Custom, Excise & Service Tax Tribunal
Rajputana Stainless Ltd vs Vadodara-Ii on 5 October, 2023
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH- COURT NO. 3
Excise Appeal No. 10077 of 2023 - DB
(Arising out of OIO-VAD-EXCUS-002-COM-015-21-22 dated 14/03/2022 passed by
Commissioner of Central Excise, Customs and Service Tax-VADODARA-II)
RAJPUTANA STAINLESS LTD ........Appellant
213 Madhwas Halol Kalol Road Taluka Kalol
Panchmahal
Panchmahal, Gujarat
VERSUS
C.C.E. & S.T.-VADODARA-II .......Respondent
1st Floor... Room No.101, New Central Excise Building, Vadodara, Gujarat - 390023 WITH Excise Appeal No. 10949 of 2022 - Shankar D Mehta Excise Appeal No. 10434 of 2022 - Jayantibhai M Sanghavi Excise Appeal No. 10435 of 2023 - Mohd. Rafiq Aziz Shaikh Excise Appeal No. 10436 of 2023 - Sachin G Shah APPEARANCE:
Shri H.G Dharmadhikari & Shri D.A Bhalerao, Advocates for the Appellant Shri Prabhat K Rameshwaram, Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C.L MAHAR Final Order No. A/ 12211 - 12215/2023 DATE OF HEARING: 10.08.2023 DATE OF DECISION: 05.10.2023 RAMESH NAIR The Appellants, namely, M/s Rajputana Stainless Ltd. and Shri Shri Shankar Lal Deep Chand Mehta, Director, Shri Sachin G Shah, Dispatch Clerk, Shri Jayantibhai M Sanghvi, Marketing Executive and Shri Mohammad Rafiq Abdul aziz Shaikh are in appeals against the impugned Order -In-Original No. VAD-EXCUS-002-COM-015-21-22 dated 14.03.2022 wherein demand of central excise duty has been confirmed against M/s. Rajputana Stainless Ltd
2|Page E/10077/2023, E/10949, 10434-10436/2022 along with interest and penalties on the charge of clandestine removal of manufactured goods and penalty was also imposed on all the appellants.
1.2 The brief facts of the case are that M/s Rajputana Stainless Ltd. are engaged in the manufacture of Stainless Steel Billets, Bright Bars, Rounds, Flats etc. and registered with the central excise department. A search was conducted on 02.12.2015 by the Directorate of Income Tax (Investigation) at the office, factory premises and residence of Director and various key persons of the Appellant and certain incriminating documents/ records were withdrawn for further investigation by the Income Tax Department. Evidences of unaccounted sales were found in data files of 'Tally Software and Visual Udyog Software. Further, certain loose papers and diaries were found and seized which contained the quantitative details of all materials entering and leaving the factory premises. The Income Tax Authorities shared the information and unaccounted sales, purchase and production in the form of soft copies of data of Tally & Visual Software, the scanned copies of the loose papers and diaries seized by the Income Tax Department at various premises and photocopies of the Panchnama and statements recorded by the Income Tax Authorities. The Central Excise Department followed up with further enquiry, by recording the statements of key person of Appellant and examined the documents and data files etc. shared by the Income Tax Department. On conclusion a detail show cause notice was issued to the appellant proposing demand of central excise duty on account of alleged clandestine clearances of the goods along with interest and penalty. The case was adjudicated by the Ld. Commissioner vide impugned order, who confirmed the demand towards Central Excise duty as proposed in the show cause notice on M/s. Rajputana. He imposed equal amount of penalty on the company and penalties of on Shri Shankar Deepchand Mehta Director of the company, Shri Sachin G Shah, Dispatch Clerk, Shri Jayantibhai M Sanghvi, Marketing Executive and Shri Mohammad Rafiq Abdul Aziz Shaikh, Authorized person of M/s. KGN Transport. Aggrieved with the said impugned order, the Appellants are before us.
3|Page E/10077/2023, E/10949, 10434-10436/2022
2. Shri H.G. Dharmadhikari, Learned Counsel with Shri D.A. Bhalerao, Learned Advocate appearing on behalf of the Appellants submits that the central excise department has not carried out any detailed investigation;
rather they have utilized the material forwarded by the income tax authorities vide their letter dated 30.11.2016. The department has only recorded the statements of some persons and thereafter, impugned show case notice was issued. Thus, the investigation carried out by the Central Excise Department is limited to the aforesaid points which have not been further extended by carrying out visit to the factory in order to ascertain the production capacity qua the documents and records maintained by the Appellant with respect of the production. The income tax search and investigation was with respect to the escape of income and not escape of production quantity. The taxing event for income tax is 'income' which includes the trading income, income from speculation etc. whereas the taxing event for the excise duty is on the activity of manufacture. Hence the income tax department's investigation was not for evasion of excise duty so as to solely use that information to issue the impugned Show Cause Notice. It is settled proposition of law that levy of Central Excise Duty is on the activity of manufacture and therefore, in case of clandestine removal it is essential to establish the clandestine manufacture. It is settled law that the income tax investigation cannot be solely relied for alleged evasion of Excise Duty. He placed reliance on the following decisions:-
Ravi Foods Pvt. Ltd. Vs. CCE - 2011 (266) ELT 399 (Tri. Bang.) CCE Vs. Zoloto Industries - 2013 (249) ELT 455 (Tri. Del)
2.1 He further submits that in the impugned order which is based on the demand as calculated in the Annexure A to the show cause notice, on the 92,352.04 MT. quantity alleged to have been removed without payment of duty. Whereas, the Appellant has recorded its production in statutory records in from of RG-1 for the disputed period which is 74,741MT. In order to sustain the demand of duty on the alleged quantity of final goods manufactured and
4|Page E/10077/2023, E/10949, 10434-10436/2022 cleared clandestinely, it is essential whether the Appellant has capacity to produce the total quantity of recorded production on which duty is paid plus the quantity of allegedly clandestine removal. The appellant does not have the capacity to manufactured aforesaid quantity of 1,67,093.04 MT (92,352.04MT + 74741 MT.). In support of this, he produced the certificate of Chartered Engineer.
