2022 (2) TMI 359 - HC - Central Excise

High Court affirms Tribunal's decision on manufacturing activities; burden of proof emphasized

COMMISSIONER OF CENTRAL EXCISE, KOLKATA-III Versus M/s. SAI SULPHONATE PVT. LTD.

The High Court upheld the Tribunal's decision in a case involving allegations of suppression of raw materials quantity and clandestine clearance of ... Clandestine removal - suppression of exact quantity of raw materials used in manufacturing activity - wilful misrepresentation of own production and conversion job as well as consumption of raw material and spending of the by-products - HELD THAT:- The assessee has filed appeal before the Tribunal challenging the said order and explained that their manufacturing activities as to how they were engaged in manufacture for themselves as well as they have been carrying on conversion job for another third party. After nothing the facts the Tribunal held that LABSA and Spent Sulphuric Acid are of the same quality and the processing tank is also common in the factory as it is not possible to manufacture goods separately. Further, the Tribunal analysed the total consumption of LAB and Sulphuric Acid during the material period and took note of the ratio adopted and on facts held that there is hardly any difference between the ratio adopted for their own manufacture and conversion job - the Tribunal concluded that without any evidence on record the allegation of clandestine removal cannot be made. The Tribunal rightly granted the relief to the assessee as allegation of clandestine removal is a very serious charge and the onus of establishing the same is first on the department and upon the onus being discharged in the manner common to law, then and then only the burden of proof shifts to the assessee. In the instant case, admittedly there was no material on record establishing the charge of clandestine removal and such charge was made against the assessee by way of an inference taking note of the ratio adopted in the manufacturing process. Appeal dismissed - decided against Revenue. Issues:1. Allegation of suppression of raw materials quantity in manufacturing activity.2. Allegation of wilful misrepresentation regarding production, conversion job, raw material consumption, and by-product spending.3. Allegation of clandestine clearance of finished goods.Analysis:1. The appeal was filed by the revenue under Section 35G of the Central Excise Act, 1944, challenging the order passed by the Customs Excise and Service Tax Appellate Tribunal. The Commissioner of Central Excise issued a show-cause notice alleging the liability of the assessee for additional excise duty due to clandestine removal of manufactured products. The Commissioner observed a difference in input-output ratio between the assessee's own manufacture and conversion job, leading to the conclusion of suppression and clandestine removal.2. The assessee appealed before the Tribunal, explaining their manufacturing activities and refuting the allegations. The Tribunal found that the quality of products and processing tanks for LABSA and Spent Sulphuric Acid were the same, making separate manufacturing impractical. The Tribunal analyzed the consumption ratios of raw materials and found no significant difference between the ratios for own manufacture and conversion job. Moreover, the department failed to provide evidence of excess procurement or removal of raw materials, leading the Tribunal to conclude that the allegation of clandestine removal lacked substantiation.3. The High Court upheld the Tribunal's decision, emphasizing that the burden of proof for clandestine removal lies with the department, and in the absence of concrete evidence, mere inference from manufacturing ratios is insufficient. The Court noted that the allegation of clandestine removal is serious, requiring substantial evidence. As no such evidence was presented, the Court deemed the issue purely factual, dismissing the appeal. Consequently, the stay application related to the appeal was also dismissed.