Custom, Excise & Service Tax Tribunal
Indroyal Furniture Co Pvt Ltd vs Tirunelveli on 14 January, 2019
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal Nos. E/342 & 343/2010
(Arising out of Order-in-Original No.6/COMMR/CE/2010 DATED
12.3.2010 passed by the Commissioner of Central Excise,
Tirunelveli)
M/s. Indroyal Furniture Co. Pvt. Ltd.
Shri Madhusoodanan Appellants
Vs.
Commissioner of GST & Central Excise,
Tirunelveli Respondent
Appearance Shri M. Karthikeyan, Advocate for the Appellant Shri B. Balamurugan, AC (AR) for the Respondent CORAM Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial) Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing :17.12.2018 Date of Pronouncement :14.01.2019 Final Order No. 40059-40060 / 2019 Per Bench The appellants are manufacturers of furniture and are holding central excise registration issued by the Tenkasi range, Tirunelveli Commissionerate. Upon gathering specific intelligence that appellants were indulging in suppression of production and clandestine removal of excise goods simultaneous search operations were conducted on 11.9.2007 at various places including the factory premises, head office as 2 E/342 & 343/2010 well as sales outlets and residential premises of directors and managers of the appellant company. As a result of search operations, incriminating documents and computers (hard disks) maintained at the factory and their head office evidencing clearance and sale of furniture without issuing invoice and without payment of central excise duty along with receipts of cash for such sales were recovered under mahazar. Statements were recorded. Basing on such evidence gathered, show cause notice was issued to the appellant proposing to demand excise duty of Rs.68,77,758/- for the period 2004 - 05 to 2007 - 08 (upto August 2007) along with interest and also for imposing penalties. The amount already paid by the appellant was sought to be appropriated. After due process of law, the Commissioner vide the order impugned herein confirmed the demand along with interest and also imposed equal penalty besides separate penalty on the Director of the company. Aggrieved, the appellants are now before the Tribunal.
2. On behalf of the appellant, ld. counsel Shri M. Karthikeyan appeared and argued the matter. He submitted that the evidence relied upon by the department is the statements recorded during investigation. Though computer documents were recovered at the time of search, the procedure prescribed under Section 36B of Central Excise Act, 1944 was not complied by the department and the Commissioner himself after 3 E/342 & 343/2010 analyzing the provision has held that data retrieved from the computer cannot be admitted in evidence.
2.1 Entire demand of duty has been made based only on the computer print outs retrieved during investigation. The requirements of the Section 36B which are to be complied with for the purpose of relying on such Computer printouts have not been satisfied in this case. The Commissioner in Para 72 of the impugned order has categorically held that the conditions prescribed under the above Section has not been complied with and hence the computer print outs cannot be of evidentiary value.
2.2 Statements were recorded from various persons and relied upon in this proceeding to the effect that the appellant had clandestinely manufactured and cleared furniture's without payment of duty. Such statements are not admissible since the examination in chief has not been conducted by the adjudicating authority in terms of Section 9D of CEA for admitting such statements as evidence. Further, the witnesses namely Shri V G Shashangan, Shri Ashok Kumar and Shri V Vasant Selvaraj who have been permitted to cross examination have retracted their depositions. Shri V Arun from whom statement was recorded and relied upon in the impugned proceedings was not made available for cross examination also. The three buyers from whom statements have been recorded and relied upon in this proceedings have filed affidavits wherein they have deposed 4 E/342 & 343/2010 that they had no knowledge about the computer ledger extracts shown to them based on which confirmation was taken by the investigation forcibly and they disowned the entire depositions made in such statements and they had purchased furniture's from the appellant only under the cover of invoices. The following decisions are relied upon in support of their contention based on Section 9D.
a) Jindal Drugs Pvt. Ltd Vs. Union of India, reported in 2016 (340) E.L.T. 67 (P & H).
b) Shiv Shakthi Earthmovers - 2018-TIOL-258-Ces-Chd
c) Ambica International Vs. UOI - 2016 TIOL 1238 HC P&H
d) Vijayachamundeswari Textiles - CESTAT, Chennai, Final Order No.42823-42825/2017 dated 26.07.2017 2.3 Other documentary evidences such as personal diary maintained by Shri Sashangan, Loading List, etc. also does not establish the serious charge of clandestine manufacture and sale of certain furniture for cash alone can be made out from it.
