2020 (1) TMI 532 - AT - Central Excise

Tribunal overturns Central Excise duty order due to insufficient evidence, penalties dismissed

The Tribunal set aside the order confirming a demand of Central Excise duty, recovery of interest, imposition of penalties, and penalty on the Director ... Clandestine removal - corroborative evidences or not - relied upon documents - entire demand has been raised on the basis of a pen drive/print outs record obtained from the premises of the third party and also the private records of the third party which were compared with the Appellant’s statutory records - whether the charge of clandestine removal can be made against the Appellant on the basis of documents obtained during the search conducted at the two other companies for which Shri Bharat Bhushan Sachdeva is common Director? HELD THAT:- During the search the pen drive was recovered which allegedly contained the data regarding the clandestine removal of the goods without any search being conducted on the Appellant’s premises. The data retrieved from the pen drive was compared with data contained regarding the manufacture production and clearance of the goods. It is on record that the Department has solely relied upon the data in the pen drive without any further corroboration by the independent investigation conducted for the activity by the Appellant - Although the statement of Shri Sachdeva dated 26.09.2009 was retracted and the existence of data in the pen drive from where the various files were extracted is not disputed. But any data contained in the pen drive/printouts has to be as per the provisions of Section 36B of the Act which has definitely not been followed by the Adjudicating Authority. The issue has been elaborately dealt in case of M/S POPULAR PAINTS AND CHEMICALS REFERRED AS, SHRI MANSOOR ZAFFAR, SHRI HUSSAIN ZAFFAR VERSUS COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS RAIPUR [2018 (8) TMI 473 - CESTAT NEW DELHI], wherein it is held that following the mandatory requirement as contained under Section 36B of the Act the reliance cannot be placed on the data contained in the electrical device. Thus, there cannot be any reliance on the data contained in the pen drive, which has been taken as gospel truth in the case at hand. Reliability on statement of Shri Bharat Bhushan Sachdeva - HELD THAT:- The statement of Shri Bharat Bhushan Sachdeva can also not be relied upon for not following the prescription under Section 9D of the Act. Shri Sachdeva has not been examined by the Adjudicating Authority and also not cross examined by the Appellant. In the circumstances even the statement which has not been retracted cannot be taken as an admissible piece of evidence - the demand has been passed on the third party documents recovered from the premises of the Union and SEWPL which cannot be relied upon As the appeal main appellant SSWP is not sustainable there is no question of imposition of any penalty on the Director of the company, Shri Bharat Bhushan Sachdeva - Appeal allowed - decided in favor of appellant. Issues Involved:1. Demand of Central Excise duty.2. Recovery of interest under Section 11AB.3. Imposition of penalty under Section 11AC.4. Penalty on the Director under Rule 26 of the Central Excise Rules.5. Admissibility and reliability of evidence obtained from a pen drive.6. Compliance with Section 36B of the Central Excise Act.7. Validity of the investigation and evidence presented.Issue-wise Detailed Analysis:1. Demand of Central Excise Duty:The Commissioner of Central Excise Customs and Service Tax Bhubaneswar confirmed a demand of Rs. 1,02,75,737/- under Section 11A of the Central Excise Act, 1994, against M/s Shiv Shakti Sponge Iron Limited (SSIL) for clandestine production and removal of excisable goods without payment of duty. The demand was based on data retrieved from a pen drive seized during a search at the premises of SEWPL, another company where the Director of SSIL, Shri Bharat Bhushan Sachdeva, was also a director.2. Recovery of Interest under Section 11AB:The order included recovery of interest on the confirmed duty amount under Section 11AB of the Act. The amount of Rs. 20 lakhs already deposited by SSIL was adjusted against this demand.3. Imposition of Penalty under Section 11AC:A penalty equal to the duty amount of Rs. 1,02,75,737/- was imposed under Section 11AC of the Act. However, a benefit was provided for a reduced penalty if the confirmed amount was deposited within thirty days from the communication of the order.4. Penalty on the Director under Rule 26 of the Central Excise Rules:A penalty of Rs. 20 lakhs was imposed on Shri Bharat Bhushan Sachdeva under Rule 26 of the Central Excise Rules, 2002, for his involvement in the alleged clandestine activities.5. Admissibility and Reliability of Evidence Obtained from a Pen Drive:The primary evidence relied upon by the Department was data from a pen drive seized from SEWPL. The data, stored in Tally-9 software, indicated alleged clandestine removal of goods by SSIL. However, the appellant argued that the demand was based solely on this data without any corroborative evidence such as excess raw material, stock discrepancies, or statements from transporters.6. Compliance with Section 36B of the Central Excise Act:The appellant contended that the evidence from the pen drive did not meet the requirements of Section 36B of the Act, which governs the admissibility of computer printouts as evidence. The Tribunal agreed, citing precedents such as Premier Instruments and Ambica Organics, which held that computer printouts are not admissible unless the stringent conditions of Section 36B are fulfilled.7. Validity of the Investigation and Evidence Presented:The Tribunal found that the investigation lacked corroborative evidence. The data from the pen drive was not supported by any independent investigation or physical evidence from SSIL’s premises. The Tribunal also noted that the statement of Shri Bharat Bhushan Sachdeva, which was retracted, could not be relied upon as it was not examined or cross-examined as required under Section 9D of the Act. Furthermore, the third-party documents recovered from other companies could not be used to substantiate the charge of clandestine removal against SSIL without direct evidence linking them to SSIL's activities.Conclusion:The Tribunal concluded that the demand and penalties were based on assumptions and presumptions without positive and cogent evidence. The reliance on data from the pen drive without fulfilling the conditions of Section 36B rendered the evidence inadmissible. Consequently, the Tribunal set aside the impugned order, allowing the appeals of SSIL and its Director, with consequential benefits as per law.