2.2 He argued that it is impossible to manufacture alleged quantity of clandestine removal of 92,352.04 MT as alleged in the impugned order based on the show cause notice. Thus, the department has not established the production capacity of the appellant to support their allegation. The Learned Commissioner has placed reliance of ER-7 without considering the idle time of plant on account of power cut etc. whereas the Chartered Engineer has considered the optimum capacity of production on the basis of idle time after visiting to the plant and observing the production to two batches. Without prejudice, even if the installed capacity of 40,000/- MT per annum as mentioned in ER-7 Return which is full year working considering the staggering of five working days per month works out to 60 days per annum the available production capacity works out to 33,000/- MT per annum which is theoretical but considering that as it is the production capacity for the period of three years three months works out to 1,07,250 MT. whereas to support the total quantity of 1,67,093.04 MT there is shortfall of almost 60,000MT therefore, this theoretical calculation also does not support the allegation of clandestine manufacture and supply. Moreover the Gujarat Pollution Control Board has issued the consent to operate the plant is only for 20,000/- MT Per annum. Therefore, there cannot be any excess production as alleged in the impugned order. In support of above arguments, he relied upon the following judgments:-
CCE Vs. Jindal Nickel & Alloys Ltd. - 2020(371)ELT 661 (Del) Ashutosh Metal Industries Vs. CCE - 2018(15)GSTL 384 (Tri.)
5|Page E/10077/2023, E/10949, 10434-10436/2022 Rajputana Steel Casting Pvt. Ltd. Vs. CCE - 2017(346) ELT 491 (Tri. Ahmd.) Nabha Steel Ltd. vs. CCE - 2006(344) ELT 561 (Tri. Chan.) Hingora Industries Pvt. Ltd. Vs. CCE -2015(325) ELT 116 (Tri. Ahmd.) Aum Aluminum Pvt. Ltd. vs. CCE - 2014(311) ELT 354 (Tri. Ahmd.) 2.3 He also submits that it is settled proposition of law that to establish the clandestine manufacture and removal of goods an evidence of excess procurement of raw material, additional consumption of power and manpower needs to be adduced, whereas, while conforming the impugned demand and while issuing the show cause notice these essential ingredients are not brought on record. In the case of appellant as per the certificate of chartered Engineer the requirement of raw material is to the extent of 1.10 MT. for production of finished goods of 1 MT. Therefore, to produce the 92,352.04 alleged clandestine manufacture and clearance of the goods the requirement of additional raw material is to the tune of 1,01,587 MT. whereas, traded raw material quantity in cash is only to the tune of 36MT. Therefore, there is not an iota of evidence qua the additional procurement of raw material adduced by the department. There is not a single evidence with respect to additional power consumption or additional consumption of manpower adduced in the show cause notice. Without establishing the essential ingredients by the revenue, the impugned demand of clandestine manufacture and clearance of finished goods is untenable. He placed reliance on the following judgments:-
Continental Cement Company vs. Union of India- 2014(309) ELT 411 (All.) Sunrise Foods Products vs. CCE - 2017 (357) ELT 599 (Tri. Del) Rajputana Steel Castings Pvt. Ltd. vs. CCE - 2017 (346) ELT 491 (Tri. Ahmd.) 2.4 He further submits that the department has issued the impugned show cause notice which is not satisfying the essential ingredients of fair investigation and impugned order has failed to consider the valid evidence in form of VAT Check Post report obtained under RTI by the Appellant and
6|Page E/10077/2023, E/10949, 10434-10436/2022 adduced by the Appellant and the investigation has purposefully not relied upon the statements of buyers whose name appearing on the cancelled invoices, even though drawn under the provisions of Section 14 of Central Excise Act, 1944. Hence the impugned order is suffering from the vice of unfair trail. In case, the demand is based on the cancelled invoices drawn from visual udyog excise software on which the name of buyers were appearing. The department has recorded the statements of those buyers under Section 14 of the Central Excise Act, 1994 which revealed that the goods under those invoices were not received by those buyers and on the said date the truck shown in those cancelled invoices has not passed the VAT check post on way of Mumbai and those invoices were shown to have been issued in favour of buyers situated at Mumbai. In addition to the aforesaid evidence, the appellant also adduced the information collected under RTI from Gujarat VAT Check Post Authorities showing the consignment which has passed through the said check post in the said report the aforesaid cancelled invoices as well as invoices stated in para 6.2.3 of the show cause notice has not passed through the VAT Check Post exhibits non-movement/clearance of goods. The original adjudicating authority has not considered the said submission and evidences, hence the impugned order is suffering from the vice of unfair trail and pre-
