Dept alleges Clandestine Sale without producing Corroborative Evidence such as Consumption of Electricity: CESTAT quashes Excise Duty [Read Order]

The appellant Sai Electro casting Pvt. Limited filed appeal against the revenue. The Revenue had alleged that the appellant received large quantities of sponge iron from its sister concern, M/s Sai Sponge (India) Pvt. Ltd., without payment of duty during FY 2009-10 and 2010-11.

Based on this assumption, the Department further alleged that the appellant clandestinely manufactured billets, ingots, and rolled products, which were cleared without payment of duty. The adjudicating authority confirmed the demand relying on seized documents, third-party statements, and an input-output ratio method, with the Commissioner (Appeals) upholding the order.

Before the Tribunal, the appellant argued that the entire case rested on assumptions without verifying critical production factors such as installed capacity, electricity consumption, labour deployment, or storage space.

The bench stated the precedents including R.A. Castings Pvt. Ltd. and Galaxy Indo Fab Ltd., the counsel stressed that clandestine removal can only be established by direct, affirmative, and corroborative evidence, not by presumptions. It was further stated that the alleged raw materials, being eligible for CENVAT credit, negated any incentive for clandestine procurement.

The Tribunal agreed with the appellant, noting that no investigation was carried out into electricity usage, movement of goods, buyer identification, transportation records, or financial flows, factors considered essential to prove clandestine production.

Instead, the Revenue relied heavily on documents seized from third parties and general assumptions about input-output ratios, noted the tribunal.

The Bench of R. Muralidhar (Judicial member) and K. Anpazhakan (Technical member) noted that without corroborative evidence like excess power consumption, purchase of raw materials, transportation payments, and buyer details, clandestine removal cannot be sustained.

The CESTAT also noted that since the alleged clandestine clearances were linked to supposed illicit removals by Sai Sponge, and the demand against Sai Sponge had already been set aside in a connected appeal, the foundation of the Revenue’s case collapsed.

On both counts lacking corroborative evidence and the collapse of the primary allegation, the Tribunal set aside the duty demand, interest, and penalties against the company and its directors.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates