[Order per : P. Karthikeyan, Member (T)]. - The Revenue’s case is that, on 29-1-2003, following simultaneous searches at the premises of M/s. Copier Force India Ltd., No. 283, Anna Salai, Chennai, (CFI), their godowns and the residential premises of the Managing Director Shri K.A. Shabu, the officers recovered several incriminating documents, three CPUs and seized 94 pieces of ‘fully assembled photocopiers’. Scrutiny of the documents revealed that CFI had imported second-hand photocopier sub-assemblies condition from countries such as Sri Lanka, Singapore and Australia. Imports were also made in the names of several dummy units created by CFI. The Managing Director of CFI admitted that the other importers (firms) were his creation. All the related Bills of Entry for import of photocopier sub-assemblies were seen to have been assessed under CSH 9009.90 i.e. photocopier parts/components. The brands included Canon, Modi Xerox and Agfa. Printouts of data retrieved from the CPUs seized from CFI premises showed details of transactions in photocopier parts and photocopiers by CFI during 2001-02 and 2002-03 (12/01 to 1/03). The data showed transactions by CFI in the names of dummies also. Various statements recorded from Shri K.A. Shabu, Managing Director of CFI revealed that CFI had thus imported subassemblies and components of second-hand photocopiers of various brands through Chennai port. The photocopiers were assembled in the godowns of CFI at Saidapet and Anna Salai. The photocopiers were sold to dealers at Delhi, Mumbai, Calcutta, Bangalore etc. The proceeds were received in the names of CFI and other dummy concerns. Transactions were entered in computers under names such as CFI, ABC, Abci, PCB, RAD and RAM. Shri K. A. Shabu used to be Managing Director of CFI prior to 1998 officially. Shri Mujib Rahim took over from him as M.D after that. Actually Shri K.A. Shabu continued to function as Managing Director for all practical purposes. Everybody referred to him as M.D. as seen from records.

2. Shri S. Krishnakumar, Accounts Manager, CFI endorsed the submissions of Shri K.A. Sabhu that he was the de facto M.D. CFI had 140 to 150 employees working at various locations such as Anna Salai, and Saidapet in Chennai. Photocopiers were assembled in the godowns of CFI and despatched to buyers. No record of transactions were kept. The sale bills showed only one per cent of the actual value. The details of the transactions were entered under headings such as ABC, BCD, RAM entering one per cent of the sale price. Summary of sales was submitted to Shri K.A. Shabu every month. Buyers were advised to take demand drafts favouring parties such as Royal Traders, Royal Enterprises, Royal Reprographics etc. These amounts were deposited in bank accounts of the firms in the names of the employees of CFI. Shri Mujib Rahim admitted signing documents as M.D. One Shri Nishad and himself were related to Shri K.A. Shabu. They were employees of CFI. Shri Somasundram in charge of Saidapet godown confirmed the above activities of CFI and stated that packed machines were despatched on the advice of Shri K.A. Shabu, M.D. and Shri P. Joseph, Manager in charge of marketing.

3. Statements recorded from various buyers confirmed purchase of photocopiers without bills and against cash payment. They confirmed that they had paid for the purchases by way of demand drafts in the name of Royal Traders, Royal Enterprises etc.

3.1 On 19-3-2003, Shri T. Premkumar, Manager of Karur Vysya Bank, Teynampet, (KVB) stated that CFI had deposited huge sums of cash in its name and other names through its employees. These accounts were closed after investigation of CFI by sales tax department. All the Bills of Entry copies had been tendered to KVB by CFI. Truck operators confirmed transporting loads of photocopiers from the godowns of CFI at Saidapet and Jafferkhanpet, also in containers. Shri D. Padmarajan, deposed in his statement dated 7-3-2002 that he had helped Shri K.A. Shabu, in the clearance of goods in the name of CFI and others (the dummies). Shri K.A. Shabu had imported photocopier sub-assemblies in several names in addition to CFL Shri K.A. Shabu would hand over import documents such as Bill of Lading, Import Invoice, Packing List, Cargo Arrival Notice and necessary funds for meeting expenses towards clearance of the imported goods. He would be funds which were deposited in his name and his wife’s name in banks for obtaining DDs in various firms’ names towards duty on the goods imported and for making payments to Steamer Agents. After completing investigation, a Show Cause Notice was issued proposing to confiscate the seized photocopiers and another (No. 3/06 dated 24-1-06) proposing to demand duty of Rs. 9,84,39,315/- for the period 1/2001 to 12/2002 under Section 11A(1) of Central Excise Act, 1944 (CEA), the interest thereon in terms of provisions of Section 11AB of CEA and imposing penalties. The above Show Cause Notice was addressed to CFI SCN was issued to Shri K.A. Shabu proposing to penalize him under Rule 209A of the CER ‘44/ Rule 26/25 CER for his dealings in goods he had reason to believe were liable to confiscation. Similar notices as issued to Shri K.A. Shabu were issued to S/Shri Mujib Rahim, M.A. Nishad and P.D. Jobin of CFI.

