Tribunal overturns confiscation order due to lack of evidence, emphasizes procedural compliance

The Tribunal set aside the order confiscating raw materials, finished, and semi-finished goods, and penalties imposed on the appellants. The confiscation was deemed unjustified as it relied on presumptions without sufficient evidence. The department's failure to comply with statutory provisions under the Central Excise Act, 1944, and Customs Act, 1962, was highlighted. The burden of proof for allegations of clandestine removal was not met, leading to the Tribunal allowing the appeals and emphasizing the importance of following proper procedures during investigations and adjudications.

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Issues Involved:
1. Confiscation of raw materials under Rule 25 of Central Excise Rules, 2002.
2. Confiscation of finished and semi-finished goods.
3. Allegations of clandestine removal of goods.
4. Compliance with Section 9D of Central Excise Act, 1944, and Section 138B of Customs Act, 1962.

Issue-Wise Detailed Analysis:

1. Confiscation of Raw Materials under Rule 25 of Central Excise Rules, 2002:
The appellant argued that the confiscation of raw material is beyond the statutory provisions of Rule 25 of Central Excise Rules, 2002, which do not cover confiscation of raw material. The Tribunal examined Rule 25 and concluded that it pertains to excisable goods, i.e., goods manufactured by the assessee. Since raw material cannot be considered as goods manufactured by the assessee, it is beyond the scope of confiscation under Rule 25. The Tribunal supported this conclusion with precedents, including the decisions in Mohit Rollers P Ltd vs CCE, Delhi II and K K Sales vs CCE, Delhi II, which held that there is no provision for confiscation of raw material that has not been accounted for. Consequently, the order confiscating the raw material was set aside.

2. Confiscation of Finished and Semi-Finished Goods:
The department's presumption that the goods were unaccounted for and intended for clandestine removal was the basis for confiscation. However, the Tribunal observed that the only evidence presented by the department was the statements recorded during the investigation and the Panchnamas drawn during the search. The Tribunal noted that statements made before the Investigating Officer have no evidentiary value unless taken under oath, as mandated by Section 9D of the Central Excise Act, 1944. The Tribunal cited the decision in CIT v Dhingra Metal Works and J V Strips Ltd. vs CCE, Rohtak to support this view. The Tribunal further stated that mere shortages or unaccounted goods found in the premises are insufficient to prove clandestine removal without tangible evidence, such as excess production details, raw material purchases, dispatch particulars, sale proceeds realization, and power consumption. The Tribunal concluded that the department failed to provide sufficient evidence to justify the confiscation of finished and semi-finished goods, and thus, the order was based on presumptions and assumptions. The confiscation of these goods was also set aside.

3. Allegations of Clandestine Removal of Goods:
The department alleged that the appellant adopted dubious methods for organizing their manufacture, procurement of raw material, and clearance of goods to evade central excise duty. The Tribunal observed that the department's allegations were based on the presumption that the goods found during the search were intended for clandestine removal. However, the Tribunal emphasized that the department failed to provide concrete evidence to support these allegations. The Tribunal reiterated that the burden of proof lies with the department to establish clandestine removal with substantial evidence, which was not met in this case. The Tribunal found the allegations of clandestine removal to be unjustified and unsupported by evidence.

4. Compliance with Section 9D of Central Excise Act, 1944, and Section 138B of Customs Act, 1962:
The Tribunal noted that the departmental investigating and adjudicating agencies did not comply with the mandatory statutory provisions of Section 9D of the Central Excise Act, 1944, and Section 138B of the Customs Act, 1962. The Tribunal emphasized that statements recorded during the inquiry or investigation are not relevant for proving the truth of requisite facts during prosecution unless these provisions are followed. The Tribunal urged the department to establish guidelines to ensure compliance with these provisions to avoid rendering the efforts of the investigating team futile.

Conclusion:
The Tribunal set aside the order passed by the Commissioner (Appeals) that ordered the confiscation of raw materials, finished goods, and semi-finished goods, and imposed penalties on the appellants. The Tribunal allowed the appeals, concluding that the confiscation orders were based on presumptions and assumptions without sufficient evidence. The Tribunal also highlighted the need for the department to comply with statutory provisions during investigations and adjudications.

(Pronounced in the open court on 21.09.2022)

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