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 ... Clandestine manufacture and clearance - under valuation - laminated spring leaves - Mismatch in the books of accounts and invoices - case of the department in the ‘SCN’ is that the difference in the sales value as appearing in the alleged Sales Ledger obtained from the seized Pen drives vis-à-vis the available Central Excise Invoices for the relevant period represents clandestine clearances - Existence of corroborative evidences or not - HELD THAT:- The manner in which the Pen drives were seized and the retrieval of data (printouts) from the Pen drives along with its evidentiary value has been strongly agitated by the Appellants. We find that the seized Pen drives were not sealed with paper seal or otherwise as evident from the Panchnama dated 3 August 2012 drawn at the residence of the Appellant No. 1. Such sealing should have been done in the presence of the persons before whom the pen drives were sealed and signatures should have been obtained on the paper seal/sticker as provided in the Circular dated 1st December 2015 so as to allay any possibilities of tampering. It is also forthcoming from the case records that most of the printouts from the Pen drives were taken after conclusion of Panchnama proceedings. There is considerable force in the contention of the Appellants that the computer printouts relied upon to uphold the charge of clandestine clearance were not obtained in conformity with the mandatory conditions and safeguards laid down in Section 36B(2) & (4) of the Central Excise Act, as these were not produced by a computer which was being used regularly to store or process the information during the period in dispute and Certificate referred to Section 36B(4) of the Central Excise Act was also not obtained. Even the statement of Appellant No. 2 could not be admitted as evidence being not in accordance with the procedure prescribed under clause (b) of section 9D(1)of the Central Excise Act. It is also found from the case records that the printouts from the Pen drives are neither co-relatable with the central excise invoices raised by the Appellant during the relevant period nor corroborated by any independent evidence establishing clandestine manufacture or clearance. No efforts have been made by the investigating agencies to establish the existence of any unaccounted manufacturing activity in the form of unaccounted raw material, shortage of stock, shortage of raw material/finished goods, excess consumption of electricity, unaccounted labour payments, interrogation of buyers/transporters or any incriminating record/document to suggest any flow back of cash etc. The revenue authorities in this case have failed to discharge the burden of proving the serious charge of clandestine clearance or undervaluation with cogent and clinching evidence. It has been consistently held that no demand of clandestine manufacture and clearance can be confirmed purely on assumptions and presumptions and the same is required to be proved by the revenue by direct, affirmative and incontrovertible evidence. The charge of clandestine removal/undervaluation cannot sustain on the basis of the Pen drive data alone more so when the printouts have not been obtained in compliance with the mandatory conditions of Section 36(2) & (4) of the Central Excise Act - Appeal allowed - decided in favor of appellant. 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.