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2024 (10) TMI 1670 - AT - Central ExciseClandestine removal - case has been made against the Appellant only on the basis of the certain documents with regards to receipt of Silico Manganese recovered from the residential premises of an employee and authorized person of Appellant 1 - absence of evidence in regards to receipt of any other raw material and their use in production - Shortage detected during panchnama proceedings based on eye estimation only - Recovery of Central Excise Duty with interest and penalty - HELD THAT - Though Shri Sanjay Tiwari is an employee and authorized person of the Appellant still he cannot in any way step into the shoes of Appellant. Appellant No.2 has not accepted the truth of such documents during the investigation and has refused to comment on said documents or the statements recorded from the Shri Sanjay Tiwari in respect of these documents. It is also evident that Shri Sanjay Tiwari from whose residential premises these documents have been recovered has not been made party to these proceedings and no penalty under Rule 26 of the Central Excise Rules 2002 was proposed against him or imposed by the Adjudicating Authority. The presumption under Section 36A with regards to the truth and correctness in respect of the documents recovered from such premises has been negated by various Courts and Tribunals. The truth of these documents needs to be established by way of corroborative evidence gathered during the investigation. Simple recovery of these documents does not establish the case against the Appellant. It is noticed that the clandestine has been alleged on the basis of receipt of the one of ingredients (Silico Magnese) by the Appellants of the finished goods manufactured and cleared by the Appellant. The consumption of the said ingredient as per the statement of Appellant No.2 and relied in show cause notice is about 10 kgs per ton of the finished goods which works out to be 10 100/1000 1%. No evidence has been produced in respect of any other ingredient used in the process of production. The basic input in any unit having induction furnace for production of ingots is electricity sponge iron and scrap. No investigation has been done in respect of these basic inputs or with regards to the furnace installed in the factory premises. The impugned order is totally silent on this aspect. In absence of any such evidence with regards to reheating furnace there is no position to determine the quantum of clandestine clearance alleged in the notice or confirmed by the Adjudicating Authority. There are no merits in the impugned order confirming the demands made - as demand is set aside penalty also set aside - appeal allowed.
The core legal questions considered in this case include:
1. Whether the demand of Central Excise duty on the basis of documents recovered from the residential premises of an employee (Shri Sanjay Tewari) of the appellant company, without corroborative evidence, is sustainable under the Central Excise Act, 1944 and related rules. 2. Whether the Panchnama and statements recorded during the search and seizure operations are maintainable and admissible as evidence, particularly when the Panch witnesses' independence and the opportunity for cross-examination have been challenged. 3. Whether the calculation of duty evasion based on computer-generated documents and internal records, including those allegedly barred under Section 36B(2) of the Central Excise Act and Indian Evidence Act, is legally valid. 4. Whether the penalty imposed on the appellant company and its director under Sections 11AC and Rule 26 of the Central Excise Rules, 2002, is justified in the absence of conclusive evidence of clandestine removal of goods. 5. Whether the extended period of limitation under proviso to erstwhile Section 11A(1) read with Section 11A(4) of the Central Excise Act, 1944, is applicable for demand and recovery of duty. Issue-wise Detailed Analysis: 1. Admissibility and Maintainability of Panchnama and Statements The legal framework recognizes the validity of search and seizure operations under the Central Excise Act, 1944, with Panchnama serving as a crucial evidentiary document. The appellant challenged the maintainability of the Panchnama dated 14.12.2012 at the residential premises of Shri Sanjay Tewari and the statements recorded therein, alleging that the Panch witnesses were interested parties and that the appellant was denied the opportunity to cross-examine witnesses. The Court examined the procedural correctness of the Panchnama, noting detailed descriptions of premises, witnesses, and seized documents. The statement of Shri Sanjay Tewari was recorded under Section 14 of the Central Excise Act, 1944, without coercion or retraction. Further, Shri Navin Jain, the director of the appellant company, acknowledged and signed the contents of the Panchnama and statements, without alleging duress or coercion. Regarding cross-examination, the appellant repeatedly sought adjournments and failed to appear for scheduled cross-examinations, which the Court viewed as delaying tactics. The Court referred to precedents holding that denial of cross-examination without specific reasons does not vitiate proceedings, citing decisions from various tribunals and High Courts, including the principle that confessional statements are binding unless retracted. Conclusion: The Panchnama and statements were held to be admissible and maintainable. The appellant's challenge on grounds of Panch witness independence and denial of cross-examination was rejected as vague and unsubstantiated. 