2025 (2) TMI 676 - AT - Central Excise

Excise demands worth Rs. 2 crores set aside as theoretical calculations lack corroborative evidence under Section 36B

CESTAT Kolkata set aside multiple excise demands totaling over Rs. 2 crores against appellant manufacturer. Court held demands based on theoretical ... Clandestine manufacture and removal - input-output ratio - demand alleging that for production of LABSA, the ratio is to be 1:1.475 whereas the appellant has shown 1:1.45 - suppression of facts or not. Allegation made out on the basis of theoretical method - HELD THAT:- The allegation has been made out on the basis of theoretical method as stated by Shri K.S. Parasuram, but no chemical examination was done to know how much LAB is required to manufacture LABSA - In that circumstances, the said demand is not sustainable as held by this Tribunal in the case of Shree Durga Cables Pvt. Ltd. vs. Commissioner of Central Excise & Customs, Bhubaneswar-I, [2020 (1) TMI 542 - CESTAT KOLKATA], wherein the Tribunal has held 'In any case, since we have already noted hereinabove, that the whole basis of allegation of clandestine removal is the production pattern of other assessees, which has no legal or scientific basis, the impugned duty demand cannot be sustained.' - Demand not sustained. Demand of Rs.19,36,934/- was sought to be confirmed against the appellant on the basis of suppression of batch charges for production - HELD THAT:- The mixed quantity required further operation for separation and temporarily stored in the dedicated storage tank and subsequently processing take place, the re-processed batch again placed in a separator like normal batches recovered LABSA and Spent Acid as per norms. The explanation given by the appellant has not been verified or has not been taken up at the time of investigation, same had to be done to know how the batch charge has taken placed then it will be clear. Without any concrete evidence the charge of clandestine removal on the basis of batch charges cannot be confirmed held by this Tribunal in the case of Commr. of Cus., C.E. & S.T., Ghaziabad vs. Auto Gollon Industries P.Ltd. [2018 (1) TMI 307 - ALLAHABAD HIGH COURT] - The adjudicating authority sought to allege clandestine removal on arithmetical calculation of the number of batches charges which is not sustainable under law. Accordingly, the demand of Rs.19,36,934/- is dropped. Demand of Rs.14,03,998/- sought to be confirmed alleging suppression of production and clandestine removal as evidenced from computer print outs - HELD THAT:- The data in the computer print outs are nothing but movement chart of the respective hired tanker. On the basis of this, the Revenue sought to allege that there is clandestine removal of goods. The computer print outs as explained by the appellant have not been verified by the adjudicating authority from M/s. A.R. Stenchem (P) Ltd. also and it is only on the basis of these print outs, it is alleged that there is a clandestine manufacture and removal of goods. But the said computer print outs are not admissible evidence without following the provisions of Section 36B of the Central Excise Act, 1944, therefore, the said computer print outs cannot be relied upon - the demand of Rs.14,03,998/- is not sustainable, hence dropped. Demand of Rs.1,93,90,293/- was sought to be confirmed on the basis of diary notes recovered from a diary seized during the course of investigation - HELD THAT:- As Revenue has failed to produce any corroborative evidence to allege clandestine removal of goods and same has been alleged only on the basis of diary notes made by their employee Shri Debasis Ghosh, therefore, the said demand is not sustainable in the eyes of law. Demand of Rs.2,27,850.62 has been confirmed on account of clandestine removal of Spent Acid - HELD THAT:- The said allegation is made on the basis that Spent Acid is generated during the course of production of LABSA, therefore, appellant has suppressed the clearance of Spent Acid. The reply made by the appellant is that the said clearance of Spent Acid depends on production of LABSA and there is no evidence in the show cause notice to support the said allegation and there is no evidence in respect of disproportionate procurement of LAB/Sulphuric Acid illegally by the appellant and no corroborative evidence has been produced - As no such effort has been made by the Revenue and brought in any evidence in support of their allegation and the demand is raised on assumption and presumption only, therefore, demand of Rs.2,27,850.62 is not sustainable. Accordingly the same is set aside. Cenvat credit of Rs.1,38,040/- was denied on irregular availment of credit on the goods on the basis of some invoices which were not received in their factory - HELD THAT:- The contention of the Ld.Counsel for the appellant is that the appellant has received the goods containing those invoices which has been used in the manufacture of the final product which ultimately suffered the duty. The said fact has not been denied by the Revenue, in that circumstances, the demand of Rs.1,38,040/- is also not sustainable for denial of Cenvat credit and dropped. Demand on account of shortage of Acid Slurry of Rs.79,675.20 found on 22.11.2001 - HELD THAT:- The measurement of the said Acid Slurry was done only on eye estimation basis. No actual stock taking was taken, in that circumstances, the shortage