M/S. Ambica Organics v. Shri Anil Kumar Gupta

[Order]. - These appeals are arising out of a common order and therefore all are taken up together for disposal.

2. The relevant facts of the case, in brief, are that M/s. Ambica Organics (Appellant No. 1) a partnership firm, was engaged in the manufacture of Textile Auxiliary Chemicals such as Polysol, MBX, Adhesives, Binders, UF Resin etc. They were clearing the goods without payment of duty by availing SSI exemption notification, as their clearance value was less than Rs. 1 crore in a financial year. On 11/12-2-2006, the Central Excise Preventive Officers visited the appellant’s factory and conducted stock verification and found excess stock of the finished goods valued at Rs. 83,248.00, which was seized by the Central Excise officers. The Central Excise Officers also found a data storage in electronic form in the USB drive and obtained a printout from the USB drive with the help of computer expert. On the basis of the said printout, it was ascertained that the appellants during the period 1-4-2005 to 8-2-2006, cleared the goods of Rs. 2,40,37,556.00 and not paid duty after exceeding of value of clearance of Rs. 1 crore. The Central Excise officers recorded the statements of the partners of the firm and 30 persons, mostly who had purchased the impugned goods, and they admitted the fact of purchasing of goods from the appellant without bills.

3. A show cause notice dated 9-10-2006 was issued to the Appellant No. 1 and its two partners proposing demand of duty along with interest and imposition of penalty and also confiscation of the goods. The Adjudicating authority confirmed the demand of Central Excise duty of Rs. 23,78,329.00 along with interest and also imposed penalty of equal amount of duty on the goods cleared clandestinely and also confiscated the seized goods, released on bond backed by bank guarantee of Rs. 21,000.00 and appropriated towards fine in lieu of confiscation of the goods. It has also imposed personal penalties of Rs. 1 lakh each on the two partners, being Appellants No. 2 and 3 herein. By the impugned order, Commissioner (Appeals) upheld the Adjudication order. Hence, the appellants filed these appeals.

4. The learned Advocate on behalf of the appellants submits that the entire case was made out on the basis of printout of USB drive and 30 statements of various persons, mostly claimed as purchaser of goods. It is submitted that one Shri Nitin Shah, claimed to be computer expert, accompanied with the Central Excise officers had connected the USB drive to a computer in the appellant’s office and on the basis of printout contained in the USB drive, as claimed, it was ascertained the clearance value during the material period, over and above of Rs. 1 crore. He submits that both the partners of the appellant firm disowned the contents of the printout in their statement. It is submitted that the data was not stored in the computer and it was retrieved from the USB drive. It is submitted that in the present case, the Central Excise officers have not followed the procedure under Section 36B of the said Act and the printout of USB drive has no evidentiary value. He relied upon the following decisions : -

(a)     M/s. Premier Instruments & Controls Pvt. Ltd. v. CCE - (T)

(b)     M/s. Premier Packaging Pvt. Ltd. v. CCE - (T)

(c)     M/s. Tex-Age v. CC (Exports) - (T)

(d)    M/s. Harsinghar Gutka Pvt. Ltd. v. CCE - (T)

(e)     M/s. S.J.N. Auto Industries Pvt. Ltd. v. CCE -

(f)      M/s. Indo Green Textiles Pvt. Ltd. v. CCE - (T).

5. It is also submitted that the Adjudicating authority denied the cross-examination of the 30 persons. The statements of the 30 persons were pre-drafted computer statements. The Commissioner (Appeals) allowed cross-examination of only 4 persons which were randomly selected. After considering the nature and contents of the statements and the cross-examination, the Commissioner (Appeals) has observed that the evidentiary value of the 30 statements is considered weak. He submits that it is clearly established that the statements have no evidentiary value and therefore, the demand of duty on the basis of USB drive without following the requirement under Section 36B of the Act, 1944, cannot be sustained. It is also submitted that the appellant’s clearance value was within the full exemption limit of Rs. 1 crore and the confiscation of the goods and imposition of fine are not sustainable. There is no evidence of manufacture, clearance, purchase of huge quantity of raw materials, transport documents etc. for alleged clandestine removal of goods. Relied on the decision of the Tribunal in the case of M/s. Arya Fibres Pvt. Ltd. and others v. Commissioner of Central Excise, Ahmedabad-II - 2014-TIOL-15-CESTAT-AHM = (Tribunal). The learned Advocate also filed the written submissions along with the case laws.

6. On the other hand, learned Authorised Representative for the Revenue reiterates the findings of the Commissioner (Appeals). He submits that the Commissioner (Appeals) has clearly observed that the evidence in the form of electronic record in USB drive is sufficient to establish the clandestine removal of the goods. It is submitted that the printout of the electronic data contained in the USB drive found at the appellant’s premises. Therefore, the appellant cannot disown the contents of the printout. Thus, the demand of duty along with interest and penalty are justified.

