Haldia Steels Ltd. (Unit-II) Vs Commissioner of Central Excise (CESTAT Kolkata)
Summary: The CESTAT Kolkata allowed appeals filed by Haldia Steels Ltd. (Unit-II) and its director Shri Satpal Bansal against an order confirming central excise duty of Rs.3,82,88,517/- including cesses on alleged clandestine clearance of 8249.530 MT of finished goods to Shree Parasnath Re-Rolling Mills Ltd. The Commissioner had also demanded interest, imposed an equal penalty on the company under Rule 25(1) read with Section 11AC and imposed a separate Rs.15,00,000/- penalty on the director under Rule 26(1). The case arose from loose papers and private records recovered from the premises of the alleged buyer, along with statements of its personnel. Neither the company’s director nor its general manager admitted clandestine clearances.
The Tribunal found that the Department relied entirely on third-party records and state-ments without providing the requested copies of relevant documents to Haldia Steels or permitting cross-examination of key persons whose statements were relied upon. It rejected the adjudicating authority’s justification for denying cross-examination and held that the untested records and statements could not establish the charge against the appellants.
Applying the principles discussed in Arya Fibres, Mukesh Appliances, Continental Cement Company, Nova Petrochemicals and related decisions, the Tribunal held that a serious allegation of clandestine manufacture and removal required tangible corroboration concerning raw-material purchases, production, electricity and labour use, transport, buyers and receipt of sale proceeds. No such independent evidence had been brought on record. The Tribunal also referred to the comparable proceedings involving Jai Balaji Industries and Puneet Steels & Alloys, which arose from records of the same third party.
Accordingly, the Tribunal set aside the duty demand of Rs.3,82,88,517/-, the associated interest and the company penalty. It also set aside the director’s Rs.15,00,000/- penalty, finding no evidence of his involvement in clandestine removal. Both appeals were allowed with consequential relief, if any.
Cases Discussed
- Arya Fibres Pvt. Ltd. v. Commissioner of Central Excise, Ahmedabad-II, 2014 (311) E.L.T. 529 (Tri.-Ahmd.) — Tangible, affirmative evidence required for clandestine manufacture and remov-al.
- Mukesh Appliances Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Daman, 2016 (343) E.L.T. 246 (Tri.-Ahmd.) — Third-party buyer records require corroboration.
- Shree Sidhbali Ispat Ltd. v. Commissioner of Central Excise, Nagpur, 2017 (357) E.L.T. 724 (Tri.-Mumbai) — Evidence required to establish clandestine removal.
- Jai Balaji Industries (Unit III) & Others, Final Order Nos. 75583-75585/2020 dated 12.11.2020 — Similar third-party records of SPRML found insufficient.
- Puneet Steels & Alloys Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Alwar, 2017 (358) E.L.T. 1253 (Tri.-Del.) — Comparable allegations based on SPRML records.
- Continental Cement Company v. Union of India, 2014 (309) E.L.T. 411 (All.) — Mere assumptions cannot establish clandestine clearance.
- Nova Petrochemicals v. Commissioner of Central Excise, Ahmedabad-II, Final Order Nos. A/11207-11219/2013 dated 26.09.2013 — Criteria for proving clandestine manufacture and clearance.
- Centurian Laboratories v. CCE, Vadodara, 2013 (293) E.L.T. 689 — Mentioned in quoted precedent.
- Hindustan Machines v. CCE, 2013 (294) E.L.T. 43 — Mentioned in quoted precedent.
- Pan Parag India v. CCE, 2013 (291) E.L.T. 81 — Evidentiary strength and preponderance of probability.
- CCE, Delhi v. Vishnu & Co. Pvt. Ltd., 2016 (332) E.L.T. 793 (Delhi) — Third-party evidence and corroboration.
