Case Digest: Excise Duty Evasion on Clandestine Clearance of Goods

Clandestine clearance refers to the illegal removal, manufacture, or sale of goods without paying the applicable excise duty or GST. This practice undermines government revenue and creates an uneven playing field for compliant businesses.

Under Indian law, excise duty is levied on the manufacture of goods within the country. Manufacturers are required to maintain proper records, file returns, and pay the applicable duty. However, some entities evade duty by producing goods without declaring them to tax authorities, maintaining parallel accounting records, or using fake invoices. Such activities are considered tax evasion and attract severe penalties.

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The Central Excise Act, 1944, empowers authorities to inspect premises, seize goods, and prosecute offenders. Penalties for evasion include confiscation of goods, imposition of fines up to 100% of the evaded duty, and imprisonment. The GST regime, which replaced excise duty in 2017, also imposes strict penalties for tax evasion, including fines and imprisonment under the CGST Act, 2017.

CESTAT Dismisses Clandestine Removal Charge due to Lack of Supporting Evidence

M/s Shree Krishna Laxami Steel Udyog Private Limited vs Commissioner of Central Excise CITATION: 2025 TAXSCAN (CESTAT) 161

The Customs Excise and  Service Tax Appellate Tribunal ( CESTAT ), Kolkata held that serious allegation cannot be made merely on assumption, in the absence of detailed supporting evidence and thus dismissed the charge of clandestine removal.

In this case, the appellant, Shree Krishna Laxmi Steel Udyog Pvt Ltd. was engaged in the activity of clandestine manufacture and removal of goods. The show-cause notice issued to the appellant alleged that the appellant was engaged in the clandestine manufacture and removal of goods without proper records by evading excise duty and thus they are liable for duty, interest, and penalties.

Tangible Evidence is Essential to Allege Clandestine Goods Clearance and Production: Delhi HC

COMMISSIONER OF CENTRAL TAX, GST DELHI EAST vs A S P METAL INDUSTRIES CITATION: 2024 TAXSCAN (HC) 2445

The Delhi High Court recently held that allegations of clandestine removal of goods to evade taxes must be supported by concrete evidence rather than presumptions or assumptions.

The High Court upheld the findings of the CESTAT Bench, highlighting the absence of indicators such as increased electricity consumption or additional labor to substantiate the claim of clandestine production.

Whilst holding reference to precedents like Commissioner of Central Excise vs. Saakeen Alloys Pvt. Ltd. and Arya Fibres Pvt. Ltd. v. CCE, Ahmedabad-II, the court reiterated that concrete, tangible evidence is necessary to prove allegations of tax evasion through illicit clearance.

Absence of Cross Examination to Prove Clandestine Removal: CESTAT quashes Excise Duty Demand 

Balbir Metals & Power Private Limited vs Commissioner of C.E. & S.T.-Daman CITATION: 2024 TAXSCAN (CESTAT) 723

The bench observed that the adjudicating authority has erred by violating the principles of natural justice, making the statement relied upon by the revenue inadmissible as evidence of clandestine removal. By virtue of Section 9D of the Central Excise Act, 1944. , it was mandatory to conduct cross-examination of the witness, and thus the third-party evidence is insufficient to prove clandestine removal.

 The CESTAT bench, comprising Ramesh Nair and C. L. Mahar, held that the demand would not be sustained as the revenue could not establish its case of clandestine removal. The appeal was allowed, and the impugned order was set aside.

Allegation of Clandestine Removal without evidence or proof: CESTAT quashes ₹3.17 L Excise Duty Demand

 M/s. Tega Industries Limited vs Commissioner of Central Excise CITATION: 2024 TAXSCAN (CESTAT) 631

The Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) quashed the ₹3.17 lakh excise duty demand due to the allegation of clandestine removal being made without any evidence or proof.

HC observed that the department has not produced any evidence to substantiate the allegation that the goods have been clandestinely removed by the assessee without payment of duty. It is a settled law that no demand can be raised without any evidence or proof of clandestine removal. Since there is no evidence available on record to substantiate the allegation of clandestine removal, the bench held that the demand confirmed in the impugned order on this count is not sustainable and accordingly tribunal set aside the same.

Demand of Central Excise Duty is not sustainable alleging clandestine removal of Goods: CESTAT deletes penalty

 Dinabandhu Steel and Power Limited vs Commissioner of Central Excise CITATION: 2024 TAXSCAN (CESTAT) 569

The Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has deleted the penalty imposed on the alleged clandestine removal of goods, stating that the demand of Central Excise Duty was not sustainable.

 The demand of Central Excise Duty has been confirmed against the main appellant herein alleging clandestine removal of the goods. Penalty on all the appellants has also been imposed.

