s.11A and Rule 9(2) demand unjustified; proceedings dropped for lack of clinching evidence on clandestine removals

CEGAT held that the Commissioner's duty demand under s.11A read with Rule 9(2) was unjustified and upheld the dropping of proceedings for lack of clinching evidence. The Tribunal found reliance solely on workers' exercise notebooks and balance sheets insufficient to prove clandestine removals, absence of seizures, purchaser statements, or traceable fund flows, and applied consistent precedent to allow the assessee's appeal. The revenue's appeal was rejected.

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Issues Involved:
1. Confirmation of duty demand based on exercise note books and balance sheets.
2. Legitimacy of the Commissioner's decision to drop proceedings for lack of evidence.

Summary:

Issue 1: Confirmation of Duty Demand Based on Exercise Note Books and Balance Sheets

The Commissioner of Central Excise, Hyderabad, confirmed a duty demand of Rs. 68,35,193/- u/s 11A read with Rule 9(2) of C.E. Rules, 1944, and imposed a penalty of Rs. 50,000/- u/r 173Q of C.E. Rules. The demand included Rs. 3,08,284/- for 162.255 MT of vanaspati cleared without payment of duty, based on details in an exercise note book recovered during a search. The assessee argued that the figures in the note book represented orders received, not executed. However, the Commissioner found the note book data indicative of actual sales and confirmed the demand.

For the larger demand of Rs. 68,35,193/-, the Commissioner relied on documents such as a confidential file, operational data returns submitted to banks, balance sheets for 1990-91 and 1991-92, and a consortium meeting file. The assessee contended that these documents were prepared for bank submissions and lacked corroborative evidence of actual production and clearance. The Tribunal noted that demands cannot be confirmed solely on the basis of seized documents without corroborative evidence, referencing multiple judgments that emphasized the need for tangible evidence to prove clandestine removal.

Issue 2: Legitimacy of the Commissioner's Decision to Drop Proceedings for Lack of Evidence

The Commissioner dropped proceedings for lack of evidence, noting that the department had not investigated critical aspects such as raw material purchases, dispatch particulars, realization of sale proceeds, power generation, and finished product receipts. The Commissioner cited case laws indicating that statements given to other departments or documents submitted to banks cannot be relied upon without corroborative evidence. The Tribunal upheld this decision, emphasizing that demands cannot be based on suspicions or uncorroborated documents. The Tribunal found no merit in the revenue's appeal, as the department failed to provide sufficient evidence to support the case of clandestine clearances.

Conclusion:

The Tribunal allowed the assessee's appeal, rejecting the duty demands based on uncorroborated exercise note books and balance sheets. The Tribunal also dismissed the revenue's appeal, affirming the Commissioner's decision to drop proceedings due to lack of substantial evidence.

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