FULL TEXT OF THE CESTAT KOLKATA ORDER
Haldia Steels Ltd (Unit-II), having their factory at Raturia Industrial Area, Angadpur, Durga-pur, West Bengal 713215, (hereinafter referred to as the “appellant/company”) are engaged in the manufacture of excisable Sponge Iron & Billets etc. falling under Chapter Sub-heading Nos. 72031000 and 72071920. The appellant-company is duly registered with the Central excise Department, having Registration No. ECC No. AACH6712KXM002.
1.1. The case against the appellants has been registered on the basis of the documents re-covered and statements recorded by the officers of the Directorate General of Central Excise Intelligence, New Delhi (“DGCEI” for short), in respect of one M/s Shree Parasnath Re-Rolling Mills Ltd. (hereinafter referred to as “M/s SPRML”). Summons were issued to various concerned persons and their statements were also recorded.
1.2. During the course of investigation, a statement was recorded from Shri Satpal Bansal, Director of the appellant-company (the appellant no. 2 herein) by the Superintendent of C.E., Anti-Evasion, Durgapur Commissionerate on 06.05.2016. In the statement, the Di-rector of the appellant-company / appellant no. 2 did not agree with the allegations of clan-destine removal made against the appellant-company.
1.3. The documents relied upon by the officers against the appellant company were a bunch of loose papers seized from M/s. SPRML and the statements recorded during the course of investigation against M/s SPRML. The appellants contended that the documents relied upon against them have no statutory validity and were not supported by any corrobo-rative evidence. Thus, the appellants did not agree with the allegations of clandestine re-moval and the demand of central excise duty worked out by the Revenue on the basis of da-ta available in documents seized from the said M/s SPRML. During the course of investiga-tion against the appellants, statement was also recorded from Shri R.K. Singh, General Manager (F&A) of the appellant-company.
1.4. On the basis of the aforesaid statements of the Shri Satpal Bansal, Director, Shri. R.K. Singh, General Manager and the purported findings of the DGCEI, New Delhi about unac-counted purchase of raw materials by M/s SPRML reportedly detected from the said com-pany’s private records, a Show Cause Notice was issued to the appellants demanding Cen-tral Excise duty of Rs.3,82,88,517/- including cesses, along with interest and penalties.
1.5. The said Notice was adjudicated vide the impugned Order-in-Original No. 27/COMMR/BOL/17- 18 dated 16.01.2018, wherein the Ld. Commissioner of Central Goods & Services Tax, Bolpur Commissionerate, has confirmed the above demand of central excise duty, along with interest, and imposed equal amount of duty as penalty un-der Rule 25(1) of the Central Excise Rules, 2002 read with Section 11AC of the Central Ex-cise Act, 1944. A penalty of Rs.15,00,000/- was also imposed on Shri Satpal Bansal, Direc-tor of the appellant-company (the appellant no. 2 herein) in terms of Rule 26(1) of the Cen-tral Excise Rules, 2002.
1.6. Aggrieved by the confirmation of the demands of duty, along with interest and penal-ties, both the appellants have filed these appeals.
1.7. As both the appeals emanate from the same Order-in-Original, both are taken up to-gether for decision by a common order.
2. The Ld. Counsel appearing on behalf of the appellant submits that the instant Show Cause Notice (SCN) was issued solely on the basis of the private records of M/s SPRML, without any corroborative evidence to substantiate the allegation of clandestine removal by the appellant-company. It is the case of the appellants that the transactions noted in the said M/s. SPRML’s records were not related to them. The Ld. Counsel for the appellant submits that the evidence relied upon by the Ld. adjudicating authority has no statutory va-lidity, as they were a bunch of loose papers seized from M/s SPRML; neither the Director nor the General Manager of the company have accepted the allegation of clandestine removal in their statements; thus, it is the responsibility of the investigation to bring in the evidence to substantiate the allegations levelled by them, which they failed to do miserably. It is also contended that the Ld. adjudicating authority has erred in upholding the allegation of clan-destine removal without examining any documentary evidence to corroborate the allega-tion. Therefore, it is the appellant’s stand that the demand of central excise duty confirmed without any valid evidence is legally not sustainable. In support of this contention, the ap-pellants rely on the decision of the Tribunal, Ahmedabad in the case of Arya Fibres Pvt. Ltd. vs Commissioner of C. Ex., Ahmedabad-II [2014 (311) E.L.T. 529 (Tri. Ahmd.)], wherein it has been categorically held that the allegations of clandestine manufacture and clearances must be proved by the Revenue with substantial evidence.
