Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs Commissioner Of Central on 30 April, 2008
THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/583/07MAS, E/584/07/MAS
& E/585/07/MAS
(Arising out of Order-in-Original No.6/2007 dated 4.5.2007 passed by the Commissioner of Central Excise, Trichy)
E/586, 587, 588 & 589/07/MAS
(Arising out of Order-in-Original No.7/2007 dated 10.5.2007 passed by the Commissioner of Central Excise, Trichy)
For approval and signature
Honble P.G.CHACKO, Member (Judicial)
Honble P.KARTHIKEYAN,Member (Technical).
_________________________________________________
1. Whether Press Reporters may be allowed to see the :
Order For Publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether the Honble Member wishes to see the fair :
copy of the Order.
4. Whether order is to be circulated to the :
Departmental Authorities? _________________________________________________
1. M/s. Shri Ulaganayagi : Appellants
Ammal Steels
2. M/s. Amman Steel
Corporation
3. M/s. Shri Amman Steel & Allied
Industries
4. M/s. Shri Amman Enterprises
Vs.
Commissioner of Central : Respondent
Excise, Trichy Appearance S/Shri S. Jaikumar, Adv. for appellants G. Natarajan, Adv.
M. Karthikeyan, Const.
S. Durariraj, Const.
Shri N. Rajagopalan, Special Counsel for respondent.
CORAM
Shri P.G. CHACKO, Member (Judicial)
Shri P. KARTHIKEYAN, Member (Technical)
Date of hearing : 4.1.08
Date of pronouncement : 30.04.08
Final ORDER No.________/2008
Per P. KARTHIKEYAN
On 24.06.04, officers of the department conducted simultaneous searches in the premises of Sri Amman Steel and Allied Industries (SASAI), a partnership firm, factories and godowns of its group concerns ie., Amman Enterprises (AE), Sri Ulaganayagi Amman Steels (SUAS), Ramalingam Steel Agencies (RSA), Amman Steel Corporation (ASC), the residences of employees of the group concerns namely, Ms. Usha and Ms. Ponnalagu [both of (ASC)] and Amman lodge . SASAI manufactures iron rods & bars. SUAS manufactures ingots & billets. AE deals in iron rods & bars. ASC & RSA deal in scrap. At SASAI the officers conducted stock taking and found excess stock of finished goods of above 89 MTs of bars/rods and shortage of 70.5 MTs of raw materials, namely, ingots/billets. Searches were followed by elaborate investigation that involved interrogation of Shri.S.P.M. Anandan, Managing Partner, SASAI, (who witnessed search at SASAI), Shri. Somasundaram, Managing Partner of SUAS, Ms.Usha, Ms.Ponnalagu; a painter who painted the ends of bars/rods manufactured at SASAI, labour contractors, dealers of SASAI, operators of weighbridges, personnel of Vasavi Finance, a financing firm, and transporters. Officers also visited dealers premises, lorry transport offices, weigh bridges and certain other premises. Several records/ documents were recovered. SASAI maintained computerized accounts somsacc of production & raw materials. The same was integrated with a program to generate invoices. Shri N.Palani maintained the accounts. Shri Palani also handled payments & receipts on a day to day basis. A CPU and a few floppy discs were seized from SASAI. Floppy discs were seized also from the residence of Ms. Ponnalagu. Floppies were found to contain detailed accounts of transactions, both recorded in the statutory records and a major portion, only in private records. The floppy discs were found to contain comprehensive details of several transactions of SASAI & SUAS in iron bars/rods/ingots/billets/scrap/fuel not reflected in statutory records as well as payments to transporters etc found in account books/registers of group concerns, dealers, staff or transporters recovered. Private accounts contained details also of transactions reflected in the statutory registers. A copy of the P&L Accounts and Daily Transaction Reports of SUAS seized from the residence of Ms.Usha contained a wealth of information which mirrored the computer print outs generated later. In the adjudication proceedings that followed, the assessee objected to use of computer print outs as evidence. It was argued that use of computer print outs without corroboration was prohibited by Section 36B of Central Excise Act 44 (the Act) unless the conditions in Sub Section 36 B (2) of the Act were met. The Commissioner accepted the objection to using the computer print outs of data from floppies recovered unless they were corroborated by other evidence. He found clandestine clearances by SASAI in financial years 2002-03, 2003-04 and 2004-05 (upto June 2004) supported by ample evidence obtaining in other records/documents. Suppression of information relating to clearances and sale of bars and rods were also evidenced by record of payments to the erstwhile owners of SUAS for its purchase by SASAI. Entries in the account of sales in ingots by SUAS were marked as I & II where II was found to denote unaccounted/ nonduty paid. SUAS received scrap under multiple invoices (upto five in one case) from ASC with the same number. This was found to be intended to suppress receipt of raw materials and production of ingots clandestinely cleared by SUAS. Considering the quantum of power consumed, SASAI had suppressed production and clearance of bars & rods. Shri.SPM.Anandan Managing Partner, SASAI admitted making clandestine clearances. Sumangali Steel & JBA Steels supplied ingots to SASAI without invoice which were not accounted by SASAI. As there was no substantial corroboration, in his opinion, for clandestine clearances recorded in the floppies for the year 2001-02, in the registers/documents recovered, the Commissioner dropped the proposal to demand duty due on clandestine clearances by SASAI in 2001-02. Concluding separate proceedings where the proposals were strongly contested by the parties which included cross-examination of several witnesses, the Commissioner passed two orders in original No. 6/2007 dated 4.05.07 & No. 7/2007 dated 10.05.07.