determined state of mind of original adjudicating authority. 2.5 He also submits that in the cross-examination of the Director Shri Shankar Mehta it is established that no clearance has been effected from the appellant company without excise invoice and without payment of excise duty. He also further confirmed that the raw material which was purchased was through banking channel and purchase of scrap which was made by cash is for the trading activity. In the cross -examination of Shri Sachin Shah it was also established that the final product cleared from the factory is strictly under the cover of central excise invoices. Further, material which is going out of the State of Gujarat form 402 under the State VAT Act is given with the
7|Page E/10077/2023, E/10949, 10434-10436/2022 consignments which are recorded by the VAT Check Posts at Gujarat Borders. In the statements of transporters for cancelled invoices, they have categorically stated that the goods were loaded and subsequently unloaded on account of cancellation of orders from buyers. They also submitted the VAT Form 402 when the goods are going out of the Gujarat State. The cross - examination of Mr. Dhwanil Shah establish that he has not destroyed any invoices after dispatch of goods. Thus the aforesaid cross examination clearly established that there was no clandestine manufacture or clearance of goods, moreover the information collected under the RTI from VAT Check Post established that all the goods which are cleared and accounted are appearing in the records of VAT Check post during the period of April 2012 to June 2015. All these materials has been submitted before the adjudicating authority but were not considered by him. Therefore impugned order is not sustainable. He placed reliance on the following judgments:
CCE Vs. Adinath Dyeing & Finishing Mills Ltd. - 2017(357) ELT 845 (Tri. Chen) Ganpati Rolling Pvt. Ltd. Vs. CCE - 2015(315)ELT 91 (Tri.- Del) Resham Petrotech Ltd. Vs. CCE - Final Order dated 14.08.2019 passed in Appeal No. E/1421/2011 2.6 As regard the personal penalty imposed under Rule 26 of Central Excise Rules on co-appellants he submits that there is no iota of evidence adduced by the department that such a quantity of alleged clandestine removal can be manufactured by the company and therefore, when the goods are not manufactured itself the question of levy of excise duty does not arise. In such case the allegation for imposition of personal penalty which pre-supposes the goods should be liable for confiscation and when the goods do not exist which are liable for duty, question of l confiscation of goods does not arise. Therefore the penalty under Rule 26 of Central Excise Rules, 2002 is not imposable. He placed reliance on the following judgments:-
8|Page E/10077/2023, E/10949, 10434-10436/2022 Giriraj Iron steel Company Pvt. Ltd. vs. CCE - 2019 (370) ELT 1649 (Tri.
All.) Air Carrying Corporation Pvt. Ltd. vs. CCE - 2008 (229) ELT 80 (Tri. Mumbai ) 2.7 Learned Counsel for the appellant, post hearing submitted a rejoinder on 21.09.2023 and the same also been considered.
3. On the other hand Shri Prabhat K Rameshwaram, the Learned Commissioner (AR) reiterated the finding of the impugned order. At post hearing learned AR submitted a synopsis dated 01.09.2023 wherein he relied upon the following judgments:-
Order No R/SCA No. 18548 of 2021 dtd. 13.01.2022 - Hon'ble High Court of Gujarat 2004 (172) ELT 433 (SC) - CC, Kandla Vs. Essar Oil Ltd 2006 (202) ELT 561 (SC) Ispat Industries Ltd Vs. CC, Mumbai 2005 (184) ELT 263 (Tri-Bang) Gulabchand Silk Mills P Ltd Vs. - CCE, Hyderabad-11 2004 (165) ELT 136 (SC) - CCE, Madras Vs. Systems & Components P Ltd 2007 (208 ELT 536 (Tri-Ahmd) - Montex Dyg & Ptg Works Vs. CCE, Surat-1 2009 (248) ELT 242 (Tri-Mum) - Agrawal Overseas Corporation Vs. CC, (EP), Mumbai 2009 (233) ELT 157 SC-Vinod Solanki Vs. Union of India 2016 (340) ELT 521 (Tri-Del)-CCE, Chandigarh Vs. Vinay Traders 2013 (295) ELT 116 (Tri-Bang) - Ramachandra Rexins Pvt Ltd Vs. CCE, Bangalore-l 2017 (355) ELT 451 (Tri-Del) - Haryana Steel & Alloys Ltd Vs. CCE,New Delhi 2013 (297) ELT 561 (Tri-Chennai) - Lawn Textile Mills P Ltd Vs. CCE,Salem 2013 (289) ELT 3 (SC) Telestar Travels P Ltd Vs. Special Director of Enforcement 2015 (318) ELT 437 (Tri-Mum) (General), Mumbai PB Nair C& F P Ltd Vs. Cc General), Mumbai 2016 (333) ELT 256 (Del) - Rajesh Kumar Vs. CESTAT 1983 (13) ELT 1486 (SC) Kanungo & Co Vs. CC, Calcutta & Others
9|Page E/10077/2023, E/10949, 10434-10436/2022 2018 (15) GSTL 298 (Tri-Bang) - Paragon Steels P Ltd Vs. CCE,Calicut 2017 (347) ELT 413 (Bom) - Sharad Ramdas Sangle Vs. CCE, Aurangabad 2011 (269) ELT 485 (AP) - Shalini Steel Pvt Ltd Vs. CCE, Hyderabad 2018 (360) ELT 255 (AP) - Manidhari Stainless Wire P Ltd Vs. Unionof India 2010 (255) ELT 68 (HP) - CCE, Vs. International Cylinders P Ltd The above submission in the form of synopsis has been taken on record and considered carefully.