2.1. The Ld. Counsel for the appellants pointed out that the demand in this case has been raised and confirmed solely on the basis of private records of a third party viz. M/s SPRML without any corroboration as to clandestine manufacture and clearance by the appellant-company. It is his argument that such confirmation of the duty on the basis of mere as-sumptions and presumptions is legally not sustainable. In support of the above conten-tions, reliance has been placed on the decision of the Tribunal, Ahmedabad in the case of Mukesh Appliances Pvt. Ltd. vs Commissioner of C. Ex. & S.T., Daman [2016 (343) E.L.T. 246 (Tri. Ahmd.)], wherein it has been held that private records seized from buyer’s premises cannot to be the sole basis for demand from the supplier, when corroborative evidence like purchase of extra raw material, actual removal of clandestine goods, receipt of sale proceeds, etc., are not produced to substan-tiate the allegations.
2.2. The appellants have also relied on the decision of the Tribunal, Mumbai in the case of Shree Sidhbali Ispat Ltd. vs Commissioner of C.Ex., Nagpur [2017 (357) E.L.T. 724 (Tri. Mumbai)], wherein the Tribunal has held that the allegation of clandestine removal should be evidenced properly by the Revenue.
2.3. The appellants further submitted that the Revenue has relied on the documents recov-ered from the premises of a third party to raise the impugned demand of central excise duty against the appellant- company. It is stated that in order to elicit the information, the appel-lants had sought cross examination of Shri Debasis Sasmal, CFO of M/s SPRML, Shri Bhanu Pratap Tiwari (at M/s SPRML’s ‘secret office’ at 14C, M.D. Road, Kolkata-700007) and Shri Anil Kumar Jain, Director of M/s SPRML, whose statements have been relied upon by the Revenue to raise the allegation of clandestine manufacture and clearance against the appellants; however, the Ld. adjudicating authority has not accorded the opportunity of cross examination of the said persons and thus, not followed the principles of natural justice. The appellants con-tend that in such circumstances, the said documents cannot be relied upon against the appellants in this proceedings. Further, it is also stated by them that during the course of personal hearing before the Ld. Commissioner of Central Tax, CGST: Bolpur Commission-erate, a prayer had been made for providing copies of relevant records and documents e.g., ‘daily sheet, cash book maintained in tally data format’, any seized document ‘relating transaction between Haldia Steels Pvt. Ltd. and M/s. SPRPL’ on the basis of which the de-mand was made in the SCN; however, such documents have not been furnished to the ap-pellants. In view of the above facts, it is the appellant’s contention that the demand of cen-tral excise duty raised and confirmed on the basis of these documents is not sustainable.
2.4. Moreover, the Ld. Counsel for the appellants draws attention to the fact that the De-partment had raised similar demands against M/s. Jai Balaji Industries (Unit III) & Others, on the basis of the documents recovered from the same third party viz. M/s SPRML, without any independent supporting evidence; that the said demands raised have already been dropped by the Tribunal vide Final Order No. 75583-75585/2020 dated 12.11.2020; that similar demands raised against M/s. Puneet Steels & Alloys Pvt. Ltd. vs. Commissioner of C. Ex. & S.T., Alwar [2017 (358) E.L.T. 1253 (Tri. – Del.)] on the basis of the documents recov-ered from the same third party viz. M/s SPRML have also been dropped.
2.5. On the basis of the submission that there is no corroborative evidence produced by the Department to substantiate the allegations of clandestine removal, other than the private records seized from the premises of M/s SPRML, it is contended by the Ld. Counsel for the appellants that the demands of central excise duty, along with interest and penalty, as confirmed against the appellant-company in the impugned order, are not sustainable, and accordingly, prayed for setting aside the same.