4. In the adjudication proceedings, CFI had contended that Shri K.A. Sabhu had no dealings with CFI and Shri Mujib Rahim was functioning as Managing Director. Transactions of firms said to have been floated by Shri K.A. Shabu could not be clubbed with that of CFI. The computer printouts relied on did not satisfy the requirement of Section 36B of the Central Excise Act, 1944 (the Act) and no findings could be arrived at on the basis of those printouts. On a perusal of the related Bills of Entry, the Commissioner had found that sub-assemblies were imported in the names of firms such as Royal Traders, Royal Enterprises, Deepam Traders, Global Traders, Falcon Enterprises etc. Scrutiny of the bank documents such as accounts opening forms and Bank Statements revealed that S/Shri Mujib Rahim, M.A. Nishad, Directors of CFI, P.D. Jobin, C.V. Velayudam, V. Srinivasan, A.S. Sanish and P.P. Davis (employees of CFI) had opened accounts in the names of concerns figuring as importers in the Bills of Entry. The employees were proprietors of such concerns on record. There were six accounts where Shri M.A. Nishad was the proprietor and five accounts where Shri Mujib Rahim was the proprietor and ten accounts where Shri P.D. Jobin was the proprietor. These persons were introduced to the bank by Shri M.A. Nishad. Same address was used by Shri Mujib Rahim, Shri P.D. Jobin and Shri M.A. Nishad for opening some of the proprietary accounts. Certain other addresses were also used by them to open accounts in their proprietary capacity. After the sales tax investigation, these accounts were closed and the balances withdrawn by the employees of CFI authorized by the account holders. They closed the accounts and received the balance. The addresses found in the bank accounts were same as those in the Bills of Entry filed by each of the various concerns. The data relating to bank accounts retrieved from the computers tallied with the bank records except the amounts which were 1% of the corresponding figure in computer. It was found that all concerns had separate IE code, sale tax registration, PAN number etc. This was found aimed at evading Central Excise duty. The fact that data relating to imports by CFI and other concerns were stored in the CPU of CFI showed that all the imports of sub-assemblies were on account of CFI. The Commissioner found records/registers for common accountal of receipts of sub- assemblies and deployment of personnel for various items of work related to assembling of photocopiers. On the date of search several photocopiers ready for dispatch as well as at different stages of assembly were found. The computer printouts showed transactions of various concerns recorded in a systematic and meticulous manner. Shri D.Padmarajan had in his statement (though retracted in cross-examination) admitted that all impugned imports were for CFI. Import documents showed that goods imported were parts of photocopier machines falling under CSH 9009.99. All the goods had been stored in CFI premises also at Saidapet and Madhavaram. Officers seized two containers of photocopier machines in packed condition without proper transport documents and without proper invoices. The imported goods were stored in a common pool. However, receipts of imports made by CFI were accounted separately in their books of accounts maintained under the heading “Copier Force India Pvt. Ltd”. Shri S. Krishnakumar deposed that photocopiers were accounted as “GEARS”. He explained in his statement dated 19-4-2000, that all the transactions were entered under fictitious names like Abci, RAM RAD etc. in CFI’s computers with Tally Accounts Package. He explained that the seized documents showed the sale values in the invoices and computer printouts at one per cent of the actual value. This was on the instructions of Shri K.A. Shabu.