4. We have carefully considered the submissions made at length by both sides and perused the records. On perusal of the show cause notice, we find that the entire case started with the information received by the Central Excise authorities from the Income Tax Department regarding the unaccounted sales, purchase and production of goods in form of soft copies of the data of Tally and Visual Udyog Software, the scan copies of the lose papers and diaries seized by the income tax department and photocopies of the Panchnama and the statements recorded by the Income Tax authorities of persons namely Shri Shankarbhai Mehta, M.D., Shri Vikram Mehta Supervisor, Shri Sachin Shah working in dispatch sections of the accounts department & preparing the sales invoices and Shri Pravinchandra Shah. Further statements were recorded by the Central Excise authorities and on conclusion of the statements, a show-cause notice was issued to Appellant. We also observed that for calculation and demand of Central Excise Duty revenue considered the Tally as well as Visual Udyag software data shared by the Income Tax Department. However, it is seen that apart from recording the statements of some persons in the present matter no independent investigation has been carried out by the department. We observed that Department has not brought out any independent facts or evidence such as who is the buyers of clandestine removed goods, whether the transactions shown in the Tally Data and Visual Udyog Software data pertaining to actual removal of goods or otherwise and no corroborative evidence produced in support of details mentioned in the said 10 | P a g e E/10077/2023, E/10949, 10434-10436/2022 data. In the present matter clandestine removal of a huge quantity of 92,352.04 MT. valued at Rs. 5,10,02,81,112/- in respect of clandestine manufacture and removal of goods involved. However not a single rupee of unaccounted cash was found during the search conducted by the Income-tax. The Hon'ble Gujarat High Court in the matter of State of Gujarat v. Novelty Electronics - 2018 (16) G.S.T.L. 87 (Guj.) held that -
"14. In the opinion of this Court, the findings recorded by the Income Tax authorities during the course of search, could have been made a starting point for inquiry as regards the discrepancy in the physical stock and that shown in the stock register. However, the statement made by the dealer, ipso facto, could not have been the basis of an addition. Acting upon the findings recorded by the Income Tax authorities, the authorities under the Value Added Tax Act were required to make an independent examination into the facts before making the assessment. As noted hereinabove, the Commercial Tax Department had also searched the premises of the dealer and no discrepancies could be found in stock and the investigation report of the department had given a clean chit to the appellant. In these circumstances, the Tribunal was wholly justified in setting aside the order of the first appellate authority to the extent it had confirmed the demand which had no legal basis, and confirming the order to the extent it had reduced the tax liability imposed by the assessing authority. The second and third questions as proposed, therefore, also do not merit acceptance."
4.1 Without conducting the independent enquiry, the demand of Central Excise duty only on the basis of document/information/data provided by the Income-tax authorities by the Revenue legally not sustainable. The documents relied upon loses its evidentiary value in absence of any independent enquiry. As duty is payable on manufacture of the goods, Revenue have not come up with any positive evidence to show that the appellant has manufactured excisable goods and cleared without payment of duty. No evidence even regarding the excess purchase of the raw material, consumption of electricity, etc., had been adduced by the Department to substantiate the charge of clandestine removal of the goods. The particulars of the alleged 11 | P a g e E/10077/2023, E/10949, 10434-10436/2022 buyers/consignees of the goods given in the Tally and Visual Udyog Software data were not even verified by the department nor were their statements relied upon. In the absence of such evidence duty cannot be demanded from the appellant.
4.2 We find that the CESTAT in the case of Commissioner of Central Excise, Jalandhar Vs. Harcharan & Brothers 2004 (168) E.L.T. 454 (Tri. - Del.) supra held as under : -
"4. I have heard both the sides and gone through the record. The perusal of the record shows that the case has been built against the respondents for evasion of duty by clandestine removal of the goods during the period in dispute mainly on the basis of the documents seized by the Income Tax authorities from their different premises. No independent enquiry was carried out by the Department to ascertain if through the seized documents which included certain invoices and other records, any actual clearance of the excisable goods were effected by the respondents or not. No evidence even regarding the excess purchase of the raw material, consumption of electricity, etc., had also been collected by the Department to substantiate the charge of clandestine removal of the goods. The particulars of the alleged buyers/consignees of the goods given in the seized invoices were not even verified nor their statements were recorded during the investigation. The plea of the respondents that besides the manufacturing activities, they had income from their trading and marriage palaces, business was not considered by the adjudicating authority. Therefore, under these circumstances, in my view, the Commissioner (Appeals) has rightly observed that the charge of clandestine removal of the goods having been based on assumptions and presumptions and on the record, the correctness of which was never accepted by the respondents and not proved by the Department, cannot be sustained. He had rightly set aside the order-in-original vide which the adjudicating authority confirmed the duty demand and imposed penalty on the respondents. I do not find any illegality in the impugned order and the same is upheld. The appeal of the Revenue dismissed."