2.6. Regarding the penalty imposed on Shri Satpal Bansal, Director of the appellant-company / appellant no. 2, under Rule 26(1) of the Central Excise Rules, 2002, the Ld. Counsel has specifically submitted that he was not involved in any clandestine manufac-ture or clearance of finished goods; that neither he nor the General Manager has accepted the allegation of clandestine removal in their respective statements. Thus, it is argued that imposition of the above penalty on the appellant no. 2 is also unsustainable in the given facts and circumstances.
3. On the other hand, the Ld. Authorized Representative of the Revenue appearing before us has reiterated the findings in the impugned order. It is his submission that the demand has been raised and confirmed on the basis of the documents recovered from M/s SPRML; that the said documents categorically indicate that the appellant-company had cleared goods without payment of duty to M/s SPRML; that the clandestine clearance has been corrobo-rated by the statements recorded from Shri Debasis Sasmal, CFO of M/s SPRML, Shri Bhanu Pratap Tiwari who worked at M/s SPRML’s ‘secret office’ at 14C, M.D. Road, Kolkata-700007 and Shri Anil Kumar Jain, Director of M/s SPRML. Thus, the Ld. Departmental Rep-resentative supported the demands of central excise duty confirmed, along with interest, as well as the penalties imposed, vide the impugned order.
4. Heard both sides and perused the appeal records.
5. We find that investigation against the appellants herein had been initiated on the basis of some private records recovered from a third-party, namely, M/s SPRML. The private records, which were a bunch of loose papers seized from M/s SPRML, indicated that the appellant-company has supplied goods without payment of duty and M/s SPRML had not accounted the same in their official accounts. The Department has concluded that the details available in the private records maintained by M/s SPRML were clandestine removals made by the appellant-company without payment of central excise duty. Accordingly, the instant Show Cause Notice dated 23.02.2017 came to be issued, demanding central excise duty of Rs.3,82,88,517/- (including cesses) on 8249.530 M.T. of clandestinely cleared finished goods by the appellant-company to M/s SPRML.
5.1. It is seen that the entire demand in this case has been raised and confirmed on the ba-sis of the private records maintained by M/s. SPRML and the statements given by some of the officers/staff of M/s. SPRML. We observe that the Department has relied on the docu-ments recovered from the premises of a third-party to raise the demand of central excise duty against the appellant. However, copies of the said documents were not supplied to the appellant. The appellants have submitted before us that during the course of personal hear-ing before the Commissioner of Central Tax, CGST: Bolpur Commissionerate, they had prayed for providing copies of relevant records and documents e.g., ‘daily sheet, cash book maintained in tally data format’, any seized document ‘relating transaction between Haldia Steels Pvt. Ltd. and M/s. SPRPL’, on the basis of which the demands have been raised in the Show Cause Notice, but such documents were not furnished to the appellant. Thus, we are of the view that the demand of central excise duty raised and confirmed on the basis of these documents is not sustainable.
5.2. In this connection, we also find force in the decision cited by the appellants in the case of Mukesh Appliances Pvt. Ltd. vs Commissioner of C. Ex. & S.T., Daman [2016 (343) E.L.T. 246 (Tri. – Ahmd.)], wherein it has been held by the Tribunal, Ahmedabad that private records seized from buyer’s premises cannot to be the sole basis for demand from the supplier, when corroborative evidence like purchase of extra raw material, actual removal of clandestine goods, receipt of sale proceeds, etc., are not produced to substantiate the allegations.