From the balance sheet of the appellant which is available for all the three years in dispute, it is very clear that the appellant is engaged in trading of furniture also and such sales on cash basis have been wrongly reckoned as sale of manufactured items without payment of duty.
2.4 The charge of clandestine removal of furniture by the appellant is not at all based on any valid evidence. The vital fact that the appellant has been engaged in various trading activities 5 E/342 & 343/2010 has been completely ignored in the show cause notice. The computer print outs relied upon by the department in support of the allegations and for quantification of duty are not at all legally permissible evidences and they lack evidentiary value as held by the adjudicating authority. The statements recorded and relied upon are not admissible as evidence in the absence of examination in terms of Section 9D. The other documents relied upon by the department are also not capable of proving the charge of clandestine manufacture. It has been time and again reiterated by various judicial pronouncements that the charge of clandestine removal has to be proved with cogent evidences and the demand cannot be confirmed on the basis of presumptions and assumptions. Hence, it is humbly prayed that the entire demand of duty with consequential interest and penalties (both on the appellant and the co-appellant) may be set aside with consequential relief.
3. The ld. AR Shri B. Balamurugan supported the findings in the impugned order. He adverted to para 72 of the impugned order and submitted that though the Commissioner has recorded that it would be difficult to admit the computer print outs as evidence, the statement recorded would support the computer print outs and therefore the computer print outs are not stand alone document. The print outs have been corroborated by the statements. Thus computer print outs are reliable and acceptable in evidence. Other documents viz. diary, 6 E/342 & 343/2010 loading list and material inward register were also recovered. These showed that appellants had purchased unaccounted wood which was used for manufacture of furniture which was cleared clandestinely. All these facts are admitted in the statements of the employees. Shri V. Arun, who is the accountant of the appellant company has given two statements dated 11.9.2007 and 27.9.2007. In the first statement, he has deposed with regard to the private diaries maintained by Shri V.G.Sashankan. The other statement was recorded after retrieval of data and taking the print outs from the computer. Though intimations were sent to Shri V. Arun to appear for cross-examination, the same was returned unserved. Though department has taken reasonable efforts to acquire presence of the witness before the investigating authority, the witness has not appeared. On such circumstance, the statement given by the witness has to be accepted in toto. The statement of Shri V. Arun would throw light on the contents of the computer print outs which evidences the charges alleged in show cause notice. The file title II Stock 2005 - 06 recovered from factory which is Annexure B13 contains reports showing alleged unaccounted clearances for the year 2005 - 06 and 2006 - 07. The details contained in such documents tallied with the details contained in the print outs which is Annexure 20 and relevant for the year 2005 - 06 which is the basis for quantification of demand for such year. So also V.G. Sashankan who is the Manager (Stores & Dispatch) has 7 E/342 & 343/2010 stated that he has maintained two private diaries for cash receipts and payments. It is deposed by him that the signature of the receipt of the amount is that of Shri V. Arun, Accountant. Thus, the statements of these two employees would support the computer print outs. The allegation of clandestine removal is forcefully established by the department. The demand, interest and the penalties imposed therefore require no interference.
4. Heard both sides.
5. The allegation is that the appellant has clandestinely manufactured and cleared furniture and thus evaded excise duty.
5.1 The main evidence relied by the department is the data / computer print outs retrieved from the computers which was used in head office / factory etc. These computers were seized from the premises. These computers itself were seized by the department under mahazar dated 11.9.2007. They were later opened at the office of DGCEI at Coimbatore. The officers then browsed through the contents and took few print outs of certain ledger folios as detailed in the Annexure to the mahazar dated 17.9.2007. The two hard disks contained in the computers were removed thereafter from the computers and seized under mahazar dated 17.9.2007.
