Mere Shortage of Sugar Does Not Establish Clandestine Removal without Corroborative Evidence: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that mere shortage of sugar does not establish clandestine removal in the absence of corroborative evidence.

Rana Sugar Ltd., the appellant, is engaged in the manufacture of sugar. During a departmental visit to the factory premises, the officers carried out physical verification of stock and found a shortage of sugar when compared with the book balance. Based solely on this shortage, the department alleged that the appellant had clandestinely removed sugar without payment of central excise duty and confirmed a demand along with penalty.

The appellant’s counsel argued that the entire case of the department was based only on physical shortage. The appellant argued that no evidence was brought on record to show clandestine removal, such as statements of buyers, transporters, drivers, or proof of receipt of sale proceeds.

They also argued that sugar is a controlled commodity, cleared only under government quotas, and cannot be sold freely in the open market. According to the appellant, in the absence of any independent or corroborative evidence, the allegation of clandestine removal could not be sustained.

The revenue counsel argued that the shortage was admitted at the time of inspection and that the appellant failed to give any satisfactory explanation for the same. According to the department, unexplained shortage itself was sufficient to conclude that the goods had been removed without payment of duty.

The two-member bench comprising P.K. Choudhary (Judicial Member) and Sanjiv Srivastava (Technical Member) observed that the issue had already been examined in the earlier round of litigation, where the matter was remanded with a clear direction to look for corroborative evidence to support the allegation of clandestine removal. The bench observed that even after remand, the department failed to bring on record any additional evidence apart from the shortage itself.

The tribunal explained that it is well settled that shortage of finished goods, by itself, cannot lead to the conclusion of clandestine removal. The bench explained that the burden lies on the department to prove clandestine removal through positive evidence such as transportation details, statements of persons involved in clearance, buyers, or evidence of flow of funds.

The tribunal also pointed out that sugar is a controlled commodity and its movement and sale are regulated by the government which weakens the department’s allegation when no supporting evidence is produced.

In view of these findings, the tribunal held that the demand of central excise duty and the penalty imposed on the basis of mere shortage could not be sustained. The demand relating to the alleged clandestine removal of sugar was set aside.

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