Clandestine Removal Based on Accounting Errors: CESTAT Sets Aside Excise Duty Demand for Lack of Evidence [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside a demand for excise duty and penalty, ruling that allegations of clandestine removal of goods cannot be based solely on accounting discrepancies without substantial corroborative evidence.

M/s. Deo Ispat Alloys Limited, the appellant-assessee and a manufacturer of Silico Manganese, faced a demand of Rs. 30,36,884 towards Excise Duty and an equivalent penalty. The Department alleged clandestine removal of goods totaling 536.54 MT across three instances in 2011 and 2013, based on discrepancies noticed in their ER-1 returns. The Commissioner (Appeals) confirmed the demand and penalty, prompting the appellant to approach the Tribunal.

The appellant contended that the alleged discrepancies were merely clerical errors and not indicative of illegal removal. They provided explanations for each instance: a stock adjustment error for 500.840 MT, an adjustment for returned goods for 15 MT, and a simple accounting mistake for 20.7 MT.

The appellant argued that clandestine removal is a grave charge requiring material evidence, which the Department failed to produce. They relied on the Allahabad High Court's decision in Continental Cement Company v. Union of India to argue that the Revenue must establish the charge with clinching evidence, such as details of excess raw materials, power consumption, or transport of goods. They also contested the invocation of the extended period of limitation, stating they had not suppressed any facts.

The tribunal observed that the Department had based its case entirely on accounting discrepancies without investigating further. It reiterated that for a charge of clandestine removal to stand, the Revenue must provide tangible evidence, as laid down in the Continental Cement Company case, which includes finding excess production details, raw material purchases, dispatch particulars, and realization of sale proceeds.

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The tribunal found that none of these criteria were met in the present case and held that the extended period of limitation was wrongly invoked, as the appellant had been in correspondence with the Department and had not suppressed any facts.

The single bench of K.Anpazhakan, Member Technical held that the demand for excise duty and penalty was unsustainable. It set aside the order passed by the Commissioner(Appeals) and allowed the appeal filed by M/s. Deo Ispat Alloys Limited.

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