2. In Order-in-Original No. 6/07, dated 04.05.07, Commissioner demanded Rs.83,04,988/-being the duty due on unaccounted clearances of ingots and byproducts during 4/03 to 6/04 from SUAS under Section 11A (2) of the Central Excise Act 44 (the Act), interest due thereon under Section 11AB and imposed equal penalty under Section 11 AC of the act read with Rule 25 of Central Excise Rules, 2002(CER). A penalty of Rs. 5,00,000/- was imposed on SASAI under Rule 26 of CER.
2.1 In Order-in-Original No. 7/07 dated 10.5.07, the Commissioner confiscated excess stock of 89.025 MTs of bars and rods of value Rs.24,93,000/- seized from SASAI under Rule 25 of CER with an option to redeem them on payment of Rs.2,50,000/-. He demanded an amount of Rs.7,11,08,209/- towards duty due on bars & rods clandestinely cleared during 2002-03 to 2004-05 under Section 11 A (2), interest due thereon under Section 11AB and imposed equal penalty under Section 11 AC of the act read with Rule 25 of CER. A penalty of Rs.4,00,000/- was imposed on AE under Rule 26 of CER 2002. In both the cases the Commissioner appropriated Rs.20,00,000/- each already paid by SASAI.
2.2 SASAI filed Appeal No. E/585/07 against demand & penalty in O/O No. 06/07 dated 4.5.07. SUAS filed appeal against penalty of Rs.400000/-. SUAS filed appeal No. E/583/07 against demand, confiscation & penalty in O/O No. 06/07 dated 4.5.07. SASAI filed appeal against penalty of Rs.500000/-. M/s. Amman Steel Corporation (ASC) filed an Appeal No. E/584/07 against Order-in-Original No. 6/07 dated 4.5.07 though there was no demand or penalty against them. M/s. Amman Enterprises (AE) filed an Appeal No. E/587/07 against Order-in-Original No. 7/07 dated 10.05.07 though the Commissioner had raised no demand against them or imposed penalty.
3. We take up the appeals filed by the assessees together. The major submissions by SASAI & SUAS are mostly common. The orders are challenged mainly on technical grounds such as the admissibility of computer print outs as evidence, failure to follow statutory procedure of search and seizure, failure of natural justice in that the Commissioner had not furnished noticees all the material relied on in adjudication etc. We examine the maintainability of these challenges to demands, penalties and confiscation in the impugned orders in order to decide the appeals.
4. In the appeals before us, SASAI and others assail the mahazar as not reflecting the proceedings at premises of SASAI. The mahazar witnesses examined had deposed to the effect that they were not present through the entire duration of the search but had left the premises and joined towards the end to sign the mahazar. They also submitted that the floppy packet was not sealed at the time of seizure. As regards seizure of floppies at Ms. Ponnalagus premises, the witnesses deposed that the seized floppies were not sealed by the officers. Requirement of conducting the search and seizure in the presence of independent witnesses had not been observed in this case as well, thereby rendering such floppies and print outs inadmissible evidence. These floppies could not be used in the proceedings. In support of this claim , noticees relied on the judgment of the Honble Supreme Court in the case of Khet Singh Vs UOI, reported in 2002 (142) ELT 13 (S.C.), wherein it was held that if the search and seizure were in complete defiance of the law and procedure and there was any possibility of the evidences collected to have been tampered with or interpolated during the course of such search or seizure, it could be held that the evidence gathered was not admissible . Reliance is also placed on the judgment of the Honble Supreme Court in the case of Nabakumar Vs. State of West Bengal, reported in 1974 CRLJ 512 which held that if there was no proper sealing, evidentiary value would be lost.