Clandestine Removal and Under-Valuation Charges not sustainable on ground of Assumptions and Presumptions: Delhi HC

 COMMISSIONER OF CENTRAL EXCISE vs KUBER TOBACCO PRODUCTS PVT. LTD CITATION: 2024 TAXSCAN (HC) 696

In a recent ruling, the Delhi High Court observed that clandestine removal and under-valuation charges are not sustainable on ground of assumptions and presumptions.

The Commissioner of Central Excise held that total central excise duty demand of Rs. 4,18,29,655/- (Rs. 3,47,22,118 + Rs. 71,07,737/-) on account of clandestine removal and undervaluation of goods was confirmed against KI under proviso to Section 11 A (1) of the Central Excise Act, 1944 along with interest on this duty at the applicable rate as per the provisions of Rule 11 AB.

Mere Factum of two Set of Invoices not Sufficient to Prove Clandestine Removal charge: CESTAT quashes Excise Duty Demand 

M/s. Sharda Rerollers Private Limited vs Commissioner of CGST CITATION: 2024 TAXSCAN (CESTAT) 285

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed excise duty demand thereby observing that mere factum of two set of invoices not sufficient to prove clandestine removal.

A Single Member Bench of Ashok Jindal, Judicial Member observed that “Without corroboration of the corroborative evidence, the demand cannot be raised against the appellant when appellant has denied the said charge during the course of investigation. Moreover, this Tribunal in the case of S.K.V. Chemicals vs. Commissioner of Central Excise, Pondicherry, held that mere factum of two set of invoices is not sufficient to prove the charge of clandestine removal in the absence of positive evidence with regard to the same.”

Act of evading Excise Duty by making Clandestine Clearances of Goods: CESTAT upholds Penalty u/r 26 of CER

 M/s Mamta Steel India Pvt. Ltd vs Commissioner of Central Excise, Lucknow CITATION: 2024 TAXSCAN (CESTAT) 130

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the penalty under Rule 26 of the Central Excise Rules, 2002 in the act of evading excuse duty by making clandestine clearances of goods.

A Single Member Bench comprising Sanjiv Srivastava, Technical Member observed that “The Appellant-II was actually involved in the act of evading the duty by making clandestine clearances of the goods for Appellant-I. The penalty imposed upon him under Rule 26 is justified and upheld.”

Alleged Clandestine Production Vague and Unsupported by Prescribed Norms: CESTAT quashes Excise Duty demand

Mahavir Ispat Pvt Ltd vs Commissioner of Central Tax CITATION: 2023 TAXSCAN (CESTAT) 1645

The Hyderabad Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) observed that Alleged Clandestine Production Vague and Unsupported by Prescribed Norms and thereby quashed the excise duty demand.

The two member bench of the tribunal comprising Anil Chowdari member (Judicial) and A.K.Jyotishi member (Technical) concluded that the Appellants maintained detailed transaction and production records, submitting accurate returns and prescribed forms.

CESTAT Quashes Excise Duty Demand on Clandestine Production and Removal of Copper Tubes on ground of Absence of Corroborative Evidence

M/s Shree Shyam Pipes Pvt. Ltd vs Commissioner of Central Excise CITATION: 2023 TAXSCAN (CESTAT) 1256

The Allahabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the central excise duty demand imposed on the clandestine production and removal of copper tubes on the ground of the absence of corroborative evidence.

The Bench observed that in the case of CCE v. Sai Iron (India) Ltd, the court held that even if the assessee fails to explain the shortages themselves, the charge of clandestine removal cannot be imputed in the absence of an independent investigation to corroborate the allegation. 

 A single-member bench comprising Sanjiv Srivastava (Judicial) quashed the excise duty demand while allowing the appeal filed by the assessee.

CESTAT quashes Demand of Excise Duty Imposed for Clandestine Manufacturing and Clearance of Cigarettes on Ground of Absence of Actual Manufacturer

M/s Raj Kumar Gupta (Alias) vs Commissioner of CGST & Central Excise CITATION: 2023 TAXSCAN (CESTAT) 908

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the demand for excise duty imposed for clandestine manufacturing and clearance of cigarettes on the ground of the absence of an actual manufacturer.

The Bench observed that the revenue had not brought in any evidence to corroborate the allegation that the assessee was the actual manufacturer of the cigarettes and the assessee cited various loopholes in the investigation and argued that the demand of duty made and penalty imposed on him in the impugned order are not sustainable.

 The two-member bench comprising Ashok Jindal (Judicial) and K. Anpazhakan (Technical) quashed the demand for excise duty and penalty imposed while allowing the appeal filed by the assessee.

