Custom, Excise & Service Tax Tribunal
Sri Poovathal Polymers vs Madurai on 30 September, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
1. Excise Appeal No. 40326 of 2023
(Arising out of Order-in-Original No. MDU-CEX-COM- 03/2023 31.03.2023 passed by
Commissioner of CGST & Central Excise, Central Revenue Buildings, Bibikulam, Madurai - 625
002)
M/s. Sri Poovathal Polymers ...Appellant
Palani Road, Vedasandur,
Dindigul - 624 710.
Versus
Commissioner of GST and Central Excise ...Respondent
Madurai Commissionerate, Central Revenue Buildings, Bibikulam, Madurai - 625 002.
With
2. Excise Appeal No. E/40328/2023 (Flint Paper and Plastic Industry)
3. Excise Appeal No. E/40329/2023 (Sri Durga Plastics)
4. Excise Appeal No. E/40330/2023 (M. Bommanasamy)
5. Excise Appeal No. E/40331/2023 (B. Poovathal)
6. Excise Appeal No. E/40332/2023 (B. Karthik)
7. Excise Appeal No. E/40349/2023 (S.R. Polymers)
8. Excise Appeal No. E/40350/2023 (Sri Soundarajan Polymers)
9. Excise Appeal No. E/40352/2023 (M.B.S. Polymers)
10.Excise Appeal No. E/40353/2023 (MMJ Polymers)
11.Excise Appeal No. E/40354/2023 (Mookambika Polymers)
12.Excise Appeal No. E/40355/2023 (V. Rengaraj)
13.Excise Appeal No. E/40356/2023 (Sri Bommiyan Polymers)
14.Excise Appeal No. E/40357/2023 (R. Karthick)
15.Excise Appeal No. E/40358/2023 (Sri Vinayaga Polymers)
16.Excise Appeal No. E/40359/2023 (R. Pommanasamy)
17.Excise Appeal No. E/40360/2023 (V. Sivakumar)
18.Excise Appeal No. E/40361/2023 (K. Kannapan)
19.Excise Appeal No. E/40362/2023 (M. Kalaikumar)
20.Excise Appeal No. E/40363/2023 (S. Lingamuthu)
21.Excise Appeal No. E/40364/2023 (B. Vinodkumar)
22.Excise Appeal No. E/40365/2023 (M. Eswari)
23.Excise Appeal No. E/40366/2023 (Thangamani)
24.Excise Appeal No. E/40367/2023 (P. Muthusamy)
25.Excise Appeal No. E/40368/2023 (A. Senthilkumar)
26.Excise Appeal No. E/40377/2023 (Karthick Polymers)
27.Excise Appeal No. E/40378/2023 (Asthisangaraa Polymers)
28.Excise Appeal No. E/40379/2023 (Sridhar P. Partner Sri Durgaa Plastics)
29.Excise Appeal No. E/40380/2023 (Saravanakumar K. Partner Sri Durgaa Plastics)
30.Excise Appeal No. E/40575/2023 (G. Amsavalli) 2 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 APPEARANCE:
For the Appellants : Mr. S. Jaikumar, Advocate (Sl.Nos. 1-6 and 26-30 Mr. Hari Radhakrishnan, Advocate (Sl. Nos. 7-25) For the Respondent : Ms. Anandalakshmi Ganeshram, Authorised Representative CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL) HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) FINAL ORDER Nos. 41082-41111 / 2025 DATE OF HEARING : 21.08.2025 DATE OF DECISION : 30.09.2025 Per Mr. VASA SESHAGIRI RAO Sri Poovathal Polymers (SPP for short), and various other appellants listed above, are in appeal before us, against the Order-In-Original No.MDU-CEX-COM-09-2023 dated 05-04-2023 (Originally numbered as MDU-CEX-COM-
03-2023 dated 05-03-2023 and amended vide Corrigendum dated 31-03-2023), challenging the confirmation of the demand of differential duty, under Section 11A of the Central Excise Act (CEA for short), interest under Section 11AB of CEA and penalty under 11AC of CEA, and with respect to all other appellants listed above, against the imposition of penalties under Rule 26 of Central Excise Rules (CER for short).3
E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 1.1 The issue involved in this case is the clubbing of value of clearances among SPP and 11 other units, who were engaged in the manufacture and clearance of excisable goods, namely, polybags falling under Chapter Heading 3923 of Central Excise Tariff Act, 2005 (CETA for short). There is also a demand of Central Excise duty demanded on certain clandestine clearances alleged to have been effected by SPP during the dispute period, namely, March 2015 to June 2017.
2.0 The Ld. Advocates Shri S. Jaikumar and Shri M. Karthikeyan, assisted by Shri Paul Priyadarshan, appeared on behalf of the SPP and various other appellants and Shri. Hari Radhakrishnan, advocate on behalf appellants in Sl.Nos.
7-25 have argued the following on behalf of the appellants.
3.0 With respect to the allegation of clandestine removal of excisable goods, the Ld. Counsel has submitted that: -
i. Data retrieved from a pen drive seized from the residential premises of Shri. M. Bommanasamy (Partner in SPP) on 06-09-2017, which has been the basis of demand for the period March 2015.
ii. Consumption of electricity has been considered to demand for the period April 2015 till June 2017 and, 4 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 iii. Few statements recorded from the buyers of SPP.
3.1 With respect to the allegation based on the pen drive, the counsel would submit that, though a comprehensive reply was filed by the appellants with respect to the evidentiary value of the electronic evidence (pen drive) questioning its integrity, as well as, the compliance to legal prescriptions with respect of such electronic evidence, the adjudicating authority has brushed aside their defence without giving any cogent reasons. According to the counsel, to rely on electronic evidence in any Central Excise proceeding, such electronic evidence has to meet the requirements under Section 65B and Section 45A of Indian Evidence Act, 1872 and shall also be compliant of the protocols as per Section 36B of CEA. According to the counsel, in the instant case, neither of the above has been established either by the investigation or by the adjudicating authority and hence the same cannot be permitted as evidence, at the first place.
3.2 In support of his contention, reliance was placed on the decision of the Tribunal's case in the case M/s.
Geetham Steels Pvt. Ltd., [2025 (3) TMI 1098].
5E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 3.3 In this connection, they also referred to the records of the cross examination held before the adjudicating authority, wherein, the contents of the pen drive were disputed and negated by the buyers.
3.4 With respect to the quantification of demand based on electricity consumption for the period from April 2015 to June 2017, the counsel would submit that, it is a well settled legal position that, clandestine production cannot be alleged or confirmed merely based on the electricity consumption, as the Central Excise duty is on the manufacture of excisable goods and not based on any mathematical calculations. It was also argued that, whereas the electricity consumption could be one metric in the manufacturing process, there are many more crucial and critical factors to establish the manufacturing trial namely, purchase of raw material, manpower, production records, packing and transport, sale of finished goods and realisation of sale proceeds. In the instant case, the adjudicating authority has not attempted to establish any of the essential elements of manufacture to conclude clandestine production and clearance thereof, but has resorted only to power consumption to confirm differential duty.
6E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 3.5 It was further argued that, the adjudicating authority has solely based on the power consumption by SPP during the post-GST era and adopted the same for pre-GST era. While doing so, he has ignored the vital fact that, SPP were originally engaged in the manufacture of 2 varieties of poly bags, namely, one with virgin materials and the other one with reprocessed materials (RP). While the poly bags manufactured out of RP materials would be cheaper and intended for menial use such as tea shops, bakeries, etc., poly bags manufactured out of virgin material would be used for packaging in garment stores / grocery stores, etc. It is also a crucial factor that the value of RP poly bags would only be fraction of the poly bags made out virgin materials.
Further, post-2017, use of RP materials for the manufacture of poly bags was progressively restricted and subsequently banned, which led SPP to produce poly bags made of only virgin materials during post-GST period. Further, like induction furnaces in steel industry, the extruders in plastic industry also require a pre-heating to achieve the required heat before commencement of production of every batch.
Earlier, SPP would be running single shift and also would switch between RP poly bags and virgin poly bags, requiring stoppage of production batches and restart, which would require substantial consumption of electricity for pre-heat.
7E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 For the reasons stated above, post GST, as there is only singular production of virgin materials and due to continuous shifts and also usage of virgin materials as against reprocessed materials, power consumption tempered drastically down.
3.6 In this connection, reliance is placed on the landmark decision of the CESTAT New Delhi in the case of RA Castings (P) Ltd. reported in 2008 (6) TMI 197, wherein it has been categorically held that power consumption cannot be the basis for arriving at the manufacture.
3.7 Further reliance is also placed on the following decisions, wherein, it has been held that clandestine manufacture and clearance and consequential demand of duty has to be established through chain of events constituting manufacturing process.
a) Argasen Sponge (P) Ltd. reported in (2025) 26 CENTAX 141 (Tri.-Cal)
b) Balashri Metals (P) Ltd. reported in 2017 (345) E.L.T. 187 (Jhar.)
4.0 With respect to the allegation and confirmation of demand on account of clubbing of value of clearances 8 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 between SPP and other disputed units (DU for short), the counsels would submit that both the investigation, as well as, the adjudicating authority had proceeded to club the value of clearances and confirm the differential duty denying SSI Exemption on the following grounds, namely, i. Commonality of Infrastructure ii. Common workforce iii. Mutuality of interest iv. Interdependence between units and, v. Financial flowback 4.1.0 With respect to commonality of infrastructure, it was submitted that, it remains undisputed that both SPP as well as DUs existed and operated in separate and independent premises. That being so, it is only the allegation of the department that, rent has not been properly paid by the DUs to the respective premises owners in respect of the infrastructure leased out.
4.1.1 In this connection, various submissions made by SPP and DUs, are as follows that: -
a) Each unit is having separate land and building either in their own name or operated under a valid lease deed 9 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
b) Each unit is geographically located in different places or having separate boundary
c) Each unit is having separate machineries on their own
d) Each unit is having separate Electricity connection in their own name
e) Each unit purchased raw materials on their own account
f) Thus, each unit is having separate manufacturing premises
g) Each unit is having separate registration under Factories Act
h) Each unit is having separate licence from Pollution Control Board
i) Each unit is having separate Sales Tax/VAT and CST registration
j) Each unit is having separate PAN Number
k) Each unit is having separate SSI certificate
l) Each unit is having separate Bank Account
m) Each unit is having separate labour
n) Separate ESI /EPF registration, wherever required have not been considered by the adjudicating authority but he has proceeded only on the ground that, in respect of few DUs, the rent has been paid in cash which is not in 10 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 accordance with Income Tax provisions. Despite the fact that SPP and others have placed adequate proof and explanation in their reply to the SCN, the adjudicating authority has proceeded to ignore all of them to conclude that SPP and others are a singular entity, without placing on record any supporting evidence in this regard.