5.2 Section 36B of the Central Excise Act, 1944 envisages conditions for admissibility of such date retrieved from computer. The said provision is reproduced as under:- 8
E/342 & 343/2010 ―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 micro film of a document or the reproduction of the image or images embodied in such micro film (whether enlarged or not); or
(b) 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 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) 9 E/342 & 343/2010 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 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 10 E/342 & 343/2010 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.‖ 5.3 The mahazars dated 11.9.2007 and 17.9.2007 prepared at the appellant premises and office of DGCEI respectively would show that employees of the appellant viz. Ashok Kumar, Anil Kumar, Selvaraj were present. They have endorsed signature in the mahazar. The question is whether such endorsement of signature would fulfill the condition required in sub-section (4) of Section 36B. Any statement / print out taken out of the computer would be admissible in evidence only if it is supported by a certificate as required under sub-section (4) of Section 36B. There is no such certificate stating that it is prepared as per the requirement of Section 36B. Further, though all the persons who have endorsed signature in the mahazar dated 17.9.2007 at the office of DGCEI were present at the appellant's premises on 11.9.2007 at the time of search, instead of retrieving the data from the appellant premises itself, the 11 E/342 & 343/2010 computers as a whole have been seized and taken to the office of DGCEI. Further, on 27.9.2007, 27.8.2008, 26.9.2007 also print outs were taken. Para 45 of show cause notice says that the quantification of duty has been based on the print outs from the computers seized as per mahazar from factory and Head office. Then it becomes highly necessary on the part of department to establish that the provisions of Section 36B has been complied.
5.4 In para 72 of the impugned order, the Commissioner has addressed this issue of the requirement to comply with the provisions of Section 36B of the Act ibid and has observed as under:-
―In this case, it is apparent that the data contained in the computer was fed by Shri Arun from March 2006 and earlier two employees, who were no more in service maintained the computers. No statements were recorded from the said employees concerning the data and the computer print outs. Even the statement dated 27.9.2007 recorded from Shri Arun was silent as to whether the conditions stipulated in sub-section (2) as said above were complied with. In the absence of the conditions being complied with it would be difficult to admit the computer print outs as evidence in these proceedings.‖ 5.5 Thus, evidently, the Commissioner admits that the condition in Section 36B have not been complied with respect to the data retrieved from the computer. On such score, the evidence said to be retrieved from the computer cannot be relied upon at all. The ld. AR has argued that even though the computer print outs are not admissible in evidence, the 12 E/342 & 343/2010 statements of the witnesses would support the computer print outs and therefore the evidence of clandestine manufacture and clearance is established. The statements of persons have to be subjected to examination-in-chief as well as cross-examination as per the provision under section 9D of Act in order to be admissible as evidence. This principle is settled in the decisions relied upon by the ld. counsel namely Jindal Drugs Pvt. Ltd.
(supra), Shiv Shakthi Earthmovers (supra) and Ambica International (supra). It is also seen that Shri V.Arun who is said to have been accountant of the appellant-company did not appear for cross-examination. Though it is alleged that V. Arun was maintaining the accounts, his statement or certificate as to feeding of the data in the computer has not been obtained by the department. It is brought out that the witnesses namely Shri V.G. Sashankan, Shri Ashok Kumar and Shri V. Vasant Selvaraj whose cross-examination was conducted have retracted from their depositions. These are the persons alleged to have signed the computer print outs when it was taken out by the DGCEI at their office. So also the buyers from whom statements were recorded and relied upon by the department have filed affidavit wherein they have deposed that they had no knowledge of the computer ledger extracts shown to them and they were forced to give statements before the investigation officers. Thus, they have disowned their entire depositions made during the investigations. From the above discussions, we find 13 E/342 & 343/2010 that the statements cannot be considered as standalone documents to prove the allegations in the show cause notice. The evidence put forth is too flimsy to establish a serious charge of clandestine manufacture and clandestine clearance of goods. Though the department need not establish clandestine clearance with mathematical precision, the evidence should establish a probability of such clandestine clearance. On appreciating the facts of the present case, the Commissioner himself having found that the main evidence relied for quantification of duty i.e. computer print outs being not admissible in evidence, the demand could not have been confirmed. We therefore hold that the department has miserably failed to establish the allegations raised in the show cause notice. The impugned order is therefore set aside and the appeals are allowed with consequential relief, if any, as per law.
(Pronounced in court on 14.01.2019)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Rex