2021 (1) TMI 708 - AT - Central Excise

Tribunal overturns order due to lack of evidence; emphasizes need for affirmative proof in excise cases

The Tribunal set aside the impugned order and allowed both appeals, concluding that the revenue authorities failed to prove clandestine clearance or ... Admissibility of computer printouts under Section 36B - Admissibility of electronic records under Section 65B - Burden of proof for clandestine clearance/undervaluation - Requirement of corroborative independent evidence for clandestine removal - Sealing and panchnama safeguards in search and seizure - Admissibility of statements under Section 9D(1)(b)Admissibility of computer printouts under Section 36B - Admissibility of electronic records under Section 65B - Sealing and panchnama safeguards in search and seizure - Computer printouts (pen drive data) seized during search were not admissible as evidence. - HELD THAT: - The Tribunal found that the pen drives were not sealed as required and most printouts were taken after conclusion of panchnama proceedings, thereby breaching the safeguards contemplated under Section 36B(2) & (4) of the Central Excise Act. The court treated Section 36B as pari materia with Section 65B of the Evidence Act and held that certificates and procedural compliance required for electronic records were not furnished. Reliance on precedents establishing that electronic records are admissible only upon compliance with statutory conditions (including identification, manner of production and a certificate from a responsible official) supported rejection of the pen drive printouts as admissible evidence. The absence of compliance, possibility of tampering and failure to associate the appellants with retrieval of the printouts rendered the printouts inadmissible. [Paras 6]Computer printouts retrieved from the seized pen drives are not admissible evidence for want of compliance with Section 36B(2) & (4) (and Section 65B principles).Burden of proof for clandestine clearance/undervaluation - Requirement of corroborative independent evidence for clandestine removal - The charge of clandestine manufacture and clearance could not be sustained on the basis of the pen drive data alone. - HELD THAT: - The Tribunal emphasised that clandestine clearance is a serious charge requiring direct, affirmative and incontrovertible evidence. It noted absence of independent corroboration such as unaccounted raw material, stock shortages, unexplained cash flows, interrogation of buyers/transporters or other incriminating records. Given that the pen drive printouts were not admissible and there was no independent evidence establishing unaccounted manufacture or clearance, the revenue failed to discharge the burden of proof. The Tribunal followed earlier decisions holding that assumptions or presumptions cannot substitute cogent evidence for confirming clandestine removals. [Paras 7, 8]The charge of clandestine removal/undervaluation cannot be sustained on the pen drive data alone; the demand based thereon cannot be upheld for want of cogent independent evidence.Admissibility of statements under Section 9D(1)(b) - Sealing and panchnama safeguards in search and seizure - Statements of the appellant and procedural defects in search/panchnama weighed against treating such statements and seized electronic material as reliable evidence. - HELD THAT: - The Tribunal observed that the statement of Appellant No.2 had been retracted and that procedural safeguards for recording and admitting statements (as per statutory procedure) were not satisfied. Additionally, defects in sealing and panchnama (absence of signatures on seals, late printing of data, panchas not properly present or examined) undermined the reliability of both the statements and the electronic material. Consequently, the statements and the pen drive-derived material could not be relied upon to prove clandestine clearance. [Paras 6, 7]The statements and the manner of seizure/printing were infirm and could not be relied upon; therefore they do not furnish admissible or reliable evidence to sustain the charge.Final Conclusion: The adjudication confirming demand and imposing penalty was set aside: pen drive printouts and related statements were inadmissible and, in absence of independent corroborative evidence, the charge of clandestine removal/undervaluation could not be sustained; both appeals allowed. Issues Involved:1. Clandestine manufacture and clearance.2. Admissibility of computer printouts as evidence.3. Reliability of the Sales Ledger.4. Legality of search, seizure, and recording of statements.5. Validity of the statements of Appellant No. 2.6. Imposition of penalty under Rule 26 of the Central Excise Rules.Issue-wise Detailed Analysis:1. Clandestine Manufacture and Clearance:The primary issue was whether Appellant No. 1 was involved in clandestine clearance/undervaluation of laminated spring leaves. The department's case was based on data retrieved from Pen drives seized from the residence of Appellant No. 2, alleged to be the Sales Ledger of Appellant No. 1. The Tribunal found that the seized Pen drives were not sealed properly, and the retrieval of data was not done in conformity with mandatory conditions and safeguards. The Tribunal emphasized that the charge of clandestine manufacture and clearance is a serious charge that must be established with positive, affirmative, and tangible evidence. The Tribunal concluded that the revenue authorities failed to discharge the burden of proving clandestine clearance or undervaluation with cogent and clinching evidence.2. Admissibility of Computer Printouts as Evidence:The Tribunal examined whether the computer printouts relied upon by the department were admissible as evidence. It was found that the requirements of Section 36B(2) & (4) of the Central Excise Act, 1944 were not complied with. The printouts were not produced by a computer used regularly to store or process the information during the period in dispute, and a certificate required under Section 36B(4) was not obtained. The Tribunal cited the Supreme Court's decision in Anwar P.V. Vs. P.K. Basheer, which emphasized the necessity of complying with Section 65B of the Evidence Act for the admissibility of electronic records. The Tribunal concluded that the computer printouts could not be held to be admissible evidence.3. Reliability of the Sales Ledger:The Tribunal found that the Sales Ledger could not be relied upon because none of the entries matched with the Central Excise Sales Invoices. The Appellant No. 2 had categorically stated that the sales ledger printed from the pen drives was not true and correct. The Tribunal noted that the sales ledger was not corroborated by any independent evidence establishing clandestine manufacture or clearance. The Tribunal concluded that the sales ledger could not be used to allege clandestine removal in the absence of any other cogent evidence.4. Legality of Search, Seizure, and Recording of Statements:The Tribunal found several errors in the process of search, seizure, and recording of statements. The laptop and pen drives were neither sealed nor were signatures obtained from the persons present during the seizure. The search in the factory was carried out in the absence of panchas, who were called only subsequently to sign the panchnama. The Tribunal referred to the Circular dated 1st December 2015, which mandates packing and sealing in the presence of the person from whom the items are seized and two independent witnesses. The Tribunal concluded that the process of search, seizure, and recording of statements was vitiated by errors of law.5. Validity of the Statements of Appellant No. 2:The Tribunal found that the statements of Appellant No. 2 could not be relied upon for several reasons. The statements were retracted, and it is a trite law that delay in retraction cannot be a ground for disregarding the same. The statements were contradictory and not admitted in evidence in accordance with the procedure prescribed under clause (b) of Section 9D(1) of the Central Excise Act. The Tribunal also noted that the statements were not voluntary and were taken under the influence of sleep. The Tribunal concluded that the statements of Appellant No. 2 could not be relied upon as evidence.6. Imposition of Penalty under Rule 26 of the Central Excise Rules:The Tribunal found that the imposition of penalty upon Appellant No. 2 under Rule 26 of the Central Excise Rules, 2002 was unsustainable. The Tribunal referred to the decision in Wilson Paper Mills P Ltd. vs. CCE & ST, Rajkot, which held that penalty under Rule 26 cannot be imposed without cogent evidence. The Tribunal concluded that the penalty imposed on Appellant No. 2 was unsustainable.Conclusion:The Tribunal set aside the impugned order and allowed both appeals with consequential relief, if any. The Tribunal concluded that the charge of clandestine removal/undervaluation could not sustain on the basis of the Pen drive data alone, especially when the printouts were not obtained in compliance with the mandatory conditions of Section 36(2) & (4) of the Central Excise Act.