5. It was submitted that the retrieval of data was done on various dates, in the presence of independent witnesses. One of the investigating officers, Shri V. Kalyanapasupathy, Inspector of Central Excise, was the sole person in charge of such retrieval. He had introduced two software tools, viz., PC inspector and bad copy pro, to retrieve the data from the password protected files stored in the floppies. The retrieval of the files in the instant case was not by means of any authenticated software tool, it is argued. Appellants introduced the concept of what they describe as computer forensics. It was submitted that the original floppy should have been imaged and copy alone used in the proceedings. Hash value of the data in the floppy should have been ascertained to show that this parameter (status of the data) was not disturbed during investigation after seizure from the assessee.
6. It is argued that printouts taken using floppies in different computers were not admissible as evidence. They relied on the ratio of Premium Packaging Pvt. Ltd. Vs. CCE reported in 2005 (184) ELT 165 (Tri. Del) and cited its para 5 which is reproduced below.
5. The Department has no doubt placed much reliance on the provisions of Section 36-B, to sustain the admissibility of the computer print outs for proving the charge of clandestine receipt of raw material and manufacture of the final products by the appellants, but admissibility of the printed material under the said Section, has been made subject to the fulfilment of certain conditions, detailed therein. The condition in respect of the computer print out laid down in that Section, as is evident from the reading of its clause (ii), is that, the computer print out containing the statement was produced by the computer during the period over which the computer was used regularly to store or possess the information. In the instant case, the print outs were not produced by the computer. Peripherals were picked up by the Officers from the Head Office-cum-Sale Depot of the appellants and they were inserted into the computer, and that too, not all but certain information from the part of two zip discs were taken in the absence of the appellants. Certain zip discs were copied out by the Officers in the computer of the Department and that too without associating any authorized person of the appellants company. As observed above, when the appellants wanted to have access to the peripherals and requested for obtaining the information or data from those peripherals, some floppies were found blank while some even could not run on the computer. The hard disc even could not be opened for the reason best known to the Department as all these peripherals remained in their custody after the date of seizure i.e. 30-7-1999.
7. Apart from the objection relating to the use of floppies and printouts in the proceedings common to both the appeals, in the appeal against Order-in-Original No.7/2007 the following grounds are taken by SASAI. It is alleged that the order is not sufficiently speaking in that it did not deal with all the arguments advanced by the appellants. The Commissioner had traversed beyond the scope of the Show Cause Notice. The Show Cause Notice itself was vague. Eleven floppies seized were not furnished to the noticees. Only printouts of the data contained in six floppies were furnished. The appellants relied on the Jamadar Singh Vs. CC reported in 1992 (62) ELT 639 (Tri), wherein the adjudicating authority had not mentioned in the Show Cause Notice the seizure list, confessional statement, reports of the seizing officer, summary of the confessional statement etc. The Tribunal observed in that case that the very purpose of the Show Cause Notice was to make the appellants aware as to what were the evidence which were relied on by the department against him. In CC Vs. Ali Mohamed P.P. [2004 (177) ELT 436 (Tri.Bang)], the Tribunal held that if the department wanted to rely on a statement, the same had to be mentioned in the relied upon documents. The Commissioner obviously relied on paper seal not mentioned in the list of relied upon documents in the SCN. None of the floppies was also mentioned in the list of relied upon documents. He had relied upon the reports of the Superintendent of Central Excise and Inspector of Central Excise without furnishing copy of the same to the noticee. Thus, the Commissioner travelled beyond the Show Cause Notice. Citing case law the appellants SASAI argued that the adjudicating authority wrongly ignored certain of their arguments. The Commissioner did not consider the objection to using information obtained by the noticee under the Right to Information Act, 2005 and unauthentic software in retrieving data from the floppies. The data retrieval was shrouded in mystery. Files were retrieved from floppies and printouts taken using software Bad Copy pro v.3.75 Build 0608 and selecting floppy option and the recovery mode Rescue Lost Files Mode #2. The authenticity of the software used was not disclosed and the same was suspect. The department claimed that it seized eleven floppies whereas Shri N. Palani claimed that there were only six floppies as per his deposition during cross-examination. Therefore, unauthorized material was used in the proceedings. Shri N. Palani had stated that the seized floppies would have carried his signature and the name of the Company. The files had not been retrieved in the presence of Shri N. Palani who was well versed with the use of computer but in the presence of Shri SPM Anandan who was not familiar with computer applications.
