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2025 (5) TMI 1282 - AT - Central ExciseClandestine removal - Seizure of Pen Drive from the premises of another party contains the Production Dispatch of Sponge Iron - Demands along with interest and penalty - difference between the Excel Sheet production figure and the RG1 figure - excess / unaccounted production of sponge iron - modus operendi - HELD THAT - We find that apart from heavily relying on the pendrive and recorded statements the Revenue has made no effort to bring in corroborative evidence to fortify its claim of clandestine removal. There is no discussion about procurement of materials / inputs the input output ratio analysis electricity consumption statement of purported sellers of inputs purported buyers of the finished goods movement of vehicles and statement of such vehicle drivers / owners. While the Revenue is not required to bring in pinpoint and precise evidence but still efforts have to be made to ensure that sufficient evidence is produced in support of their case. From the present proceedings we find that even within the pen-drive the Revenue claims that part of the same is accounted for in the RG 1 records and clearance has been made on payment of Excise Duty. The quantification has been done by comparing the RG 1 sales figures vis- -vis the figures shown in the Pendrive data and admittedly the author of the Pendrive is not known and no statement has been recorded to this effect from that person. The procedure prescribed under the statutory provisions have not been followed while relying on the data contained in the pendrive. As we have observed that entire case in respect of the all demands on different heads as observed in the table referred above has been built up with miniscule evidence with no corroborative evidence brought in whatsoever. Therefore we have no hesitation to apply the ratio of the cited case laws in respect of Pendrive non-allowing of cross-examination of the persons recording the statements non-production of corroborative evidence and set aside the impugned order on these counts in respect of the confirmed demands of Rs.1, 47, 93, 916/-. Since the demands are being set aside the corollary interest and penalties also get aside. The impugned Order is set aside towards the confirmed demand of Rs.1, 47, 93, 516/- along with interest and penalty thereon. The penalty on the second appellant is set aside and appeal is allowed. The appeals are disposed off thus.
The core legal questions considered in this case are:
1. Whether the data contained in a Pen Drive seized from a third party's premises can constitute sufficient and admissible evidence to establish clandestine manufacture and removal of goods by the appellant. 2. Whether the discrepancy between production figures in the Pen Drive data and statutory returns (RG-1) can be treated as proof of suppression of manufacture and duty evasion. 3. Whether the Revenue's reliance on statements recorded during investigation without allowing cross-examination of the witnesses complies with statutory procedural safeguards and can be relied upon as evidence. 4. Whether the Revenue has brought sufficient corroborative evidence beyond the Pen Drive data and recorded statements to establish clandestine removal, including investigation into raw material purchases, electricity consumption, transportation, and receipt of sale proceeds. 5. Whether the penalty imposed on the second appellant is sustainable in the absence of a proven role or culpability. 6. Whether interest and penalty on the demand amount paid prior to issuance of the Show Cause Notice are justified. Issue-wise Detailed Analysis: 1. Admissibility and Sufficiency of Pen Drive Data as Evidence of Clandestine Removal The legal framework includes Section 36B of the Central Excise Act, which governs the admissibility of computer printouts and electronic records as evidence. The conditions under Section 36B(2) require that the computer printout must be produced by a computer regularly used for business activities, the computer must have been operational properly, and a certificate from a responsible official must be produced under Section 36B(4) to authenticate the electronic evidence. Precedents such as Ambica Organics and Principal Commissioner of CGST & Central Excise vs Shah Foils Ltd emphasize that electronic evidence such as Pen Drive data or computer printouts must satisfy these statutory conditions to be admissible. Mere recovery of a Pen Drive from a third party's premises without identifying the author or following proper authentication procedures does not satisfy these requirements. The Court noted that in the present case, the Pen Drive was seized from another party (GIPL), and the Revenue failed to identify the author or produce any certificate as required under Section 36B. The data was not stored in the appellant's computer system, and the conditions for admissibility were not fulfilled. The Revenue's reliance on this data alone, without proper authentication or corroboration, was held insufficient to establish clandestine removal. The Court also referenced the Shah Foils case, where the Tribunal held that charges of clandestine removal based solely on Pen Drive data without corroboration are not sustainable. The absence of investigation into the source or authenticity of the data, or statements from the person responsible for the Pen