5. Bank accounts showed remittance of amounts in cash/DD/Cheque issued by various buyers as well as withdrawals. Employees of CFI, Shri Velayudam and Shri Raghavan had made huge remittances in cheques/DDs in the names of various concerns in their respective accounts. The receipts in the account in Abci heading and the corresponding entries in the respective individual accounts like Royal Traders, Falcon Enterprises etc. were analyzed by the Commissioner. The entries tallied except for the fact that the receipts in the bank accounts were entered either on the same day or on a day later than in the Abci accounts and that the bank showed hundred times the amount shown for each entry in the Abci accounts. In other words the computer accounts showed only one per cent of the actual amounts transacted. CFI had withdrawn the entire sale proceeds by issuing self cheques and all the accounts were closed by S/Shri Raghavan and Velayudam who had received authorization from the dummy account holders. The accounts were in the names of S/Shri Mujib Rahim, M.A. Nishad and P.D. Jobin. Photocopiers were despatched under dummy bills or were described as ‘Gears’. Buyers confirmed receiving photocopiers under bills showing ‘Gears’. They confirmed negotiating with Shri K.A. Sabhu and that the value declared was only one per cent of the actual value. Most buyers on seeing the printouts confirmed the transactions including the quantum and value. Shri S. Krishnakumar explained the manner of accountal of transactions though he retracted them during cross-examination conducted after a long time of recording statement. He had deposed that he used to instruct Ms. Radha and Ms. Rathi to enter data relating to transactions in the CFI computer. From the involvement of employees of CFI in the transactions recorded in the CPU of CFI and the treatment of sub-assemblies and photocopiers in the records of CFI, the Commissioner concluded that all the transactions were on behalf of CFI. CFI had manufactured a new product different from the inputs, imported sub-assemblies and indigenous parts and sold them under brand names not owned by them. Therefore, excise duty was payable on the seized goods and the clandestine removals. In computing the clearance value transactions in the names of various concerns accounted in the computer records were taken into account. The Commissioner found sufficient evidence to hold that all the transactions were conducted at the behest of Shri K.A. Shabu by the employees of CFI. CPUs were seized from the CFI premises. The data could be accessed only with the password known to Ms. Radha, who was an Accounts Assistant of CFI. Statements of the staff of CFI confirmed transactions under fictitious names like Abci, RAM, RAD which were actual transactions of CFI. They agreed that ‘Gears’ represented assembled photocopiers. CPUs were operated and printouts taken in the presence of CFI staff under mahazar. Corroborations of transactions by buyers lent authenticity to the transactions found in the computer records.

6. Shri S. Krishnakumar, Accountant and Ms. Radha, Accounts Assistant who handled electronically generated data in CFI computer had certified the correctness of such data and explained the manner of accounting followed. All the clandestine activities were reflected in the computer printouts. The Commissioner justified the computer printouts as evidence. The bank statements further established that the fictitious firms were a front for CFI. Imports in the name of fictitious concerns were to mask the identity of CFI. The Commissioner found that Shri K.A. Shabu was the kingpin behind the illicit transactions including imports of sub-assemblies, manufacture of photocopiers and their clandestine removal. Shri Mujib Rahim and Shri M.A Nishad had floated several fictitious proprietary concerns and imported photocopier sub-assemblies and actively associated in the manufacture of photocopiers. Shri P.D. Jobin, an employee of CFI, facilitated unaccounted sales of photocopiers allowing his name to be used as proprietor of several dummy concerns created by CFI. The CFI brochure had a prominent photo of Shri. K.A. Shabu describing him as Managing Director. Before the investigating officers of DGCEI, he presented himself as the Managing Director of CFI and gave information relating to the activities of CFI. He had, on 13-6-2002, given statement before the sales tax authorities as Managing Director of CFI. Several e.mails and letters recovered showed Shri K.A. Shabu to be responsible for the activities of CFI. Retraction by Shri K.A. Shabu during cross- examination was only an afterthought. All the employees took instructions from Shri K.A. Shabu. Manager of Karur Vysya Bank and others like Customs Clearing Agent Shri Padmarajan referred to Shri K.A. Shabu as Managing Director of CFI in their statements given to DGCEI. The Commissioner found ample evidence to find that Shri K.A. Shabu was at the helm of affairs of CFI. He organized the operations of CFI, namely, import of components, manufacture of photocopier, their sales, maintenance of bank accounts etc. It was immaterial that Shri K.A. Shabu was not Managing Director of CFI on record. Retraction was not admissible after a lapse of long time. The Commissioner passed the following orders.

(i)      Confiscated 94 pieces of photocopiers seized from the premises of CFI valued at Rs. 15,91,500/- under Rule 25 of the CER, 2002. CFI offered an option to redeem the goods on payment of a fine of Rs. 20 lakhs.

(ii)    Demanded duty of Rs. 2,19,380/- under Section 11A(1) of the Act.

