Clandestine Removal And Under-Valuation Charges Can't Be Sustained Merely Based On Assumptions And Presumptions: Delhi High Court

The Delhi High Court has held that the charges of clandestine removal and under valuation cannot be sustained merely on the basis of assumptions and presumptions. The absence of direct, credible evidence linking the respondents to the alleged offences necessitate the dismissal of the charges.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the physical verification of the stocks and the absence of discrepancies in the recorded quantity of the raw material as well as the lack of evidence regarding the purchase of significant quantities of raw materials and cash undermine the presumption of unaccounted manufacture. The bench found that the recovery of documents from the premises unrelated to the respondents and reliance of such documents to establish clandestine operations are found to be procedurally flawed and legally untenable by the learned CESTAT. The reliance by the department on the statements that have been retracted or challenged in cross-examination, without corroborating evidence weakens the credibility of such testimonies as the basis for establishing the guilt.

The respondent/assessee is in the business of manufacturing Gutkha/Pan Masala bearing the brand name “Kuber Moolchand etc.”

The Investigating Agency of the Revenue Department conducted a search on the basis of the information received that the respondents were indulging in clandestine removal of goods and evasion of duty.

The Show Cause Notice was adjudicated by the Commissioner of Central Excise. The Commissioner of Central Excise held that total central excise duty demand of Rs. 4,18,29,655/- (Rs. 3,47,22,118 + Rs. 71,07,737/-) on account of clandestine removal and undervaluation of goods was confirmed against KI under proviso to Section 11 A (1) of the Central Excise Act, 1944 along with interest on this duty at the applicable rate as per the provisions of Rule 11 AB.

The respondent filed the appeal against the order of the Commissioner before CESTAT. In the appeals filed by the respondents before the CESTAT, there was a difference of opinion between Justice R.M.S. Khandeparkar, President (Judicial) and Rakesh Kumar, Member (Technical), who heard the appeals.

The President noted that the entire evidence sought to be relied upon in support of the allegations against the appellants, being unreliable and uncorroborated, and unsustainable to establish the charge of clandestine removal of goods, it is not necessary to deal with other grounds of challenge in the matter. In the absence of cogent evidence on record, the charge of clandestine removal against the appellants cannot be said to have been proved and hence the appeals are liable to be allowed. In the result, the appeals are bound to succeed. The impugned orders are liable to be set aside with consequential relief.

However, the Technical Member upheld the orders except for modification of quantum of penalty and interest on duty under Section 11 AB which shall be chargeable only in respect of clearances w.e.f. 28.09.96. The penalty on KTPPL and KI under Section 11 AC of Central Excise Act, 1944 shall be re-quantified by the Commissioner as per the directions for which the matter is remanded to the Commissioner.

In view of the above difference, the matter went before the third Member (Judicial) Mr. M.V. Ravindran. Mr. Ravindran agreed with the opinion of the President (Judicial) Justice R.M.S. Khandeparkar and disagreed with Mr. Rakesh Kumar, Member (Technical).

The resultant position was that by majority of 2:1, the appeals were allowed.

The department has been filed the appeal under Section 35 (G) of the Central Excise Act, 1944 against Order passed by the Central Excise Sales Tax Appellate Tribunal (CESTAT) by which the appeal of the respondents was allowed.

The department contended that the absence of tangible evidence does not diminish the weight of the substantial information contained in the recovered documents. It is thus submitted that the cumulative evidence including the statements, document correlations and physical findings form a robust case against the respondents. It is stated that the authenticity of the recovered documents holds firm and attempts to discredit them, lack merit.

The respondent contended that the department has failed to prove the allegations and consequently the demand of dues and penalties. It has been argued that the statements recorded under Section 14 of the Central Excise Act are not voluntary. The statements were later retracted by the respondents and therefore prudence demands that such retracted statements should not be accepted without independent corroboration.

The court stated that the charges of clandestine removal of goods connotes accusations of serious nature. If the charges are of serious nature, evidence should also be equally strong to substantiate the charges, and therefore, the evidence needs careful scrutiny and appreciation.

The court held that President (Judicial) and Member (Judicial) conducted a meticulous exercise to examine and appreciate the evidence on record in the light of the settled principles and came to a categorical finding that in the absence of cogent evidence on record, charges of clandestine removal against the respondents cannot be said to have been proved.

Counsel For Petitioner: Harpreet Singh

Counsel For Respondent: Karan Bharihoke

Case Title: Commissioner Of Central Excise Versus Kuber Tobacco Products Pvt. Ltd. & Anr.

Citation: 2024 LiveLaw (Del) 306

Case No.: CEAC 40/2012

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