Rough Estimates in Private Diaries Not Sufficient to Prove Clandestine Clearance: CESTAT Sets Aside Central Excise Duty Demand and Penalties [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at Kolkata, has set aside a Central Excise Duty demand of over Rs. 19.6 Lakhs, along with all associated penalties.

The Tribunal ruled that the demand, which was based on allegations of clandestine clearance, was unsustainable both on legal principle and due to a serious procedural flaw that amounted to a violation of natural justice.

The appeals were filed by M/s. Dhara Polytubes Private Limited, its Director Shri Prem Kumar, and its Supervisor Shri Kumar Rajoo, challenging an Order-in-Original that had confirmed the duty demand. The core allegation was that the company had indulged in clandestine clearance of PVC Pipes to evade Central Excise Duty and illegally avail the Small Scale Industry (SSI) Exemption.

The Revenue's case rested primarily on entries found in "8 Books containing Rough Estimates" seized during the search, which led to calculating a clearance value of Rs. 85,95,500/-.

Before the Tribunal, the appellants, M/s. Dhara Polytubes Pvt. Ltd., primarily advanced two arguments. Firstly, they contended that the entire Order-in-Original was passed ex-parte, and the adjudicating authority had failed to provide them with copies of the essential relied-upon documents (RUDs) cited in the Show Cause Notice. They argued that this amounted to a gross violation of the fundamental principles of natural justice, making the final order legally void.

Secondly, regarding the substantive charge, the appellants asserted that the duty demand was baseless as it rested solely on the "Rough Estimates" diaries. They emphasized that charge of clandestine removal cannot be sustained merely on assumptions or private records without any further corroborative evidence.

They pointed out the Department failed to establish any proof of unaccounted raw material purchase, excessive power consumption, transportation, or receipt of sale proceeds. On the other hand, the Revenue maintained that the rough book entries were sufficient to prove unaccounted sales.

The CESTAT Bench, comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member), found merit in the appellants' submissions. The Tribunal held that the failure to supply RUDs violated the established principles of natural justice. Furthermore, the Tribunal reinforced the settled legal position that allegations of clandestine clearance must be backed by cogent, positive, and tangible evidence.

Finding that the Revenue’s case was based purely on assumptions derived from the rough books without requisite corroboration, the Bench concluded that the charge could not be sustained. As a result, the Tribunal set aside the entire impugned order, and appeals were thus allowed in full.

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