(iii)   Demanded duty of Rs. 9,84,39,315/- for the period January, 2001 to December 2002 under Section 11A(1) of the Act.

(iv)   Ordered recovery of interest under Section 11AB of the Act.

(v)     Imposed penalty equal to Rs. 9,86,58,695/- on CFI.

(vi)   Imposed penalty of Rs. 2,50,000/- on CFI under Rule 173Q read with Rule 25 of CER (No. 2) Rules, 2001 and Rule 25 of CER, 2002.

(vii)  Appropriated Rs. 17 lakhs towards the duty due of Rs. 9,84,39,315/-

(viii) Imposed penalty of Rs. 80 lakhs each on S/Shri Mujib Rahim, M.A. Nishad and P.D. Jobin and Rs. 90 lakhs on Shri K.A. Shabu under Rule 209A of the CER, 2004, Rule 26 of CER (No. 2), 2001/Rule 26 of CER, 2002.

7. In the captioned appeals filed against the impugned order, the individuals challenge the penalty imposed on them as not justified. In the appeal of CFI, grounds are discussed under the following three major headings.

(a)     Illegality of Show Cause Notice

(b)     Admissibility of evidence

(c)     Denial of manufacture.

(a) Illegality of Show Cause Notice :

No Show Cause Notice had been issued to any of the alleged dummy units whose value of clearances had been clubbed with the value of clearances of CFI. The proceedings were therefore illegal. A catena of decisions was relied on in support. They particularly highlighted the decision of the Tribunal in the case of Poly Resins v. CCE [] which held that non-issuance of Show Cause Notice to the alleged dummy units proposing clubbing of their clearances with those of the principal unit would vitiate the proceedings. The Commissioner ignored the case law cited in this regard before him.

(b) Inadmissibility of evidence :

The evidence has been assailed in three parts.

(a)     Computer printouts from the CPU of CFI

(b)     Statements of Shri K.A. Shabu

(c)     Statements from employees of CFI and CHA of CFI.

(i) Computer Printouts

The printouts were not taken in accordance with Section 36B of the Act because the computer printouts containing the statement should have been produced by the computer during the period over which the computer had been used regularly to store or process information. The information of a kind contained in the computer printouts should have been regularly entered by the company. During the relevant period, the computer should have been operated in the above manner. The data available in the said computer printouts should be verified from the data supplied by the company during its normal business activities. These conditions were not satisfied. Moreover, there was no certificate from the person who operated and was in charge of the computer during the material period. This was a violation of the mandate contained in Section 36B(4) of the Act. The ratio of Premier Instruments and Controls Ltd. v. CCE [] is particularly relied upon. The Commissioner relied on the printouts ignoring these requirements.

(ii)Statements of Shri K.A. Shabu

CFI was a public limited company. Shri K.A. Shabu had no locus standi in the affairs of the company as he had resigned as evidenced from the document Form 32 filed with the Registrar of Companies. Shri K.A. Shabu had disowned all depositions made by him and the allegations based on his statements. The statement of Shri S. Krishnakumar to the effect that Shri K.A. Shabu was the Chairman of CFI and he called the shots was obtained under duress. All the buyers cross-examined had deposed that they transacted only with one Shri P. Joseph, contrary to their depositions before DGCEI officers that they had dealt with Shri K.A. Shabu. Shri K.A. Shabu had retracted his depositions during cross-examination and denied that he was Managing Director of CFI during the material period. Shri D. Padmarajan, during the cross-examination deposed that individual importers would approach him to take clearance of goods and for import documentation. He denied that goods imported by others had been sent to Shri Shabu’s godowns.

(c) Denial of Manufacture

Shri S. Krishnakumar deposed during cross-examination that he did not have any computer knowledge and that one Ms. Rathi had entered data using Tally Computer Software. Investigation did not collect evidence from Ms. Rathi. Therefore computer printouts could not be relied on. All the sub-assemblies imported by various dummy units came to the godowns of CFI was a finding based on the statement of Shri D. Padmarajan, who had retracted the same. Shri G. Somasundaram who had given a statement to the effect that CFI had engaged in assembling/manufacturing photocopiers could not be produced for cross-examination by the authorities. Several case law were cited to the effect that failure of witnesses to appear for cross-examination would not be a ground to penalize the appellant when the appellant was entitled to an opportunity of cross-examination of third party on whose statements reliance was placed as held in Arsh Castings Pvt. Ltd v. CCE []. The buyers who were examined had deposed that they had not kept accounts of the transactions. Therefore the transactions could not be relied on. Further S/Shri V. Ekambaram, T.R Venkatesan, K. Thomas and R. Ramesh etc. deposed that the number of machines purchased by them from CFI and the value mentioned in their statements were not correct and were stated at the instance of officers of DGCEI. Many of the accounts of the alleged dummy units were in the name of Shri P.D. Jobin. He was not contacted to collect evidence. The order deserved to be set aside.

