order of the Supreme Court in UOI and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the adjudicating authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned. 16. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D (1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D (1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise officer, unless and until he can legitimately invoke clause (a) of Section 9D (1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D (1). For this, he has to summon the person who had made the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns contemplated by the said clause. That being so, it was not open to Respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub-section. The Orders-in-Original, dated 4-4-2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby. 23. The said Order-in-Original, dated 4-4-2016, passed by Respondent No. 2 is, therefore, clearly liable to be set aside. 24. In view of the above facts and circumstances, the impugned Order-in-Original dated 4-4-2016 passed by respondent No. 2 stands set aside. Resultantly, the show cause notice issued to the petitioner is remanded to respondent No. 2 for adjudication de novo by following the procedure contemplated by Section 9D of the Act and the law laid down by various judicial Authorities in this regard including the principles of natural justice in the following manner :- (i) In the event that the Revenue intends to rely on any of the statements, recorded under Section 14 of the Act and referred to in the show cause notices issued to Ambika and Jay A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39) E.L.T. 209 (P&H)] (mentioned supra). Further, it has come on record that the statements recorded from the Managing Director viz. Shri Nandi is not of voluntary nature but were recorded after putting undue pressure on him and thus his statements could not have been admitted as evidence by the adjudicating authority. The same clearly lost its evidentiary value. Once the Statement of Shri Nandi is excluded in this case, we find that the other evidences do not substantiate the allegation of clandestine clearance without payment of duty. 10. We observe that the investigating officers who conducted a thorough search of the factory premises of the appellant-company did not record any finding or observation regarding any discrepancy/variation between the stock of finished goods physically available in the factory and those reflected in the statutory records such as, the Daily Stock Accounts maintained under Rule 10 of the Rules. No discrepancy was found in the stock records maintained for accounting of raw materials, etc. We also observe that no verification was made by the officers with the buyers or transporters in support of clandestine removal of sponge iron and no examination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral excise duty confirmed on account of clandestine clearance in this case is not sustainable and accordingly, we set aside the same. 12. We observe that the allegation of undervaluation has been made in the Notice on the basis of the entries available in the two Note books and the loose sheets seized from the premises of DCPWB and the statements recorded from the Managing Director viz. Shri Nandi. We have already held that the entries in these documents and the statements which are retracted alone cannot be sufficient to demand duty. Charge of undervaluation cannot be presumed without verification of contemporaneous market price of sponge iron, which is a widely fluctuating market. The un-authenticated scribblings on loose papers by unidentified persons cannot be the basis for arriving at a conclusion of undervaluation. Accordingly, we hold that the demand of duty on account of under valuation in the impugned order is not sustainable. 13. Since the demands of duty on account of clandestine removal and undervaluation is not sustained and set aside, the question of demanding interest and imposing penalty on the appellant company does not arise. 14. Regarding the penalty impose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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