4.3 We also find that CESTAT in the matter of Kipps Education Centre, Bathinda v. C.C.E., Chandigarh - 2009 (13) S.T.R. 422 (Tri.-Del.), has held 12 | P a g e E/10077/2023, E/10949, 10434-10436/2022 that the income voluntarily disclosed before the income tax authorities could not be added to the taxable value unless there is evidence to prove the same. Further, relying on the above decision, the Tribunal vide Final Order No. 581/2010-SM(BR), dated 10-5-2010 passed in the case of C.C.E., Ludhiana v. M/s. Ramesh Studio & Colour Lab dismissed the appeal of the department on the issue of demand of Service Tax on the income surrendered to the income tax department. Similar view has been taken by the Tribunal in the case of C.C.E., Chandigarh v. Bindra Tent Service - 2010 (17) S.T.R. 470 (Tri.- Del.).The Tribunal in the case of Ravi Foods Pvt. Ltd. v. C.C.E., Hyderabad - 2011 (266) E.L.T. 399 (Tri.-Bang.) has held that admission by assessee to Income Tax department as regards undisclosed/suppressed sales turnover cannot be held to be on account of clandestine removal of their final products, in the absence of any other corroborative evidence. Similarly, in the case of C.C.E., Ludhiana v. Mayfair Resorts - 2011 (22) S.T.R. 263 (P&H), Zoloto Industries [2013 (294) E.L.T. 455 (Tri.-Del.)]; and Vardhman Chemtech Ltd. v. CCE, Chandigarh [2013 (298) E.L.T. 546 (Tri.-Del.)].it was held so. 4.4 We also noticed that in the present matter it is on the records that demand is based on the data files of Tally & Visual Udyog Software which was seized during the search by the Income Tax officers from the Hard Disc and Pen Drive seized from the residence of Shri Dhwanil P Shah contained the backup of Tally Data and Visual Udyog data maintained in computer at the factory premises of the appellant and the said data were shared by the Income tax authorities with Revenue. The Revenue heavily relied upon these Hard Disc and computer software data printout documents. The fact that the huge demands are made on the basis of the printout of Tally and Visual Udyog Software data not in dispute. In terms of Section 36B(1) of the Central Excise Act, 1944 a computer print out can be admissible only if the conditions mentioned in Section 36B(2) and other provisions of Section 36B are satisfied 13 | P a g e E/10077/2023, E/10949, 10434-10436/2022 in relation to the computer print out as well as in relation to the computer in question. Sub-section (2) of Section 36B is reproduced below :-
"The conditions referred to in sub-section (1) in respect of a computer print out shall be the following, namely :-
(a) the computer print out containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;
(b) during the said period there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement or of the kind from which the information so contained is derived;
(c) throughout the material part of the said period, the computer was operating properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and
(d) the information contained in the statement reproduced or is derived from information supplied to the computer in the ordinary course of the said activities".
4.5 The short point is that a computer print out would be admissible in evidence, only if the said print out was produced by the computer during the period over which it was used regularly to store or process information. In other words, the important point is that the print out should have been produced when the computer was in regular operation. In the present case, it is not in dispute that the print out relied upon by the revenue are shared by the Income tax authorities and obviously it was not produced during the period over which the computer was used regularly to store or process information. It is on records that tally data was taken from the Hard Disc. Thus the charge of clandestine removal based on the reconstructed or retrieved data will not in absence of strict compliance of Section 36B(2) of the Central Excise Act 1944 and prima facie such demand is not sustainable.
14 | P a g e E/10077/2023, E/10949, 10434-10436/2022 4.6 Further, Sub-section (4) of Section 36B requires issue of a certificate in this behalf by a person occupying the responsible official position in relation to the operation of the relevant device or the management of the relevant activity (whichever is appropriate) shall be evidence in any matter stated in the certificate and for the purpose of the sub-section, which shall be sufficient for a matter to be stated to the best of the knowledge and the belief of the persons stating it. In the present case, firstly the Central Excise department has not taken the data from the computer, moreover revenue has not stated that how the income tax officers took the print out of data stored in the computer and hard disc. It is on records that the officers had not obtained any certificate as required under Section 36B of the said Act. It is also noted that none of the conditions under Section 36B(2) of the Act, 1944 was observed. In such situation, it is difficult to accept the printout as an evidence to support the clandestine removal of the goods. It is noted that the requirement of certificate under Section 36B(4) is also necessary to substantiate the veracity of truth in the operation of electronic media. In the case of M/s. Premier Instrument & Controls Ltd. 2005 (183) E.L.T. 65 (Tri. - Chennai) (supra), the Tribunal has held that the printout of the personal computer of the company's officer, had not fulfilled the statutory condition laid down under Section 36B(2) of the Act and the demand is not sustainable. The relevant portion of the said decision is reproduced below : -
"9. On the demand of duty on waste and scrap, again the appellants have made out a strong case on merits. The demand covering the period November, 1993 to September, 1998 is based on certain computer printout relating to the period February, 1996 to September, 1998. These printouts were generated from a personal computer of Shri G. Sampath Kumar, a junior officer of the Company, whose statements were also recorded by the department. Admittedly, whatever facts were stated by Shri Sampath Kumar, in his statements, were based on the entries contained in the computer printouts. The statements of others, recorded in this case, did not disclose any additional fact. Therefore, apparently, what is contained in the computer printout is the only basis of the demand of duty on 15 | P a g e E/10077/2023, E/10949, 10434-10436/2022 waste and scrap. The question now arises as to whether these printouts are admissible as evidence, in this case. Ld. Sr. Counsel has pointed out that the computer print-outs did not satisfy the statutory conditions. He has referred to the relevant provisions of Section 36B of the Central Excise Act which deals with admissibility of computer printouts etc. as evidence and says that the statement contained in a computer printout shall be deemed to be a document for the purposes of the Act and the rules made thereunder and shall be admissible as evidence of the contents of its original, if the conditions mentioned in sub-section (2) and other provisions of the Section are satisfied in relation to the statement and the computer in question. Sub-section (2) reads as under : -
"2. The conditions referred to in sub-section (1) in respect of the computer printout shall be the following, namely : -
(a) the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly, carried on over that period by the person having lawful control over the use of the computer;
(b) during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;
(c) throughout the material part of the said period, the computer was in operation properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and
(d) the information contained in the statement reproduced or is derived from information supplied to the computer in the ordinary course of the said activities."
