2022 (12) TMI 901 - AT - Central Excise

Appellate Tribunal overturns penalties in clandestine goods case, stresses need for concrete evidence

The Appellate Tribunal CESTAT New Delhi set aside the order confirming demand and penalties against manufacturers/traders accused of clandestine removal ... Clandestine removal of excisable goods - MS Ingots - third party evidence can be the proof for the allegations or not - presumptions and assumptions - HELD THAT:- The appellants herein M/s. Pankaj Ispat Limited and its Director Shri Pankaj Agrawal are also the manufacturers of the same product. Same allegations based on the same documents of the above mentioned case have been used against both these appellants. Apparently and admittedly, no search was conducted in the premises any of these two appellants. The extract of the relevant statement of Shri Pankaj Agrawal dated 06.06.2016, it is perused that there is absolute denial of Shri Pankaj Agrawal about the documents recovered from M/s. Amit Steels and also about the statement given by its proprietor Shri Narendra Agrawal. Further perusal makes it clear that the allegations of the department against the appellant arose only because of the reason that Shri Narendra Agrawal in his statement dated 07.04.2015 had stated that word “Vikki” stands for M/s. Pankaj Ispat Limited. There are no document in any of these appeals which may corroborate the said statement of Shri Narendra Agrawal or such other document which sufficiently proves that “Vikki” stands for M/s. Pankaj Ispat Limited from no stretch of imagination there seems any correlation between the two - the findings by the Adjudicating Authority below for confirming the allegations of clandestine removal of finished goods (TMT Bars and MS Ingots) by M/s. Pankaj Ispat Limted are without any basis and cogent evidence. The only evidence is third party evidence. No efforts were put by the investigating team to seek corroboration from the documents of M/s. Pankaj Ispat Limited. The confirmation of demand and of allegations on third party evidence is highly unacceptable. There has been catena of decisions wherein it has been held that third party evidence has no evidentiary value and that the same is not at all admissible in law. As far as the proof of allegations of clandestine removal is concerned, it has been a settled law that such grave allegations cannot be confirmed merely on the third party evidence. There otherwise should be clinching evidence about nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. The investigating team would have put some efforts to seek corroboration of the documents recovered from the premises of M/s Amit Steels, had at the stage of investigation itself search in the premises of various manufacturers, raw material providers, transporters etc. would also been conducted and had the persons who were recorded at the stage of investigation would have been produced before the Adjudicating Authorities as well, there could be the evidence to support the department’s investigation at least the appeals of the manufacturers/traders would not have been allowed for the lack of evidence. Departmental authorities are therefore directed to take the cogent steps to formulate certain guidelines for their investigating teams with respect to the compliance of mandatory provisions as that of Section 9D of Central Excise Act and Section 138 B of Customs Act, 1962. Appeal allowed. Issues: Allegations of clandestine removal of finished goods, Confirmation of demand and penalty, Reliance on third-party evidenceThe judgment by the Appellate Tribunal CESTAT New Delhi involved the disposal of three appeals concerning the allegations of clandestine removal of finished goods, confirmation of demand and penalty, and reliance on third-party evidence. The appellants, engaged in manufacturing Iron & Steel products, were accused of clandestine removal of goods with the aid of a trading entity. The investigation revealed incriminating documents and statements, leading to a show-cause notice for duty recovery and penalties. The appellants contested the allegations, citing lack of incriminating evidence and reliance on third-party evidence. The Department argued that the search was conducted at the premises of the trading entity, indicating their involvement in the scheme.The Tribunal analyzed the evidence and arguments presented. It noted that the allegations against the appellants were based on statements and documents obtained during the investigation. The appellants denied involvement, emphasizing the insufficiency of evidence directly linking them to the clandestine activities. The Tribunal highlighted the importance of corroborative evidence and the inadmissibility of third-party evidence in establishing clandestine removal. It referenced legal precedents emphasizing the need for tangible evidence to support such serious allegations. The Tribunal found the confirmation of demand and penalties based solely on third-party evidence unacceptable and lacking a legal basis.Regarding the reliance on third-party evidence, the Tribunal emphasized the necessity of concrete evidence to support allegations of clandestine removal. It cited previous judgments highlighting the investigative lapses and the failure to collect essential evidence. The Tribunal concluded that the confirmation of allegations against the appellants lacked a factual basis and failed to comply with mandatory statutory provisions. The Tribunal also noted the lack of differentiation in the evidence against one of the appellants, leading to the dismissal of penalties imposed on them.In the final decision, the Tribunal set aside the order under challenge, allowing the appeals of the manufacturers/traders. It directed the departmental authorities to establish guidelines for investigating teams to ensure compliance with mandatory provisions. The judgment highlighted the importance of thorough investigations and the requirement for substantial evidence to support allegations of clandestine activities.---