Clandestine Removal Cannot Be Substantiated Without Any Corroborative Evidence: CESTAT

The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that clandestine removal cannot be substantiated without any corroborative evidence.

The bench of R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the names of the probable buyers were available in the print out taken from the CPUs. However, no enquiry was caused at the buyer's end and with the transporters by the investigation. No receipts of any consideration towards clearance of goods without payment of duty have been adduced by the Revenue. There is no evidence of any wages being paid towards clandestine manufacturing of goods. The investigation could not unearth even a single buyer who might have received the clandestinely removed goods, though more than Rupees 3 Crores of duty evasion has been alleged.

The appellants/assessees are manufacturers of C.I. Ingots moulds and unmachined C.I. Castings. A search operation was conducted by DGCEI officials at the factory and office premises of the appellant simultaneously on 23.08.2008. During search of the factory premises, physical stock of the input and finished materials was taken in presence of Shri Vijay Kumar Agarwal, Director of M/s. Mittal Iron Foundry (P) Ltd. During the joint physical stock taking, the shortage of finished goods and inputs were found in comparison to the Stock register maintained by the appellant.

The total duty liability on the finished goods found short during the joint stock verification has been worked out. A CENVAT credit availed on the raw material (viz. Pig Iron) found short when the verification was arrived. The Director of the appellant-assessee admitted the shortage in his statement dated 23.08.2008 and handed over the officers post-dated cheques for Rs. 50 Lakhs towards probable tax liability attributable to the stock shortage.

During the search of the office premises, two numbers of CPUs and two pen drives which were in use in the office computer, were voluntarily tendered by the appellant. Subsequently print outs from the said CPUs were taken in the presence of the appellant's representative. On analysis of the print outs, it was found that the appellant has cleared many consignments of their finished goods without payment of duty during the financial years 2004-2005 and 2005-2006. The duty involvement on the alleged clandestine removal of the goods on the basis of the printouts retrieved from the CPUs was arrived at as Rs.3,33,97,266.44/-.

The Commissioner confirmed the demand of Central Excise duty along with interest and imposed equal amount of duty as penalty. Penalty of Rs.10 Lakh each has been imposed on the Managing Director namely, Shri Ramjilal Agarwal and the Director, namely, Shri Vijay Kumar Agarwal. CENVAT credit availed on the input found short, has been disallowed. Rs.15,00,000/- already paid by the appellant was appropriated against the demand of duty.

After the search operation, the appellant- assessee reported to the investigation officers that they had taken stock of goods lying in the factory premises on their own physically and the shortage was found as C.I. Ingot Moulds 178.7 MT, C.I. Castings 8.96 MT and Pig Iron (Input)-20.78 MT only which is much less than what was ascertained by the visiting officers. They requested to appropriate Rs. 15 Lakh from the amount of Rs.50 Lakh towards the duty liability attributable to this quantity of shortage.

The assessee contended that the computerised documents relied upon by the department are not admissible evidence, since the mandate provided under Section 36B of the Central Excise Act, 1944 was not followed. They also stated that clandestine removal cannot be confirmed on the basis of statements alone. There must be positive evidences like admission of clandestine removal, purchase and consumption of unaccounted raw materials, discrepancy between recorded stock and physical stock, seizure of any goods en route, consumption of excess electricity, actual clandestine removal of

The department contended that the demand has been rightly confirmed in the impugned order on the goods clandestinely removed, on the basis of the data recovered from the CPU.

The tribunal set aside the demand confirmed in the impugned order on account of clandestine removals and held that they are liable for penalty, but the penalty can be reduced commensurating with the offence. Since the demand is confirmed only relating to the shortages found, the penalty of Rs. 10,00,000/- imposed on each can be reduced to Rs. 1,00,000/- each, to meet the ends of justice.

Counsel For Appellant: H.K. Pandey

Counsel For Respondent: B.K. Singh

Case Title: M/s. Mittal Iron Foundry Private Limited Versus Commissioner of Central Excise

Case No.: Excise Appeal No. 8 of 2011

Click Here To Read The Order