8. Shri Habibulla Basha, ld. Sr. Counsel, who appeared on behalf of the appellants, submitted that the sub-assemblies as per the slips recovered from the CFI godowns amounted to 1581. If total imports were considered, there were 5338 numbers of sub-assemblies. As per the impugned order, there were 17,000 sub-assemblies. The department took imports of sub-assemblies during 2000-01 and 2001-02 and 2002-03 totalling 5338. The material period is 1/2001 to 12/2002. Therefore, the figures adopted in the order were incorrect. At the time of search only 94 pieces of machines were found. There was no evidence for manufacture of photocopiers. Shri Shabu’s statement could not be relied on. The so called fictitious concerns had IE code, Sales Tax registration, bank accounts and PAN. They could not be considered fictitious concerns. They had not been issued with Show Cause Notices. Section 36B had not been followed in using computer printouts. As per the statement of buyers value of photocopiers sold was for Rs. 7.19 crores. Duty due therefore was Rs. 1.15 crores. Duty was payable only in respect of seized 94 pieces.

8.1 In the additional submissions furnished by the appellants on 5-5-08, it is stated that the number of sub-assemblies as per the slips recovered from the Saidapet godown was only 1481. If the total imports were considered, there were only 5338 sub-assemblies imported in various names as per para 6.2.1 of show cause notice. It was not possible that there could be 18929 sub-assemblies as per the annexure to the show cause notice. The department’s case rested on imported 5338 sub-assemblies. Out of this, 1346 sub-assemblies were not imported during the material period reducing the relevant number of sub-assemblies to 3992. There were discrepancies in the IE codes (addresses) and the importing concerns. As per the bank records imports attributable to these concerns were totally 755. When such imports were deducted, the material imports came down to 3237. Many of the concerns were owned by parties not related to CFI. Their imports worked out to 586. Reducing this number, the material imported worked out to 2651. They had submitted a certificate dated 17-2-08 of M/s. Moody International (I) (P) Ltd., Chartered Engineers who certified that 14 numbers of various sub-assemblies and parts were required to make a complete photocopier. Therefore, with 2651 sub-assemblies, only 189 photocopiers could be assembled.

8.2 There was no evidence to show that the seized photocopiers had been assembled out of the sub-assemblies imported by the various concerns. Those photocopiers were not shown in the name of any fictitious concerns. There was no evidence of manufacture of photocopiers by the appellants. The Commissioner found that the sub-assemblies imported required other parts to make a complete photocopier. The department did not establish purchase of such parts by CFI.

8.3 Shri K.A. Shabu was not competent to speak about the transactions of CFI. Even according to his statement, the number of photocopiers removed did not tally with the figures of the imported sub-assemblies. He was not questioned about the number of sub-assemblies imported. His statement could not be relied upon. He had not mentioned about the clearances of photocopiers as gears. The so called fictitious concerns had IE code, Sales Tax Registration, Bank Accounts, Pan Numbers etc. These concerns and their imports had undergone separate adjudication process under the Customs Act.

8.4 The Commissioner accepted the computer printouts as genuine as S/Shri S. Krishnakumar and K.A. Shabu accepted them as correct. However, he did not verify if the printouts satisfied Section 36B of the CEA. The Commissioner erred in holding that the persons who were handling the computer at CFI i.e. Ms. Radha and Ms. Rathi had certified that the computer printouts were correct. The person dealing with the computer and made entries in the computers was not examined. Even if Shri S. Krishnakumar, Ms. Radha and Ms. Rathi were considered to have entered data in the computer, it was unclear as to how much data each had entered. Shri S. Krishnakumar had deposed during the cross-examination that he had no knowledge of computer and only Ms. Rathi had handled the computer. The computer printouts showed that ‘gears’ were sold. Bank accounts showed 100 times the figures shown in the computer printouts. The department could rely on only one of these documents. There was nothing to indicate that ‘gears’ were in effect photocopiers. As Section 36B had not been complied with, the order deserved to be set aside.