4.1.2 In this connection, the appellants have also established through their lease deeds as well as books of accounts that there has been payment of periodical rentals to their landlords which goes to prove the independent existence of SPP. The adjudicating authority has not disputed the above submission and given any finding on the same, has to be presumed as a tacit admission of the existence of independent infrastructure for all of disputed units.
4.1.3 In this regard, reliance is placed on the decision of CESTAT, Chennai in the case of Techno Device [2009 (243) E.L.T. 79 (Tri.)].
4.2.0 With respect to the allegation that there existed few common manpower between SPP and others, the counsels would submit that, there is no legal bar for sharing of resource talents would be a factor to deny existence of independent units and consequentially club the value of 11 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 clearances. In other words, alleged common workforce namely Shri. Kalaikumar, Shri. Senthilkumar and Smt. Thangamani have started their career with SPP, thereafter with passage of time, started their own manufacturing units in a small way. In doing so, they continued to be part time consultant workers both for their financial efficiency as well repayment of gratitude, which cannot be construed and implicated as a reason for denial of independent existence.
Further, neither any law nor the provisions of SSI Notification prohibit sharing of expert manpower as a reason to deny SSI Exemption. It is also an undisputed fact that, wherever the common resources were utilized, they were compensated from respective entities, which goes to prove the arm's length transactions.
4.2.1 The allegation that some of the units owned or partnered by the relatives of Shri. M. Bommanasamy, by no stretch of imagination can be construed to be a reason for clubbing of value of clearances. At the most, Shri. M. Bommanasamy can only be alleged for communal development.
4.2.2 In this regard, reliance is placed on the following decisions: -
12E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
a) Renu Tandon reported in 1993 (66) E.L.T. 375 (Rajasthan High Court)
b) Sushil Chemicals - 2008 (230) E.L.T. 117 (CESTAT, Bangalore) 4.3.0 With respect to the allegation regarding mutuality of interest, the counsels would submit that, by the very words of this expression, to allege mutuality of interest, there shall be 'mutuality'. 'Mutuality' by letter and spirit, is a two-way lane, where both the ends of the transaction should have interest and reap benefits. Applying to the case on hand, if mutuality of interest has to be alleged between SPP and others, the basic and fundamental requirement is to establish that there existed a vested interest between SPP and the other DUs, who are sought to be clubbed from both ends. The SCN as well as the O-in-O has only leaned towards the SPP terminal and tried to bring out beneficial interest at the hands of SPP. What has been comfortably ignored is that, a crucial and vital aspect that what is the interest / benefit can be attributed to the other end of the transaction in terminal, namely, DUs.
4.3.1 In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Electro Mechanical Engineering - 2008 (229) E.L.T. 321 (S.C) 13 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 wherein it has been held that clearances cannot be clubbed if there is no evidence on record to prove mutuality of interest.
4.4.0 With respect to the allegation that, there has been inter-unit transactions, the learned counsels would submit that the waste generated during the manufacturing process has been sold to the Reprocessing units, which is almost or above the market value. Similarly, all the purchases or sales, made between SPP and other DUs are either at par with the market value or many times, slightly on the higher side. The department has not placed any allegation that the sales transactions between SPP and DUs are either undervalued or privileged, in any manner, whatsoever. It only goes to prove the arm's length transaction between SPP and DUs and substantiate their defence that, they are independent and operate on principal-
to-principal basis.
4.4.1 In this regard, reliance is placed on the following decisions:
a) Kanchan Industries - 2005 (186) E.L.T. 302 (CESTAT, Delhi) upheld by Hon'ble Supreme Court in 2006 (195) E.L.T. A91 (S.C) 14 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
b) Balsara Hygiene Products Ltd. -2012 (278) ELT 526 (Tri.
Ahmd) upheld by the Hon'ble Supreme Court in 2015 (321) E.L.T. A146 (S.C) 4.5.0 Further, another allegation of the department to conclude that the non-existence of DUs, is that they were not able to establish financial wherewithal to procure the necessary machineries required for the manufacture. In this connection, the counsel would submit that all the DUs have established the source of capital and the purchase of machinery by providing relevant records and documents during the cross-examination before the adjudicating authority which has been given a go-by.
4.5.1 In this connection, the appellants submitted the following table to substantiate the source of funds / purchase of machinery either through bank loan or through their other legitimate income sources which have been reflected in their profit & loss account and balance sheets as evident from the Income Tax returns filed.
DETAILS OF ALL THE UNITS
Estab Rental Source
Type Of
lishm / Mach Of
Company Address Firm/Consti Land Building Electricity
ent Lease inery Investme
tution
Year Details nt
15
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E/40575/2023
R.S.1196/2C, Partnership:
1197/2C, 2B M.
Sri
Palani Road, Bommanasa 01.04. 05-274- Statement
Poovathal Own Own NA Own
Vedasandur. my 1994 001-233 of A/cs
Polymers
TIN:3327526122 B. Poovathal
3 B. Karthik
No.1/155, Flint
Nagar, Partnership:
Flint Paper & Ottanchathiram M.
01.04 O 05-274- Statement
Plastic Road, Bommanasam Own NA Own
.1992 wn 001-217 of A/cs
Industry Vedasandur, y
Dindigul- 624 710 B. Poovathal
TIN:33775260754
2/18, Palani
Karthik Proprietorship:
Road, Rs.
Polymers M. 06.01. 05-274- Statement
Vedasandur, Rent Rent 10,000 Own
(later Karthik Bommanasam 2014 001-787 of A/cs
Dindigul- 624 710 /-p.m
Traders) y
TIN:33095263165
Ayyanar Nagar,
20.01.
Palani Road, Rs:
Aathisangara Proprietorship. 2014 05-274- Statement
Vedasandur, Rent 10,000 Own
Polymers B. Poovathal till Rent 003-894 of A/cs
Dindigul -624 710 /-p.m
2019
TIN:33716255813
4/196A, Palani
Road, Near Bye
Mookambika
Pass Road, Proprietorship: Rs.
Polymers 06.01. 05-274- Statement
Vedasandur A. Rent Rent 10,000 Own
(only PP 2014 001-1055 of A/cs
Dindigul - 624 Senthilkumar /-p.m
bags)
710
TIN:33815265970
Partnership:
Flint Nagar,
M. Kalaikumar
Ottanchathiram Statement
S. Lingamuthu Rs.15,
MBS Road, Vedasandur 10.04. 05-274- of A/c
V. Sivakumar Rent Rent 000/- Own
Polymers Dindigul District 2009 001-890 Cash
P. p.m
624 710 Credit
Muthusamy,
TIN:33065264006
M. Eswari,
Partnership:
S.F.No.1266/2A, A.
Ayyappa Nagar, Senthilkumar,
Palani Road, K. Kannappan, Rs. Statement
MMJ 10.04. 05-274-
Vedasandur R. Karthick, Rent Rent 13,000 Own of A/c
Polymers 2009 003-685
Dindigul - 624 R. /-p.m Bank loan
710 Bommanasam
TIN:33155264005 y
V. Rengaraj
Sri 2/18, Palani
Soundararaja Road, Personal
Polymers Vedasandur, Proprietorship: 21.04. 15,000 Leas 05-274- savings
Lease Lease
(lease of Dindigul - 624 Thangamani 2016 /- p.m e 001-787 Statement
Karthik 710 of A/c
polymers) TIN:33646382731
196C, Palani
Rs.5,0
S.R. Road, Nagampatti Proprietorship: 06.01 05-274- Statement
Rent Rent 00/- Own
Polymers Post Vedasandur Kalaikumar .2014 001-885 of A/cs
p.m
Dindigul 624 710
Partnership:
S.No.1243/1B2, P. Sridhar,
Ayyanar Nagar, S.
Palani Road, Lingamuthu, Rs.14, Statement
Sri Durgaa 15.09. 05-274-
Vedasandur B. Karthik, Rent Rent 000/- Own of A/c &
Plastics 2014 003-895
Dindigul - 624 K. p.m Bank loan
710 Saravanakum
TIN:33096256833 ar
G. Amsavalli
16
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4/196D, Palani Partnership:
Sri Vinayaga
Road, A.
Polymers 21.04. 15,000 Leas 05-274- Statement
Vedasandur, Senthilkumar Lease Lease
(lease of 2016 /- p.m e 001-217 of A/c
Dindigul - 624710 B.
Flint)
TIN:33356385961 Vinodkumar
R.S.1196/2C,
Sri
1197/ 2C,2B
Bommiyan
Palani Road, Rs.15,
Polymers Proprietorship: 21.04. Leas 05-274- Statement
Vedasandur. Lease 000/-
(previously Kalaikumar 2016 Lease e 001-233 of A/c
Dindigul - 624 p.m
Shanmuga)
710
lease of SPP
TIN:33306252401
4.6.0 With the respect to another major allegation of
the Department to conclude that all the units are DUs of SPP is based on a finding that, there existed a financial flowback between DUs and SPP, post the purchase, the appellant submitted the following table to establish that the entire alleged financial transaction is only in nature of loans which are subsequently paid back to the respective vendors.
Repayment of Loan
SI. Firm Transferred from Transferred to Date of transfer Amount Date of Amount Interest
N repayment
o.
