2024 (1) TMI 80 - AT - Central Excise

Department fails to prove clandestine removal charges against manufacturer lacking corroborative evidence and proper investigation

CESTAT New Delhi dismissed the department's appeal challenging the Principal Commissioner's order exonerating the respondent from clandestine removal ... Clandestine removal of excisable goods - reconciliation of excise returns with audited financial statements - requirement of corroborative evidence to substantiate clandestine removal - inadmissibility of third party/private records as sole basis for clandestine removal - burden on revenue to prove clandestine manufacture and removalClandestine removal of excisable goods - reconciliation of excise returns with audited financial statements - requirement of corroborative evidence to substantiate clandestine removal - Whether MAP clandestinely removed excisable goods to MARKFED & MPAGRO - HELD THAT: - The Principal Commissioner undertook reconciliation between excise returns and audited financial statements and examined statutory records, concluding that the alleged differential arose from computational discrepancies and unverified cheque entries rather than clandestine removals. The Commissioner found no corroborative evidence of excess receipt of raw materials, excess production or transportation that would support clandestine supplies, and therefore dropped the demand made for alleged clandestine removal. The Tribunal found no perversity in these findings and held that it was not necessary for the Principal Commissioner to refer to each invoice individually where overall reconciliation and records support the conclusion. [Paras 28, 31]Finding that there was no established clandestine removal of excisable goods to MARKFED & MPAGRO is upheld and the demand dropped.Clandestine removal of excisable goods - inadmissibility of third party/private records as sole basis for clandestine removal - burden on revenue to prove clandestine manufacture and removal - Whether MAP clandestinely removed excisable goods to Aviral Biotech and Fertilisers Pvt. Ltd. (ABFPL) - HELD THAT: - The Principal Commissioner noted that ABFPL's primary records were incomplete and unreliable, that raw material receipts matched finished goods sold which had been cleared on payment of excise duty, and that no corroborative evidence of excess procurement or illicit consumption was produced. The Commissioner emphasised that serious allegations of clandestine removal cannot rest on assumptions or uncorroborated third party records. The Tribunal found no error in this reasoning and declined to interfere. [Paras 32]Finding that clandestine removal to ABFPL was not established is upheld and the demand set aside.Clandestine removal of excisable goods - inadmissibility of third party/private records as sole basis for clandestine removal - requirement of corroborative evidence to substantiate clandestine removal - Whether MAP clandestinely removed excisable goods to Sumitra Agrotech (SA) - HELD THAT: - The Principal Commissioner held that the case was founded on third party purchase registers without any clinching evidence of clandestine manufacture or removal, observed that physical stock verification showed no discrepancy with books, and noted absence of investigations at suppliers' premises or books. Given the seasonal nature of the business and absence of corroborative documentary or material evidence, the Commissioner concluded that the allegation rested on assumptions and could not be sustained. The Tribunal found no infirmity in these conclusions. [Paras 44, 45]Finding that clandestine removal to Sumitra Agrotech was not proven is upheld.Clandestine removal of excisable goods - requirement of corroborative evidence to substantiate clandestine removal - Whether MAP clandestinely removed excisable goods to private parties/dealers - HELD THAT: - The Principal Commissioner found that the demand alleged on account of deliveries to dealers was constructed without sufficient corroborative facts or investigative linkages, and reiterated that clandestine removal allegations require documentary/material corroboration which was absent. The Tribunal observed no specific error in this finding and declined to interfere. [Paras 46]Finding that clandestine removal to dealers/private parties was not established is upheld.Final Conclusion: The appeal by the department is dismissed; the Principal Commissioner's findings rejecting demands for clandestine removals across the four framed issues are upheld and the Cross Objections are disposed of. Issues Involved:1. Clandestine removal of excisable goods to M/s. MARKFED & MP Agro.2. Clandestine removal of excisable goods to M/s. Aviral Biotech and Fertilizers Pvt. Ltd. (ABFPL).3. Clandestine removal of excisable goods to M/s. Sumitra Agrotech (SA).4. Clandestine removal of excisable goods to private parties/Dealers.Summary:Issue 1: Clandestine removal to M/s. MARKFED & MP AgroThe Principal Commissioner meticulously examined the records, including excise returns and audited financial statements, and found no evidence of clandestine removal. It was noted that the department failed to substantiate the allegations with tangible evidence. The reconciliation of figures showed no discrepancy, and the payment sheet from MP Agro was not properly verified. The Principal Commissioner concluded that the allegations were unsustainable due to lack of evidence and computational errors, leading to the dropping of the demand of Rs. 3,30,13,508/-.Issue 2: Clandestine removal to M/s. Aviral Biotech and Fertilizers Pvt. Ltd. (ABFPL)The Principal Commissioner found that the accounts of ABFPL were unreliable and incomplete. The raw material receipts matched the finished goods sold, and no evidence of excess procurement was found. The department's case was based on assumptions without corroborative evidence. The Principal Commissioner emphasized that serious charges like clandestine removal require substantial evidence, which was lacking. Consequently, the demand of Rs. 90,22,112/- was set aside.Issue 3: Clandestine removal to M/s. Sumitra Agrotech (SA)The Principal Commissioner noted that the case was based on third-party records without any clinching evidence. No discrepancy was found in the stock, and no investigation was carried out at the premises of raw material suppliers. The department's allegations were based on assumptions and lacked corroborative evidence. The Principal Commissioner concluded that the case of clandestine removal was not established.Issue 4: Clandestine removal to private parties/DealersThe Principal Commissioner observed that the allegations were not supported by sufficient corroborative facts and evidence. No linkages were investigated to establish the findings. The Principal Commissioner reiterated that the case of clandestine removal requires documentary and material evidence, which was absent in this case. Therefore, the demand of Rs. 12,96,503/- was not sustained.Conclusion:The appeal filed by the department was dismissed as there was no perversity in any of the findings recorded on the four issues. The Cross Objections were disposed of accordingly.