CESTAT Kolkata annuls excise duty demand based on non-compliant electronic and statement evidence

1. Background of the dispute

Jai Mangla Sponge Iron Private Limited Vs Commissioner of C.G.S.T. and C.X. came up before CESTAT Kolkata in appeal against Order-in-Original No. 05/Commissioner/2021 dated 17.03.2021 passed by the Commissioner of C.G.S.T. and Central Excise, Jamshedpur.

The order under challenge had:

  • Confirmed a Central Excise duty demand of Rs.4,34,56,993/- (inclusive of cesses) for the period 01.11.2014 to 07.09.2016 against M/s. Jai Mangla Sponge Iron Pvt. Ltd. (appellant no. 1), along with interest, and
  • Imposed a penalty equal to the duty under Section 11AC of the Central Excise Act, 1944, and
  • Levied a personal penalty of Rs.50,00,000/- on Shri Jawahar Lal Vig (appellant no. 2), Director, under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the CGST Act, 2017.

The appellant-company was engaged in manufacture and clearance of Sponge Iron and Charcoal falling under Chapters 72 and 27 of the Central Excise Tariff Act, 1985, and was registered under Central Excise (ECC No. AABCJ4338CXM001).

The core allegation of the Department was clandestine removal of:

  • 16,639.630 MT of Sponge Iron, and
  • 15,873.090 MT of Charcoal

during 01.11.2014 to 07.09.2016, without invoices and without payment of Central Excise duty, resulting in an alleged liability of Rs.4,34,56,993/- (Rs.4,31,06,267/- as duty, Rs.2,33,816/- as Education Cess, and Rs.1,16,910/- as Secondary & Higher Education Cess).

2. Origin of proceedings and nature of seized material

The proceedings began based on intelligence developed by the Preventive Branch of the Jamshedpur Commissionerate. Officers conducted a search at premises described as the secret office of M/s. Maa Tara Ferrotech Ltd., where certain documents were found allegedly indicating procurement of Sponge Iron from the appellant-company.

This led to a coordinated search on 16.09.2016 at three locations linked to the appellants:

  • Factory of appellant no. 1 at Kurli, Chandil
  • Working office at Room Nos. 306/307, 3rd Floor, Akashdeep Plaza, Golmuri, Jamshedpur
  • Residence of appellant no. 2 at H. No. 08, C.H. Area, Bistupur, Jamshedpur

2.2 Factory premises seizure

From the factory, officers examined available statutory and private records and seized:

  • Relevant physical records and documents, and
  • CPUs marked as “CPU Intex/Neptune” and “CPU Intex/Blaze”

These were catalogued under specific seizure memos and later subjected to data retrieval, with the Department treating the extracted information as the basis for alleging unaccounted production and clearance.

2.3 Working office seizure

At the Akashdeep Plaza office, the search yielded a substantial set of business and accounting documents, including:

  • A sale invoice of 2014-15
  • Computer printouts of ledger accounts of M/s. Maa Tara Ferro Tech (P) Ltd. (01.04.2014 to 31.03.2016)
  • Ledger account of M/s. Maa Tara Ispat Industries (P) Ltd. (01.04.2015 to 31.03.2016)
  • Sale and purchase registers for 01.04.2014 to 31.03.2016
  • Party-wise sale and purchase registers for the same period
  • Sale register of Shree Laxmi Timber Traders and Saw Mills (2012-13 to 2015-16)
  • RG-23A Part-II records for April and May 2016 for Shree Laxmi Timber Traders and Saw Mills
  • One LG CPU (described as without CPU number in the seizure memo)

These documents and computer printouts were later relied upon by the Department in support of the clandestine removal allegation.

2.4 Residential premises seizure

From the residence of appellant no. 2, officers seized a 16 GB SanDisk Cruzer Blade pen drive, which was also subjected to data retrieval and analysis.

3. Investigation findings relied upon by the Department

3.1 Statements of employees

During investigation, statements were recorded under Section 14 of the Central Excise Act, 1944 from key personnel of the appellant-company.

  1. Statement of Shri Swapan Sinha (Manager – Accounts)

    • Recorded on 16.09.2016
    • He described the accounting and statutory functioning of the unit and allegedly mentioned clearances without Central Excise invoices, stated to have been made on directions of Shri Sarabjeet Singh Sony, Plant-in-Charge, with knowledge of directors.

  2. Statement of Shri Sarabjeet Singh Sony (Plant-in-Charge)

    • Recorded on 21.11.2016
    • He allegedly stated that goods were cleared without payment of duty and without Central Excise invoices on the directions of appellant no. 2, and confirmed that Shri Swapan Sinha handled accounts and reported directly to appellant no. 2.

  3. Statement of Shri Pankaj Kumar Sharan (Assistant Accountant)

    • Recorded on 03.10.2016
    • He stated that invoices were manually prepared based on information on “KUTCHA” papers supplied by the Plant-in-Charge; after preparation of invoices, such rough papers were destroyed, and relevant computer entries were made by others based on those papers.

Subsequently, additional statements of Shri Swapan Sinha were taken on 15.12.2016, 21.12.2016 and 06.01.2017.

3.2 Enquiries with M/s. Bunty Overseas Pvt. Ltd.

The investigation extended to M/s. Bunty Overseas Pvt. Ltd. through a letter dated 07.02.2018 enclosing a list of invoices and asking whether goods covered by them were exported and requesting ARE-1 copies.

M/s. Bunty Overseas Pvt. Ltd. replied that all goods dispatched from M/s. Jai Mangla Sponge Iron Pvt. Ltd. as per the list were exported. The Department used this confirmation to support the authenticity of computer data retrieved from seized CPUs.

Statements of some vehicle owners were recorded. They acknowledged having provided trucks to the appellant-company for transport of goods during the relevant period, but:

  • Could not produce transport documents due to lapse of time and claim that documents remained at destination, and
  • Stated that freight charges were generally paid in cash at loading/unloading points.

3.4 Reliance on documents from Maa Tara Ferrotech

Data and records seized from the secret office of M/s. Maa Tara Ferrotech Ltd. allegedly showed Sponge Iron purchases from the appellant-company.