Ld. Sr. Counsel has argued that the above conditions were not fulfilled in respect of the computer printout taken from the personal computer of Shri Sampath Kumar. It appears from the statement of Shri Sampath Kumar and the averments in the memorandum of appeal that it is an admitted fact that Shri Sampath Kumar was the person having lawful control over the use of the computer. The computer was not shown to have been used regularly to store or process information for the purposes of any activities regularly carried on by the company. It was also not shown that information of the kind contained in the computer printout was regularly supplied by the Company to the personal computer of Shri Sampath Kumar in the ordinary course of activities. Again, it was not shown that, 16 | P a g e E/10077/2023, E/10949, 10434-10436/2022 during the relevant period, the computer was operating in the above manner properly. The above provision also casts a burden on that party, who wants to rely on the computer printout, to show that the information contained in the printout had been supplied to the computer in the ordinary course of business of the company. We find that none of these conditions was satisfied by the Revenue in this case. We have considered the Tribunal's decision in International Computer Ribbon Corporation v. CCE, Chennai (supra). In that case, as in the instant case, computer printouts were relied on by the adjudicating authority for recording a finding of clandestine manufacture and clearance of excisable goods. It was found by the Tribunal that the printouts were neither authenticated nor recovered under Mahazar. It was also found that the assessee in that case had disowned the printouts and was not even confronted with what was contained therein. The Tribunal rejected the printouts and the Revenue's finding of clandestine manufacture and clearance. We find a strong parallel between the instant case and the cited case. Nothing contained in the printouts generated by Sampath Kumar's PC can be admitted into evidence for non-fulfilment of the statutory conditions. It is also noteworthy that the computer printouts pertained to the period February, 1996 to September, 1998 only but the information contained therein was used for a finding of clandestine removal of waste and scrap for earlier period also, which, in any case, was not permissible in law. In the result, we hold that the entire demand of duty on waste and scrap is liable to be set aside."
4.7 In this context we also find that the Hon'ble Apex Court in case of M/s. Anvar P.V. v. P.K. Basheer - reported at 2017 (352) E.L.T. 416 (S.C.) has prescribed certain guidelines before accepting electronic documents as an admissible piece of evidence. The Apex court while dealing with Section 65B of the Evidence Act, 1872 (Pari materia to Section 36B of the Act,), observed as under :
"13. Any documentary evidence by way of an electronic record under the Evidence Act, in view of Sections 59 and 65A, can be proved only in accordance with the procedure prescribed under Section 65B. Section 65B deals with the admissibility of the electronic record. The purpose of these provisions is to sanctify secondary evidence in electronic form, generated by a computer. It 17 | P a g e E/10077/2023, E/10949, 10434-10436/2022 may be noted that the Section starts with a non obstante clause. Thus, notwithstanding anything contained in the Evidence Act, any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document only if the conditions mentioned under sub-section (2) are satisfied, without further proof or production of the original. The very admissibility of such a document, i.e., electronic record which is called as computer output, depends on the satisfaction of the four conditions under Section 65B(2). Following are the specified conditions under Section 65B(2) of the Evidence Act :
(i) The electronic record containing the information should have been produced by the computer during the period over which the same was regularly used to store or process information for the purpose of any activity regularly carried on over that period by the person having lawful control over the use of that computer;
(ii) The information of the kind contained in electronic record or of the kind from which the information is derived was regularly fed into the computer in the ordinary course of the said activity;
(iii) During the material part of the said period, the computer was operating properly and that even if it was not operating properly for some time, the break or breaks had not affected either the record or the accuracy of its contents; and
(iv) The information contained in the record should be a reproduction or derivation from the information fed into the computer in the ordinary course of the said activity.
14. Under Section 65B(4) of the Evidence Act, if it is desired to give a statement in any proceedings pertaining to an electronic record, it is permissible provided the following conditions are satisfied :
(a) There must be a certificate which identifies the electronic record containing the statement;
(b) The certificate must describe the manner in which the electronic record was produced;
(c) The certificate must furnish the particulars of the device involved in the production of that record;
(d) The certificate must deal with the applicable conditions mentioned under Section 65B(2) of the Evidence Act; and
(e) The certificate must be signed by a person occupying a responsible official position in relation to the operation of the relevant device.
15. It is further clarified that the person need only to state in the certificate that the same is to the best of his knowledge and belief. Most importantly, such a certificate must accompany the electronic 18 | P a g e E/10077/2023, E/10949, 10434-10436/2022 record like computer printout, Compact Disc (CD), Video Compact Disc (VCD), pen drive, etc., pertaining to which a statement is sought to be given in evidence, when the same is produced in evidence. All these safeguards are taken to ensure the source and authenticity, which are the two hallmarks pertaining to electronic record sought to be used as evidence. Electronic records being more susceptible to tampering, alteration, transposition, excision, etc. without such safeguards, the whole trial based on proof of electronic records can lead to travesty of justice.
16. Only if the electronic record is duly produced in terms of Section 65B of the Evidence Act, the question would arise as to the genuineness thereof and in that situation, resort can be made to Section 45A - opinion of examiner of electronic evidence.