8. SASAI also argued that Section 36B(2) applied only where computer printout was the sole evidence. Purchase of furnace oil was found solely on the basis of computer printout. Commissioner did not refute the allegation in the reply dated 23.4.2007 that the printouts were taken much earlier and not on the day of the seizure.
9. Objection to using printouts of data in file PON/14/24-11/1 was taken on the same lines as in the case of the other floppy files being not in accordance with Sections 36B (2) and 36B (4). Commissioner had not justified using the printout as evidence. As regards the stock taking at SASAI it is contended that the method of calculation was on average weight basis instead of actual weight. Department took into account bars and rods awaiting quality control clearance. They relied on M/s. Southern Steel (P) Ltd. Vs. UOI [1979 (4) ELT L(J) 402) AP)]. In the reply dated 23.4.2007 the contention that suppression of production during 12.6.2004 to 22.6.2004 was not sustainable remained unchallenged. The department had relied on unauthenticated chits without the name of the company. For example, records of Cauvery Lorry Service which did not establish from whom the goods were lifted. Proprietor of M/s. Bright Public Weigh Bridge deposed during the course of cross examination that parties could not be identified from their records. Records of Kalki Transport for movement of ingots from Sumangala Steel and JBA Steels to SASAI were relied upon without examining Sumangala Steel and JBA Steels.
10. The Commissioner used an order of the Settlement Commission No.45/2006 dated 31.8.2006 without putting the parties on notice. Department could not prove clandestine clearances of ingots from SUSAS to SASAI during 2003-04 and 2004-05 (upto 15.6.2004) which were found to have been converted into CTD bars and rods and clandestinely cleared by SASAI. There was no evidence for this finding. SASAI investing profits of clandestine clearances in SUAS and SASAI receiving DDs through Vasavi Finance in fictitious names as found in the order No.7/07 was not backed by evidence. Clandestine clearances in various years by SASAI were found without adequate corroborative evidence. Slips and chits were not to be relied on to find clandestine clearances.
11. SUAS raised the following grounds in addition to the common grounds as regards computer printouts. The department had found that SUAS produced 7572 tons consuming 5481600 units. Thus per tonne consumption worked out to 724 units. During 6/03 to 3/04, as per the technical opinion report of the nucleus group set up by CBEC after a study in association with IIT, Kanpur, showed that consumption of power for production of steel ingots varied between 555 and 1026 units depending on thermal efficiency, electricity efficiency and nature of raw material. Theirs was an old furnace. They used low yielding scrap and the furnace suffered breakdowns enhancing power consumption. Shri G.S. Hegde, Chartered Engineer had estimated that power consumption of SUAS would be between 1175 units and 1200 units. Shri G.S. Hegde was also consulted by the department pursuant to which two demand notices were issued in Bangalore Commisionerate. Norms were applied for the period from 5/2003 based on study for May 2004 and June 2004 that too for a few days each. The Commissioners finding was therefore incorrect. Shri M. Somasundram had deposed power consumption per M.T. of ingots as 1000 to 1100 units; they had mentioned sale of scrap ingots as ingot sales in the document recovered from the residence of Ms. Usha and they used to mention the sale of high value scrap as ingot sales as II. Shri. Somasundaram had deposed that file (Sl. No.5) recovered from the residence of Ms. Usha contained a rough trial balance of SUAS as on 31.3.2004 and that they mentioned I and II for two grades of scrap. He stated that though partys name was written as SASAI under ingot sales I and II, goods might have gone to other parties. Commissioner rejected these statements as false. For quantification of duty P & L Account of SUAS seized from the residence of Ms. Usha was relied upon. Various incriminating documents, computers and floppies seized on 24.6.2004 were relied upon for demand for the period 2003-04 (upto 2/2004). It was submitted that the documents could not be relied upon as Ms. Usha had deposed during cross examination that the P & L Account had been prepared by escalating sale value by 60% and escalating also purchase figures on the advice of Shri. Somasundram for obtaining term loan from a Bank. The closing stock of scrap mentioned in P & L Account was 941.94 tonnes whereas Form-IV showed 1794.61 tonnes as on 31st March, 2004. The purchase for the fiscal 2003-04 was 7352.821 tonnes as per Form IV. P& L Account showed 9281 tonnes. Therefore unaccounted scrap consumed was only 1928 tonnes and possible unaccounted production 1561 tonnes. But P & L Account showed 2821 tonnes. Therefore, the sales figures were obviously escalated. P & L Account was not a statutory one. P & L Account contained many uncorroborated entries. Such documents prepared to obtain bank loan etc. could not be relied on. The daily transaction sheets were relied on by the Commissioner to quantify the demand for 3/2004 and 4/2004 to 6/2004. On comparing documents available for 12/03, 1/04, 3/04, 4/04, 5/04 and 6/04, entries such as I and II were seen under the column sales. Invoices were not available for entries with remarks II relating to SASAI. No incriminating evidence was obtained from the SASAI end regarding these transactions. Moreover, such removals were not corroborated by power consumption or suppression of production. If the daily transaction sheets were admitted, the demand would be Rs. 34,16,973/- only. Demand was based on unauthentic and inadequate evidence. The charges in the notice were vague and the order was liable to quashed.