8.5 The buyers deposed during the cross-examination that they had dealt with only one Shri P. Joseph, GM (Mktg.) of CFI and not with Shri K.A. Shabu. This demolished the Revenue’s case that Shri K.A. Shabu was responsible for the day-to-day affairs of CFI. Shri P. Joseph was not examined. The buyers did not have any record and deposed from memory. Such figures could not be accepted as evidence even if the buyers had deposed the details correctly. The assessable value worked out to Rs. 7.19 crores and duty Rs. 1.15 crores. Duty on 94 pieces of photocopiers could be demanded only when they were cleared.

8.6 It was submitted by Shri N. Rajagopalan, the Spl. Consultant for the department that Shri K.A. Shabu gave nine confessional statements claiming himself to be the MD of CFI before the authorities. His letters dated 5-5-03 and 12-6-03, showed that he was an authorised signatory of CFI. His retraction after three and a half years in cross-examination was not acceptable. Shri K.A. Shabu had to be accepted as a person in charge of all activities of CFI. Appellants did not dispute the modus operandi followed. Show cause notice was not issued to the various firms as they were not involved in the case as manufacturers. Assembly of photocopiers took place at Saidapet and Anna Salai where CFI office was located. Sale proceeds were realised mostly in cash. Whenever sale proceeds were realised by DDs or cheques, Shri K.A. Shabu instructed to take them in the name of other firms. Further, ld. Spl. Consultant submitted that CFI and other firms imported only components of photocopiers (CSH 9009.90) and they did not import full machines. The goods imported by CFI were brought to Saidapet for manufacture. He further submitted that the evidence of assembling machines at Anna Salai office was available. Shri K.A. Shabu signed as MD before the sales tax officers. Quantification of duty was not challenged in reply by the appellants. There were 10 firms that operated from the same premises and were owned by P.D. Jobin. Section 36B applied only to ready-made printouts and did not apply to printouts taken in the presence of the assessee. Shri S. Krishnakumar’s statement signed by him was sufficient as certificate in terms of sub-section (4). In his statement Shri S. Krishnakumar had submitted that he regularly entered the data of daily transactions in the CFI computers which met the requirements of condition 2(a). The computer printouts are admissible evidences. 50% of the buyers admitted that their purchases were in accordance with computer printouts.

8.7 In his rejoinder the Sr. Counsel submitted that the Tribunal’s judgment in the case of Poly Resins v. CCE reported in cited by him in support of the appeal was not countered. As so called dummy units had not been issued show cause notices, the demand was bad in law. No evidence of manufacture was brought out in this case by revenue. The allegations in the show cause notice were denied. Conditions of Section 36B of the Act were not satisfied. The finding that CFI floated dummy firms was not substantiated.

