The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a central excise duty demand of ₹72.33 lakh against an evaporative air cooler manufacturer after finding that the alleged clandestine clearances were calculated primarily from documents whose recovery and authenticity could not be reliably established.
The Bench of Ashok Jindal (Judicial Member) and P.V. Subba Rao (Technical Member) observed that contradictory testimony concerning the preparation of the panchnama rendered the search document unreliable. Consequently, the documents purportedly seized under that panchnama could not constitute dependable evidence of clandestine removal.
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The bench observed that, once the disputed clearances based on the unreliable documents were excluded, the assessee’s turnover remained within the Small-Scale Industry exemption limit. It accordingly ruled that neither central excise duty nor penalty was payable.
The appellant/assessee was engaged in manufacturing evaporative air coolers classifiable under sub-heading 84796000 of the Central Excise Tariff.
On March 26, 2010, departmental officers conducted searches at premises connected with the appellant, including its factory, godowns and the residence of its proprietor, A.K. Chaudhary. The officers found stocks of evaporative coolers and claimed to have seized documents considered incriminating.
Statements were subsequently recorded during the investigation. An initial show-cause notice dated September 24, 2010 proposed confiscation of the seized goods. A second notice dated October 17, 2013 sought recovery of central excise duty amounting to ₹2.24 crore on allegations of clandestine clearances.
In the first round of adjudication, the authority accepted certain arguments concerning duplication of the demand but sustained a duty liability of ₹94.87 lakh. The seized goods were ordered to be confiscated, with an option to redeem them upon payment of a fine of ₹75 lakh. Penalties were also imposed.
When the matter first reached the Tribunal, it was remanded to the adjudicating authority through a final order dated November 14, 2017. The authority was directed to comply with Section 9D of the Central Excise Act, 1944 before relying upon statements recorded during the investigation.
Section 9D prescribes the conditions under which a statement made and signed before a central excise officer may be treated as relevant evidence in adjudication proceedings.
During the remand proceedings, the authority permitted the cross-examination of ten witnesses requested by the appellant. However, only three witnesses were eventually cross-examined.
Following the fresh adjudication, the authority calculated the allegedly unaccounted clearances for the financial years 2008-09 and 2009-10. A total central excise duty demand of ₹72,33,463 was confirmed, along with interest and an equivalent penalty.
For 2008-09, the authority worked out a duty demand of ₹4,21,458. For 2009-10, it calculated the duty liability at ₹68,12,005.
The appellant challenged this order before the CESTAT, contending that the demand was substantially based upon a document described as the “Neel Gagan Ledger”. According to the assessee, a copy of this ledger was neither supplied with the show-cause notice nor furnished during the original or remand adjudication proceedings.
It was argued that the department did not produce the ledger even before the adjudicating authority despite requests from the appellant and directions issued during the proceedings. Therefore, the demand could not legally be confirmed on the basis of an undisclosed and unproduced document.
The appellant further disputed the alleged recovery of the Neel Gagan Ledger and other documents from the searched residential premises. It relied upon the depositions of Shanti Chaudhry, in whose presence the search was conducted, and panch witness K.K. Grover. Both witnesses reportedly stated that the disputed documents had not been recovered during the search.
The officer responsible for preparing the panchnama was also unable, according to the appellant, to prove the recovery or produce the documents before the adjudicating authority.
The assessee maintained that this was effectively a case of no evidence. It argued that the alleged clearances attributed to the disputed documents constituted the overwhelming portion of the turnover calculated by the department. If those amounts were excluded, its turnover would fall within the applicable SSI exemption threshold.
The Revenue defended the adjudication order, submitting that physical evidence, including goods and a vehicle, had been seized during the investigation. It contended that private records recovered during the search were correlated with the appellant’s statutory records and discrepancies had been discovered.
The departmental representative also relied upon the statement of proprietor A.K. Chaudhary, claiming that he had admitted clandestine clearances.
After examining the record, the Tribunal described the panchnama as the “backbone” of the Revenue’s case. It noted that, although the panchnama referred to the seizure of certain documents, those documents had not been furnished and their contents could not be ascertained.
The Tribunal also found a material contradiction in the witnesses’ accounts regarding the preparation and execution of the panchnama.
The officer who prepared the panchnama stated that it was concluded at 1:13 pm on March 26, 2010. In contrast, panch witness K.K. Grover stated during cross-examination that he had been called to sign the panchnama at around 8 pm or 8:30 pm.
“In that circumstances the Panchnama drawn on 26.03.2010 is not reliable document,” the Tribunal observed.
It held that the documents stated to have been seized under the disputed panchnama were consequently also unreliable and could not be used to establish clandestine removal.
The Tribunal rejected the Revenue’s attempt to treat the proprietor’s statement as an admission. It noted that, in his statement dated September 3, 2010, Chaudhary had described the disputed material as containing rough entries, denied knowledge of who had prepared it and recorded that copies were not being supplied to him.
Since this explanation had not been rebutted by the Revenue through cogent evidence, the Tribunal held that the statement was not inculpatory.
The bench then examined the quantification of the demand. For 2008-09, the authority had attributed clearances worth ₹1.94 crore to the Neel Gagan Ledger. The Tribunal held that, after excluding this figure, the appellant’s turnover fell within the SSI exemption limit of ₹1.50 crore prescribed under Notification No. 8/2003-Central Excise dated March 1, 2003.
Accordingly, no duty was payable for 2008-09.
For 2009-10, the authority had included clearances exceeding ₹6.01 crore on the basis of the Neel Gagan Ledger and another ₹2.98 crore relating to alleged dispatches from Deep Vihar.
The Tribunal found that these figures were dependent upon the disputed records. After removing them from the total turnover calculated by the adjudicating authority, the appellant’s turnover once again fell within the ₹1.50 crore SSI exemption threshold.
It therefore concluded that no central excise duty was payable for 2009-10 either.
Holding that the alleged seized documents were unreliable and that the appellant’s eligible turnover remained within the SSI exemption limit, the Tribunal quashed the entire duty demand. The consequential penalty was also set aside, and the appeal was allowed with consequential relief.
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