Appeal allowed against clandestine manufacture allegations due to untested retracted statements under section 9D

CESTAT Kolkata allowed the appeal challenging clandestine manufacture and removal allegations. The tribunal held that retracted statements were not tested under section 9D of Central Excise Act, 1944 through proper examination procedures. No evidence showed payment transfers to appellants, and the case failed to meet Arya Fibres criteria for establishing clandestine removal. The allegations were based on assumptions without corroborative evidence, making duty demand and penalties unsustainable. The tribunal ordered refund of duty, interest, and penalty paid under protest, ruling unjust enrichment bar inapplicable.

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Issues Involved:

1. Allegation of clandestine removal of goods.
2. Validity and reliability of statements and documents.
3. Burden of proof and corroborative evidence.
4. Refund of duty, interest, and penalty paid under protest.

Summary:

Allegation of Clandestine Removal of Goods:
The appellant, M/s. Bengal Iron Corporation, was accused of evading central excise duty through clandestine manufacture and surreptitious removal of finished products. The DGCEI conducted searches and recovered documents suggesting that the appellant was managing the business activities of M/s. Bharat Suppliers, which was allegedly used to disguise the removal of goods without paying excise duty.

Validity and Reliability of Statements and Documents:
The appellants contended that the impugned order was based on assumptions and lacked material evidence. They argued that the statements recorded during the investigation were retracted and not tested for veracity u/s 9D of the Central Excise Act, 1944. The Tribunal noted that mere possession of documents related to trading activities did not establish clandestine removal. The Tribunal emphasized the need for corroborative evidence, such as procurement of raw materials, labor, electricity consumption, and transportation details, which were missing in this case.

Burden of Proof and Corroborative Evidence:
The Tribunal reiterated the settled principle that the burden of proof for clandestine removal lies on the Department, which must be supported by sufficient tangible and affirmative evidence. The Tribunal found that the Department failed to provide corroborative evidence, such as excess raw materials, finished goods, or electricity consumption, to support the allegations. The Tribunal cited several judgments, including CCE Vs. Bihariji Manufacturing Co. Pvt. Ltd. and Principal Commissioner Vs. Shah Foils Ltd., to emphasize the necessity of corroborative evidence.

Refund of Duty, Interest, and Penalty Paid Under Protest:
The appellants had paid the entire amount of duty, interest, and 25% penalty under protest after the adjudication. The Tribunal held that since the demand was based on assumptions and lacked corroborative evidence, the appellants were entitled to a refund of the amounts paid. The Tribunal clarified that the bar of unjust enrichment did not apply as the payment was made under protest after adjudication.

Conclusion:
The Tribunal concluded that the allegation of clandestine removal was not sustainable due to the lack of corroborative evidence and the failure to test the statements as per the prescribed procedure. Consequently, no demand of duty or penalty was sustainable against the appellants, and the amounts paid under protest were refundable. The appeals were disposed of accordingly.

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