Insufficient Proof of Clandestine Removal: CESTAT Sets Aside Excise Duty Demand as Department Fails to Supply Seized Documents [Read Order]

TheKolkata Bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside the excise duty demand after finding that the adjudicating authority passed an ex-parte order without supplying seized and relied-upon documents, violating principles of natural justice. The Tribunal held that allegations of clandestine removal were based merely on rough notebook entries, without any corroborative evidence.

The Appellant, M/s. Dhara Polytubes Pvt. Ltd., engaged in manufacture and clearance of PVC Pipes chapter 39 of Central Excise Tariff Act, 1985, challenged the original Order-in-Appeal No. 827-829 dated 05.09.2014 passed by the Commissioner (Appeals), Patna.

The Central Excise officers conducted a search at the appellant’s factory on 30.06.2006, and seized stock worth Rs. 16 lakhs along with loose diaries and eight notebooks containing rough estimates for 2005-06. Based on these seized documents, the Department issued a show cause notice demanding duty of Rs. 16,65,994/-, alleging suppression of production to avail SSI exemption under Notification No. 8/2003-CE.

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The Department calculated total clearance value for FY 2005-06 as Rs.2,04,09,926/- by adding the actual clearances of Rs.1,18,14,462/- with Rs.85,95,500/-. derived from the rough estimates found in the eight notebooks. The adjudicating authority confirmed the demand vide Order-in-Original dated 05.05.2008 / 06.05.2013, passed ex-parte, and imposed penalties on the company, its Director Prem Kumar, and Supervisor Kumar Rajoo. The Commissioner (Appeals) upheld this order, leading to the present appeals before the Tribunal.

The Counsel for the Appellant, N.K. Chowdhury, submitted that the actual clearance value for FY 2005-06 was Rs.1,18,14,462/-, which was within the SSI exemption limit under Notification No. 8/2003-CE dated 01.03.2003. The Department wrongly added Rs. 85,95,500/- derived from eight notebooks containing rough estimates to arrive at a total clearance value of Rs. 2,04,09,926/-, thereby confirming duty liability of Rs. 16,65,994/-.

The Counsel also argued that the Department relied on private documents seized from factory premises without supplying them to the appellants despite repeated requests, thereby denying them opportunity to defend effectively. The demand was based on assumptions and presumptions without verifying whether the appellant actually crossed the SSI exemption limit.

“We find merit in the argument of the appellants that non-supply of relied upon documents denied them the opportunity to make effective submissions in respect of the allegations raised in the Notice. Thus, we hold that the impugned order passed ex-parte, without following the principle of natural justice, is not sustainable in the eyes of law.”

The Counsel stated that that clandestine clearance is a serious allegation requiring cogent corroborative evidence, which was absent. The Department failed to verify actual manufacture and supply, identify transporters, examine receivers, or establish receipt of sale proceeds. It was submitted that the Department failed to establish their involvement in the alleged offence, and hence the penalties should be set aside.

Further, the counsel relied on Kellogg India Pvt. Ltd. v. Union of India [2006 (193) E.L.T. 385 (Bom.)] and Uma Nath Pandey v. State of U.P. [2009 (237) E.L.T. 241 (S.C.)] for violation of natural justice, and Continental Cement Company v. Union of India [2014 (309) E.L.T. 411 (All.)] and Arya Fibres Ltd. v Commissioner of C.Ex., Ahmedabad-II [2014 (311) E.L.T. 529 (Tri. – Ahmd.)] for insufficiency of evidence to prove clandestine clearance.

On the other hand, the Counsel for the Respondent, B.K. Singh, Authorized Representative, reiterated the findings in the impugned order and submitted that the demands were confirmed based on documentary evidence retrieved from the factory premises during search and justified the duty demands and penalties imposed on the company, its Director, and Supervisor.

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The Tribunal consisted of Judicial Member, R. Muralidhar and Technical Member, K. Anpazhakan, heard and reviewed the matter.

The Tribunal, after considering the submissions made, observed that despite repeated requests through letters dated 05.09.2007, 03.10.2007, 11.12.2007 and 19.12.2007, they relied upon documents that were never supplied to the appellant. The ex-parte order passed without supplying these documents violated principles of natural justice. Relying on Kellogg India Pvt. Ltd., the Tribunal held that such orders are void and not curable.

The Tribunal found the appellant's actual clearance value for FY 2005-06 was Rs.1,18,14,462/- within SSI exemption limits under Notification No. 8/2003-CE. The Department wrongly added Rs. Rs. 85,95,500/- from rough estimates in eight notebooks without verifying actual manufacture, supply, transporters, receivers, or sale proceeds.

Further, the appellate tribunal stated that excise duty cannot be demanded on assumptions. Clandestine clearance requires corroborative evidence. Since duty demand failed, interest and penalty on the company were also set aside. Penalties on Director Prem Kumar and Supervisor Kumar Rajoo were set aside as the Department failed to establish their involvement.

Thus, The Tribunal allowed all three appeals and set aside the impugned order with consequential relief. The Order was pronounced in the open court on 02.12.2025.

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