6. We also find that the Ld. adjudicating authority has relied upon the statements recorded from Shri Debasis Sasmal, CFO of M/s SPRML, Shri Bhanu Pratap Tiwari, who maintained the documents at M/s SPRML’s ‘secret office’ at 14C, M.D. Road, Kolkata – 700007 and Shri Anil Kumar Jain, Director of M/s. SPRML, to substantiate the allegations of clandestine re-moval. As the above statements relied upon by the Revenue are the primary basis for raising the allegation of clandestine manufacture and clearance against the appellants, the appellants had sought cross examination of the said persons. However, the ld. adjudicating authority has not accorded the opportunity of cross examination of the said persons. Regarding the appellant’s request for cross examination of certain persons, the ld. adjudicating authority has given the following findings in the impugned order:
“5.2 Regarding the Noticees’ claim for Cross Examination of certain person, I find that the Noticees submitted their replies to the SCN on 24.07.2017, which were received on 04.08.2017/07.08.2017, i.e. after four months of issuance of such SCN. So, I find such claim as nothing but a tactics to delay the legal proceedings against them. Moreover, the right to cross- examination is not an absolute right. The question whether the petitioner is entitled to cross- examination, is a question which largely depends on the facts. In view of facts of the case and also the scheme adopted by the Noticees, I therefore, disallow such Cross Examination. Statements and submissions of all these persons whose cross examination was requested, in connection with this case are, however, being considered for deciding the case.”
6.1. We do not agree with the reason given by the ld. adjudicating authority for rejecting the request of cross-examination to the appellants. We find that the said documents recovered from M/s. SPRML were the only evidence relied upon by the Revenue in the impugned order. There is no other corroborative evidence to substantiate the allegation of clandestine removal in this case. Under such circumstances, we observe that allowing cross examination of the persons whose statements were relied upon in this case is a mandatory requirement. As the appellant was not allowed cross examination and the principles of natural justice have not been followed in this case, we hold that the said documents recovered from M/s. SPRML and the statements recorded during the course of investigation against M/s SPRML cannot be relied upon against the appellants in these proceedings. Thus, we are of the view that the demand of central excise duty raised and confirmed on the basis of these documents is not sustainable.
7. It is also relevant to note that clandestine manufacture and removal of excisable goods is a serious allegation, which needs to be substantiated through tangible, direct, affirmative and incontrovertible evidences relating to:
a. Receipt of raw material inside the factory premises, and nonaccountal thereof in the statutory records;
b. Utilization of such raw material for clandestine manufac-ture of finished goods;
c. Manufacture of finished goods with reference to Installed capacity, consumption of electricity, labour emploved and payment made to them, packing material used, records of security officers, discrepancy in the stock of raw materials and final products;
d. Clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, trans-porters’ documents, such as L.R.s. statements of lorry drivers, entries at different check posts, forms of the Commercial Tax Department and the receipt by the consignees;
e. Amount received from the consignees, statement of the consignees, receipts of sale proceeds by the consignor and its disposal.
7.1. Admittedly, in the instant case, no such evidence to the above effect have been brought on record. Since none of the ingredients required for alleging clandestine manufacture and clearance are satisfied in this case, we find that such an allegation against the appellants cannot be sustained, merely on the basis of assumptions and presumptions.
7.2. We observe that a similar issue has been dealt with by the Tribunal at Ahmedabad in the case of Arya Fibres Ltd. v Commissioner of C.Ex., Ahmedabad-II [2014 (311) E.L.T. 529] wherein it has been held that the allegation of clandestine removal is to be corroborated by supporting evidences. The relevant observa-tions of Tribunal in the said order are reproduced below for ease of reference: –
“40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufac-ture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of:
(a) raw materials, in excess of that contained as per the statutory records;
(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and valid-ly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of produc-tion; etc.
Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that infer-ences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences re-ferred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v. CCE, Vadodara [2013 (293) E.L.T. 689]. It would appear that the decision, though rendered on 3-5-2013, was reported in the issue of the E.L.T., dat-ed 29-7-2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unac-counted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindu-stan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Mem-ber, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examin-ing the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.”
7.3. The said issue has also been examined by the Hon’ble High Court of Allahabad in the case of Continental Cement Company v. Union of India [2014 (309) E.L.T. 411 (All.)], wherein it has been held as under: –
“10. We have heard the learned counsel for the parties and gone through the material available on record, from which it appears that Shri Shubhashis Dev, