Assumptions and Private Records from Third-Party Premises Cannot Prove Dept. Allegation: CESTAT Quashes ₹67 Cr Excise Duty [Read Order]
Relying on the judicial doctrine that the serious charge of clandestine removal demands positive, irrefutable evidence, the Tribunal dismissed the case built on conjectures.
The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside a confirmed Central Excise Duty demand of approximately ₹67 Crores and ruled that allegations of clandestine removal cannot be sustained merely on the basis of assumptions drawn from private records recovered from third-party premises.
Rashmi Group of Companies (appellant), a manufacturer of excisable goods, faced allegations of clandestine manufacture and removal of goods without paying duty following investigations by the Directorate General of Central Excise Intelligence (DGCEI).
The Revenue Department's entire case was built on the premise that handwritten note pads and printouts recovered from premises not owned by the company (mainly residences of employees/ex-employees) represented unaccounted-for production and clearances. The demand was calculated by comparing these "private records" with the official statutory records.
The appellants’ counsel argued vehemently against this methodology, citing the established legal position that circumstantial evidence and vague third-party records cannot be the sole basis for demanding duty.
The counsel pointed out that the Department failed all mandatory corroboration tests, including no evidence of excess procurement of raw materials to manufacture the alleged quantity. The Counsel also submitted that no investigation into excess consumption of electricity, which would be essential for such massive clandestine production.
The counsel submitted that there was no proof of receipt of unaccounted sale proceeds (cash or cheque) and also stated that there was no concrete evidence of actual transportation of the unaccounted finished goods.
The Bench, comprising Shri Ashok Jindal (Judicial Member) and Shri K. Anpazhakan (Technical Member), applied the guidelines laid down by the Tribunal in Arya Fibres Pvt. Ltd. v. Commissioner of Central Excise which mandated multiple points of clinching evidence to prove clandestine removal.
The Tribunal held that the allegation was based solely on a presumption of the difference between private records and statutory records without any investigation into the core activities of manufacture and removal.
The Bench noted that demanding duty on the basis of unverified documents recovered from third-party residences, whose link to the company's business was tenuous, was unsustainable.
The tribunal dismissed the allegation of stock shortage during the search, finding that the quantity was determined by eye estimation within a short time frame, rather than actual weighment, thus making the finding unreliable.
Concluding that the Revenue failed to discharge the heavy onus of proving the serious charge of clandestine removal, which was founded on mere "conjectures, surmises, assumptions and presumptions," the Tribunal set aside the Order.
The tribunal dropped the duty demand, interest, and penalties imposed on the company and its directors. The appeal was allowed.
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