Relief to Asian Plywood Industries: CESTAT Quashes Demand of Customs Duty of Approx. 2.5 Crores for Clandestine Removal of Goods on Ground of Absence of Corroborative Evidence

M/s Asian Plywood Industries Private Limited vs Commissioner of CGST & Excise,Patna II CITATION: 2023 TAXSCAN (CESTAT) 891

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the demand of Customs Duty of approximately 2.5 crores for the clandestine removal of goods on the ground of the absence of corroborative evidence

The Bench observed that the clandestine manufacture and removal of excisable goods was to be proved by tangible, direct, affirmative, and incontrovertible evidence, and the department failed to examine all the aspects relating to the clandestine removal of goods and there was no corroborating evidence relating to the clandestine removal of goods by the assessee.

Demand of Excise Duty for Clandestine Removal of Goods without Examination of Witness in terms of 9D of Central Excise Act: CESTAT directs Re-consideration 

 M/s. Ashoka Re-Rolling Mills Private Limited vs Commissioner of Central Excise CITATION: 2023 TAXSCAN (CESTAT) 885

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) directed re-consideration for imposing of demand of excise duty for clandestine removal of goods without examining the witness in terms of 9D of the Central Excise Act,1944.

The Bench observed that it was necessary to remand the matter back to the adjudicating authority for examination of witnesses in terms of section 9D of the Central Excise Act and thereafter to pass an appropriate order under the law.

Charge of Clandestine Removal of Goods Computed on Mere Differences of Audit report and ER-1 Report is Not Sustainable: CESTAT

 M/s. Micky Metals Limited vs Commissioner of Central Excise CITATION: 2023 TAXSCAN (CESTAT) 747

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the charge of clandestine removal of goods computed on mere differences of the audit report and the production and clearance in central excise statutory returns in form Excise Return (ER-1) was not sustainable.

The bench observed that merely based on the difference in the figures of the audit report and ER-1 return without establishing the parameters of clandestine manufacture and removal of goods, the charge of clandestine removal is not sustainable.

Purchasing Goods without invoice/bill amounts to abatement for evasion of duty: CESTAT reduces Penalty on Clandestine Removal from 1Lakh to 25000

 Dhanjibhai Bhikhabhai Ranparia vs C.C.E. & S.T.-Rajkot CITATION: 2023 TAXSCAN (CESTAT) 351

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) reduced the penalty on clandestine removal from 1Lakh to 25000 purchasing goods without invoice/bill amounts to abatement for evasion of duty.

Bench viewed that though the appellants are not concerned about the Exemption Notification No. 08/2003-CE, by purchasing the goods without invoice/bill abated M/s. Rainbow Engineering Co. for evasion of duty. The raw material supplier cannot be implicated in the clandestine removal of the goods by the buyer of the raw material.

Quashing of penalties in Common Cases: CESTAT sets aside Excise Penalty for alleged Clandestine Removal of Goods

 Dipal Narendrabhai Shah vs C.C.E. & S.T CITATION: 2023 TAXSCAN (CESTAT) 291

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has recently set aside the penalty imposed for alleged clandestine removal of goods, as the penalties in two other common cases were quashed.

The Tribunal observed that “present appellants were also involved in the case of Shri Hari Steel Industries and also in the case of M/s. Pure Alloys Ltd. in the said cases the Tribunal has taken a view that the appellants are not liable for the penalty.”

Duty Demand on Clandestine removals based on Confessional Statements without Corroborative Evidence is not permissible: CESTAT

  Metal Gems vs C.C.E. & S.T.-Daman CITATION: 2022 TAXSCAN (CESTAT) 544

Duty Demand on clandestine removals based on the confessional statements without corroborative evidence is not permissible, the Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held as above.

It was settled law that clandestine removals cannot be arrived at based upon the confessional statement of other persons or the documents recovered from the third-party premises, without corroboration of the said documents.

A Coram of Ramesh Nair, member (judicial) and Raju, member (technical) found that the department has failed to prove the allegations against the appellant and viewed that the confirmation of duty demand along with interest and penalty against the appellant without any cogent basis is invalid.

Excise Duty Demand for Clandestine removal based on Third Party Evidence: CESTAT quashes Demand for want of Cross-Examination

 M/s Shri Shyam Ingot & Castings Pvt. Ltd vs Commissioner of Customs & Central Excise CITATION: 2022 TAXSCAN (CESTAT) 417

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi presided by Mr. Anil Choudhary, Member (Judicial) has held that excise duty demand for clandestine removal based on third party evidence and quashed Demand for want of cross-examination.

The Tribunal while allowing the appeal observed that third party record and the statement of the Director of M/s PIL cannot be used against the appellant both for non-joinder of the parties and also a failure on the part of Revenue to examine Mr. Pankaj Agarwal as its witness in the adjudication proceedings.

