2025 (7) TMI 65 - AT - Central Excise

Clandestine removal - admissibility of evidences in terms of Section 36B of the Central Excise Act 1944 - computerized RG-1 and other records as maintained by the appellant - requirement of certification for admissibility of the ascertained stocks - Imposition of penalty on the Directors - HELD THAT - The appellants submission that there was no recovery of cash or documents showing excess labour or excess consumption cannot be held as a sustainable ground in defence when on the basis of documents as retrieved from a surprise visit by the officers from the computers maintained and worked upon by the appellant and as recorded in Panchnama establish the fact of production and suppressed indication of clearance figures. It is also not found that Shri Deepak Kumar Agarwal has at any point in time retracted his self-inculpating statement admitting of the receipt of payment in cash for goods clandestinely cleared and enjoyment of the booty by all the three Directors of the appellant concern. The appellant s argument that in response to the show cause notice they have refuted the department s allegations and thereby stating that the statements were not voluntary and hence to be considered as retracted is a very vague generalised and loose submission unacceptable in law. There is no concept of a deeming retraction known in law and any retraction has to be a formalized one and satisfy the ingredients of a valid retraction. Moreover the Calcutta High Court in the case of Commissioenr of Customs (Prev.) v. Rajendra Kumar Damani @ Raju Damani 2024 (5) TMI 730 - CALCUTTA HIGH COURT had held that the retraction of statement in itself cannot render the statement involuntary. It is argued that no statement of person from whose possession the said chits were recovered has been recorded. The evidentiary value of chits/loose slips recovered cannot be lost merely because no statement was recorded of the employee from whose possession the said chits were recovered for the reason that the employee of the appellant firm s could not be labelled as a third party witness. Moreover it has been admitted by no less but the Director that these slips were indicative of pending payments in respect of clandestine delivery. The employees of the firm in their initial testimony at the time of recovery have confirmed that the said loose chits indicated clandestine cleared goods for which payment was obtained in cash. The said position was also admitted by the Director at the first instance. Further as evident from Section 58 of the Indian Evidence Act 1872 as it stood at the material time a fact is not required to be proved in a proceeding if the party or its agent admit to the same or if it is admitted by writing under their own hands before a hearing or if it is deemed to have been admitted by way of their pleadings the idea being that the court is required to deliberate upon points in dispute in an issue (i.e. undisputed facts are not required to be proved). Viewed in the backdrop and the fact that there is no formal retraction at any point of time on record the appellant merely submitting that since they contest the matter the statement of the appellant Director cannot be considered voluntary and is thus deemed to be retracted is completely irrational. Imposition of penalty on the Directors - HELD THAT - The adjudicating authority has at length and convincingly discussed the active involvement of the noticees and brought out the role played by each of the said Directors. Further in view of the findings and discussions it is noted that by way of their contumacious conduct and mens rea as clearly discernible the three directors have rendered themselves liable for imposition of penalty under Rule 26 of the Central Excise Rules 2002 - considering the entire gamut of the case and the fact of the issue being nearly fifteen years old ends of justice would be met by restricting the penalty amount imposed to Rupees Fifty thousand only on each of the three Directors viz. S/Shri Dilip Kumar Agarwal Deepak Kumar Agarwal and Sajjan Kumar Kedia. The impugned order of the lower authority is upheld but for the modification of the penalty amount as fastened upon the Directors. Appeal disposed off.

Summary

The core legal questions considered in this matter include:

(i) Whether the computerized records retrieved from the appellant's factory computers without a certificate as mandated under Section 36B(4) of the Central Excise Act, 1944, are admissible as evidence for determining stock shortages and consequent duty demand.

(ii) Whether the physical stock-taking conducted by the authorities, allegedly based on eye-estimation rather than physical weighment, is legally valid and sufficient to establish shortages of raw materials and finished goods.

(iii) The evidentiary value and admissibility of loose sheets or chits recovered during search operations, which purportedly indicate clandestine sales and outstanding payments.

(iv) The significance and weight to be accorded to self-inculpatory statements recorded under Section 14 of the Act, especially in the absence of cross-examination and in light of alleged retraction by the appellant.

(v) The legal sufficiency of the procedure followed by the investigating officers, including the authority of the officer who drew the Panchnama and recorded statements.

(vi) The liability of the directors for penalties under Rule 26 of the Central Excise Rules, 2002, based on their involvement and mens rea in the duty evasion scheme.

Issue-wise Detailed Analysis:

Admissibility of Computerized Records under Section 36B of the Central Excise Act

The legal framework governing the admissibility of computer-generated documents is Section 36B of the Central Excise Act, 1944. This provision deems microfilms, facsimile copies, and computer printouts as admissible evidence without the original, provided certain conditions are met. Crucially, subsection (4) mandates a certificate from a responsible official describing the manner of production and the reliability of the computer system.

The appellants contended that the computerized records retrieved during the search lacked the mandatory certification under Section 36B(4), rendering them inadmissible. However, the Court noted that the department did not rely solely on these records but corroborated them with physical documents such as RT-12, RG-23A Part-I, and others. The records were retrieved in the presence of the appellant's employees and admitted as their own, including by a Director of the firm. The government's own circulars permit maintenance and acceptance of computerized records, further supporting their admissibility.

The Court emphasized that Section 36B(1) applies "without further proof or production of the original" primarily in cases where the original is not produced. Here, original records were available and not disputed. Moreover, Section 36A of the Act creates a presumption as to the truth of documents produced or seized, unless the contrary is proved, shifting the burden to the appellant to disprove authenticity.

Given the Director's admissions and the presence of the records during the search, the Court held that the non-furnishing of a separate certificate under Section 36B(4) was not fatal. The appellant's plea was characterized as a mere ruse, lacking merit, especially since the authenticity and ownership of the records were never questioned before the lower authorities.

Validity of Stock-taking Methodology

The appellants argued that stock-taking was not physically undertaken via weighment but was based on eye-estimation. The Court rejected this contention, noting that the MS ingots and finished goods were of standard size and weight, stacked uniformly. Hence, counting the number of blocks and applying simple calculations was a reliable method to ascertain stock quantities. The Panchnama recorded the presence and satisfaction of the appellant's representatives with the stock-taking process.

The Court observed that no dissatisfaction with the stock-taking methodology was raised by the appellants at any stage until the appeal. The standardization of goods and the presence of the appellant's employees during the process rendered the stock-taking valid and reliable.

Admissibility and Evidentiary Value of Loose Sheets/Chits

During the search at the Kolkata office, loose sheets indicating outstanding payments and daily reconciliations were recovered. The appellants contended these were informal slips destroyed routinely and did not correspond with invoices produced, which were dated several months prior. The Court found the appellant's explanation unsatisfactory, noting significant discrepancies between the amounts and parties listed in the slips and the invoices. The destruction of these slips upon the officers' arrival suggested an attempt to conceal evidence.

The Court relied on the Panchnama and admissions by the Director that these slips related to clandestine sales and payments received in cash. The loose slips were deemed corroborative evidence of duty evasion and clandestine clearance. The Court referred to precedent establishing that such documents, even if informal, have evidentiary value when linked with admissions and other evidence.

Weight of Self-Inculpatory Statements and Retraction Claims

The Director's statement recorded under Section 14 of the Act admitted clandestine clearance and receipt of cash payments. The appellants argued the statements were not voluntary and were retracted. The Court rejected this, noting that mere contestation without formal retraction or proof of coercion does not invalidate statements. The law requires a valid, formalized retraction supported by evidence of duress or coercion, which was absent.

The Court cited authoritative rulings confirming that confessional statements, even if retracted, can be relied upon if the retraction is not credible. The Director's detailed explanation of documents and admissions further reinforced the statements' reliability. The absence of cross-examination was not fatal, as cross-examination is not an absolute right and is discretionary, especially when documentary evidence is admitted and corroborated by statements.

Procedural Validity of Investigative Actions

The appellants challenged the authority of the officer who drew the Panchnama and the absence of statements from factory representatives present during the search. The Court held that there is no legal requirement that a Panchnama must be drawn by a specified rank officer. Any departmental officer can record statements and draw Panchnamas, provided the evidence is relevant and admissible.

The presence and signatures of the appellant's employees on the Panchnama, recording their satisfaction with the process, negated the need for separate statements from them. The Court also noted the practical difficulties in clandestine cases where complete evidence is rarely obtainable at micro levels.

Liability and Penalty on Directors

The adjudicating authority had detailed the active involvement of the Directors in the clandestine clearance and duty evasion. The Court found their mens rea and contumacious conduct established, rendering them liable for penalties under Rule 26 of the Central Excise Rules, 2002.

Considering the age of the case and circumstances, the Court moderated the penalty to Rs. 50,000 each on the three Directors, affirming the order except for this modification.

Other Observations and Application of Law to Facts

The Court underscored that the department's case was not solely based on stock shortages but corroborated by loose slips, admitted statements, and documentary evidence retrieved from computers. The onus was on the appellants to satisfactorily explain the shortages and discrepancies, which they failed to do.

The Court rejected the appellant's attempts to connect loose slips with invoices dated many months earlier, deeming such linkage untenable given the admitted daily destruction of slips.

Reliance on case laws by the appellant concerning stock-taking and hearsay evidence was distinguished on facts, with the Court emphasizing that each case depends on its peculiar facts and that the present evidence was sufficient to sustain the charge.

The Court also dismissed the appellant's claim of intending to approach the Settlement Commission as indicative of mens rea and as a dilatory tactic.

Significant Holdings and Core Principles Established:

"Section 36B cannot be so read and interpreted to render Section 36A redundant, insignificant or otiose. A harmonious reading of law, in view of stated factual premise, clearly reflects upon the open ended inapplicability of Section 36B."

"The non-furnishing of a separate certification in the matter as urged to be fatal in dismissing the action initiated by the department at its very threshold, is completely inessential and uncalled for in the impugned matter."

"When the goods to be accounted for are one of a standard shape & size, uniform in their contents (by volume or weight), a mere physical count thereof would be able to ascertain the total quantity of the goods."

"The evidentiary value of chits/loose slips recovered cannot be lost merely because no statement was recorded of the employee from whose possession the said chits were recovered."

"A person who claims retraction, is required to prove that the said statement was made under force, coercion, duress, threat etc."

"Cross-examination, though not sought in this case, is however not a matter of right. It is only warranted in such cases where the party seeking an opportunity to cross-examine is able to demonstrate that prejudice would be caused in the absence thereof."

"Clandestine removal charge of excisable goods, is of serious ramifications and cannot be dropped or sustained on whimsical/light weight arguments."

"The burden to establish that the statement was not voluntary was on the maker of the statement."

"The onus cast upon the department to contend clandestine activity is thus sufficiently established in the present case."

The final determinations are that the department's demand for central excise duty based on stock shortages, corroborated by computerized records, loose slips, and self-inculpatory statements, is upheld. The procedural objections raised by the appellants are rejected. The penalty on the Directors is confirmed but reduced in amount. The appeal is dismissed except for the penalty modification.