9. We have carefully studied the case records and heard both sides. The Department’s case is that Shri K.A. Shabu, erstwhile MD of CFI, masterminded import of sub-assemblies of photocopiers in the name of CFI and its employees and, with local purchases of parts, manufactured complete photocopiers and cleared without following Central Excise formalities and payment of duty. CFI operated with Shri Mujib Rahim as MD and one more relative of Shri K.A. Shabu in charge after 1998. Thereby CFI evaded duty to the tune of above Rs. 9.89 crores. 94 photocopiers assembled and kept for clearance were seized from Saidapet godown of CFI. These were found liable for confiscation and liable to pay excise duty. CPUs seized from the CFI premises contained details of transactions in photocopiers which were represented in coded words. Many firms remitted money in their accounts, being proceeds of sales of photocopiers manufactured by CFI. The name of the firm which remitted the proceeds in its account in Karur Vysya Bank and the amounts were not entered in full in the computer. On comparison with the bank records it was seen that only one per cent of each payment was entered in the computer accounts against each transaction. Accounts were all in the names of employees of CFI. They had been introduced to the bank by another CFI employee. Shri Dhanaraj, who cleared photocopier parts imported by CFI and its employees from Customs, had deposed that all clearances were taken delivery and transported to CFI. This position was evidenced also by the tally for unloading cargo from trucks at Saidapet godown of CFI. Copy of the tally sheets recovered was submitted to us by the Sr. Counsel at the time of hearing. It showed registration number of vehicles, number of containers and the tally sheet for unloading units of certain cargo which had been admitted to be sub-assemblies of photocopiers by appellants. All the nine statements given by Shri K.A. Shabu were given as MD of CFI. He had also given statement to Sales Tax authorities as MD, CFI. In a couple of letters addressed to DGCEI Shri K.A. Shabu described himself as authorised signatory of CFI. He presented himself for examination by DGCEI in response to their summons issued to MD CFI. His retraction from the nine confessional statements was made more than four years later. These retractions are not valid. There is no valid explanation why he gave initial confessional statements and retracted them only after four years. The initial statements given under Section 14 of the Act/Section 108 of the Customs Act are therefore reliable evidence. Statements of S/Shri K.A. Shabu, S. Krishnakumar, M.A. Nishad, Ms. V. Radha, and similar voluntary statements of several others under Section 14/Section 108 corroborated manufacture and disposal of photocopiers by CFI. The statement of Shri S. Krishnakumar, Manager Accounts, explained the modus operandi followed by CFI. The bank records explained the particulars available in the computer. Computer contained in codified form the names of remitter and the amount corresponding to all transactions that figured in the bank statements. This was further corroborated by employees of CFI. Buyers of CFI contacted by investigation confirmed buying photocopiers from CFI. CFI has no case that CFI dealt with any type of “gears”; either manufactured or purchased. There is no reason to disbelieve the statements of the buyers who bought photocopiers which were accounted by CFI as gears. It is claimed that since there is no record of purchases with the buyers, the purchases are not evidenced. The evidence available show that such records were destroyed. CFI has argued that either computer printouts or bank statements could be followed. According to CFI, computer printout is not acceptable as evidence. We find that the printouts are meaningful only when read with bank statements, authenticity of which is not open to question. We find that a computer printout taken in presence of the Accounts Manager of CFI under mahazar cannot be flawed for not bearing signature of Ms. Radha or Ms. Rathi. It is stated by the Accounts Manager that Ms. Rathi, Ms. Radha and he had entered data in the computer. If Ms. Rathi and somebody else had entered data, the proportion of data entered by the other (Ms. Radha, Shri Krishnakumar) is not material. Shri S. Krishnakumar is an employee of CFI. His retraction in cross-examination has to be ignored. Similarly belated retraction by Directors and employees of CFI in cross-examination has to be ignored. Their initial statements narrate a story of illegal manufacture and clearance of photocopiers without following Central Excise formalities and evasion of massive amounts of duty by fraud in which CFI was fully involved.

9.1 As regards the certificate to be given in terms of Sub-section 2(d) of Sec. 36B, it is admitted that Shri Krishnakumar, Manager (Accounts) CFI and his Assistants Ms. Radha, and Ms. Rathi entered the data on a daily basis. This has been admitted by Shri S. Krishnakumar, in his statement dated 29-1-03. This will meet the requirement of certification in terms of Sub-section 2(d) Section 36B of the Act. They cannot later say that no enquiry was made with the person stipulated u/s 36B(2)(d). Revenue has argued that once the printout is taken in presence of responsible persons who dealt with the data entry in the CPU and retrieval, printouts of such data do not need to comply with the safeguards enlisted u/s 36B(2) of the Act. While this is a reasonable stand, we find that the data retrieved are proved by the bank statements and oral evidence of employees of CFI. Thus the computer printouts are not solely relied on as evidence and the non-fulfilment of conditions under 36B(2) alleged does not affect the printouts being used in proceedings. Relevant extracts of Section 36B are reproduced below :

SECTION 36D. 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 wast 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 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 there under 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.

The Computer printouts are amply corroborated by the bank statements. Therefore the provisions of Section 36B cannot be invoked to make its application in the proceedings impermissible. The printout is not a standalone evidence; they become evidence only when juxtaposed alongside the bank statements. Section 36B does not bar such use of a printout in proceedings which does not satisfy the requirements of its Sub-section 2(d).

9.2 The appellants have challenged finding of manufacture. It is evidenced by several statements of witnesses that photocopiers were sold. Half of the buyers cross-examined also endorsed purchases. Discrepancy, if at all, was in respect of the quantities initially admitted and later confirmed. Therefore manufacture of photocopiers cannot be disputed by CFI. Moreover seizure of photocopiers from the Saidapet premises of CFI clinches this issue against CFI. At the time of visit, officers noticed 613 numbers of photocopiers in various stages of assembly. There were records of deployment of people in assembly of photocopiers and the staff of CFI such as Shri M.A. Nishad confirmed assembling 700 photocopiers a day. The staff were seen working (assembly of photocopiers) as per the mahazar. The minutes seized corroborate deployment of staff.