cannot be alleged against the appellant on the basis of eye estimation, therefore, the said demand of Rs.79,675.20 is also not sustainable hence dropped. Demand of Rs.3,27,046/- has been alleged as short payment of Central excise on account of sale through consignment agent, on the value at which the goods were sold from the consignment agent’s place - HELD THAT:- To find out how much is short payment on account of Central Excise duty on account of sale through consignment agent is required to be verified. For that purpose we remand the matter back to the adjudicating authority only to verify how much duty is payable by the appellant on account of sale through consignment agent. If the appellant has paid duty correctly of Rs.40,707/-, no demand is sustainable against the appellant - the case made against the appellant by the Revenue is only on the basis of assumption and presumption, therefore, in such cases without bringing any evidence on record of procurement of raw material from other sources demands are not sustainable. Penalties - HELD THAT:- In the facts and circumstances of the case no penalty is imposable on the appellants. Accordingly, penalties imposed on the appellant and co-appellants are set aside. Conclusion - i) Demands based on theoretical calculations without corroborative evidence are unsustainable. ii) Admissibility of evidence such as computer printouts requires compliance with statutory provisions. iii) Extended periods of limitation require evidence of deliberate withholding of information. iv) Penalties cannot be imposed without substantiated demands. Appeal disposed off. ISSUES PRESENTED and CONSIDEREDThe Tribunal considered several core legal issues in this case: Whether the appellant suppressed production and clandestinely removed goods without payment of duty. Whether the demands raised by the department based on theoretical calculations and assumptions were sustainable. Whether the evidence provided, such as diary notes and computer printouts, was admissible and sufficient to substantiate the department's claims. Whether the extended period of limitation was applicable for raising the demand. Whether the penalties imposed on the appellants were justified.ISSUE-WISE DETAILED ANALYSISSuppression of Production and Clandestine RemovalThe Tribunal examined the allegation of suppressed production based on the ratio of inputs to outputs. The department alleged that the appellant used a conversion ratio of 1:1.45 instead of the correct 1:1.475, leading to a demand of Rs.16,73,666.75. However, the Tribunal found that the demand was based solely on theoretical calculations without chemical examination or corroborative evidence. The Tribunal referenced the case of Shree Durga Cables Pvt. Ltd., which emphasized that clandestine removal must be proven with tangible evidence. Consequently, the demand was not sustainable.Similarly, the Tribunal addressed the demand of Rs.19,36,934/- related to suppression of batch charges. The appellant provided explanations regarding the production process, which were not verified by the department. The Tribunal ruled that without concrete evidence, the demand based on batch charges was unsustainable, citing the case of Auto Gollon Industries P. Ltd.Admissibility and Sufficiency of EvidenceThe Tribunal scrutinized the evidence used by the department, such as computer printouts and diary notes. For the demand of Rs.14,03,998/- based on computer printouts, the Tribunal noted that the printouts were not admissible without compliance with Section 36B of the Central Excise Act. The Tribunal cited the case of Super Smelters Ltd., which held that unauthenticated data could not support charges of clandestine removal. Thus, the demand was dropped.Regarding the Rs.1,93,90,293/- demand based on diary notes, the Tribunal found no corroborative evidence of raw material procurement or excess production. The Tribunal referenced Gupta Synthetic Ltd., which required tangible evidence for clandestine manufacture and clearance. The demand was therefore not sustainable.Extended Period of LimitationThe Tribunal considered whether the extended period of limitation was applicable. The appellant argued that all facts were known to the department since the initial search in 1998, and a subsequent search in 2001 did not reveal new information. The Tribunal agreed, citing Perfect Boxes Pvt. Ltd., which required conscious withholding of information for invoking the extended period. Hence, the extended period was not applicable.PenaltiesThe Tribunal examined the imposition of penalties on the appellants and co-appellants. Given the lack of sustainable demands and evidence, the Tribunal found that no penalties were warranted. The penalties were thus set aside.SIGNIFICANT HOLDINGSThe Tribunal established several core principles: Demands based on theoretical calculations without corroborative evidence are unsustainable. Admissibility of evidence such as computer printouts requires compliance with statutory provisions. Extended periods of limitation require evidence of deliberate withholding of information. Penalties cannot be imposed without substantiated demands.The Tribunal's final determinations were as follows: All demands except Rs.3,27,046/- were dropped. The matter of Rs.3,27,046/- was remanded to the adjudicating authority for verification. No penalties were imposed on the appellants or co-appellants.