2026 (3) TMI 147 - AT - Central Excise

Burden of proof requires affirmative corroborative evidence; theoretical input output demands and confiscations set aside without such proof.

Revenue failed to produce affirmative, tangible and corroborative evidence linking seized cash or seized goods to clandestine removals; claimants produced ... Manufacture of Pan Masala and Gutkha under the brand name of ‘Gold Mohar’ - sale proceeds of unaccounted goods removed clandestinely - Seizure of Cash sums from the factory and residential premises - Onus of proof for confiscation of seized currency - requirement of corroborative evidence - inadequacy of theoretical/input-output formula without corroboration - absence of willful suppression for levy of penalty. Onus of proof for confiscation of seized currency - HELD THAT: - The Tribunal held that the Department failed to discharge the burden to show that the seized currency represented sale proceeds of clandestinely removed excisable goods. The Appellants produced documentary material and affidavits explaining the sources of the cash (sale of vehicle, sale of bullion, agricultural receipts, etc.), which were not specifically controverted by the Department. The Tribunal applied authorities holding that mere non-accountal is insufficient and that the Revenue must lead affirmative tangible evidence to connect seized currency to clandestine removals. In absence of such corroboration and given that explanations were supported by documents and not rebutted, confiscation could not be sustained. [Paras 14, 24] Seizure and confiscation of Rs.15,97,000/- from residence and Rs.3,46,000/- from factory office are set aside. Requirement of corroborative evidence for clandestine removal - inadequacy of theoretical/input-output formula without corroboration - HELD THAT:- The Tribunal found that Basudeo Prasad & Sons were not legally required to maintain the accounts in the form criticized by the Department and that the dealer had produced 14 invoices, entries in PLA register and Pappu Long Books showing the goods were duty paid. The Department had not considered these documents and relied on conjecture about records being in pencil and alleged mismatch with stock. The Tribunal held that such half-baked reasoning and failure to consider the primary documents rendered the finding of connivance and confiscation unsustainable. [Paras 17, 24] Seizure and confiscation of goods from Basudeo Prasad & Sons (Tobacconist) is set aside. Inadequacy of theoretical/input-output formula without corroboration - requirement of corroborative evidence for clandestine removal - Validity of demands of Central Excise duty raised on account of alleged unaccounted manufacture and clandestine removal - HELD THAT: - The Tribunal concluded that the duty demands based on alleged excess consumption of raw material and an input-output formula (leading to calculations of unaccounted manufacture) were not supported by corroborative evidence. The Department had relied on a formula and selective parts of a statement, failed to examine the quantitative tally register (QTR), and did not investigate buyers, transportation, receipt of consideration or other corroborative material. Precedents were applied holding that clandestine removal cannot rest on theoretical assumptions or isolated statements; the Revenue must produce sufficient positive evidence. Given these lacunae and the non-application of mind by the lower authorities, the duty demands were unsustainable. [Paras 18, 20, 21, 24] Central Excise duty demands of Rs.1,81,006/- Rs.1,71,149/- Rs.32,88,080/- and Rs.4,92,525/- are set aside. Absence of willful suppression for levy of penalty - HELD THAT: - The Tribunal held that penalties could not be sustained because the Department failed to prove willful suppression. The Appellants had produced records and statutory registers; the demand and penalty were founded on erroneous calculations and uncorroborated allegations. Reliance was placed on authorities that extended periods or penalties for suppression require proof of deliberate concealment, which was absent here. In these circumstances the imposition of penalties was vacated. [Paras 23, 24] Penalties imposed on M/s Sarin & Sarin, Basudeo Prasad & Sons and Shri Deepak Mehra are set aside. Final Conclusion: All impugned seizures, confiscations, duty demands and penalties were examined on merits and, for lack of affirmative corroborative evidence, erroneous application of theoretical formulas, and absence of willful suppression, have been set aside; the three appeals are allowed with consequential relief as per law. Issues: (i) Whether the cash sums seized from the factory and residential premises represented sale proceeds of clandestinely removed excisable goods and were liable to confiscation; (ii) Whether the goods seized from the premises of Basudeo Prasad & Sons were liable to confiscation as unaccounted / duty-unpaid goods; (iii) Whether the demands of Central Excise duty computed on the basis of alleged excess raw-material consumption and theoretical input-output calculations (including demands of Rs.1,81,006; Rs.1,71,149; Rs.32,88,080; Rs.4,92,525) were sustainable; (iv) Whether penalties imposed under central excise law were sustainable.Issue (i): Whether the cash seized (Rs.3,46,000 and Rs.15,97,000) represented sale proceeds of clandestinely removed excisable goods and could be confiscated.Analysis: The Department did not produce affirmative, tangible or corroborative evidence linking the seized currency to clandestine removals; claimants produced certificates, affidavits and documentary material explaining sources (sale of vehicle, sale of bullion, agricultural receipts, etc.); initial burden rests on the revenue to produce evidence establishing nexus between seized currency and sale proceeds of clandestine goods, failing which confiscation cannot be sustained. Relevant precedents cited apply the same principle.Conclusion: The confiscation of Rs.15,97,000 and Rs.3,46,000 is set aside; the cash is not treated as sale proceeds of clandestinely removed goods (decision in favour of the assessee).Issue (ii): Whether goods seized from Basudeo Prasad & Sons were liable to confiscation as duty unpaid.Analysis: The responding dealer submitted 14 invoices and entries in PLA register and pappu long book indicating duty-paid status; the Department failed to address or controvert those documentary entries and relied on conjecture about pencil entries and alleged connivance; absence of cogent contrary evidence and lack of enquiry into corroborative matters undermined the confiscation finding.Conclusion: The confiscation of goods seized from Basudeo Prasad & Sons is set aside (decision in favour of the assessee).Issue (iii): Whether the duty demands computed on alleged excess consumption of raw material and theoretical input-output calculations are maintainable.Analysis: The demands were founded on theoretical formulas and selective reliance on Form-IV without considering the quantitative stock register (QTR) and without independent corroboration (no enquiries as to buyers, transportation, receipt of consideration or other corroborative documentary evidence). Established authorities require affirmative corroborative evidence beyond approximation or single statements before confirming clandestine manufacture or clearance; absence of such evidence renders theoretical demand unsustainable.Conclusion: The Central Excise duty demands (Rs.1,81,006; Rs.1,71,149; Rs.32,88,080; Rs.4,92,525) are set aside (decision in favour of the assessee).Issue (iv): Whether penalties imposed under central excise law are sustainable.Analysis: Penalties require proof of willful suppression or intent; since the Department failed to discharge onus regarding clandestine removal or suppression and the demands themselves are set aside for lack of corroborative evidence, there is no basis for upholding penalties; documentary records filed by appellants were not properly considered by lower authorities.Conclusion: Penalties imposed on the appellant firm and on the other persons (specified amounts) are set aside (decision in favour of the assessee).Final Conclusion: All impugned confiscations, duty demands and penalties are annulled and the appeals are allowed with consequential relief; the Department's case based on theoretical input-output calculations and uncorroborated assertions is rejected.Ratio Decidendi: Where the Revenue alleges confiscation or duty on account of clandestine manufacture and removal, the initial burden to produce affirmative, tangible and corroborative evidence linking seized currency or excess production to clandestine clearances lies on the Revenue; demands founded on theoretical input-output calculations or uncorroborated statements, without enquiries into buyers, transportation, receipt of consideration and relevant statutory registers (such as QTR), are unsustainable.