Annual Statistics Report data cannot establish clandestine clearance without corroborative evidence of excess manufacturing or removal

CESTAT Kolkata allowed the appeal, setting aside demand for central excise duty on 204123.09 MT of iron and steel scrap. The tribunal held that Annual Statistics Report (ASR) data cannot form basis for alleging clandestine clearance as it differs from Central Excise records in compilation method and purpose. Department failed to provide corroborative evidence of excess raw materials, manufacturing, or clandestine removal. Extended limitation period was improperly invoked since ASRs were regularly submitted to authorities, negating suppression allegations. Penalty under Section 11AC was also unsustainable due to lack of evidence establishing clandestine activities.

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The core legal questions considered in this appeal are:

1. Whether the demand for central excise duty on alleged clandestine removal of iron and steel scrap by the appellant can be sustained based solely on discrepancies between the Annual Statistics Report (ASR) and the RT-12 returns filed by the appellant.

2. Whether the Department discharged the onus of proving clandestine manufacture and removal through positive and tangible evidence beyond mere inferences or assumptions.

3. Whether the invocation of the extended period of limitation and imposition of penalty under Section 11AC of the Central Excise Act, 1944, is justified in the facts of the case.

Issue-wise Detailed Analysis:

1. Legitimacy of Demand Based on Discrepancies Between ASR and RT-12 Returns

The legal framework requires that any demand for excise duty on alleged clandestine removal must be supported by positive evidence of such removal. The ASR is a private document compiled by the appellant's Statistics Department for internal management purposes, whereas RT-12 returns are statutory documents prepared as per tariff head-wise groupings for excise compliance.

The Court observed that the method of compilation of ASR is entirely different from that of RT-12 returns, and hence, discrepancies between these two documents cannot form a valid basis for alleging clandestine clearance. The appellant's contention that ASR data is unsuitable for excise demand purposes was accepted, aligning with precedents where internal or managerial records cannot substitute statutory compliance documents.

Several precedents were cited by the appellant, including Tribunal decisions and a High Court dismissal of Revenue's appeal, establishing that mere differences in internal statistics and statutory returns do not constitute clandestine removal.

The Court emphasized that reliance solely on managerial records without corroborative evidence is insufficient to sustain a demand.

2. Onus and Standard of Proof for Clandestine Manufacture and Removal

The Court reiterated the settled principle that the Department bears the onus to prove clandestine manufacture and removal by positive, tangible, and legally admissible evidence. The standard of proof is beyond reasonable doubt, not merely a preponderance of probabilities or circumstantial inferences.

The appellant pointed out absence of any evidence such as excess raw material movement, increased consumption of utilities (electricity, water), unexplained cash flows, or statements from alleged recipients of unaccounted goods. The quantity alleged to have been clandestinely removed was substantial (over 20.41 lakh MT across four years), yet no evidence was produced demonstrating how, to whom, or by what means such goods were removed or payments received.

The Court noted that the Show Cause Notice and impugned order failed to disclose any material evidencing excess inputs or outputs, or any corroborative evidence such as statements from buyers or suppliers, transportation records, or financial transactions linked to the alleged clandestine removal.

Reliance was placed on authoritative Tribunal and High Court decisions which laid down specific criteria for establishing clandestine manufacture and clearance. These include:

• Tangible evidence of excess raw materials beyond statutory records;
• Instances of actual removal of unaccounted finished goods without duty payment;
• Discovery of such goods outside factory premises;
• Sales to identified parties and receipt of sale proceeds;
• Excessive use of utilities;
• Statements of buyers or transportation proofs;
• Links between recovered documents and factory activities.

The Court quoted extensively from a leading Tribunal decision which underscored that mere inferences or assumptions, or reliance on private/internal records, cannot sustain a finding of clandestine removal. The absence of any of these evidentiary elements in the present case led the Court to conclude that the Department failed to discharge its burden.

Further, the Court referred to a recent decision of the Tribunal in the appellant's own case for a different unit, which held that even if stock discrepancies exist, duty can be demanded only when clandestine removal from the factory is proved. The present case lacked any such proof.

3. Extended Period of Limitation and Penalty under Section 11AC

The Department invoked the extended period of limitation and imposed penalty on the basis of alleged suppression of facts by the appellant. The appellant contended that the ASRs were regularly submitted to the jurisdictional authorities and that the Department was aware of the issue, having raised demands for earlier years on similar grounds.

The Court observed that since the Department had knowledge of the ASRs and related data, no suppression or concealment by the appellant could be alleged. Consequently, invocation of the extended period of limitation was unjustified. Similarly, the penalty under Section 11AC was held unsustainable for the same reason.

Treatment of Competing Arguments

The Revenue relied on the impugned order confirming the demand based on the ASR-RT12 discrepancy. The Court critically examined this reliance and found it legally untenable. The Department's failure to produce any corroborative evidence or to establish clandestine removal beyond statistical differences led to rejection of their contentions.

The appellant's detailed submissions, supported by binding precedents, were accepted as correctly stating the law and facts. The Court gave due weight to the principle that benefit of doubt must be given to the assessee in absence of positive evidence.

Significant Holdings

The Court held:

"We observe that the data available in the ASR cannot be the basis to allege clandestine clearance and demanding duty on such clandestinely cleared goods."

"The Department is required to establish clandestine manufacture and removal through positive and tangible legal evidence. Clandestine clearance cannot be alleged merely on the basis of preponderance of probabilities or by way of inferences drawn based on calculations and alleged circumstantial evidence based on assumptions, presumptions and inferences."

"In the absence of any such corroborative evidence establishing manufacturing and clandestine clearance of scrap by the appellant, we hold that the allegation of clandestine removal of goods against the appellant cannot be sustained."

"The Department was very well aware of the issue and no suppression can be alleged on the part of the appellant. Hence, we hold that extended period of limitation cannot be invoked in this case. For the same reason, we hold that the penalty imposed on the appellant under Section 11AC of the Central Excise Act, 1944 is not sustainable."

The Court conclusively set aside the impugned order confirming the demand, interest, and penalty, allowing the appeal with consequential relief.

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