Demand of Duty on Clandestine Removal not sustainable in the absence of Corroborative Evidence: CESTAT

 M/s. Elora Tobacco Company Ltd. vs Commissioner of CGST & Central Excise CITATION: 2022 TAXSCAN (CESTAT) 393

While considering a bunch of appeals, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi Bench held that the demand of duty on clandestine removal was not sustainable in the absence of corroborative evidence.

The bench while allowing the appeals set aside the impugned order and held that it cannot be concluded that the officers were involved in helping M/s ETCL in alleged evasion merely on the ground that the cigarettes were seized from traders godown when these officers were deputed for supervision.

Revenue failed to establish Clandestine Clearance: CESTAT sets aside Demand for Excise duty

RAJHANS IMPEX PVT LTD vs C.C.-MUNDRA CITATION: 2022 TAXSCAN (CESTAT) 351

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Ahmedabad set aside the demand for excise duty due to the failure of revenue in establishing the clandestine clearance.

The bench observed that the demand of Customs duty and Central Excise duty along with interest and imposition of penalties related to the raw materials were not sustainable and set aside the impugned order and allowed the appeals of the assessee. The appeal of the revenue got dismissed.

Penalty under Central Excise Act is not sustainable by Third Party Evidence, can’t claim Duty on Clandestine Removal: CESTAT

 SANJAY KUMAR GOYAL vs COMISSIONER, CENTRAL EXCISE & CUSTOMS CITATION: 2022 TAXSCAN (CESTAT) 277

The appellant filed an appeal before the Commissioner (Appeals), who rejected the appeal.The appellant contended that the whole demand has been raised with a penalty, based on unsubstantiated third party records. It was further stated that the charge of clandestine removal and demand of duty, have got grave civil consequences on the appellant and allegation in a mechanical manner can’t be sustainable unless it is supported with corroborative evidence.

The Tribunal observed that the Respondenthas failed to examine its witness in the adjudication proceedings and thus for the absence of compliance with the mandate of Section 9D of the Act.

Clandestine Removal cannot be established on the basis of Third Party’s Records: CESTAT

 Bharat Sheth vs C.C.E. & S.T.- CITATION: 2022 TAXSCAN (CESTAT) 274

The Ahmedabad Bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that clandestine removal cannot be established on the basis of a third party’s records.

The Coram of Mr. Ramesh Nair, Judicial Member, and Mr. Raju, Technical Member while allowing the appeal has held that “Revenue has failed to produce any corroborative evidence. The evidence, at best, raises suspicion in the minds but is not sufficient to prove the charges of clandestine removal. In the absence of any corroborative evidence, the benefit of the doubt goes in favor of the appellant. In these circumstances, we hold that Revenue has failed to prove their case”.

Cogent Evidence is needed to establish a Charge against Clandestine Removal, No Penalty sustained under Central Excise Act: CESTAT  

Commissioner, Customs & Central Excise vs Prakash Industries Limited CITATION: 2022 TAXSCAN (CESTAT) 273

The Delhi bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that cogent evidence is needed to establish a charge against clandestine removal and no penalty sustained under section 11 AC of the Central Excise Act.

The Tribunal confirmed the order of Commissioners which relates to the dropping of demand of duty for Rs.9,94,65,997/- and dismissed the appeal filed by the revenue.Shri Sanjay Kumar Singh appeared for the appellant and Shri Rohit Choudhary & Ms PreetiKhiwani, Advocates appeared for the respondent

Finished Goods not liable for Confiscation in absence of any finding of attempted Clandestine Removal of Excisable Goods: CESTAT

Maa Santoshi Tobacco Co. vs Commissioner, Central Goods and Service Tax CITATION: 2021 TAXSCAN (CESTAT) 244

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Delhi Bench ruled that the finished goods are not liable for confiscation in absence of any finding of attempted clandestine removal of excisable goods.

The CESTAT said that the order of confiscation and penalty can be made only in case of fraud, collusion, willful misstatement, suppression of facts, or any contravention of the provisions of the law with intent to evade duty. There is no such allegation in the facts of the present case save and except nonfinding or nonproduction of the statutory register RG-I and Form-IV for the reasons that the same were missing and could not be located.

Third-Party documents alone not sufficient to prove charge of Clandestine Removal: CESTAT 

Recon Steel & Power Private Ltd. vs The Principal Commissioner Central Tax, Central Excise & Customs CITATION: 2021 TAXSCAN (CESTAT) 288

The Customs Excise and Service Tax Appellate Tribunal(CESTAT), Delhi bench has recently quashed an order confirming the charge of clandestine removal for lack of clinching evidence of clandestine manufacture and removal of goods.

“It is also apparent that the shortage was detected on the basis of eye estimation and on average weight basis without any physical weighment, demand cannot be confirmed on the said basis. Above all present is the case of third party evidence,” the Tribunal observed.

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