7. After hearing both the sides and on perusal of the records, I find that the Central Excise officers while visiting the factory of the appellant, recovered a USB drive in the appellant’s premises. The USB drive was connected with computer and a printout was taken by the computer expert accompanied with the Central Excise officers. The printout gives the details of the certain sales (date-wise) commencing from 1-4-2005. The delivery challans for various chemicals for the month of December, 2005 and January, 2006 were found and seized during the search. The appellants disowned the contents of the printout and stated that it has manipulated the data base with motive, to take revenge from the partner and the firm for the refusal of the loan of Rs. 1 lakh sought by the Computer Operator. The appellant filed an affidavit disclosing this fact on 13-2-2006 i.e. immediately after the raid and a copy of the affidavit was also given to the investigating officer. The Central Excise officers attempted to corroborate the contents of the printout with the statements of 30 persons viz. buyers, transporters etc. The appellants requested for cross-examination of 30 persons which was rejected by the Adjudicating authority. The appellants contended that the statements are pre-drafted computer statements and it cannot be voluntary nature. After considering the submissions of the appellant, the Commissioner (Appeals) allowed the cross-examination of 4 persons randomly selected. Three of them stated that they were made to sign the pre-drafted statements on a promise that no action shall be taken against them.

8. For the purpose of proper appreciation of the case, the relevant portion of the findings of the Commissioner (Appeals) is reproduced below : -

“4.5 Another contention of the appellant is that department has brought artificial evidence in the form of 30 statements from the buyer parties. The appellant stand is that the statements of the 30 parties are pre-drafted computer statements and involuntary. Four of the buyers (randomly selected) deposed before me. Three of them stated before me that they were made to sign a pre-drafted statement on a promise that no action shall be taken against them. One of them stated that his statement was voluntary. In the statements it has been recorded that these person stated that they received the textile auxiliary chemicals without invoice and against cash payments. Statement of these 30 persons (most of them Processors) are against their own interest as it makes them liable for penal action for purchasing dutiable goods on which duty was not paid. However, no show cause notice is given to these persons who have admitted to have received the impugned goods without bills. This fact gives credence to the allegations made by the appellant that the statements were not voluntary. It is apparent that the thirty statements have been recorded under a promise that no action shall be taken against them. Under these facts and circumstances, the evidentiary value of these thirty statements is considerably weakened. However, the solid evidence in the form of electronic records (USB Drive) and the computer printout from the same are sufficient to nail the appellant.”

9. The Commissioner (Appeals) observed that the evidence in the form of electronic record (USB drive) the computer printout are strong evidence to establish the clandestine removal of the goods. It is seen that the said printout of the data in the USB drive contained the details of raw material and finished goods along with the names and addresses of the suppliers and the purchasers of the finished goods. It is seen that the statements were recorded to corroborate the contents of the printout and the Commissioner (Appeals) had held that the said statements has no strong evidentiary value. Shri Anil Gupta, Partner of the appellant firm had stated that he was not aware of the details contained in the USB drive.

10. Learned Advocate submitted that the clandestine manufacture and removal of the goods cannot be upheld based on the printout of the data contained in the USB drive without following the requirement of condition of Section 36B of the Central Excise Act, 1944. Section 36B of the said Act provides admissibility of microfilms, facsimile copies of documents and computer printouts as documents and as evidence. Clause (c) of Section 36B(1) states that the statement contained in a document and included in a computer printout would be an evidence if the condition mentioned in the sub-section (2) and other provisions contained in this section are satisfied in relation to the statement and the computer in question, shall be deemed to be the document for the purpose of this Act and the rules made thereunder and can be admissible in proceedings. Sub-section (2) of Section 35B provides the condition referred to in sub-section (1) in respect of the computer printout shall be the following viz.

“(a)   the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;

(b)     during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

(c)     throughout the material part of the said period, the computer was operational 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.”

