Excise Duty Cannot Rest on Assumptions: CESTAT Rules Clandestine Clearance Allegation Fails for Lack of Cogent Evidence [Read Order]
The Customs, Excise and Service Tax Appellate Tribunal, Kolkata (CESTAT) has held that excise duty cannot be demanded on the basis of assumptions, presumptions, or preponderance of probabilities, ruling that allegations of clandestine manufacture and clearance must be supported by cogent corroborative evidence.
The appeals were filed by the Commissioner of Central Excise and Service Tax, Jamshedpur, against M/s. Chanduka Hi-Tech Steels Pvt. Ltd. (CHPL), M/s. Ratangarva Industries (RI), and the authorised representative of RI, following Order-in-Original.
The case originated from an investigation alleging that CHPL clandestinely manufactured and removed excisable goods from its own factory as well as from units of M/s. KYS Manufacturers & Exporters Pvt. Ltd. (KYS) and RI, without payment of duty between November 2011 and January 2013.
Searches at the premises of CHPL, KYS, and RI resulted in seizure of certain documents and a pen drive, which the Department believed contained details of unaccounted manufacture and clearances. A demand of ₹16.31 crore was raised on CHPL, of which ₹2.49 crore related specifically to alleged clearances from RI’s premises.
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The Adjudicating Authority dropped the ₹2.49 crore demand on the ground that there was no evidence linking CHPL to the manufacture or clearance of goods from RI, and refrained from imposing penalties on RI and its authorised representative.
In appeal, the Revenue, represented by S. K. Jha, contended that the Commissioner failed to properly appreciate the evidence recovered during the investigation. It was argued that statements of CHPL officials and various seized records indicated that “Kalimati” and RI were the same entity, and that CHPL was engaged in clandestine manufacture at multiple locations.
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According to the Revenue, the Commissioner erred by relying on the denial of RI’s authorised representative while ignoring the principle of preponderance of probability. It was also submitted that the evidence placed warrants penalty under Rule 26 of the Central Excise Rules, 2002 to have been imposed.
On the other hand, the respondents, represented by N. K. Chowdhury, argued that CHPL, KYS, and RI were independent manufacturers with separate registrations, statutory compliance records, and distinct factory premises. And the entire allegation rested on uncorroborated third-party statements and that no evidence was produced which would indicate manufacture of clandestine.
Further, argued that the placed evidence could not be relied upon as the mandatory requirements of Section 36B of the Central Excise Act, 1944 governing electronic records were not satisfied. And their request for cross-examination of witnesses was denied, rendering the statements legally inadmissible.
The Tribunal, comprising R. Muralidhar, Judicial Member and K. Anpazhakan, Technical Member, observed that CHPL, KYS, and RI were independent registered manufacturers, and no evidence existed to establish that CHPL produced goods in the premises of RI. The statements relied upon by the Revenue were found to be uncorroborated third-party statements, while the statement of RI’s authorised representative consistently contradicted the Department’s case.
The Tribunal also held that the electronic printouts taken from the pen drive were inadmissible because the conditions of Section 36B of the Central Excise Act, 1944 had not been met. Critically, the Tribunal reiterated that a demand of excise duty must be founded on strong and conclusive evidence, stating:
“We observe that demand of central excise duty cannot be made on the basis of assumptions and presumptions or preponderance of probabilities. It is a serious allegation which requires cogent corroborative evidences to substantiate the allegation of clandestine clearances, which are absent in this case.”
The Bench held that the Department failed to establish the essential elements of clandestine removal, such as proof of excess raw materials, excess electricity consumption, actual movement of goods, statements from buyers, transportation records, or any flow-back of funds. Further, noted that the seized documents referred only to “Kalimati” and not to Ratangarva Industries, and the Revenue could not establish that the two were the same entity.
Finding no infirmity in the Commissioner’s detailed reasoning, the CESTAT upheld the decision to drop the ₹2.49 crore demand and confirmed that no penalty was imposable on CHPL, RI, or Shri Sudhir Kumar Singh. The Revenue’s appeals were accordingly rejected.
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