Revenue Did Not Probe Further, Clandestine Removal Of Goods Not Established: CESTAT Drops The Demand Of Excise Duty

The department has challenged the dropping of a demand of Rs. 9,94,65,997 by the Commissioner out of the total proposed demand of Rs. 11,46,10,423 in the show cause notice.

The Commissioner has confirmed the balance demand of Rs. 1,51,44,426 along with an equal penalty under Section 11AC of the Central Excise Act. The amount of duty confirmed stood appropriated from the amount paid or debited during the course of the investigation. The assessee was ordered to pay a reduced penalty of Rs. 37,86,107 if the interest payable under Section 11AB was paid within thirty days of the order's service. A penalty of Rs. 50 lakhs was imposed on the appellant under Rule 25 of the Central Excise Rules, 2002.

The confiscation of land, building, plant and machinery of the appellant, was ordered under Section 173Q of the Central Excise Rules, 1944 read with Rule 25 of the Central Excise Rules, 2002 with the option to redeem on payment of a fine of Rs.25 lakhs.

The assessee had filed an appeal before the Tribunal against the confirmation of duty amount of Rs. 1,541,446, as well as penalty and confiscation. The director also filed an appeal challenging the imposition of the penalty.

The department also filed an appeal assailing the order-in-original against the dropping of the demand of Rs.9,94,65,997. The clandestine removal of 67170.156 MT of finished goods was alleged in the show cause notice on the basis of a third party record being the bilty nakal registers (daily book).

The Tribunal held that the charge of clandestine removal and duty evasion was a serious charge having civil consequences for the assessee. Such a charge cannot be confirmed unless there is sufficient corroborative evidence which leads to the inevitable conclusion of clandestine removal.

"We find that in absence of the relevant inputs necessary for production of the alleged quantity removed clandestinely, namely raw materials, electricity, labour etc., the condition precedent of manufacture is not established and, in the absence of such material evidence, only on the basis of third party evidence, the charge of clandestine removal is not sustainable," the CESTAT said.

The CESTAT observed that it was rather more intriguing than surprising that the department did not proceed further to verify the entries found in the records of the transporters, in spite of the fact that the data contained enormous entries alleged to have been clandestine transactions by the respondent assessee. Follow-up or cross-verification at the alleged consignees, at least on a sample basis, would have not only thrown more light on the alleged clandestine clearances made by the appellant but would have resulted in corroborative evidence to substantiate the allegation.

"The "bilty nakal registers" which have been relied upon as material evidence by the Revenue were seized from the premises of the two transporters; alleged parallel bilties, Xerox copies of which were provided by the source/informer, which were alleged to have been prepared by the said two transporters. For reasons best known to the appellant Revenue, the transporters, who could have been charged with abetment and consequent penal action, were not made co-noticees in the show cause notice. In such circumstances, the "bilty nakal register" which was recovered from their premises loses evidentiary value as it gives rise to serious suspicions and would not stand scrutiny of Law," the CESTAT noted.

The tribunal, while dismissing the appeal filed by the department, found that the department had failed to establish the charge of clandestine removal. Therefore, the Commissioners' order, as far as it relates to the dropping of demand for duty for Rs.9,94,65,997/-, needs no intervention.

Case Title: Commissioner, Customs & Central Excise Versus M/s Prakash Industries Limited

Citation: Excise Appeal No. 3704 of 2006 (DB)

Dated: 10.05.2022

Counsel For Appellant: Authorised Representative Sanjay Kumar Singh

Counsel For Respondent: Advocates Rohit Choudhary & Ms. Preeti Khiwani,

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