12. The ld special consultant made the following submissions. Floppies seized were not sealed. However, when the floppies were opened on 16.08.04, in the presence of Shri S.P.M. Anandan, certain password protected computer files by name Anu 04.xls, Anu 03.xls and offtake.xls were opened using the password provided by Shri SPM Anandan after ascertaining the same from Shri Palani, Accounts Officer of SASAI. These files contained sales statements for 2002-03 & 03-04 of bars and rods, dealer wise with comparative figures for 2001-02. offtake.xls. contained opening balance, receipts, issue and closing balance of 2003-04 of bars and rods and melting scrap. This also contained the details of opening balance, receipts, issues and closing balance of the year 2002-03 and for the period October 01 to March02. These electronic data were corroborated by various other files and records elaborately discussed in the show cause notice. Therefore, those computer printouts should be acceptable as evidence. offtake.xls is from file SASAI/floppy7/file1 and the other files were SASAI/floppy2 /file 3. In Khet Singh Vs. UOI [2002 (142) ELT 13 (S.C.)], the Apex Court decided that even if there was any sort of procedural illegality in conducting the search and seizure, the evidence collected thereby would not become inadmissible and the Court would consider all the circumstances and find out whether any serious prejudices had been caused to the accused ( In that case accused was present all through the mahazar proceedings; there was no allegation that officers meddled with the contraband though the mahazar was not prepared on the spot but at office of the Customs Department). In Bhagwan R. Daswani Vs. CCE [2004 (168) ELT 298 (Mad.)], the High Court of Madras held that evidence collected during an illegal search was legally admissible. In 2006 (201) ELT 437 (Tri.-Del), it was held to the effect that mahazar formed part of show cause notice. Mahazar could be relied upon. In 2000 (115) ELT 38 (S.C.), it was held that retraction after four years of statement recorded under Section 108 of the Customs Act on the ground of use of force by officials was not acceptable. It was held in 2002 (147) ELT 1156 (Tri.) and 2003 (155) ELT A244 (S.C.) that retraction of statement after two years detracted from its value. In 2001 (128) ELT 405 (Tri.-Del.), Tal Balbir Singh Vs. CC it was held that retraction of statement of witnesses during cross examination was of no help to appellants as the persons who retracted the statements were his employees and working under him. In 2006 (194) ELT 290 (Tri.-Del.), it was held that cross examination of witnesses on aspects which were confessed by the accused could be denied.
13. Appellants argued that as regards transport records of Cauvery Lorry Service, they did not disclose from whom goods were lifted. Weighbridge slips of M/s. Bright Public Weigh Bridge did not show the parties concerned. Records of Kalki Transport were relied on for movement of ingots from Sumangala Steels and JBA Steels to SASAI. But no investigation was conducted with Kalki Transport. Order relied on records of Kalki for purchase of 17 tonnes of ingots from Sumangala Steels on 26.9.2006 and 69.4 tonnes of ingots from JBA Steels during 24.6.03 to 18.8.2003. These were not good evidence. Based on kutcha slips, SASAI was found to have purchased 62.34 tonnes of ingots in June 2002 and 98.22 tonnes of ingots in August 2002 from Sumangala unaccountedly. In slips recovered from Sumangala year was not mentioned but the department assumed the same as 2002. The name of the company was not mentioned. The slips carried no signature. Without adequate evidence department concluded that proceeds of unaccounted sales were received by SASAI by discounting demand drafts obtained in fictitious name through Vasavi Finance.
14. We have carefully studied the case records and the rival submissions by the parties. We find that the search and seizure proceedings were testified by witnesses to have been conducted disregarding the statutory requirements. The search and seizure were not witnessed through out by independent witnesses. Description and number of floppies seized were not recorded in the mahazar. The seized floppies were not sealed. The above failures are fundamental flaws and the acceptability of floppies gathered in search as evidence is substantially eroded. These lapses pointed out by appellants justify their claim that the floppies could have been manipulated.
