2023 (7) TMI 357 - AT - Central Excise

Tribunal overturns central excise duty demand due to lack of evidence

M/s. Micky Metals Limited Versus Commissioner of Central Excise, Bolpur

The Tribunal set aside the demand of central excise duty, interest, and penalty imposed on the appellant for alleged clandestine removal of goods. Despite ... Clandestine Removal - difference in the figures of audit report and ER-1 return - invocation of extended period of limitation - HELD THAT:- As revenue has raised the demand only on the basis of difference in the figures of audit report and ER-1 return which were available with them in time, in that circumstances as held by this Tribunal in the case M/S. TALLY SOLUTIONS PRIVATE LIMITED VERSUS THE COMMISSIONER OF CENTRAL EXCISE BANGALORE-I COMMISSIONERATE BANGALORE [2013 (11) TMI 1080 - CESTAT BANGALORE] the extended period of limitation is not invocable as show cause notice for the period 2006-07 has been issued on 01.03.2011 by invoking extended period of limitation. It is found that time and again it is held by the judicial pronouncements that merely on the basis of difference in the figures of audit report and ER-1 return without establishing the parameters of clandestine manufacture and removal of goods, the charge of clandestine removal is not sustainable. Therefore, on merits also, in the absence of any statement or investigation against the appellant with corroborative evidence, the impugned order is not sustainable. Accordingly, the same is set aside. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether clandestine removal of goods is established where demand is founded solely on discrepancies between financial/audit records and statutory ER-1 returns without independent investigation or corroborative evidence. 2. Whether the extended period of limitation can be invoked where the Department issues a show cause notice based on figures available in the audited financial records/public documents for the relevant year. 3. Whether reliance on assessable values reflected in specific excise invoices suffices to quantify duty demand where the fundamental allegation of clandestine removal is not otherwise proved. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proof required for allegation of clandestine removal where only record discrepancies exist Legal framework: Clandestine removal is a serious allegation requiring proof by the Revenue; mere discrepancies between different sets of records do not ipso facto establish clandestine manufacture or clearance. Relevant investigative avenues include examination of raw material purchases, power consumption, transport/dispatch particulars, realization of sale proceeds, and statements or seizures corroborating clandestine activity. Precedent treatment: The Tribunal relied on prior decisions holding that clandestine allegations cannot be sustained solely on sales tax/financial return figures and that corroborative, tangible evidence or investigative steps are necessary. Decisions cited emphasize that where Revenue has not conducted investigation into dispatches, purchases, receipts or realizations, or recorded statements, findings of clandestine removal are unwarranted. Interpretation and reasoning: The Tribunal examined the Department's case and found it rested exclusively on differences between audited financial statements/form 3CD and the daily stock account/ER-1 returns. No departmental investigation, no recording of statements, no reference to transport or buyer records, nor other corroborative evidence was produced to establish clandestine manufacture or clearance. Given the gravity of the charge, the Tribunal held that assumptions or presumptions drawn from disparate bookkeeping figures are insufficient to sustain the allegation. Ratio vs. Obiter: Ratio - A finding of clandestine removal cannot be based solely on discrepancies between financial/audit records and statutory returns; corroborative evidence and investigative steps are required. Obiter - Illustrative list of investigative steps (e.g., checking dispatch particulars, power consumption, realization of sale proceeds) provided by higher courts and tribunals to demonstrate what constitutes adequate proof. Conclusion: The clandestine removal finding is unsustainable on merits where it is premised only on record discrepancies without any independent investigation or corroboration; therefore the demand cannot be confirmed on that basis. Issue 2 - Invocation of extended period of limitation when figures in public/audited records inform the demand Legal framework: Extended period of limitation (i.e., invoking time beyond the normal limitation for issuing a show cause notice) requires factual justification such as suppression or fraud by the assessee; the Department's knowledge of material facts from publicly available audited financial records may affect the applicability of extended limitation. Precedent treatment: The Tribunal relied on authorities holding that where the Department's show cause notice is premised on audited records or public documents that were, in effect, available to the Department within the normal limitation period, invoking the extended period is inappropriate. Prior decisions have set aside demands where no suppression or mis-declaration was demonstrated and the Department could have timely acted on available records. Interpretation and reasoning: The Tribunal observed that the appellant was a public limited company whose financial records (audit report/Form 3CD) were publicly available and were the very basis for the discrepancy alleged. Since the Department had access to those figures timely, issuance of the SCN on the basis of those same audited figures after the normal limitation period, invoking the extended period, was not justified. The Tribunal treated the matter alongside its finding on lack of investigation, holding that extended limitation could not be invoked where the Department merely relied on already-available audit figures without showing suppression. Ratio vs. Obiter: Ratio - Extended period of limitation is not invocable where the Department relies solely on audited/publicly available records for issuing a belated SCN and there is no evidence of suppression or concealment by the assessee. Obiter - References to cases where timely scrutiny would have revealed discrepancies and the Department's failure to act earlier. Conclusion: The extended period of limitation was not invocable in the present facts; the SCN dated well after the normal limitation period (and based on available audit figures) is barred insofar as it seeks to rely on extended limitation without proof of suppression. Issue 3 - Quantification of duty using values from specific invoices where primary clandestine allegation is unproven Legal framework: Quantification of duty requires a legally sustainable foundational finding of liability (e.g., clandestine removal). While assessable value may be taken from invoices, such quantification presupposes that the underlying charge is established by admissible evidence and proper investigative steps. Precedent treatment: The authorities cited demonstrate that even where numerical discrepancies permit calculation of hypothetical duty, the Department must first establish the fact of undeclared clearance through evidence beyond presumptive arithmetic drawn from records; otherwise quantification cannot sustain a confirmed demand. Interpretation and reasoning: The Tribunal noted that the Revenue calculated duty based on assessable values reflected in two specified central excise invoices. However, since the Tribunal found the foundational allegation of clandestine removal unproven (see Issue 1) and the extended limitation inapplicable (see Issue 2), the calculations, though perhaps arithmetically correct, could not serve to uphold the demand. The Tribunal emphasized that numerical computations do not cure the absence of substantive proof of clandestine clearance. Ratio vs. Obiter: Ratio - Duty quantification using invoice values cannot validate a demand where the allegation of clandestine removal is not proved by requisite evidence and investigative corroboration. Obiter - Specific invoices may be usable for assessment when clandestine removals are otherwise established by evidence. Conclusion: The impugned quantification of duty based solely on invoice values did not salvage the demand in light of the Tribunal's findings that clandestine removal was unestablished and the SCN was time-barred as to extended limitation; accordingly, the demand was set aside. Cross-references Issues 1 and 2 are interrelated: the absence of investigatory steps and corroborative evidence (Issue 1) both defeats the clandestine removal allegation and undermines the Department's justification for invoking the extended period (Issue 2). Issue 3 (quantification) depends on resolution of Issues 1-2 and cannot sustain the demand independently.