17. The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if requirements under Section 65B of the Evidence Act are not complied with, as the law now stands in India.
18. It is relevant to note that Section 69 of the Police and Criminal Evidence Act, 1984 (PACE) dealing with evidence on computer records in the United Kingdom was repealed by Section 60 of the Youth Justice and Criminal Evidence Act, 1999. Computer evidence hence must follow the common law rule, where a presumption exists that the computer producing the evidential output was recording properly at the material time. The presumption can be rebutted if evidence to the contrary is adduced. In the United States of America, under Federal Rule of Evidence, reliability of records normally go to the weight of evidence and not to admissibility."
4.8 In the present matter undisputedly the above prescribed certain guidelines were not followed by the Revenue during the investigation of impugned matter before accepting electronic documents as an admissible piece of evidence. Upon perusal of the judgment of the Hon'ble Supreme Court in the case of Anvar P.V. (supra), we note that the Apex Court has categorically laid down the law that unless the requirement of Section 65B of the Evidence Act is satisfied, such evidence cannot be admitted in any proceeding. We note that the Section 36B of the Central Excise Act is pari materia to Section 65B of the Evidence Act. Consequently, the evidence in the form of computer printouts, etc., recovered during the course of investigation 19 | P a g e E/10077/2023, E/10949, 10434-10436/2022 can be admitted as in the present proceedings only subject to the satisfaction of the condition of Section 36B. This refers to the certificate from a responsible person in relation to the operation of the relevant laptop/computer. After perusing the record of the case, we note that in respect of the electronic documents in the form of computer printouts from the computer and other electronic devices have not been accompanied by a certificate as required by Section 36B. In the absence of such certificate, in view of the clear findings in the judgment of the Hon'ble Supreme Court (supra), the said electronic documents cannot be relied upon by the Revenue for confirmation of Central Excise Duty on the appellant. In the present case, the main evidence on which, Revenue has sought to establish the case of clandestine manufacture and removal of goods is in the form of the computer printouts taken out from the Computer and other electronic devices seized by the Income tax authorities and shared to the revenue in respect of which the requirement of Section 36B has not been satisfied. On this ground, the impugned order suffers from uncurable error and hence, we do not find any merits in the impugned order, in confirming the adjudged demands against the appellants. 4.9 In the impugned matter Revenue and Adjudicating authority has relied upon the statement of Shri Sachin Govindlal Shah, Shri Shankerlal D Mehta , Shri Pravinchnadra V Shah and Shri Vikram Shah recorded by the Income tax Authorities. In this regard we find that Section 132(4) of the Income-tax Act, 1961 provides as under :
"The authorized officer may, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery to other valuable articles or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income tax-Act, 1922 (11 of 1922), or under this Act."
20 | P a g e E/10077/2023, E/10949, 10434-10436/2022 4.10 We find that the above provision explicitly indicates that the evidentiary value of the statement recorded under Section 132 of the Income-tax Act is restricted and limited to the provisions of the income-tax and the same cannot be used or relied upon for any other purpose.
4.11 We also observed that in the present matter during the cross - examination, Shri Shankar Mehta, Shari Sachin Shah and Shri Dhwanil Shah and transporter clarified that no clearances has been effected from the appellant's factory without excise invoices and without payment of central excise duty. We also find that mere statements is not sufficient to establish charge of clandestine manufacture and removal of goods. The goods were clandestinely manufactured and cleared from the factory by the Appellant is a serious charges, which must be proved with tangible evidence beyond any doubt and not with circumstantial evidences. In the present case charge of clandestine manufacture and clearances of excisable goods was made against the Appellant. The said charges is not sustainable merely based on the oral statements that too are exculpatory and without corroborative evidence. 4.12 In cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained as per the statutory
records;
(b) instances of actual removal of unaccounted finished goods (not
inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
21 | P a g e E/10077/2023, E/10949, 10434-10436/2022
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. 4.13 We further find that in the case of Continental Cement Company (supra), 2014 (309) E.L.T. 411 (All.), the issue of clandestine manufacture and removal came up before Hon'ble Allahabad High Court wherein it has been laid down certain norms which are reproduced below :-
"12. Further, unless there is clinching evidence of the 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. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials have been
purchased?
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from regular
dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department."
4.14 We have seen in this case that the appellants have contended that Production Capacity of Factory does not support the case of the Revenue for 22 | P a g e E/10077/2023, E/10949, 10434-10436/2022 clandestine manufacture. As the Chartered Engineer Certificate to the said effect has been produced before us by the appellant wherein the Chartered Engineer has certified the production capacity of appellant considering the 25 days working in a month total monthly production can be achieved from 1800 MT. to 2100 MT. depending upon the raw material quantity. If the allegation of revenue related to the clandestine manufacture and removal of goods which is 92,352.04 MT. has taken as correct and appellant has recorded its production is statutory records in form of RG-1 for the disputed period which is 74,741 MT. considered then it indicates that total manufacturing quantity during the disputed period was 1,67,093.04 MT which is beyond the production capacity of appellant and which is not possible. In the present matter appellant also produced the Gujarat Pollution Control Board Certificate wherein the consent to operate the plant is only for 20,000 MT. per annum. The adjudicating authority has not given any credence to such evidences. We find that the production capacity of the appellants has not been considered by the revenue. The adjudicating authority conveniently ignored the undisputed installed production capacity of the plant in the factory of the appellant which is the vital fact to be considered to conclude whether alleged production is possible by the appellant. We also take note that in the present matter no statement of any transporters of raw materials or statement of any raw material supplier have been recorded to ascertain the unaccounted, if any, procurement of raw materials to support the alleged clandestine manufacture and removal of the goods. For this reason also the charges of clandestine removal is not established.
