2010 (12) TMI 487 - HC - Central Excise

Revenue appeal dismissed as benefit of doubt upheld; only director's statement and 9,975 kg shortage lacked corroboration

The HC upheld the Tribunal's factual finding and dismissed the revenue's appeal, affirming that except for a disputed shortage of 9,975 kg of one raw ... Clandestine manufacture - removal of final products - benefit of doubt - physical verification of the stock of raw materials - shortage of 9975 kgs. - HELD THAT:- The Tribunal found that except for the disputed shortage detected by the officers in one of the raw materials all the other raw material were in accordance with the recorded balance in the statutory records. That apart from the shortage in one raw material and the statement of the Director, there was no independent evidence available on record indicating any clandestine manufacture or removal of final products. The Tribunal, therefore, extended the benefit of doubt to the assessee and allowed the appeals by setting aside the order impugned before it. 0n the basis of findings of fact recorded by the Tribunal upon appreciation of the evidence on record, it is apparent that except for the shortage in raw material viz., HD which was disputed by the assessee and the statement of the Director, there was no other evidence on record to indicate clandestine manufacture and removal of final products. On behalf of the revenue, except for placing reliance upon the statement of the Director recorded during the course of the search proceedings, no evidence has been pointed out which corroborates the fact of clandestine manufacture and removal of final products. In the circumstances, on the basis of the material available on record, it is not possible to state that the Tribunal has committed any legal error in giving benefit of doubt to the assessee. The appeal is, therefore, dismissed. Issues:1. Whether the Tribunal was correct in holding that clandestine manufacture and removal of final products was not proven due to lack of independent evidenceRs.2. Whether the Tribunal was correct in allowing the appeal based on benefit of doubt to the appellantRs.Analysis:Issue 1:The case involved a challenge to an order under the Central Excise Act, where the respondent was engaged in manufacturing insulated ware. During a stock verification, a shortage of raw material was found, leading to a show cause notice and subsequent penalties. The Director admitted to using the raw material in manufacturing water jugs cleared clandestinely without duty payment. The Tribunal found that apart from the disputed shortage and the Director's statement, there was no independent evidence of clandestine activities. The appellant argued that the Department did not need to prove clandestine removal as the facts were admitted by the assessee. However, the Tribunal extended the benefit of doubt to the assessee due to lack of substantial evidence supporting clandestine activities.Issue 2:The appellant contended that the Tribunal erred in giving the benefit of doubt to the assessee regarding clandestine removal. The Tribunal noted submissions that the shortage of raw material alone could not be the basis for raising a demand for clandestine removal without evidence of conversion and removal. Citing precedents, the Tribunal found that apart from the disputed shortage and the Director's statement, there was no independent evidence of clandestine activities. The Tribunal allowed the appeals, setting aside the order. The High Court upheld the Tribunal's decision, emphasizing the lack of evidence corroborating clandestine manufacture and removal of final products, thus justifying the benefit of doubt granted to the assessee.In conclusion, the High Court dismissed the appeal, finding no legal error in the Tribunal's decision to grant the benefit of doubt to the assessee due to the absence of substantial evidence supporting the allegations of clandestine activities. The judgment highlighted the importance of independent evidence in proving such allegations and upheld the Tribunal's decision based on the facts and circumstances of the case.