9.3 We find that the appellants have counted each consignment imported as a sub-assembly and argued that at the rate of 14 sub-assemblies per Photocopier, 189 photocopiers only could have been manufactured. We find that the appellants have adopted a fallacious basis for the above argument. A sub-assembly is a part of the photocopier. A photocopier can be broken into two subassemblies or several. 14 sub-assemblies per photocopier are not sacrosanct or necessarily correct. The calculations adopted by the appellants are hence not acceptable as reliable or correct. In any case, the revenue’s case is not that the slips contained complete account of sub-assemblies received by CFI.

9.4 The impugned order has been challenged on three main grounds. First is validity of the show cause notice, second admissibility of computer printouts as evidence and third is lack of evidence as regards process of manufacture. From the analysis of the evidence, we find that the CFI manufactured and cleared photocopiers from sub-assemblies/components imported and indigenously sourced without following the statutory formalities prescribed in the Central Excise law. From the evidences gathered it is obvious that CFI was a corporate facade behind which a few individuals perpetrated a commercial fraud of illicit manufacture and clearance of photocopiers and massive evasion of central excise duty. As rightly argued by the special consultant for the department, when the printouts of data are taken from the assessee’s computer in regular use in presence of its employees who operated the said computer, it is reasonable to infer that the requirements prescribed under Section 36B(2) have been met. In any case, the computer printouts are not stand alone evidence in the proceedings. They are corroborated by authentic bank records. Appellants have no case that the printouts are not genuine or that they were collected behind them. The printouts are good evidence.

9.5 The computer data and the corresponding particulars appearing in the bank statements amply establish the evasion indulged in by CFI and its promoters and employees. CFI admittedly obtained IEC code, Sales Tax registration No. and Pan No. in the names of its employees. Sub-assemblies of photocopiers were imported in the names of such dummies as well as in the name of CFI. As per the stores register of CFIs godown, all the components imported were pooled and issued for assembly. Issue slips recovered prove this aspect. Sale proceeds of photocopiers sold in the name of the dummies and the proceeds were deposited in the KVB. After the sales tax raids, these accounts in KVB were closed and the balance withdrawn through the persons authorized by CFI. Shri K.A. Shabu acted as the mastermind behind these fraudulent operations. Moreover, manufacture of photocopiers is also evidenced by the seizure of 94 pieces of photocopiers from the Saidapet premises of CFI and depositions of a couple of transport operators who transported the finished machines from Chennai. Tally sheets furnished by the appellants establish the unaccounted receipt of sub-assemblies of photocopiers in the premises of CFI. The evidence gathered leads to an irresistible conclusion of manufacture and clearance of photocopiers by CFI.

9.6 However, we find that no show cause notices were issued to the dummy units floated by CFI. In the light of the ratio of following case law cited by the appellants, the demand on CFI is bad in law as regards demand on photocopiers relatable to the dummies in the absence of show cause notices issued to the dummy units. In the case law it has been held that non-issuance of show cause notice to the alleged dummy units proposing clubbing with the principal unit would vitiate the proceedings, per se. The following are the case law cited by the appellants :

1. SKN Gas Appliances v. CCE -

2. Ramsay Pharma Pvt. Ltd. v. CCE -

3. Ogesh Industries v. CCE -

4. CCE v. Sethia Foods -

5. Dawn Fireworks Factory & Ors. v. CCE - 1999 (31) RLT 104

6. CCE v. Maganlal Nandlal & Sons -

7. K.R. Balachandran v. Commr. -

8. Velmurugan Engg. v. CCE -

9. Poly Resins v. CCE [

Vide the Tribunal’s decision in the case of CCE v. Sethia Foods (supra), it has been held that when show cause notice is not issued to the dummy unit, clubbing is not permissible. Therefore the demand of duty from CFI and related penalties are not sustainable to the extent it relates to photocopiers relatable to dummy units.

9.7 In view of the infringement of central excise law relating to assembly, unauthorized manufacture contravening statutory provisions contained in the Central Excise Act and Central Excise Rules, 94 pieces of photocopiers seized were rightly confiscated by the Commissioner. The confiscation is upheld. However the fine imposed is in excess of that authorized by law. The same is set aside. Duty due on these machines has to be paid. The demand of duty on CFI and penalties imposed on all the appellants are set aside. These shall be decided in a fresh proceeding following principles of natural justice. The appeals are thus allowed in part by way of remand.

(Order pronounced in Open Court on 2-7-2008)