15. ?Appellants objected to use of print outs from floppies as not permissible in terms of Section 36(B) of the act. Section 36B of the act dealing with computer print outs as evidence is reproduced below.
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 micro film of a document or the reproduction of the image? or images embodied in such micro film (whether enlarged or not);
(b) or a facsimile copy of a document; or?
(c) a statement contained in a document and included in a printed?material produced by a computer (hereinafter referred to as a computer print out), if the conditions mentioned in sub-section (2) and the other provisions contained in this section are satisfied in relation to the statement and the computer in question, shall be deemed to be also a document for the purposes of this Act and the rules made thereunder and shall be admissible in any proceedings thereunder, without further proof or production of the original, as evidence of 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?(2) respect of a computer print out shall be the following, namely :
(a) the computer print out containing the statement was produced? by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;
(b) during the said period, there was regularly supplied to the? computer in the ordinary course of the said activities, information of the kind contained in the statement or of the kind from which the information so contained is derived;
(c) throughout the material part of the said period, the computer?was operating properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and
(d) the information contained in the statement reproduced or is? derived from information supplied to the computer in the ordinary course of the said activities.
(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?(c) succession over that period; or
(d) in any other manner involving the successive operation over?(d) 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 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 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 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. We find that the printouts relied upon are not from the CPU belonging to the assessee. The precautions sought to be ensured through Section 36B (2) of the act would appear to apply to printouts of data taken from a CPU. It cannot apply to a print out of a file in the presence of the person who had maintained the same and with the key (password) supplied by him. Such data is beyond suspicion of having been tampered by the investigating agency. These print outs are also corroborated by other evidence. In the consolidated submissions of SASAI dated 3.1.08, SASAI submitted that in the instant case the provisions of Section 36 B would come into operation only when the computer print outs were sought to be relied upon without any corroborative evidence. We find that the print outs from floppies are admissible evidence and do not require corroboration. However the Commissioner found reliable evidence outside the print outs to find evasion. Since the authenticity of the seizure of the floppies has come under cloud, only such files opened after seizure for the first time in the presence of Shri.SPM.Anandan with the password he gave are reliable. The files, from floppies seized from Ms.Ponnalagus residence which on opening in her presence showed the last they were modified to be prior to 24.06.04 , ie.,the date of seizure, are also reliable.
17. We find that the Commissioner relied on diverse transactions that corroborated clandestine clearances of iron bars & rods by SASAI, namely, raw material purchases, power consumption, transporters records , weighing slips, receipts of consideration for goods clandestinely cleared, payment for unaccounted ingots received, by way of meeting the ingot suppliers dues for scrap it had received from scrap dealers, records of buyers of clandestinely cleared goods etc. These manipulations were easier for the concerned owing to the fact that the persons involved belong to the same extended family. We have no doubt that the print outs contained true details of transactions. In serving the purpose of evidence, print outs were only more organized but other evidence are equally useful and relable. In their submissions dated 03.01.08 , the appellants have not contested the averments by the revenue on file retrieval from seized floppies.
18. Appellants introduced what they describe as cardinal rules of computer forensics followed by Centre for Development of Advanced Computing (CDAC) and Government Examiner of Questioned Documents (GEQD). According to the appellants, manner in which GEQD deals with computer/floppies has to be followed in adjudication by authorities. We are not informed by either side that these principles are part of any manual or act that govern quasijudicial proceedings. There is no such protocol or procedure laid down in this regard in the concerned acts such as Central Excise Act 44, Cr PC, Evidence Act or the Information Technology Act. As long as the integrity of the data is not suspect and the adjudicator can show the concerned parties that the same are not tampered with there could be no hazard in using the same. We have found from the circumstances in which printouts were taken, as to which of the print outs could be relied on in the proceedings.
19. It is submitted that vide para 24.4 of the SCN unaccounted transactions were stored in zip floppy through zip drive. However, printouts taken were only from 3.5 inch floppies. All retrievals took place under mahazars. We find that there is no claim that representatives of the assessee questioned the reliability of the printouts on this ground. This aspect should have been taken up before the Commissioner. In reply to SCN it was pointed out that only six and not twelve floppies were seized from SASAI. Department relied on twelve floppies. This submission cannot be verified or vouched for want of details in the seizure mahazar.
20. There is admission of clandestine clearances of iron rods and bars and unaccounted purchases of ingots by SASAI in the statement of Shri M.Somasundaram, Managing Partner of SASAI. He restricts the confession of clearances without payment of duty to a few clearances. This qualified confession appears not acceptable in view of the systematic accounts of transactions maintained in the floppies correlated with diverse back to back transactions with the ingot supplier, his dealings with the scrap dealer, of the scrap dealer in turn with SASAI.
