Steel Manufacturer's Appeal Allowed: CESTAT Quashes Excise Duty Demand for Lack of Evidence on Clandestine Clearance [Read Order]

The Kolkata Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) allowed the steel manufacturer’s appeal and set aside an excise duty demand of Rs. 71,14,525/- alleging clandestine clearance of MS products and held that the demand was based solely on an untested third-party statement, without compliance with Section 9D of the Central Excise Act, 1944.

The Appellant, M/s. Adhunik Industries Limited, was a medium scale integrated steel plant engaged in the manufacture of excisable goods TMT Bar, MS Round, MS Flat etc. falling under Chapter 72 of the CETA, 1985, wherein the present appeals arose from the Order-in-Original No. 111 dated 10.03.2016 passed by the Commissioner ofCustoms, Central Excise and Service Tax, Durgapur.

The Appellant, during the period 2010-11 and 2011-12, removed 2490.88 MT of MS Round and MS Flat on an ex-factory sale basis to M/s. Satabdi Tie-up Pvt. Ltd. under 103 & 101 numbers of Central Excise invoices and payments for these sales were duly received by the appellant-company through Account Payee Cheques, and Central Excise duty was paid thereon.

During investigation against M/s. Satabdi for availing CENVAT credit on fake invoices, its Director Sudarshan Kothari admitted to paper transactions without receiving goods. Based on this statement, Revenue alleged that the appellant supplied only invoices without actual goods, and clandestinely cleared the goods to others without paying duty.

A Show Cause Notice dated 24.04.2014 proposed recovery of Rs. 71,14,525/- under Section 11D and Section 11A(4) with interest and penalties. The Commissioner confirmed the demand, appropriated the duty already paid, imposed equal penalty under Section 11AC, and imposed Rs. 10,00,000/- penalty on the Director under Rule 26. Aggrieved, both the company and its Director filed separate appeals before the Tribunal.

The Section 11D of the Central Excise Act, 1944 explained that: Duties of excise collected from the buyer to be deposited with the Central Government

“(1) [every person who is liable to pay duty under this Act or the rules made thereunder, and has collected any amount in excess of duty assessed or determined and paid on any excisable goods under this Act or the rules made thereunder from the buyer of such goods] in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government.

³[(2) Where any amount is required to be paid to the credit of the Central Government under ⁵[sub-section (1) or sub-section (1A), as the case may be,] ^Old[ sub-section (1)] and which has not been so paid, the Central Excise Officer may serve on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government”

The Counsel for the Appellant, N.K. Chowdhury, submitted that Section 11D was inapplicable as duty collected was deposited with the government, and this provision applies only when collected duty was not remitted. There was no evidence of clandestine removal, and payment through account payee cheques was undisputed.

The Counsel stated that vehicle discrepancies and buyer's infrastructural deficiency cannot establish non-supply of goods. The proceedings were vitiated for not implementing M/s. Satabdi as a party, and the extended period of limitation cannot be invoked as there was no suppression with intent to evade tax.

The Counsel also stated the statement of Sudarshan Kothari had no evidentiary value without compliance with Section 9D, which mandates examination and opportunity for cross-examination before the adjudicating authority and the penalty on the Director was unsustainable for lack of evidence of personal involvement.

Further, the Counsel relied on Gonterman Peipers (India) Ltd. [Order-in-Appeal No. 35-37/Kol-VII/2009 dated 30.09.2009], Grace Casting Ltd. [2019 (369) ELT 751 (Tri- Ahmd.)], Flemingo (DFS) Pvt. Ltd. [2018 (363) ELT 450 (Tri.-Hyd.)] and G-Tech Industries v. Union of India.

On the other hand, the Counsel for the Respondent, B.K. Singh and Shri S.K. Jha, both Authorized Representatives, submitted that demands were confirmed based on documentary evidence recovered from M/s. Satabdi. The investigation categorically established that the appellant supplied only invoices without actual goods. Accordingly, the demands and penalties imposed were justified.

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

The Tribunal, after reviewing the submissions made, held that the appellant had affected genuine ex-factory sales, discharged excise duty, and received payments through account-payee cheques, and therefore could not be held responsible for the buyer’s transportation or alleged non-use of goods.

The Tribunal also ruled that Section 11D was wrongly invoked since the duty collected had already been deposited with the Government, and that allegations of clandestine clearance were unsupported by any independent, cogent, or corroborative evidence such as excess raw materials, power consumption, transportation, or flow of sale proceeds.

Further, the Tribunal held that the statement of the buyer’s Director had no evidentiary value as it was not tested in accordance with Section 9D, reiterating that untested third-party statements cannot sustain serious charges like clandestine removal. In the absence of evidence, the duty demand, interest, and penalties were set aside, and the penalty on the Director was quashed for lack of proof of personal involvement.

Thus, the impugned order was set aside and appeals filed by the appellant were allowed with consequential relief. The Order was pronounced in the open court on 02.12.2025.

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