Sub-section (4) of Section 36B requires issue a certificate in this behalf by a person occupying the responsible official position in relation to the operation of the relevant device or the management of the relevant activity (whichever is appropriate) shall be evidence in any matter stated in the certificate and for the purpose of the sub-section, which shall be sufficient for a matter to be stated to the best of the knowledge and the belief of the persons stating it. In the present case, the data was not stored in the computer. It is stated that the computer expert accompanied with the Central Excise officers had taken the printout from the USB drive by connecting to the computer. The officers had not obtained any certificate as required under Section 36B of the said Act. It is also noted that none of the conditions under Section 36B(2) of the Act, 1944 was observed. In such situation, it is difficult to accept the printout as an evidence to support the clandestine removal of the goods. It is noted that the requirement of certificate under Section 36B(4) is also to substantiate the veracity of truth in the operation of electronic media. In the case of M/s. Premier Instrument & Controls Ltd. (supra), the Tribunal has held that the printout of the personal computer of the company’s officer, had not fulfilled the statutory condition laid down under Section 36B(2) of the Act and the demand is not sustainable. The relevant portion of the said decision is reproduced below : -

“9. On the demand of duty on waste and scrap, again the appellants have made out a strong case on merits. The demand covering the period November, 1993 to September, 1998 is based on certain computer printout relating to the period February, 1996 to September, 1998. These printouts were generated from a personal computer of Shri G. Sampath Kumar, a junior officer of the Company, whose statements were also recorded by the department. Admittedly, whatever facts were stated by Shri Sampath Kumar, in his statements, were based on the entries contained in the computer printouts. The statements of others, recorded in this case, did not disclose any additional fact. Therefore, apparently, what is contained in the computer printout is the only basis of the demand of duty on waste and scrap. The question now arises as to whether these printouts are admissible as evidence, in this case. Ld. Sr. Counsel has pointed out that the computer print-outs did not satisfy the statutory conditions. He has referred to the relevant provisions of Section 36B of the Central Excise Act which deals with admissibility of computer printouts etc. as evidence and says that the statement contained in a computer printout shall be deemed to be a document for the purposes of the Act and the rules made thereunder and shall be admissible as evidence of the contents of its original, if the conditions mentioned in sub-section (2) and other provisions of the Section are satisfied in relation to the statement and the computer in question. Sub-section (2) reads as under : -

“2. The conditions referred to in sub-section (1) in respect of the computer printout shall be the following, namely : -

(a)     the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly, carried on over that period by the person having lawful control over the use of the computer;

(b)     during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

(c)     throughout the material part of the said period, the computer was in operation 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.”

Ld. Sr. Counsel has argued that the above conditions were not fulfilled in respect of the computer printout taken from the personal computer of Shri Sampath Kumar. It appears from the statement of Shri Sampath Kumar and the averments in the memorandum of appeal that it is an admitted fact that Shri Sampath Kumar was the person having lawful control over the use of the computer. The computer was not shown to have been used regularly to store or process information for the purposes of any activities regularly carried on by the company. It was also not shown that information of the kind contained in the computer printout was regularly supplied by the Company to the personal computer of Shri Sampath Kumar in the ordinary course of activities. Again, it was not shown that, during the relevant period, the computer was operating in the above manner properly. The above provision also casts a burden on that party, who wants to rely on the computer printout, to show that the information contained in the printout had been supplied to the computer in the ordinary course of business of the company. We find that none of these conditions was satisfied by the Revenue in this case. We have considered the Tribunal’s decision in International Computer Ribbon Corporation v. CCE, Chennai (supra). In that case, as in the instant case, computer printouts were relied on by the adjudicating authority for recording a finding of clandestine manufacture and clearance of excisable goods. It was found by the Tribunal that the printouts were neither authenticated nor recovered under Mahazar. It was also found that the assessee in that case had disowned the printouts and was not even confronted with what was contained therein. The Tribunal rejected the printouts and the Revenue’s finding of clandestine manufacture and clearance. We find a strong parallel between the instant case and the cited case. Nothing contained in the printouts generated by Sampath Kumar’s PC can be admitted into evidence for non-fulfilment of the statutory conditions. It is also noteworthy that the computer printouts pertained to the period February, 1996 to September, 1998 only but the information contained therein was used for a finding of clandestine removal of waste and scrap for earlier period also, which, in any case, was not permissible in law. In the result, we hold that the entire demand of duty on waste and scrap is liable to be set aside.”

11. Taking into consideration the overall facts and circumstances of the case, I find that the entire case was made out on the basis of statements of the buyers and the computer printout. Commissioner (Appeals) already held that the evidentiary value of the statements is weak. It is also noted that the statements of the 30 persons were mostly similarly pre-drafted. The investigating officers failed to comply with the conditions of Section 36B of the Act in respect of relying upon this computer printout. There is no adequate material available on record to establish the clandestine removal of goods. Therefore, the demand of duty solely on the basis of these materials cannot be sustained. Hence, as the clearance value was within the SSI exemption, the confiscation of the goods cannot be sustained. So, the imposition of penalties are not warranted.

12. In view of the above discussion, the demand of duty along with interest and penalties on the appellants cannot be sustained. Accordingly, the impugned orders are set aside. All the appeals filed by the appellants are allowed.

(Pronounced in Court on 4-3-2015)