Input-Output Ratio Insufficient to Prove Clandestine Removal of Pig Iron: CESTAT Quashes Excise Duty Demand and Penalties [Read Order]
The Tribunal also remarked that the Extended Term of Limitation u/s 11A(4) was Incorrectly Invoked, as the entire Case was established on an Audit Analysis of Statutory Returns
The Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal set aside an excise duty demand exceeding ₹5.10 crore relating to alleged clandestine clearance of pig iron, holding that the proceedings were based entirely on theoretical input-output ratios declared in the ER-5 return, without any corroborative evidence as required under Section11A of the Central Excise Act, 1944.
The Tribunal observed that clandestine removal is a serious charge which cannot be sustained merely on mathematical assumptions or audit-derived computations without independent verification of production, raw material procurement or dispatch activity.
The appeal was filed by Neo Metaliks Ltd., challenging the confirmation of duty, interest and penalties imposed under Section 11A(4) and Rule 25 of the Central Excise Rules. The Department inferred unexplained clearance of pig iron based on an audit objection that claimed the company's declared input-output ratio did not match its reported production.
It was argued that the computation failed to account for critical operational variables such as the functioning of the sinter plant, pig iron skull manufacturing and production loss patterns, which directly influence output levels in iron-making processes.
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The Bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that even the most fundamental components of corroboration usually required to support a charge of clandestine removal were absent from the Revenue's case. No excessive raw material consumption, unusual electricity use, unrecorded sale transactions, transport documentation, stock discrepancies, or statements from purchasers or transporters have been found by the adjudicating body.
The Tribunal stressed that without such underlying information, a duty demand centered exclusively on hypothetical ratios cannot satisfy the evidential requirements stipulated under Section 11A.
The Tribunal also remarked that the extended term of limitation under Section 11A(4) was incorrectly invoked, as the entire case was established on audit analysis of statutory returns already on record and not on any act of suppression or falsification by the assessee.
The accusation of intent to evade duty could not be upheld since the Department only used the ER-5 data that the corporation provided. According to judicial precedents, extended limitation is not justified by audit concerns alone in the absence of proof of intentional misconduct.
Finding the computation mechanical and unsupported by independent evidence, the Tribunal concluded that the demand lacked legal substance. The entire duty, interest and penalty were consequently set aside, granting full relief to the petitioner.
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