17.06.2019 to 3,64,500
30.07.2020 1,49,104
V. Sivakumar 30.07.2020
SPP 11.12.2018 450,000 63,604
Karthik traders 26.03.2019 470,000 30.07.2020 545,200 75,200
15.06.2019 to
1 MBS Polymers 3,54,000
S. Lingamuthu 30.07.2020
1,68,127
SPP 10.12.2018 450,000 30.07.2020 72,127
Karthik traders 26.03.2019 450,000 30.07.2020 522,000 72,000
M. Kalaikumar 10.12.2018 456,000
P. Muthusamy
SPP 26.03.2019 500,000
29.09.2020 670,000 Nil
SPP 31.03.2019 170,000
M. Kalaikumar
M. Kalaikumar 456,000
M. Easwari M. Kalaikumar 10.12.2018 456,000
SPP 26.03.2019 470,000 29.09.2020 470,000 Nil
17
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A. Senthilkumar
in the capacity of
MMJ Polymers -
09.06.202
Rs.4,60,000/- 22.03.2019 1,335,000 735,000 Nil
Aathisangaraa 0 to
Polymers 30.10.2022;
Mookambika Polymers
- Rs. 8,74,970
R. Bommanasamy SPP 25.03.2019 855,000 31.07.2020 986,000 131,000
06.04.2022 to
31.07.2022 2,03,600
2 MMJ Polymers Aathisangaraa 6,50,000
K. Kannapan 25.03.2019 850,000 3,600
Polymers 31.07.2022
V. Rengaraj Karthik Traders 25.03.2019 850,000 30.07.2020 986,000 136,000
09.06.2019 to 3,46,500
07.07.2020 6,18,216
R. Karthick SPP 26.03.2019 850,000 30.07.2020 114,716
(Bank)
(Bank)
Karthik Traders 29.03.2019 500,000 30.07.2020 to 51,200
B. Balasubramani Karthik Traders 03.04.2019 260,000 91,200
14.08.2020
M. Kalaikumar M. Kalaikumar 745,000
Karthik Traders 28.03.2019 500,000
05.10.2022 to 2,00,000
3 Sri Poovathal Poly 28.10.2022
M. Ramaraj 5,45,000
Bags Karthik Traders 04.04.2019 245,000 05.11.2022 745,000
R. Kohila Karthik Traders 28.03.2019 500,000 04.10.2022 to 2,00,000
22.10.2022
Karthik Traders 04.04.2019 245,000
A. Senthilkumar in
the capacity of
5,00,000
Sri Vinayaga Polymers 10.12.2018 12,85,000 30.07.2020
2,908
- 4,32,470 7,500
SPP 402,908
Mookambika Polymers 11.12.2018 7,500
12,00,000
4 Sri - 8,56,046 28.09.2020
Vinayaga
Polymers June 2019
to July
B. Vinodkumar SPP 10.12.2018 400,000 2020; 400,000 56,716
Interest
alone paid
June 2020
through
5 Mookambika A. Senthil Kumar Aathisangaraa 22.03.2019 1,335,000 tobank 735,000 Nil
Polymers Polymers October
2022;
4.6.1 Thus, the Ld. Counsel would submit that, all the
financial transactions are within the framework of law and the allegation and confirmation of the demand on this count needs to be set aside.
18E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 4.6.2 In this regard, reliance is placed on the decision of the CESTAT, Bangalore in the case of M/s. Agarwal Rubber Pvt Ltd. reported in 2009 (238) E.L.T. 336 (CESTAT, Bangalore).
4.7.0 Apart from the above, it was also argued that, out of the 11 DUs who are sought to be clubbed with SPP, M/s. Flint Paper and Plastic Industry (FPP) is also one. It is a fact on record that SPP came into existence in the year 1994, whereas FPP started its manufacturing operations in the year 1992 itself. It would be curious to comprehend an allegation that how a unit which existed since 1992 itself could be considered as a dummy creation of a unit (SPP) which came into existence much later. Assuming without admitting, if at all the department wanted to club the value of clearances with the principal unit, it should have been with FPP and not SPP. This irreparable rudimentary flaw goes to the root of the issue, which would render the entire proceedings void ab-initio on all fours, including logic, reason and legality.
5.0 The Ld. Advocate Shri Hari Radhakrishnan, who appeared for various co-noticees who are saddled with penalties under Rule 26 of CER would argue that, to impose a penalty under Rule 26 of CER, the prerequisite is that the 19 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 impugned goods should be held liable for confiscation at the first place. In the instant case, there is neither a proposal for confiscation in the Show Cause Notice nor is there any confiscation of any goods in the Order-In-Original. In the absence of same, it was argued that, imposition of penalty under Rule 26 on the co-noticee is fundamentally flawed and merits to be set aside.
6.0 The Ld. Authorized Representative Ms. Anandalakshmi Ganeshram has supported the findings of the adjudicating authority in the Order-In-Original.
7.0 We have heard both sides and perused the appeal records. The two main issues that arise for determination in these appeals are: -
i. Whether the clandestine removal alleged to have been effected by SPP based on the electronic evidences, namely, pen drive and consumption of electricity, is sustainable or not.
ii. Whether the clearances effected by the alleged principal unit, namely, SPP along with various other units, and consequential denying of SSI Exemption is legally tenable or not and, 20 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 iii. Whether penalty imposed on SPP and the disputed units and various partners is legally justified or not?
7.1 With respect to the allegation of clandestine clearances and subsequent confirmation of demand of differential Central Excise duty on the main appellant, namely SPP, is primarily based on a pen drive recovered from the residential premises of Shri. M. Bommanasamy, a partner of SPP. The data contained in the said pen drive was subsequently retrieved by an agency, namely, M/s. Indian Automation and Technologies Private Limited, Chennai. It is the case of the appellant that, the said agency was not a notified agency as "Examiner of Electronic Evidence" under Section 79A of the Information Technology Act, 2000, read with Section 45A of the Indian Evidence Act, 1872.
7.2 For ease of reference, the relevant provisions are reproduced below: -
"Section 45A - Opinion of Examiner of Electronic Evidence When in a proceeding, the court has to form an opinion on any matter relating to any information transmitted or stored in any computer resource or any other electronic or digital form, the opinion of the Examiner of Electronic Evidence referred to in section 79A of the Information Technology Act, 2000 (21 of 2000), is a relevant fact.21
E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Explanation.-- For the purposes of this section, an Examiner of Electronic Evidence shall be an expert. Section 79A of the Information Technology Act, 2000 The Central Government may, for the purposes of providing expert opinion on electronic form evidence before any court or other authority specify, by notification in the Official Gazette, any Department, body or agency of the Central Government or a State Government as an Examiner of Electronic Evidence.
Explanation: For the purposes of this section, "electronic form evidence" means any information of probative value that is either stored or transmitted in electronic form and includes computer evidence, digital audio, digital video, cell phones, digital fax machines."
7.3 Further, as per Section 3 of Indian Evidence Act, 1872 Court includes all judges and magistrates and all persons legally authorized to take evidence, which includes this Tribunal also. And hence, the said provisions cannot be divorced while appreciating the evidentiary value of electronic evidence and its integrity. The challenge of the appellants that the agency namely M/s. Indian Automation and Technologies Private Limited, Chennai is not a notified or approved agency as Examiner of Electronic Evidence under Section 79A of Information Technology Act has not been rebutted by the department. Further, the appellants have also challenged that the electronic evidence namely pen drive has not met the mandatory protocols set out under 22 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Section 36B of CEA, including the requirement of a certificate under Section 36B (4) of CEA, has also not been rebutted by the adjudicating authority. Instead, the adjudicating authority has observed in para 21.7.5 of impugned order that the appellants had not objected to the method of taking printouts and the legality and authenticity of the retrieval during the time of the investigation but only took such a stand in their reply to Show Cause Notice. He further observed that the certificate which was not prepared and signed while retrieving the data would not alone vitiate the entire proceedings as the same was taken in the presence of independent witnesses and the partners of SPP.
7.4 The above findings of the Adjudicating Authority which are against the legal provisions and discarding the judicial pronouncements is fundamentally also against the settled principles of adjudication and thus not tenable.
7.5 In this connection, we draw strength from the decision of the bench in the case of M/s. Geetham Steels Pvt Ltd. [2025 (3) TMI 1098] wherein, this Tribunal had an occasion to deal with the situation on hand with respect to Section 36B (4) of CEA. For reference, the relevant paras of the said decision are reproduced here under: -
23E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 "70. Thus, we hold that since the adjudicating authority has not followed the mandate of Section 9D (2) in the instant case and had not given an opportunity to the affected party to make submissions post intimation of his intent to rely on such materials duly stating the reasons why he intends to arrive at the said opinion. We are therefore of the considered view that the adjudicating authority has grossly erred in placing reliance on the statements recorded under Section 14 without following the mandate of Section 9D of the CEA. The reliance placed by the adjudicating authority on all these untested statements cannot sustain. This has rendered the case of clandestine removal made against the appellants wholly unsustainable on this ground alone.
71. The only remaining question of law that arises for our consideration is whether the electronic evidence collected during investigation in this case, is admissible given the absence of certificate issued under Section 36B.
72. We observe that a three judge bench of the Honourable Apex Court has rendered a judgement on 28th January 2025 in Criminal Appeal No. 879 of 2019 in the case of Chandrabhan Sudam Sanap v The State of Maharashtra, reported in 2025 INSC 116, wherein the Honourable Apex Court after analysing the relevant judgements pertaining to Section 65-B of the Indian Evidence Act, and the failure to produce the Section 65-B(4) certificate, has held as below:
"35. However, what resolves this issue against the prosecution completely is the failure of prosecution to follow the mandate under Section 65-B of the Indian Evidence Act, and the failure to produce the Section 65-B(4) certificate. Section 65-B reads as under:-
"Section 65-B - Admissibility of electronic records. (1) Notwithstanding anything contained in this 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 (hereinafter referred to as the computer output) shall be deemed to be also a document, if the conditions mentioned in this section are satisfied in relation to the information and computer in question and shall be admissible in any 24 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 proceedings, without further proof or production of the original, as evidence or any contents of the original or of any fact stated therein of which direct evidence would be admissible.
(2) The conditions referred to in sub-section (1) in respect of a computer output shall be the following, namely:--
(a) the computer output containing the information 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, information of the kind contained in the electronic record or of the kind from which the information so contained is derived was regularly fed into the computer in the ordinary course of the said activities;
(c) throughout the material part of the said period, the computer was operating properly or, if not, then in respect of any period in which it was not operating properly or was out of operation during that part of the period, was not such as to affect the electronic record or the accuracy of its contents; and
(d) the information contained in the electronic record reproduces or is derived from such information fed into the computer in the ordinary course of the said activities.