Drive, further weakened the Revenue's case. 2. Discrepancy Between Pen Drive Data and RG-1 Figures as Evidence of Suppression The Revenue's case was based on the difference between production and dispatch figures recorded in the Pen Drive data and the statutory returns (RG-1). The Revenue assumed that the Kiln production figures in the Pen Drive represented actual production, while the RG-1 figures were understated, indicating suppression and clandestine removal. The Court observed that this assumption was flawed. It was pointed out that production in Kilns includes quantities that may be rejected during quality checks and thus not recorded in RG-1 returns. The Revenue's failure to consider the possibility of wastage or rejection rendered their inference perverse and based on mere assumptions. Precedents such as Continental Cement Co. and Arya Fibres Pvt. Ltd. emphasize that clandestine removal is a serious charge requiring concrete and tangible evidence, not mere inferences or assumptions. The Court held that the discrepancy in figures without corroborative evidence such as raw material consumption, electricity usage, or transportation records cannot conclusively establish suppression. 3. Reliance on Statements Recorded During Investigation Without Cross-Examination Section 9D(1)(b) of the Central Excise Act requires that statements recorded during investigation before a gazetted officer must be admitted as evidence before the adjudicating authority and the witness must be made available for cross-examination, except in limited circumstances. The appellants sought cross-examination of witnesses whose statements were recorded, but the Adjudicating Authority denied this on the ground that they were company employees and the documents were corroborated by statutory records. The Court referred to the G-Tech Industries case, where the High Court held that failure to allow cross-examination renders such statements inadmissible as evidence. Without following this procedure, reliance on such statements is misguided and they lose evidentiary value. 4. Absence of Corroborative Evidence to Establish Clandestine Removal Case law such as Continental Cement Co. and Nova Petrochemicals establish that to prove clandestine removal, the Revenue must investigate and produce corroborative evidence including:
In the present case, the Court found that the Revenue failed to investigate or produce such corroborative evidence. There was no inquiry into cash purchases, electricity consumption, transportation, or receipt of sale proceeds. The reliance on Pen Drive data and statements alone, without such corroboration, was insufficient. 5. Penalty Imposed on Second Appellant The penalty on the second appellant was challenged on the basis that the primary allegations against the first appellant were unsustainable and that there was no specific role attributed to the second appellant in the Show Cause Notice or Order-in-Original. The Court held that since the demand against the first appellant was set aside, the penalty on the second appellant also could not be sustained. The absence of any specific incriminating evidence or role of the second appellant justified setting aside the penalty. 6. Interest and Penalty on Amount Paid Prior to Show Cause Notice The appellants had admitted and paid Rs.9,24,005 before issuance of the Show Cause Notice, primarily to close the issue. They contested the imposition of interest and penalty on this amount. The Court noted that since the amount was paid before the SCN, no interest was payable. However, as the payment related to unaccounted clearances, penalty under law could be imposed. The Court accordingly held that no interest was payable but penalty at the prescribed rate was justified. Conclusions on Issues:
Significant Holdings: The Court reiterated the principle that "clandestine removal is a serious charge which has to be proved with positive evidence." It held that "charges of clandestine removal on the basis of pen drive data are not sustainable" without corroborative evidence and proper adherence to statutory procedures. The Court emphasized the statutory safeguards under Section 9D(1)(b) regarding admissibility of statements recorded during investigation, stating: "If this procedure, which is statutorily prescribed by plenary Parliamentary legislation, is not followed, it has to be regarded that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof." In relation to electronic evidence, the Court quoted the conditions under Section 36B and held that failure to comply with these conditions renders computer printouts inadmissible: "We find that none of these conditions was satisfied by the Revenue in this case... Nothing contained in the printouts ... can be admitted into evidence for non-fulfilment of the statutory conditions." The Court also underscored the necessity of corroborative evidence beyond assumptions or inferences, stating: "The charge of clandestine manufacture and clearances cannot be established on assumptions and presumptions. Such a charge has to be based on concrete and tangible evidence." Accordingly, the Court set aside the confirmed demands amounting to Rs.1,47,93,516/- along with interest and penalties, and quashed the penalty imposed on the second appellant. The uncontested demand of Rs.9,24,005/- was upheld with penalty but without interest.
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