4.15 We also observe that in the present matter demand is based on the cancelled invoices drawn from Visual Udyog Software on which name of the Buyers were appearing. Though some of the buyers' statements were recorded but none of these buyers has admitted that they have received the 23 | P a g e E/10077/2023, E/10949, 10434-10436/2022 goods without payment of duty. Here it is pertinent to note that the revenue did not rely these Statements in the show cause notice. Further Appellant also produced the information collected under RTI from Gujarat VAT Check Post authorities showing the consignments which has passed through the said Check Post. However in the said Check Post report the consignments related to the aforesaid cancelled invoices and well as the disputed invoices has not passed through the VAT Check Post. On this vital documentary evidence also the Revenue's case that appellant have clandestinely removed the goods is not sustainable.
4.16 Without prejudice, we also find that the disputed entries made in the Tally Data and Visual Udyog Software may create doubt but it cannot take place of evidence. It is observed that the allegation of suppression of production and clandestine removal is a serious allegation and it has to be established by the investigation by affirmative and cogent evidence. CESTAT in the case of Sober Plastic Pvt. Ltd. v. CCE [2002 (139) E.L.T. 562 (T)] has held that demand based on weighment slips, slips recovered from Dharamkanta etc. relied upon for raising demand not verified with reference to transactions is not sustainable. Further, it is settled position of law that proof and evidence of purchase of raw materials and sell of final product clandestinely is necessary in to establish the allegation of suppression of production and clandestine removal of goods and that the allegation are to be proved with affirmative evidences. Tribunal in case of Emmtex Synthetics Ltd. v. CCE [2003 (151) E.L.T. 170 (Tri.) has held that the charge of clandestine removal has to be established by the revenue by adducing tangible, convincing and cogent evidences, CESTAT in the case of Esvee Polymers (P) Ltd. v. CCE [2004 (165) E.L.T. 291 (Tri.)] dealt with a case of alleged clandestine production and clandestine removal. The case was based on some private slips. The CESTAT observed that the mere slips or statement are not sufficient for confirmation of demand and allegation of clandestine removal. Evidence in 24 | P a g e E/10077/2023, E/10949, 10434-10436/2022 the form of receipt of raw material, shortages thereof, excess use of electricity excess/shortage of inputs in stock, flow back of funds, purchase of final products by parties alleging receipt and removal of goods etc. is necessary. CESTAT in the case of CCE v. Supreme Fire Works factory [2004 (163) E.L.T. 510 (Tri.) dealt with the allegation of clandestine manufacture and removal and observed that mere suspicion can not take place of proof. Proof and evidences of purchase of raw materials, sale of final goods clandestinely is necessary. The allegations are not sustainable in absence of evidences. CESTAT in case of CCE v. Shree Narottam Udyog (P) Ltd. [2004 (158) E.L.T. 40 (Tri.)] has dealt with the allegation of clandestine manufacture and removal of goods and held that settled law is that the charge of clandestine removal being a serious charge required to be proved beyond doubt on the basis of affirmative evidences. CESTAT in case of Jagatpal Premchand Ltd. v. CCE [2004 (178) E.L.T. 792 (Tri.) held that it is settled law whenever charge of clandestine removal made revenue has to prove assessee procured all raw materials necessary for manufacture of final product. The allegations are not sustainable if no investigation conducted by the revenue in respect of raw material essential for production of final goods and no evidence regarding removal of such final product brought on record by revenue. Similar view has been taken by the Tribunal in several other cases such as Jangra Engg. Works v. CCE [2004 (177) E.L.T. 364 (Tri.)], Premium Moulding & Pressing Pvt. Ltd. v. CCE [2004 (177) E.L.T. 904 (Tri.)], Vakharia Traders v. CCE [2004 (173) E.L.T. 287 (Tri.)], Nutech Polymers Ltd. v. CCE, Jaipur [2004 (173) E.L.T. 385 (Tri.)], CCE v. Sumangla Steels [2004 (175) E.L.T. 634 (Tri.)], CCE v. Sangamitra Cotton Mills [2004 (163) E.L.T. 472 (Tri.)], CCE v. Velavan Spinning Mills [2004 (167) E.L.T. 91 (Tri.)]. The ratio of these decisions is applicable in the instant case. Since the investigation has failed to adduce evidences to establish suppression of production and clandestine removal of the goods as discussed above and failed to discharge the onus to prove the allegations, the allegations are not sustainable. In view of the above 25 | P a g e E/10077/2023, E/10949, 10434-10436/2022 discussions, the allegation of clandestine removal of 92,352.04 MTs of finished goods is not established. Hence, the impugned demand of central excise duty is liable to be dropped for lack of evidences.
5. In view of the foregoing, we hold that the charges of clandestine removal against M/s. Rajputana Stainless Ltd. are not sustainable. Thus, we hold that the impugned order is not sustainable and we set aside the same. 5.1 Since we have held that there is no sustainable demand, consequential penalties on co-appellants are also set aside.
6. Accordingly, all the appeals are allowed with consequential relief, if any, as per the law.
(Pronounced in the open court on 05.10.2023) RAMESH NAIR MEMBER (JUDICIAL) C.L MAHAR MEMBER (TECHNICAL) geeta