(3) Where over any period, the function of storing or processing information for the purposes of any activities regularly carried on over that period as mentioned in clause (a) of sub-section (2) was regularly performed by computers, whether--
(a) by a combination of computers operating over that period; or
(b) by different computers operating in succession over that period; or
(c) by different combinations of computers operating in succession over that period; or
(d) in any other manner involving the successive operation over that period, in whatever order, of one or more computers and one or more combinations of computers, all the computers used for that purpose during that period shall be treated for the purposes of this section as constituting a single computer; and references in this section to a computer shall be construed accordingly. (4) In any proceedings where it is desired to give a statement in evidence by virtue of this section, a certificate doing any of the following things, that is to say, --
(a) identifying the electronic record containing the statement and describing the manner in which it was produced;
(b) giving such particulars of any device involved in the production of that electronic record as may be appropriate for the purpose of showing that the electronic record was produced by a computer;
(c) dealing with any of the matters to which the conditions mentioned in sub-
section (2) relate, and purporting to be signed by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activities (whichever is appropriate) shall be evidence of any matter stated in the certificate; and for the purposes of this subsection it shall be sufficient for a matter to be stated to the best of the knowledge and belief of the person stating it. (5) For the purposes of this section,
(a) information shall be taken to be supplied to a computer if it is supplied thereto in any appropriate form and whether it is so supplied directly or (with or without human intervention) by means of any appropriate equipment;
(b) whether in the course of activities carried on by any official, information is supplied with a view to its being stored or processed for the purposes of those activities by a computer operated otherwise than in the course of those 25 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 activities, that information, if duly supplied to that computer, shall be taken to be supplied to it in the course of those activities;
(c) a computer output shall be taken to have been produced by a computer whether it was produced by it directly or (with or without human intervention) by means of any appropriate equipment. Explanation. -- For the purposes of this section any reference to information being derived from other information shall be a reference to its being derived there from by calculation, comparison or any other process."
36. Mr. Shri Singh learned counsel for the appellant fairly submits that when the CCTV footage was introduced as evidence through PW-1 on 28.08.2014, the judgment of this Court in State (N.C.T. of Delhi) v. Navjot Sandhu @ Afsan Guru, (2005) 11 SCC 600 was holding the field. In Navjot Sandhu (supra), this Court held as follows:
"150. According to Section 63, secondary evidence means and includes, among other things, "copies made from the original by mechanical processes which in themselves insure the accuracy of the copy, and copies compared with such copies". Section 65 enables secondary evidence of the contents of a document to be adduced if the original is of such a nature as not to be easily movable. It is not in dispute that the information contained in the call records is stored in huge servers which cannot be easily moved and produced in the court. That is what the High Court has also observed at para 276. Hence, printouts taken from the computers/servers by mechanical process and certified by a responsible official of the service-providing company can be led in evidence through a witness who can identify the signatures of the certifying officer or otherwise speak of the facts based on his personal knowledge. Irrespective of the compliance with the requirements of Section 65-B, which is a provision dealing with admissibility of electronic records, there is no bar to adducing secondary evidence under the other provisions of the Evidence Act, namely, Sections 63 and 65. It may be that the certificate containing the details in subsection (4) of Section 65-B is not filed in the instant case, but that does not mean that secondary evidence cannot be given even if the law permits such evidence to be given in the circumstances mentioned in the relevant provisions, namely, Sections 63 and 65."
37. However, on 18.09.2014, in the case of Anvar P.V. v. P.K. Basheer & Ors., (2014) 10 SCC 473, Navjot Sandhu (supra) was overruled. In Anvar P.V. (supra), it was held as under:
"22. The evidence relating to electronic record, as noted hereinbefore, being a special provision, the general law on secondary evidence under Section 63 read with Section 65 of the Evidence Act shall yield to the same. Generalia specialibus non derogant, special law will always prevail over the general law. It appears, the court omitted to take note of Sections 59 and 65-A dealing with the admissibility of electronic record. Sections 63 and 65 have no application in the case of secondary evidence by way of electronic record; the same is wholly governed by Sections 65-A and 65-B. To that extent, the statement of law on admissibility of secondary evidence pertaining to electronic record, as stated by this Court in Navjot Sandhu case [State (NCT of Delhi) v. Navjot Sandhu, (2005) 11 SCC 600 : 2005 SCC (Cri) 1715], does not lay down the 26 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 correct legal position. It requires to be overruled and we do so. An electronic record by way of secondary evidence shall not be admitted in evidence unless the requirements under Section 65-B are satisfied. Thus, in the case of CD, VCD, chip, etc., the same shall be accompanied by the certificate in terms of Section 65-B obtained at the time of taking the document, without which, the secondary evidence pertaining to that electronic record, is inadmissible."
38. According to the learned counsel, since the exhibits were marked before 18.09.2014, the appellant did not have the benefit of the decision of the Anvar P.V. (supra) when the footages were marked.
39. In Shafi Mohammad v. The State of Himachal Pradesh (2018) 2 SCC 801 (delivered on 30.01.2018), a two Judge Bench of this Court after noticing Anvar P.V. (supra) held that a party who is not in possession of device from which the document is produced cannot be required to produce the certificate under Section 65-B(4) of the Indian Evidence Act. It also held that applicability of requirement of certificate being procedural can be relaxed by the Court wherever interest of justice so justifies.
40. In Sonu @ Amar vs. State of Haryana (2017) 8 SCC 570, (delivered on 18.07.2017) the following paragraphs being crucial are extracted hereinbelow:
"30. In R.V.E. Venkatachala Gounder [R.V.E. Venkatachala Gounder v. Arulmigu Viswesaraswami & V.P. Temple, (2003) 8 SCC 752], this Court held as follows: (SCC p. 764, para 20) "20. ... Ordinarily, an objection to the admissibility of evidence should be taken when it is tendered and not subsequently. The objections as to admissibility of documents in evidence may be classified into two classes:
(i) an objection that the document which is sought to be proved is *itself inadmissible* [ The matter between two asterisks has been emphasised in original] in evidence; and
(ii) where the objection does not dispute the admissibility of the document in evidence but is directed towards the * mode of proof *[ The matter between two asterisks has been emphasised in original.] alleging the same to be irregular or insufficient. In the first case, merely because a document has been marked as "an exhibit", an objection as to its admissibility is not excluded and is available to be 27 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 raised even at a later stage or even in appeal or revision.
In the latter case, the objection should be taken when the evidence is tendered and once the document has been admitted in evidence and marked as an exhibit, the objection that it should not have been admitted in evidence or that the mode adopted for proving the document is irregular cannot be allowed to be raised at any stage subsequent to the marking of the document as an exhibit. The later proposition is a rule of fair play. *The crucial test is whether an objection, if taken at the appropriate point of time, would have enabled the party tendering the evidence to cure the defect and resort to such mode of proof as would be regular. The omission to object becomes fatal because by his failure the party entitled to object allows the party tendering the evidence to act on an assumption that the opposite party is not serious about the mode of proof. On the other hand, a prompt objection does not prejudice the party tendering the evidence, for two reasons: firstly, it enables the court to apply its mind and pronounce its decision on the question of admissibility then and there; and secondly, in the event of finding of the court on the mode of proof sought to be adopted going against the party tendering the evidence, the opportunity of seeking indulgence of the court for permitting a regular mode or method of proof and thereby removing the objection raised by the opposite party, is available to the party leading the evidence.* [ The matter between two asterisks has been emphasised in original] Such practice and procedure is fair to both the parties. Out of the two types of objections, referred to hereinabove, in the latter case, failure to raise a prompt and timely objection amounts to waiver of the necessity for insisting on formal proof of a document, the document itself which is sought to be proved being admissible in evidence. In the first case, acquiescence would be no bar to raising the objection in superior court."
31. It would be relevant to refer to another case decided by this Court in P.C. Purushothama Reddiar v. S. Perumal [P.C. 28 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Purushothama Reddiar v. S. Perumal, (1972) 1 SCC 9] . The earlier cases referred to are civil cases while this case pertains to police reports being admitted in evidence without objection during the trial. This Court did not permit such an objection to be taken at the appellate stage by holding that:
(SCC p. 15, para 19) "19. Before leaving this case it is necessary to refer to one of the contentions taken by Mr Ramamurthi, learned counsel for the respondent. He contended that the police reports referred to earlier are inadmissible in evidence as the Head Constables who covered those meetings have not been examined in the case. Those reports were marked without any objection. Hence it is not open to the respondent now to object to their admissibility."
32. It is nobody's case that CDRs which are a form of electronic record are not inherently admissible in evidence. The objection is that they were marked before the trial court without a certificate as required by Section 65-B(4). It is clear from the judgments referred to supra that an objection relating to the mode or method of proof has to be raised at the time of marking of the document as an exhibit and not later. The crucial test, as affirmed by this Court, is whether the defect could have been cured at the stage of marking the document. Applying this test to the present case, if an objection was taken to the CDRs being marked without a certificate, the Court could have given the prosecution an opportunity to rectify the deficiency. It is also clear from the above judgments that objections regarding admissibility of documents which are per se inadmissible can be taken even at the appellate stage. Admissibility of a document which is inherently inadmissible is an issue which can be taken up at the appellate stage because it is a fundamental issue. The mode or method of proof is procedural and objections, if not taken at the trial, cannot be permitted at the appellate stage. If the objections to the mode of proof are permitted to be taken at the appellate stage by a party, the other side does not have an opportunity of rectifying the deficiencies.
29E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 The learned Senior Counsel for the State referred to statements under Section 161 Cr.PC, 1973 as an example of documents falling under the said category of inherently inadmissible evidence. CDRs do not fall in the said category of documents. We are satisfied that an objection that CDRs are unreliable due to violation of the procedure prescribed in Section 65-B(4) cannot be permitted to be raised at this stage as the objection relates to the mode or method of proof."
As rightly pointed out by Mr. Raja Thakare, learned Additional Solicitor General, it was held in Sonu (supra) that objection about Section 65B(4) of the Indian Evidence Act, not being complied, cannot be taken at the appellate stage since that will deny an opportunity for the prosecution or the opposite party to rectify the defect. It was also held that the documents were not inherently inadmissible in evidence. Thereafter, the Honourable Supreme Court, went on to hold as below:
47. A two-Judge Bench in a referral order reported in Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal & Ors., (2020) 3 SCC 216 referred the following question to a larger bench:
"3. We are of the considered opinion that in view of Anvar P.V. [Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473 : (2015) 1 SCC (Civ) 27 : (2015) 1 SCC (Cri) 24 : (2015) 1 SCC (L&S) 108], the pronouncement of this Court in Shafhi Mohammad [Shafhi Mohammad v. State of H.P., (2018) 2 SCC 801 : (2018) 2 SCC (Civ) 346 : (2018) 1 SCC (Cri) 860] needs reconsideration. With the passage of time, reliance on electronic records during investigation is bound to increase. The law therefore needs to be laid down in this regard with certainty. We, therefore, consider it appropriate to refer this matter to a larger Bench. Needless to say that there is an element of urgency in the matter."
48. The reference came to be answered in the judgment reported in (2020) 7 SCC 1 by a three-Judge bench in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal & Ors. The relevant portions of which are as under:-
"45. Thus, it is clear that the major premise of Shafhi Mohammad [Shafhi Mohammad v. State of H.P., (2018) 2 SCC 801 : (2018) 2 SCC 807 : (2018) 2 SCC (Civ) 346 : (2018) 2 SCC (Civ) 351 : (2018) 1 SCC (Cri) 860 : (2018) 1 SCC (Cri) 865] that such certificate cannot be secured by persons who are not in possession of an electronic device is wholly incorrect. An application can always be made to a Judge for production of such a certificate from the requisite person under Section 65-B(4) in cases in which such person refuses to give it.30
E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
46. Resultantly, the judgment dated 3-4-2018 of a Division Bench of this Court reported as Shafhi Mohd. v. State of H.P. [Shafhi Mohd. v. State of H.P., (2018) 5 SCC 311 : (2018) 2 SCC (Cri) 704], in following the law incorrectly laid down in Shafhi Mohammad [Shafhi Mohammad v. State of H.P., (2018) 2 SCC 801 : (2018) 2 SCC 807 : (2018) 2 SCC (Civ) 346 : (2018) 2 SCC (Civ) 351 :
(2018) 1 SCC (Cri) 860 : (2018) 1 SCC (Cri) 865], must also be, and is hereby, overruled.
47. However, a caveat must be entered here. The facts of the present case show that despite all efforts made by the respondents, both through the High Court and otherwise, to get the requisite certificate under Section 65-B(4) of the Evidence Act from the authorities concerned, yet the authorities concerned wilfully refused, on some pretext or the other, to give such certificate. In a factcircumstance where the requisite certificate has been applied for from the person or the authority concerned, and the person or authority either refuses to give such certificate, or does not reply to such demand, the party asking for such certificate can apply to the court for its production under the provisions aforementioned of the Evidence Act, CPC or Cr.PC. Once such application is made to the court, and the court then orders or directs that the requisite certificate be produced by a person to whom it sends a summons to produce such certificate, the party asking for the certificate has done all that he can possibly do to obtain the requisite certificate.....
52. We may hasten to add that Section 65-B does not speak of the stage at which such certificate must be furnished to the Court. In Anvar P.V. [Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473 : (2015) 1 SCC (Civ) 27 : (2015) 1 SCC (Cri) 24 : (2015) 1 SCC (L&S) 108], this Court did observe that such certificate must accompany the electronic record when the same is produced in evidence. We may only add that this is so in cases where such certificate could be procured by the person seeking to rely upon an electronic record. However, in cases where either a defective certificate is given, or in cases where such certificate has been demanded and is not given by the person concerned, the Judge conducting the trial must summon the person/persons referred to in Section 65-B(4) of the Evidence Act, and require that such certificate be given by such person/persons. This, the trial Judge ought to do when the electronic record is produced in evidence before him without the requisite certificate in the circumstances aforementioned. This is, of course, subject to discretion being exercised in civil cases in accordance with law, and in accordance with the requirements of justice on the facts of each case. When it comes to criminal trials, it is important to keep in mind the general principle that the accused must be supplied all documents that the prosecution seeks to rely upon before commencement of the trial, under the relevant sections of the Cr.PC.
56. Therefore, in terms of general procedure, the prosecution is obligated to supply all documents upon which reliance may be placed to an accused before commencement of the trial. Thus, the exercise of power by the courts in criminal trials in permitting evidence to be filed at a later stage should not result in serious or irreversible prejudice to the accused. A balancing exercise in respect of the rights of parties has to be carried out by the court, in examining any application by the prosecution under Sections 91 or 311 Cr.PC or Section 165 of the Evidence Act. Depending on the facts of each case, and the court exercising discretion after seeing that the accused is not prejudiced by want of a fair trial, the court may in appropriate cases allow the prosecution to produce such certificate at a later point in time. If it is the accused who desires to produce the requisite certificate as part of his defence, this again will depend upon the justice of the case -- discretion to be exercised by the court in accordance with law.
31E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
61. We may reiterate, therefore, that the certificate required under Section 65B(4) is a condition precedent to the admissibility of evidence by way of electronic record, as correctly held in Anvar P.V. [Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473 : (2015) 1 SCC (Civ) 27 : (2015) 1 SCC (Cri) 24 : (2015) 1 SCC (L&S) 108], and incorrectly "clarified" in Shafhi Mohammad [Shafhi Mohammad v. State of H.P., (2018) 2 SCC 801 : (2018) 2 SCC 807 : (2018) 2 SCC (Civ) 346 : (2018) 2 SCC (Civ) 351 : (2018) 1 SCC (Cri) 860 : (2018) 1 SCC (Cri) 865] . Oral evidence in the place of such certificate cannot possibly suffice as Section 65-B(4) is a mandatory requirement of the law. Indeed, the hallowed principle in Taylor v. Taylor [Taylor v. Taylor, (1875) LR 1 Ch D 426], which has been followed in a number of the judgments of this Court, can also be applied. Section 65-B(4) of the Evidence Act clearly states that secondary evidence is admissible only if led in the manner stated and not otherwise. To hold otherwise would render Section 65-B(4) otiose.
73. The reference is thus answered by stating that:
73. 1. Anvar P.V. [Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473 : (2015) 1 SCC (Civ) 27 : (2015) 1 SCC (Cri) 24 : (2015) 1 SCC (L&S) 108], as clarified by us hereinabove, is the law declared by this Court on Section 65-B of the Evidence Act. The judgment in Tomaso Bruno [Tomaso Bruno v. State of U.P., (2015) 7 SCC 178 : (2015) 3 SCC (Cri) 54], being per incuriam, does not lay down the law correctly. Also, the judgment in Shafhi Mohammad [Shafhi Mohammad v.
State of H.P., (2018) 2 SCC 801 : (2018) 2 SCC 807 : (2018) 2 SCC (Civ) 346 :
(2018) 2 SCC (Civ) 351 : (2018) 1 SCC (Cri) 860 : (2018) 1 SCC (Cri) 865] and the judgment dated 3-4-2018 reported as Shafhi Mohd. v. State of H.P. [Shafhi Mohd. v. State of H.P., (2018) 5 SCC 311 : (2018) 2 SCC (Cri) 704], do not lay down the law correctly and are therefore overruled.
73.2. The clarification referred to above is that the required certificate under Section 65-B(4) is unnecessary if the original document itself is produced. This can be done by the owner of a laptop computer, computer tablet or even a mobile phone, by stepping into the witness box and proving that the device concerned, on which the original information is first stored, is owned and/or operated by him. In cases where the "computer" happens to be a part of a "computer system" or "computer network" and it becomes impossible to physically bring such system or network to the court, then the only means of providing information contained in such electronic record can be in accordance with Section 65-B(1), together with the requisite certificate under Section 65B(4). The last sentence in para 24 in Anvar P.V. [Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473 : (2015) 1 SCC (Civ) 27 : (2015) 1 SCC (Cri) 24 :
(2015) 1 SCC (L&S) 108] which reads as "... if an electronic record as such is used as primary evidence under Section 62 of the Evidence Act ..." is thus clarified; it is to be read without the words "under Section 62 of the Evidence Act,...". With this clarification, the law stated in para 24 of Anvar P.V. [Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473 : (2015) 1 SCC (Civ) 27 : (2015) 1 SCC (Cri) 24 : (2015) 1 SCC (L&S) 108] does not need to be revisited."
(Emphasis supplied)
49. This judgment has put the matter beyond controversy. In view of the above, there is no manner of doubt that certificate under Section 65-B(4) is a condition precedent to the admissibility of evidence by way of electronic record and further it is clear that the Court has also held Anvar P.V. (supra) to be the correct position of law."
(emphasis supplied) 32 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
73. Thus, the aforesaid most recent judgement of the Honourable Supreme Court case, after analysing all the relevant previous judgements, has reiterated beyond the pale of any doubt that certificate under Section 65-B (4) [pari materia with Section 36B(4)], is a condition precedent to the admissibility of evidence by way of electronic record and affirming the law as laid down in Anvar P.V. It is not anybody's case that the judgement in Anvar P.V was not the law of the land at the time of adjudication in the present case.
74. We find that the said issue wouldn't detain us much longer in view of the decision of the Principal Bench of this Tribunal in M/s. Trikoot Iron & Steel Casting Ltd v. Additional Director General (Adjn.), Directorate General of GST Intelligence (Adjudication Cell), reported in 2024 (10) TMI 672-CESTAT NEW DELHI. In this decision, the Tribunal has, after noticing the statutory provisions of Section 36B (4) held that as the required certificate under Section 36B (4) of the Central Excise Act was not produced, no reliance can be placed on the printouts, in view of the judgements of the Supreme Court in Anvar P.V. and Arjun Panditrao Khotkar. The relevant paragraphs of the aforementioned Tribunal decision is as under:
15. To examine the issues that have been raised, it would be necessary to first examine section 36B of the Central Excise Act.
It is reproduced:
"Section 36B- Admissibility of micro films, facsimile copies of documents and computer print outs as documents and as evidence.
(1) Notwithstanding anything contained in any other law for the time being in force,-
(a) a microfilm of a document or the reproduction of the image or images embodied in such microfilm (whether enlarged or not); or
(b) a facsimile copy of a documents; or 33 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
(c) a statement contained in a document and included in a printed material produced by a computer (hereinafter referred to as a "computer printout").
