Penalties Set Aside Due to Lack of Evidence and No Proven Mens Rea Under Rule 29 Central Excise Rules 2017

The CESTAT held that the Department failed to prove clandestine removal of goods, as allegations were based on assumptions without concrete evidence such as money trail, raw material procurement, or reliable documentary proof. Statements under Section 70 lacked corroboration, and dispatch slips had no evidentiary value due to unidentified authorship. The transport company was not liable for penalty under Rule 29 of the Central Excise Rules, 2017, as mens rea was not established, and no conscious involvement in duty evasion was proven. Consequently, penalties imposed were set aside, and the appeal was allowed.

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ISSUES:

Whether clandestine removal of excisable goods without payment of duty is established on the basis of recovered documents and statements.Whether the demand of duty and interest under the Central Excise Act, 1944 and imposition of penalty under Section 11AC and Rule 29 of the Central Excise Rules, 2017 is sustainable.Whether documents and records maintained by third parties (transporters) can be relied upon to prove clandestine removal.Whether the supply of relied upon documents (RUDs) and statements to the noticee was adequate and compliant with principles of natural justice.Whether penalty under Rule 29 of the Central Excise Rules, 2017 can be imposed on managerial personnel and transporters without proof of physical dealing with excisable goods and mens rea.Whether the Department discharged the burden of proving clandestine manufacture and removal by investigating procurement of raw materials, use of electricity, manpower, and packaging materials.

RULINGS / HOLDINGS:

The allegation of clandestine removal is not established as it is based on "assumption and presumption only" and not supported by "clinching evidence" such as cash flow or interception by tax authorities.The demand of duty and NCCD based on "dispatch slips," "loading register," and "stock register" is not sustainable due to inconsistencies, mismatches, and lack of authenticity of these documents.Records maintained by third parties (transporters) cannot be relied upon solely to establish clandestine removal; such evidence requires corroboration and independent verification.Non-supply of copies of all relied upon documents (RUDs), including statements and registers, renders the adjudication order invalid and illegal as per the principles laid down in Supreme Court judgments.Penalty under Rule 29 cannot be imposed on persons who did not physically deal with excisable goods or have knowledge or belief that goods were liable to confiscation; managerial personnel and transporters without mens rea are not liable.The Department failed to investigate critical aspects such as procurement of raw materials, electricity consumption, manpower deployment, and packing material supply, which are essential to prove clandestine manufacture and removal.

RATIONALE:

The Court applied statutory provisions under the Central Excise Act, 1944 (Sections 11A(4), 11AA, 11AC) and Central Excise Rules, 2017 (Rule 29) along with established judicial precedents emphasizing the need for tangible and corroborative evidence to prove clandestine removal.Reliance was placed on Supreme Court decisions mandating supply of relied upon documents for fair adjudication and on Tribunal and High Court rulings holding that third-party records alone are insufficient to establish clandestine removal.The Court recognized the principle that penalty provisions require proof of physical dealing with excisable goods and mens rea; general supervisory roles without direct involvement do not attract penalty under Rule 29.Judicial precedents were cited to underscore that findings based on assumption, presumption, or uncorroborated statements violate principles of natural justice and are liable to be set aside.The Court noted the absence of investigation into raw material procurement, electricity usage, manpower, and packing material supply as a doctrinal requirement for proving clandestine manufacture and removal, following the criteria laid down in earlier decisions.No dissenting or concurring opinions were recorded.

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