2025 (3) TMI 430 - AT - Central Excise

Excise duty demand set aside as mere discrepancies in Form 3CD and ER-1 returns insufficient to prove clandestine manufacture without concrete evidence

CESTAT Kolkata allowed the appeal against clandestine manufacture and removal allegations based on discrepancies between Form 3CD and ER-1 returns for ... Clandestine manufacture and removal - liquid medicaments - allegation on the basis of comparison of quantity clearance details as reflected in Tax Audit Report (Form 3CD) and ER-1 Returns for the period 2010-11 and 2011-12 - principles of natural justice - Extended period of limitation. Can on the basis of difference between figures of Form 3CD and ER-1 Returns, it be alleged that the appellants are engaged in the activity of clandestine clearance of the goods? - HELD THAT:- The said issue has been examined by this Tribunal in the case of Micky Metals Ltd. vs. CCE, Bolpur [2023 (7) TMI 357 - CESTAT KOLKATA], wherein this Tribunal has observed 'time and again it is held by the judicial pronouncements as discussed hereinabove 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.' It is found that in this case the show cause notice has been issued on 29.04.2015 for the period 2010-11 and 2011-12 on the basis of difference between Form 3CD and ER-1 Returns. As all these documents were in public domain during the impugned period, therefore, as the documents are available with the department and if there any allegations required to be made that to be made during the normal period of limitation, which the Revenue has failed to do so. Extended period of limitation - HELD THAT:- The demand pertaining to extended period of limitation is not sustainable and whole of the demand is beyond the normal period of limitation. Conclusion - Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. The charge set aside concluding that the demand for excise duty, interest, and penalties was unsustainable due to lack of evidence, violation of natural justice, and inapplicability of the extended limitation period. There are no merit in the impugned order - appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the discrepancy between the figures in Form 3CD and ER-1 Returns can substantiate the allegation of clandestine manufacture and clearance of goods.Whether the principles of natural justice were violated due to the change in the adjudicating authority without a fresh hearing.Whether the extended period of limitation under Section 11A of the Central Excise Act, 1944, is applicable in this case.Whether the demand for excise duty, interest, and penalties based on alleged clandestine activities is sustainable.ISSUE-WISE DETAILED ANALYSIS1. Discrepancy Between Form 3CD and ER-1 ReturnsRelevant Legal Framework and Precedents: The Tribunal referenced several cases, including 'Micky Metals Ltd. vs. CCE, Bolpur' and 'Continental Cement Company v. Union of India,' which emphasize that allegations of clandestine removal require substantial evidence beyond mere discrepancies in statutory returns.Court's Interpretation and Reasoning: The Tribunal noted that the charge of clandestine removal is serious and cannot be based solely on differences in figures from statutory returns without corroborative evidence.Key Evidence and Findings: The Tribunal found that the Revenue did not conduct any investigation to substantiate the allegations of clandestine removal, such as examining excess production, raw material purchases, or transport details.Application of Law to Facts: The Tribunal concluded that without tangible evidence, the allegations of clandestine removal based solely on discrepancies in Form 3CD and ER-1 Returns are unsustainable.Treatment of Competing Arguments: The Appellant argued that the discrepancies were due to conversion errors and not indicative of unaccounted clearances. The Tribunal agreed, noting the lack of substantial evidence from the Revenue.Conclusions: The Tribunal held that the demand based on alleged clandestine activities was not justified.2. Violation of Principles of Natural JusticeRelevant Legal Framework and Precedents: The principle of audi alteram partem requires that parties be given a fair opportunity to present their case.Court's Interpretation and Reasoning: The Tribunal found that the change in the adjudicating authority without a fresh hearing violated the principles of natural justice.Key Evidence and Findings: The initial hearing was conducted by one Commissioner, but the order was passed by another without offering the Appellant a new hearing opportunity.Application of Law to Facts: The Tribunal determined that this procedural lapse alone warranted setting aside the impugned order.Conclusions: The Tribunal concluded that the order was unsustainable due to the violation of natural justice principles.3. Extended Period of LimitationRelevant Legal Framework and Precedents: Section 11A of the Central Excise Act, 1944, allows for an extended limitation period in cases of willful misstatement or suppression of facts.Court's Interpretation and Reasoning: The Tribunal noted that the extended period cannot be invoked solely based on discrepancies in publicly available documents without evidence of suppression or fraud.Key Evidence and Findings: The Tribunal found no evidence of willful suppression or misstatement by the Appellant.Application of Law to Facts: The Tribunal held that the extended period of limitation was not applicable as the discrepancies were identified from public documents.Conclusions: The Tribunal concluded that the demand was time-barred and unsustainable.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized, 'Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence.'Core Principles Established: Allegations of clandestine removal must be substantiated with concrete evidence beyond discrepancies in statutory returns. The principles of natural justice must be upheld in adjudication processes.Final Determinations on Each Issue: The Tribunal set aside the impugned order, concluding that the demand for excise duty, interest, and penalties was unsustainable due to lack of evidence, violation of natural justice, and inapplicability of the extended limitation period.