(2) The conditions referred to in sub-section (1) in respect of a 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 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 reproduces or is derived from information supplied to the computer in the ordinary course of the said activities. (3) Where over any period, the function of storing or processing information for the purposes of any activities regularly carried on over that period as mentioned in clause (a) of sub-section (2) was regularly performed by computers, whether -
(a) by a combination of computers operating over that period; or
(b) by different computers operating in succession over that period; or
(c) by different combinations of computers operating in succession over that period; or 34 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
(c) in any other manner involving the successive operation over that period, in whatever order, of one or more computers and one or more combination of computers, all the computers used for that purpose during that period shall be treated for the purposes of this section as constituting a single computer; and references in this section to a computer shall be construed accordingly.
(4) In any proceedings under this Act and the rules made thereunder where it is desired to give a statement in evidence by virtue of this section, a certificate doing any of the following things, that is to say, -
(a) identifying the document containing the statement and describing the manner in which it was produced;
(b) giving such particulars of any device involved in the production of that document as may be appropriate for the purpose of showing that the document was produced by a computer,
(c) dealing with any of the matters to which the conditions mentioned in sub-section (2) relate, and purporting to be signed by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activities (whichever is appropriate) shall be evidence of any matter stated in the certificate; and for the purposes of this sub-section it shall be sufficient for a matter to be stated to be to the best of the knowledge and belief of the person stating it. (5) For the purposes of this section, -
(a) Information shall be taken to be supplied to a computer if it is supplied thereto in any appropriate form and whether it is so supplied directly or (with or without human intervention) by means of any appropriate equipment;
(b) whether in the course of activities carried on by any official, information is supplied with a view to its being stored or processed for the purposes of those activities by a computer 35 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 operated otherwise than in the course of those activities, that information, if duly supplied to that computer, shall be taken to be supplied to it in the course of those activities;
(c) a document shall be taken to have been produced by a computer whether it was produced by it directly or (with or without human intervention) by means of any appropriate equipment.
Explanation - For the purposes of this section,-
(a) "computer" means any device that receives, stores and processes data, applying stipulated processes to the information and supplying results of these processes; and
(b) any reference to information being derived from other information shall be a reference to its being derived therefrom by calculation, comparison or any other process."
16. Section 3 of the Evidence Act defines "document" as follows:
"Document. - "Document" means any matter expressed or described upon any substance by means of letter, figures or marks, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter."
17. "Evidence" in section 3 of the Evidence Act is defined as follows:
"Evidence." -- "Evidence" means and includes --
(1) all statements which the Court permits or requires to be made before it by witnesses, in relation to matters of fact under inquiry;
Such statements are called oral evidence; (2) all documents including electronic records produced for the inspection of the Court; such documents are called documentary evidence."
18. Section 36B of the Central Excise Act deals with cases where any document is required to be produced as an evidence in proceedings under the Central Excise Act and the Rules framed thereunder. Such certificate should be signed by a person 36 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 occupying a responsible position in relation to the operation of the device in question or the management of the relevant activities. In such a case it shall be evidence of any matter which is stated therein. It specifically mandates production of a certificate:
(i) identifying the document containing the statement and describing the manner in which it was produced;
(ii) giving such particulars of any device involved in the production of that document as may be appropriate for the purpose of showing that the document was produced by a computer,
(iii) dealing with any of the matters to which the conditions mentioned in sub-section (2) relate.
19. The Central Excise Act contains a specific provision that describes the manner in which the admissibility of computer print outs will be accepted as evidence in proceedings initiated under the Central Excise Act.
20. In respect of section 65B of the Evidence Act, which is pari materia to the provisions of section 36B of the Central Excise Act, it would be relevant to refer to the observations made by the Supreme Court in Anvar P. V. The Supreme Court, held that evidence relating to electronic record shall not be admitted in evidence unless the requirement of section 65B of the Evidence Act is fulfilled."
The Tribunal thereafter goes on to reproduce relevant paragraphs of Anvar P.V and Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal & Others, noticing that the latter judgement was with a mild modification that if the original device is not produced, then electronic record can be produced in accordance with section 65B(1) of the Evidence Act together with the requisite certificate under section 65B (4) and then in para 22 held as under:
22. It transpires from the aforesaid two judgments of the Supreme Court in Anvar P. V. and Arjun Panditrao Khotkar that:37
E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
(i) Any documentary evidence by way of an electronic record under the Evidence Act can be proved only in accordance with the procedure prescribed under section 65B of the Evidence Act.
The purpose of this provision is to sanctify secondary evidence in electronic form generated by a computer;
(ii) 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) of section 65 of the Evidence Act are satisfied, without further proof or production of the original;
(iii) In view of the provisions of section 65(4) of the Evidence Act, a certificate must accompany the electronic record like computer printout, compact disc, video compact disc or pen drive, pertaining to which a statement is sought to be given in evidence, when the same is produced in evidence;
(iv) Only if the electronic record is duly produced in terms of section 65B of the Evidence Act, that the question of its genuineness would arise. The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if the requirements of section 65B of the Evidence Act is not complied with;
(v) An electronic record by way of secondary evidence shall not be admitted in evidence unless the requirements of section 65B of the Evidence Act has satisfied; and
(vi) This would not apply in a case where the appellant adduces primary evidence by making available in evidence the electronic records.
The Tribunal thereafter goes on to notice the decisions of the Tribunal in Agarvanshi Aluminum Ltd vs. Commissioner of Customs (I), Nhava Sheva 2014 (299) ELT 83 (Tri.-Mum), Popular Paints and Chemicals vs. Commissioner of Central Excise and Customs, Raipur and Global Extrusion Private Limited and 38 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Ors. Vs. Commissioner of Central Excise & ST, Rajkot and then held as under:
26. The aforesaid decisions of the Tribunal, which are in the context of the provisions of section 36B of the Central Excise Act, hold that a printout generated from the personal computer that has been seized cannot be admitted in evidence unless the statutory conditions laid down in section 36B of the Central Excise Act are complied with. The decisions also hold that if the data is not stored in the computer but officers take out a printout from the hard disk drive by connecting it to the computer, then a certificate under section 36B of the Central Excise Act is mandatory.
75. We are consciously avoiding prolixity by refraining from citing multiple judgements on similar lines relied upon by the appellants. Therefore, by following the aforementioned binding judgements of the Honourable Apex Court as well as in conformity with the views expressed by coordinate benches of this Tribunal earlier, we hold that the Adjudicating Authority has grossly erred in placing reliance on the printouts obtained from the pen drives, computer and hard disks as has been done in this matter to confirm the demands. The impugned order of the Adjudicating Authority cannot be sustained and is liable to be set aside on this count also.
76. We further notice that in this case the appellants have raised the plea of non-compliance with the requirements of Section 36B before the adjudicating authority itself and thus this is a case where an objection relating to the mode or method of proof with respect to the electronic records was taken at the first instance itself before the adjudicating authority. It was definitely open to the adjudicating authority to have got the defect remedied instead of contending that Section 36B has been substantially complied with."39
E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 7.6.0 Applying the above to the instant case, we have no hesitation in holding that the electronic evidence namely pen drive has not been tested as an evidence either under the provisions of Indian Evidence Act or has complied with the provisions of Section 36B of CEA, to be considered as a valid evidence and hence, any demand based on such evidence cannot be sustained and accordingly, we set aside the demand of duty for March 2015, which was based on this piece of evidence.
7.6.1 On the issue of the demand of differential duty on the clandestine clearances alleged and confirmed based on the consumption of electricity for the period from April 2015 to June 2017, the same has been challenged by the appellants on various factual metrics, as well as, settled legal position. It remains undisputed that the basis for the estimate of excess production for the disputed period (April 2015 - June 2017) was based on the electricity consumption of SPP during 2018 - 2019, a period posterior to the disputed period. The appellants have advanced their arguments that, the learned adjudicating authority has not considered any of their submissions with respect to the various factors and reasons attributable to the difference in power consumption including the difference in usage of virgin materials vis-à-vis 40 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 reprocessed materials between the disputed period (April 2015 - June 2017) and the period considered as the basis, namely, 2018 - 2019. In other words, it is the argument of the appellant that, they were using reprocessed materials which required higher power consumption during the disputed period, whereas, usage of reprocessed materials were progressively banned and they started using only virgin materials in 2018-2019, which consumed lesser power compared to the usage of reprocessed materials. We find that this important aspect has not been properly analyzed in the impugned order along with their other submissions with respect to substantial consumption of electricity during pre-
heats between batches. It is the case of the appellants, SPP would be running single shifts during the disputed period, which required switching off and switching on frequently, whereas, they started continuous production during 2018-19 as only virgin materials are used which is probable due to banning of certain categories of plastics.
7.6.2 We have perused the decision rendered in the case of RA Castings (P) Ltd. [2008 (6) TMI 197] which has been relied upon by the Appellant. For ready reference, the relevant portion of the said decision is reproduced here under: -
41E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
19. "The main question to be decided in the instant appeals here is whether the appellants during the period December 2001 to March, 2005 have actually manufactured M.S. Ingots in excess of what has been recorded in their statutory records and removed the said quantity clandestinely from their factory without payment of duty. The excess production has been worked out on the basis of electricity consumption for which the standard norms are imported from the report of late Mr. N.K. Batra, Professor of Material and Metallurgical Engineers, IIT Kanpur.
20. We find that the following reports have been referred to either by the appellants or the Revenue laying down the norms for the consumption of electricity for the manufacture of one MT of steel ingots:
(i) 555 to 1046 (KWH/T) as per Dr. Batra's report;
(ii) 1800 KWH/T as per the report by Joint Plant Committee constituted by the Ministry of Steel, Government of India;
(iii) 1427 KWH/T as per the report of NISST, Mandi, Gobindgarh given in June-July, 2006;
(iv) 650 units to 820 units/MT as per the Executive Director, All India Induction Furnace Association, New Delhi;
(v) 851 units/MT in the case of Nagpal Steel v. CCE, Chandigarh reported in 2000 (125) E.L.T. 1147.
20.1 From the perusal of these reports, we find that wide variations in the consumption of electricity have been reported for the manufacture of one MT of steel ingots. This renders the norm of 1046 units adopted. by the Revenue as arbitrary. Why not adopt the norm of 1800 KWH/T or 1427 KWH/T or 650 to 820 units/MT or 851 units/MT as per various reports referred to above or why 42 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 not adopt some figure between 555 to 1046 units as norm as per Dr. Batra's report?