21. The appeal refers to statements of Shri.M.Somasundaram made during investigation, to the effect that the clearances without payment of duty would only be minimal. In his statement dated 23.03.2005 in response to Question No. 2, after seeing a document recovered from M/s Cauvery Lorry Service indicating clearance of bars and rods of the appellant to the tune of 5.030 MTs, he expressed his inability to produce the invoice for the clearance. In answer to Question No. 7 relating to various weighment slips, he accepted that such slips belonged to the appellant, but he could not offer any further explanation. With reference to various documents incriminating SASAI shown to him, he either disowned them as not belonging to the appellant or expressed his inability to offer any explanation. These submissions do not help SASAIs case. We find that where it was inconvenient to answer any query from investigation, he stated that he had no explanation. In his statement dated 28.03.2005, he admitted purchase of ingots from M/s Sree Ulaganayagi Amman Steels, Karaikkal without accountal. The following are also his deposition.
I have seen all the documents and statements of our dealers, transporters and weighbridges of various persons. I do admit that on some occasions we have cleared bars and rods manufactured by us without accounting by using same serial number of the invoice more than once and by using pink coloured freight letters and weighment slips. Such occasions are very few only. However, I am not able to offer any further explanation on the documents retrieved from the computer or floppies. On 28.03.05 in answer to questions, he has deposed the following:
I admit that we have manufactured and sold bars and rods by not showing the actual production and sales in our books of accounts. But that will not be very high.
... I admit that we have indulged in raw material purchase without accounting in our books, not declaring the actual production in our stock account and sale of manufactured goods without payment of duty. However, I would like to state that the market for steel is highly competitive. Many unbranded untested bar and rods manufacturers are dumping their product in the market at very low prices. This resulted in the poor price realization for this product. In order to avoid losses and to run the mill to sustain job opportunities for more than 500 people, we were forced to indulge in such acts. Moreover, we have not enjoyed the full amount of the duty not paid for the manufactured products sold without accounting. We have passed on the benefit till the end customer.
22. SASAI claimed that computer printouts were not corroborated and the factors such as raw material purchase, purchase of fuel, payments made for unaccounted purchases, suppression of production, clandestine clearances and receipt of unaccounted sale proceeds were not proved in a cogent and tangible manner to sustain the demand. This submission is not true. In this case the assessees comprehensive private accounts embracing all its multifarious transactions and the computer print outs, we find, are sufficient evidence to establish clandestine removals. SASAI admitted in their final submissions dated 03.01.08 that computer printouts with corroboration are acceptable evidence.
23. We find that the assessees are fully aware of the method and the software deployed to retrieve the printouts. Ideally Commissioner could have met the charge that he was relying on the computer print outs in preference to the reply of an Additional Commissioner to queries raised by the noticees on an assessee under R.T.I. Act. Commissioner not meeting their plea with reference to reply under R.T.I. Act does not prejudice the assessee. Reply received under R.T.I. Act in no way undermines or detracts the validity of his findings. Findings in the order are based on evidence. As regards a paper seal produced during adjudication to show that the floppies had been sealed when seized, the adjudicating authority should have answered the points raised by SASAI. In any case, Commissioner should have furnished all relied upon material to the noticees.
24. As regards the ratio of Premium Packaging Pvt. Ltd. Vs. CCE reported in 2005 (184) ELT 165 (Tri. Del) we find that in that case zip floppies apparently tampered with were used to take printout and in the absence of the assessee. Some floppies used in those proceedings were found to be blank. The computer did not run at times or was found hung and not operational. The tenor of that decision is that the print outs became inadmissible more because the proceedings lacked transparency in view of the suspect quality of the media/CPU used to take the print out and as the printout was taken in the absence of the assessee long after taking over of the floppy/CPU. In the instant case, files in the floppy were opened using the password furnished by the assesses representative who operated the CPU, or, the file was found to have been modified last (as per the floppy history) before the floppy was taken over by the department. Moreover, Commissioner accepted the appellants plea that Section 36B prohibited using computer printouts as the sole evidence. In the instant case, the printout is substantially corroborated by documents/registers/records. The Commissioner did not confirm a demand for Rs.1,84,57,861/- relying on SASAI/Fly2/File3 for want of other evidence. We find from the order that computer print outs are acceptable evidence if the files were authentic and its retrieval transparent.