2. Validity of Documents Recovered and Calculation of Duty Evasion The appellant contended that the demand was based solely on certain documents recovered from Shri Sanjay Tewari's residence, which were computer-generated and barred under Section 36B(2) of the Central Excise Act, 1944, and Indian Evidence Act. The appellant argued that Silico Manganese, the raw material in question, is only a minor input and cannot form the sole basis for alleging clandestine removal of finished goods (M.S. Ingots). The Court noted that Shri Sanjay Tewari admitted authorship and possession of the documents, explaining their entries. Shri Navin Jain, in his statements, confirmed that Shri Sanjay Tewari was an employee responsible for raw material purchase and store management across related entities sharing common office premises. The Court found that the documents showed a discrepancy between the quantity of Silico Manganese received as per the documents (176.284 MT) and the quantity recorded in statutory stock registers (80.78 MT), resulting in a shortfall of 95.504 MT. Using the admitted consumption ratio of 10 kg Silico Manganese per MT of M.S. Ingots, the Court accepted the Revenue's calculation that this shortfall translated into clandestine removal of approximately 9550.4 MT of finished goods, leading to duty evasion amounting to Rs. 2,15,51,887/-. The Court relied on Section 36A of the Central Excise Act, which presumes the truthfulness of recovered documents unless disproved, and Supreme Court precedents affirming the admissibility of evidence despite procedural irregularities in search and seizure. However, the Tribunal noted that the appellant did not maintain separate stock records for other significant raw materials, and no investigation was conducted on the basic inputs like electricity consumption, sponge iron, and scrap, which are essential for production. The absence of corroborative evidence regarding these inputs weakened the case for clandestine removal based solely on Silico Manganese records. Conclusion: While the documents recovered were genuine and admissible, reliance solely on these without corroborative evidence of production and consumption of other raw materials and inputs was insufficient to uphold the demand. 3. Evidence Required to Establish Clandestine Removal and Duty Evasion The Court extensively referred to established legal principles and precedents requiring tangible and corroborative evidence to establish clandestine manufacture and removal of excisable goods. Such evidence includes:
The Court cited multiple decisions emphasizing that mere reliance on internal documents or statements without independent corroboration is inadequate. The Court noted the absence of investigations into electricity consumption, transport records, or purchase and sales corroboration in the present case. It also highlighted that the recovered documents pertained only to one raw material (Silico Manganese), which constitutes a minor component in the production process, and no evidence was produced regarding other principal raw materials. Conclusion: The demand for duty evasion and penalties could not be sustained in the absence of comprehensive and corroborative evidence as mandated by law and judicial precedents. 4. Applicability of Extended Period for Demand and Penalty Provisions The Revenue invoked the extended period of limitation under the proviso to erstwhile Section 11A(1) read with Section 11A(4) of the Central Excise Act, 1944 for demanding duty and interest on clandestinely removed goods. Penalties under Section 11AC and Rule 26 of the Central Excise Rules, 2002, were imposed on the appellant company and its director for evasion. The Court observed that since the fundamental demand for duty evasion was not established due to lack of corroborative evidence, the extended period invocation and penalty imposition were also unsustainable. The Court emphasized that punitive actions require a solid evidentiary foundation of willful evasion, which was absent here. Conclusion: Extended period demand and penalties were not upheld given the failure to establish clandestine removal conclusively. 5. Treatment of Competing Arguments The appellant argued that the demand was based on uncorroborated documents from an employee's residence, that the employee was not made a party or penalized, and that the demand was speculative and based on assumptions. They cited numerous precedents where demands based solely on internal documents or uncorroborated statements were quashed. The Revenue relied on the statements of the employee and director, the Panchnama, and the discrepancy in raw material records to establish evasion. The Revenue contended that the documents were genuine and admissible, and the director's acknowledgment of the statements indicated complicity. The Court balanced these arguments, recognizing the genuineness of the documents and statements but underscoring the absence of corroborative evidence on critical aspects such as other raw materials, electricity consumption, and actual clandestine removal. The Court highlighted the necessity of independent evidence to support such serious allegations. Conclusion: The Court rejected the Revenue's demand due to insufficient corroboration and accepted the appellant's contention that the case was based on assumptions rather than conclusive proof. Significant Holdings: "The statement of Shri Sanjay Tewari was not recorded under duress and he never retracted from his statement... Shri Navin Jain... agreed with the contents and appended his signatures on the same... The allegation of the party regarding maintainability of Panchnama dated 14.12.2012... is accordingly rejected." "The documents recovered and resumed by the officers on 14.12.2012 from the premises of Shri Sanjay Tewari are not sourced or fabricated and their truthfulness and genuineness is not questionable as they are well explained and have enough evidentiary value." "In absence of any corroboration about the factum of production, consumption of raw material etc, allegation of clandestine clearance on the basis of the 3rd Party documents recovered from the premises of Shri Sanjay Tewari we are not in a position to uphold the demand made by the impugned order." "Mere reliance on note books/diaries or statements cannot be considered as enough evidence for clandestine manufacture and clearances." "The confirmation of demand of duty against the assessee based upon the allegations of clandestine removal leading to the financial burden to the assessee as also resulting in criminal prosecution of the authorized persons is required to be done on the basis of evidences which generates confidence in the prosecution case." "The denial of cross examination which does not cause any prejudice to the final outcome is not violative of the principle of natural justice and it shall not vitiate the proceedings." "The impugned order confirming the demands made on above accounts is without merit and the penalties imposed on the appellant are not sustainable." In sum, the Tribunal allowed the appeals, set aside the demand of duty, interest, and penalties imposed on the appellant company and its director, emphasizing the necessity of corroborative evidence beyond internal documents and statements to establish clandestine removal of excisable goods under the Central Excise Act, 1944.
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