20.2 We note that no experiments have been conducted in the factories of the appellants for devising the consumption norms of electricity for producing one MT of steel ingots. It is the basic philosophy in the taxation matters that no tax can be levied on the basis of estimation. In this case, there is added problem. Estimation of production fluctuates widly depending upon the fact as to which report is adopted. Tax is on manufacture and it is to be proved beyond doubt that the goods have been actually manufactured, which are leviable to excise duty. Unfortunately, no positive evidence is coming on record to that effect. Article 265 of the Constitution of India says that no tax shall be levied or collected except by authority of law. Unless the manufacture of the steel ingots is proved to the hilt by authentic, reliable and credible evidence, duty cannot be demanded on the basis of hypothesis and theoretical calculations, without taking into consideration the ground realities of the functioning of the factories. High consumption of electricity by itself cannot be the ground to infer that the factories engaged in suppression of production of steel ingots. The reasons for high consumption of electricity in the case of the appellants' factories have not at all been studied and analysed by the Revenue independently. Instead, the norm of 1046 units fixed as per Dr. Batra's report has been blindly applied to the appellants' cases to work out the excess production. This approach is flawed and does not have sanctity.
21. The law is well settled that the electricity consumption cannot be the only factor or basis for determining the duty liability that too on imaginary basis especially when Rule 173E mandatorily requires the Commissioner to prescribe/fix norm for electricity consumption first and 43 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 notify the same to the manufacturers and thereafter ascertain the reasons for deviations, if any, taking also into account the consumption of various inputs, requirements of labour, material, power supply and the conditions for running the plant together with the attendant facts and circumstances. Therefore, there can be no generalization nor any uniform norm of 1046 units as sought to be adopted by the Revenue especially when there is no norm fixed under Rule 173E till date by the Revenue and notified by it. The electricity consumption varies from one unit to another and from one date to another and even from one heat to another within the same date. There is, therefore, no universal and uniformly acceptable standard of electricity consumption, which can be adopted for determining the excise duty liability that too on the basis of imaginary production assumed by the Revenue with no other supporting record, evidence or document to justify its allegations. In the following case laws, it has been held that the consumption of the electricity alone is not sufficient to determine the production:
(i) Pure Enterprises (P) Ltd. v. CCE, Rajkot - 1999 (111) E.L.T. 407 (Tri.)
(ii) Kapadia Dyeing Bleaching and Finishing Works v. CCE, Surat - 2000 (124) E.L.T. 821 (Tri.)
(iii) A. Arti Leathers (P) Ltd. v. CCE & C, Ahmedabad - 2001 (136) E.L.T. 1255 (Tri.-Mum.)
(iv) Parshuram Cement Ltd. v. CCE, Lucknow - 2003 (160) E.L.T. 213 (Tri.-Del.)
(v) Mukesh Dye Works v. CCE, Mumbai-VI - 2006 (196) E.L.T. 237 (Tri.-Mum.)
(vi) Hans Castings Pvt. Ltd. v. CCE, Kanpur - 1998 (102) E.L.T. 139 (T)
(vii) M/s. Padmanabh Dyeing and Finishing Works v. CCE, Vadodara - 1997 (90) E.L.T. 343 (T) 44 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
(viii) M/s. Madhu Products v. CCE, Hyderabad - 1999 (111) E.L.T. 197 (T).
22. The clandestine manufacture and removal of excisable goods is to be proved by tangible, direct, affirmative and incontrovertible evidences relating to:
(i) Receipt of raw material inside the factory premises, and non-accountal thereof in the statutory records;
(ii) Utilization of such raw material for clandestine manufacture of finished goods;
(iii) Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, discrepancy in the stock of raw materials and final products;
(iv) Clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters' documents, such as L.Rs, statements of lorry drivers, entries at different check posts, forms of the Commercial Tax Department and the receipt by the consignees;
(v) Amount received from the consignees, statement of the consignees, receipts of sale proceeds by the consignor and its disposal.
In the instant case, no such evidences to the above effect have been brought on record.
22.1 For want of evidence relating to the above points, clandestine removal cannot be sustained merely on the basis of the technical opinion report of Mr. Batra. In this connection, the following case laws are relied:
(i) Emmtex Synthetics Ltd. v. Commissioner of Central Excise, New Delhi reported in 2003 (151) E.L.T. 170 (Tri.-
Del.);
45E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
(ii) Commr. of Central Excise, Chennai v. Dhanavilas (Madras) Snuff Co. reported in 2003 (153) E.L.T. 437 (Tri.- Chennai);
(iii) Commissioner of Central Excise, Madurai v. Madras Suspensions Ltd. reported in 2003 (156) E.L.T. 807 (Tri.- Chennai);
(iv) Commissioner of Central Excise, Coimbatore v. Sangamitra Cotton Mills (P) Ltd. reported in 2004 (163) E.L.T. 472 (Tri.-Chennai);
(v) Commissioner of Central Excise Coimbatore v. Velavan Spinning Mills reported in 2004 (167) E.L.T. 91 (Tri.- Chennai);
(vi) M. Veerabadhran & others v. Commissioner of Central Excise, Chennai-II reported in 2005 (182) E.L.T. 389 (T) = 2005 (98) ECC 790 (T).
23. The Tribunal has consistently taken the view that wherever electricity consumption alone is adopted as the basis to raise demands, the order of the lower authorities have been held to be unsustainable in law and set aside and the Revenue had been directed to carry out experiments in different factories on different dates to arrive at the average to be adopted as a norm, which can be followed thereafter and the Revenue in the present case not having conducted any experiment whatsoever cannot be permitted to justify the demands raised. It will be appropriate on the part of the Revenue to conduct experiments in the factory of the appellants and others and that too on different dates to adopt the test results as the basis to arrive at a norm, which can be adopted for future. The impugned demand based merely on assumptions and presumptions cannot, therefore, be sustained nor could be justified both on facts and in law."
46E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 7.6.3 The above decision of the Tribunal was affirmed by the Hon'ble High Court of Allahabad vide its Order dated 09.09.2010 [2010 (9) TMI 669]. The Department's appeal against this order has been dismissed by the Supreme Court in [2011 (1) TMI 1302 - SC].
7.6.4 Thus, in our view, any demand of differential duty, merely based on power consumption cannot stand the scrutiny of law and is liable to be set aside. It is natural that making polybags from reprocessed materials results in more electricity consumption.
8.0 Further, the allegation of clandestine manufacture and clearance has to be established through a chain of events constituting manufacturing process and tangible evidence of clandestine manufacture and clearance and not merely based on inferences, estimates or assumptions.
8.1 We find that in cases where clandestine manufacture and clearance thereof are alleged, the investigation is required to prove the same to a reasonable extent and cannot be an estimation however mathematical it may be. Further, though not exhaustive but illustrative, 47 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 certain basic standard of proof for excess raw materials, unaccounted finished products, sales which are not brought to the books, realisation of sale proceeds, proof of transportation of goods, etc., should form the basis. If the department is able to substantially prove most of the above standard of proof, then power consumption can aid them to conclude clandestine production and clearance. On the other hand, in the instant case, it is seen that no effective attempt has been made by the department to substantiate their allegation in respect of any of the above pointers, but they have chosen only difference in power consumption to be the basis of excess production. As noted above, the submissions of the appellants with respect to variety of factors which influence the power consumption has been given a go-by.
Thus, we hold that, the revenue has not discharged their onus to establish any excess production by the appellant nor clandestine removal thereof, and accordingly we set aside the demand of differential duty for the period from April 2015 to June 2017 as confirmed in the impugned Order-in-
Original.
9.0 Coming to the second issue with respect to the clubbing of value of clearances and denial of SSI Exemption between SPP and other units, it is vehemently argued by the 48 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Ld. Counsel that all the allegations of the department to conclude that the value of clearness effected by SSP and others are to be clubbed are thoroughly prejudiced and the arm's length transaction between them have been comfortably ignored.
9.1 At the outset, we record our appreciation for indepth investigation carried out in this case to unravel the relationship of SPP with these disputed units. But the question that arise for our consideration is whether the evidence unraveled on close scrutiny of the transactions among these units is adequate enough to conclude that these disputed units are the dummy units of SPP, which is being analyzed below. We have considered evidences in respect of each allegation as contained in the SCN.
9.2 In respect of the allegation questioning the independent existence of SPP and other disputed units during the disputed period, they have submitted the following, namely, that: -
a) Each unit is having separate land and building either in their own name or operated under a valid lease deed
b) Each unit is geographically located in different place or having separate boundary 49 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023
c) Each unit is having separate machineries on their own
d) Each unit is having separate Electricity connection in their own name
e) Each unit purchased raw materials on their own account
f) Thus, each unit is having separate manufacturing premises
g) Each unit is having separate registration under Factories Act
h) Each unit is having separate licence from Pollution Control Board
i) Each unit is having separate Sales Tax/VAT and CST registration
j) Each unit is having separate PAN Number
k) Each unit is having separate SSI certificate
l) Each unit is having separate Bank Account
m) Each unit is having separate labour
n) Separate ESI /EPF registration, wherever required.
9.3 The above submissions of the Appellant to demonstrate the independent existence of SPP as well as other units and also their defence that the other units cannot be termed as "dummy units" because of the above independent physical existence, has not been countered adequately by the Adjudicating Authority. The assertions of the Appellants are on the strength of the documentary evidence and hence, mere denial and as unacceptable by the revenue cannot hold any water. The Adjudicating 50 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Authority relying upon the Hon'ble Supreme Court's decision in the case of Modi Alkalies & Chemicals Ltd 2004 (171) ELT 155 (S.C) has observed in para 20.6 of the impugned Order-
in-Original as under: -
"The Supreme Court in the case of Modi Alkalies & Chemicals Ltd 2004 (171) ELT 155 (S.C) had held that pervasive financial and management control are prima facie indicators of interdependence but adjudication that a unit is dummy has to be on the facts of each case and there could not be any generalization or rule of universal application and the decision as to whether they were front companies for manufacturing company is irrespective of latter having separate sales tax, income tax and central excise registration for manufacturing company."
9.4 In the above case, the Hon'ble Supreme Court has mandated the authority to decide as to whether any unit is a dummy has to be examined on the facts of each case, whereas, in the instant case the adjudicating authority has, without determining the existence or otherwise of the units, misplaced reliance on the above ratio. It is absolutely essential to examine whether there is manufacture or not and whether the transactions among these are on principal to principal basis or at arm's length basis.
