Loose Sheets and Pocket Diary Not Sufficient to Prove Clandestine Clearance of Mild Steel Ingots: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that loose sheets and a pocket diary are not enough to prove clandestine removal of mild steel ingots without payment of duty.

DD Iron & Steel Pvt. Ltd., the appellant, is a company engaged in the manufacture of mild steel ingots using sponge iron, pig iron, and cast iron as raw materials. On September 1, 2012, officers from the Directorate General of Central Excise Intelligence (DGCEI) conducted a search at the appellant's factory premises and the residence of the director’s brother-in-law, during which they seized some handwritten loose sheets and a spiral-bound pocket diary.

The department issued a show cause notice on January 27, 2016, alleging that the company had removed 5,816.660 metric tons of mild steel ingots without payment of the central excise duty of Rs. 2.16 crore. The Commissioner of Central Excise confirmed the demand along with interest and penalties against the company and its director. Aggrieved by this order, the appellant approached the CESTAT.

The appellant's counsel argued that the documents relied upon by the department were private, unsigned, and written in pencil by unidentified persons. He argued that these documents did not prove any clandestine removal.

The counsel further argued that no shortage or excess of stock was found during the search, and there was no proof of unrecorded raw material purchases, transport of goods without documents, or extra electricity consumption. They pointed out that statements recorded during the investigation were not tested through cross-examination under Section 9D of the Central Excise Act, which made them legally invalid as evidence.

The revenue counsel argued that the loose sheets, referred to as a "trial balance," reflected actual production and clearances beyond the recorded figures. They argued that these sheets matched electricity and bank records. The revenue also relied on entries in the pocket diary, which they claimed showed sales of goods not supported by excise invoices.

The two-member bench comprising R. Muralidhar (Judicial Member) and Rajeev Tandon (Technical Member) observed that the loose sheets and the pocket diary lacked credibility as evidence. The tribunal observed that the documents were unsigned, written in pencil by more than one person, and did not relate to excisable goods or prove the removal of goods without payment of duty.

The tribunal observed that the department failed to bring on record any corroborative evidence to support the charge of clandestine removal. It pointed out that there was no evidence of unaccounted raw material purchases, cash transactions, use of transportation, or any acceptance by buyers or transporters. The tribunal held that such serious allegations cannot be sustained without strong, clear, and corroborative evidence.

The tribunal allowed the appeal and set aside the demand and penalties imposed on the company and its director. It did not examine the issue of limitation, as the case was decided on the merits.

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