25. Departmental adjudication is governed by the preponderance of probability and not proof beyond reasonable doubt. Commissioner had a plethora of evidentiary material including computer print outs to establish evasion. Stock taking was not done by actual weighment of all products is not an acceptable objection. Stock taking in no major factory is possible by actual weighment of each piece which is not practical. We find that ascertaining average actual weight per piece from a sample set and counting the total pieces to determine entire weight of stock is a scientific method which cannot admit of a grievance as being unacceptable estimation. When the shortage and excess were endorsed by the Managing Partner of SASAI , he did not state that excess was owing to stock register not made up-to-date. Records of a transporter need not be authenticated by further evidence of the user of the lorry service. The omissions pointed out are factually not correct or are not of significance.
26. We find that none of the above arguments of SUAS regarding power consumption by SUAS per tonne are valid. The technical study group found that power consumption varied from 555 units upwards per tonne whereas SUAS had actually consumed 724 units as per their records. The argument that ingots recorded as dispatched to SASAI might have gone elsewhere cannot be countenanced. So also the explanation that entries found not covered by accounted clearances of ingots marked as II was a grade of ingots. The P&L Accounts seized from Ms.Usha contained several true items of transactions proved by other records. That these accounts had been prepared with inflated figures to secure bank loan is not substantiated in any reliable manner. The retracting depositions of S.P.M. Anandan and Ms.Usha cannot be held to be reliable in proceedings that alleged the firms that employed them were guilty of commercial fraud.
27. We find that files seen not modified after seizure when opened in presence of Ms. Ponnalagu of ASC and those shown to have been opened first after seizure in presence of SASAIs SPM Anandan with password provided by him are reliable. Commissioner had computed production of SASAI with reference to actual power consumption during the material period and consumption per unit ascertained by SASAI itself for certain period. This value cannot be validly challenged. Documents seized from Ms. Usha included a P&L Account of SUAS which contained figures of annual turnover of relevant years. Appellants seek to discredit this evidence saying that the same was prepared with inflated figures of production to apply for bank loan. There are numerous items relating even to minor transactions/ payments involved in the day to day running of SUAS in the impugned P&L Account which find corroboration in the accounts of SUAS. These entries also include details of unaccounted clearances marked II in the accounts of SASAI. In a fabricated account seeking bank loan these items of information are irrelevant. The P&L Account has several transactions corroborated with the corresponding entries in records seized from other parties to the transactions such as ASC, SASAI and also private documents of SUAS including investment for purchase of SUAS. The P&L Account is a genuine and authentic record.
28. We find that the appeals seek to establish that the Commissioner had relied upon computer printouts of floppies recovered from SASAI and Ms. Ponnalagu of ASC contrary to the prescriptions in Section 36(2) of the Act and that the floppies had been seized without following statutory procedure. We find that Commissioner relied on such printouts which were found to be corroborated by documents or records recovered from the assessees or their associates as well as statements from customers, executive and staff of SASAI. The findings of evasion by both SASAI & SUAS in the orders impugned are well reasoned with the aid of print outs. However, we find that the printouts of files which were taken after the same were first opened after seizure with the password supplied by Shri S.P.M. Anandan and in his presence alone are reliable evidence without such corroboration. So is the case with files which were found on opening in presence of Ms. Ponnalagu to have been modified last on a date before the date of seizure. In the view we have taken of the provisions of Section 36B of the Central Excise Act we do not find it necessary that there should be any other independent corroboration to accept the printouts we have referred to above as evidence. As the seizure proceedings were not in accordance with the statutory provisions, printouts of other files retrieved from floppies are not admissible in evidence without adequate corroboration. If a computer print out can be accepted as evidence only if all the data in the print out has corroboration, print out itself does not serve any particular evidentiary purpose. All the data in a print out found to be reliable evidence are acceptable without further corroboration.
29. The noticee had raised the objection that the Commissioner had relied on an order of the Settlement Commission, certain reports received from Shri S. Kumar, Superintendent and Shri Kalyanapasupathi, Inspector and that the noticees were not supplied data contained in several floppies relied upon by the Commissioner. He had also relied on printouts which had been taken from floppies/CPU of uncertain origin. In the circumstances we remand both the orders to the Commissioner for fresh adjudication after furnishing all relied upon material to the assessees and treating computer printouts as evidence which require no further corroboration. However, the printouts shall be of files which we have observed to be reliable evidence in our discussion. The appeals are allowed by way of remand.
(Order pronounced in open Court on 30.04.08)
(P.KARTHIKEYAN) (P.G. CHACKO)
MEMBER (T) MEMBER(J)
swamy
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