9.5 The other defense of the appellants with respect to the allegation in respect payment of lease/rent, the same 51 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 has been met by the Adjudicating Authority in vide para 20.7 of the impugned Order-In-Order as under: -
"Recording the payment of rent in book of accounts and declaring it in the Income tax returns themselves would not suggest that the disputed units paid these amounts on their own. According to Sec 40A (3) of the Income tax Act read with rule 6DD of Income tax rules, if the total amount paid in a day to one person exceeds Rs. 10000, the payment has to be made through account payee cheque or demand draft and if the amount is paid in cash or bearer cheque, the payment will not be allowed as business expenditure. By paying the rents and advances in cash exceeding the limit and by waiving of lease/rent advance orally in most of the cases, the noticee had consciously overcome the requirements of provisions of the Income tax Act so that the noticee and other disputed firms would escape from the predicament to show their true source of income. It was contended that in some cases, advances were paid but no source of money was divulged in the reply to the notice. The reason for paying the rent and advances in cash was that if the payment was paid through account payee cheques, the entire transactions would get reflected in the bank statements and who funded whom will come to light. In the event of non-disclosure of source for making the payments, I have every reason to conclude that the rent /advances said to be paid in cash by these disputed units were not actually made by them and all the transactions are mere book adjustments made at the behest of the noticee."
9.6 The above findings of the Adjudicating Authority would not evidence pervasive financial control by SPP on the 52 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 DUs as during the period as necessary proof of these transactions being reflected in the books of accounts and their Income Tax returns has been submitted by the appellant. Further, as per the provisions of Income Tax, whereby, the allowance for cash payment under the relevant provisions of Income Tax Act and rules made there under, during the disputed period was Rs.20,000/- and not Rs.10.000/- as observed in the impugned order.
10.0 In respect of the allegation and finding that there existed a few common resources between SPP and others, as rightly contented by the appellants, sharing of few common expertise would not be a determining factor for clubbing of units. In the case of CCE Kanpur Vs. Sharad Industries [2013 (294) ELT 561(TRI-TEL)], it was observed that the evidence of common office premises, common staff, common maintenance of records cannot be a sufficient ground to club the clearances of the units and prime requirement for clubbing of clearance of two units is that, both the units do not have any independent existence or independent machinery and infrastructure to manufacture the goods. In the instant case, the appellants have successfully demonstrated the independent existence and also independent machinery and infrastructure to 53 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 manufacture the goods. Hence, the ground of the investigation that, sharing of few common resources would not be a ground to club the value of clearances between the units. While holding so, we also note the trade practice that, resources with expertise are often engaged by multiple units as consultants / part-timers, for which they get extra compensation. In the instant case also, it is on record that the alleged common work force were independently compensated from the respective units, where they had provided their services.
10.1 We find that above defense of the appellants was countered by the adjudicating authority by observing in para 20.8 of the impugned Order-in-Original by observing under: -
"Any prudent entrepreneur would not allow working of partners/proprietors of other firms in their own unit manufacturing the same commodity, plastic carry bags, for it would affect their business interests in the competitive market. If SPP allowed proprietors and partners in other firms to work in their unit as employees without any whisper, it means that the proprietor and partners of the disputed units only work under the financial and managerial control of SPP."
10.2 We have to observe that the Adjudicating Authority has overstepped to determine the prudence of an 54 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 entrepreneur than limiting himself to the framework of law.
Further, the observations of the Adjudicating Authority with respect to maintenance of the records of the disputed units in SPP, at in para 20.9 of the impugned Order-in-Original as under: -
"20.9 Maintaining all the records of the disputed units in the principal unit viz, SPP was questioned among other things in the notice. SPP reasoned out that as the business of other units was sold /merged with SPP and Flint paper & plastic industry on 30.06.2017, all the records of other units had to be kept in their premises. I find the contention not acceptable. If the other units were really independent and controlled by the respective partners and proprietors, then why the records pertaining to previous years were kept/abandoned in the premises of SPP or Flint paper and Plastic industry. Are they not answerable to VAT and Income tax authorities for the transactions of previous years?"
10.3 The above finding of the Adjudicating Authority has ignored the vital fact that the inspection happened on a much later date to that of the disputed period and that too after the merger. So, it is expected that the records of the previous years would be kept only in the merged entity. This is also a precise answer to the question framed by the adjudicating authority that sthey are kept as per the VAT/IT requirements.
55E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 11.0 With respect to the allegation of mutuality of interest between SPP and other units, the Show Cause Notice as well as the Order-in-Original based their findings on the fact that SPP had beneficial interest by taking over the disputed units post 2017. In this connection, the appellant has contended that mutuality of interest is an interest which should flow from both the ends, whereas, the department has not alleged any beneficial interest at the hands of the disputed units, to constitute a mutuality. Further, the investigation has also questioned the financial wherewithal of the disputed units for their capital investments. In this context, the appellants have placed on record that all the disputed units had source of capital investments either by way of their savings or through loans from banking channels, which remains undisputed, as evidenced by their financial records.
11.1 The Adjudicating Authority has proceeded to negate these submissions of the appellant by observing in para 20.13 of the impugned order by observing that no profit, interest and share amount was found to have been paid to any of the partners during the functioning of these firms. To our mind, by no stretch of imaginations the non-
payment of profits or interest would constitute any negative 56 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 inference with respect to the mutuality of interest. While observing so, the adjudicating authority has lost sight of the submissions of the appellant as to the legitimate source of funding through banking loans as well as the savings in books, but also ignored the fact in small scale sector, it is a general trade practice not to take the profits during the formative years but plough the same for further business.
12.0 With regard to the allegation that there has been inter-unit transactions between SPP and other units, the counsel for the appellants would explain that the waste generated in the polybags manufacturing units would be sold on the market price to the reprocessing units and such reprocessing units would use such waste along with other raw materials procured by them to manufacture reprocessed granules. Such reprocessed granules would be either sold to SPP and/or other units and also to the other third parties, at market price. It was also argued that, there is no under valuation in respect of these transactions compared to the market price, which would only substantiate the arm's length transaction between SPP and the reprocessing units that the transactions are on principal -to- principal basis. In this connection, we find there is credence in the arguments advanced by the appellants and reliance placed in the case of 57 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 Balsara Hygiene Products Ltd. [2012 (278) ELT 526 (Tri.
Ahmd.)], (Affirmed by the Supreme court - [2015 (321) ELT A146 (SC)]), wherein, it was held that even when the entire goods were sold to the other units, that shall not be a ground for clubbing of value of clearances. In a case where the entire goods were sold to the other units itself was held not to be a ground for the clubbing of clearances, the instant case would fall on a better footing when the goods manufactured by RP units were also sold to various third parties. In fine, when there is no allegation or finding that there is any under valuation constituting a flowback, sale of goods between the units cannot form a ground for clubbing of value of clearances.
13.0 The Order-in-Original has also taken cognisance of certain financial transactions whereby certain loans have been taken by SPP/Flint Paper and Plastic Industry from the other disputed units. In this connection, the counsel would submit that all the loans were only through banking instruments and were repaid along with appropriate interest and thus, they are proper financial transactions on the principal - to - principal basis and cannot be a ground to allege or conclude a financial flowback between the units and consequent ground to club the value of clearances.
58E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 14.0 We find that the above averments of the appellants remain undisputed that all the loans were repaid through banking channels with appropriate interest and hence, as rightly contended by the appellants, would, at the most be viewed as a financial transaction and not a ground to club the value of clearances. In other words, these financial transactions of taking loans and repayment thereof, that too with the appropriate interest, cannot constitute a flowback to club the value of clearances.
15.0 The counsel have also placed a valid argument that the alleged principal unit namely SPP was formed in the year 1994 whereas, the one of the alleged dummy units, namely Flint paper and Plastic Industry (FPP) was in existence since 1992, the adjudicating authority has given a finding in para 20.10 of the impugned Order-in-Original that after starting SPP and the disputed units at close proximity in Vedasandur, the independent activity of Flint Paper and Plastic Industry came to a halt and was controlled by the SPP, its partners and employees. From the above findings, what comes to our mind is that the adjudicating authority has only accepted the independent existence of FPP prior to SPP but has not adduced any tangible evidence either by 59 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 facts or by law, to consider FPP as a dummy unit and hence, we are not able to buy the above reasoning of the adjudicating authority either in logic or reason. In fine, all the findings of the Commissioner in the impugned Order-In-
Original would only establish an independent and physical existence of all the disputed units, whereas, the entire allegations and findings are proceeding under the premise that all the disputed units are dummy units. To our mind, a dummy unit is a unit which has no physical existence but only created on paper, at the first place. This is an inherent contradiction in these proceedings, whereas, the allegations as well as the findings are recognising the physical existence of all the units on one hand but proceed to allege and confirm the value of clearances treating all the units as dummy units, on the other hand.
16.0 For the reasons and discussions set out above, we are of the view that the appellants have effectively rebutted all the allegations contained in the Show Cause Notice and confirmed in the Order-in-O and for the same reason, we hereby set aside the impugned order and allow the appeal filed by SPP holding that the demand of differential duty on account of clandestine clearances shall fail summarily and also the denial of SSI Exemption and 60 E/40326/2023 E/40328-40332/2023 E/40349-40350/2023 E/40352-40368/2023 E/40377-40380/2023 E/40575/2023 consequential demand of duty by clubbing the value of clearances of SPP and other units shall fail the scrutiny of law because of their independent existence. In the result, we hold that all the appellants before us namely SPP and other disputed units are independent entities for the SSI Exemption as per the relevant notifications as it existed during the disputed period.
17.0 With regard to the appeal filed in respect of the various penalties imposed against the co-noticees under Rule 26 of CER, notwithstanding the legal position that no penalty is imposable under Rule 26 of CER when the goods are not held liable for confiscation at the first place, we are inclined to vacate the penalties for the reason that the main appeal succeeds on merits. Accordingly, we set aside the impugned in Order-in-Original in entirety.
18.0 The appeals are allowed with consequential relief, if any.
(Order pronounced in open court on 30.09.2025) Sd/- Sd/-
(VASA SESHAGIRI RAO) (P. DINESHA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) MK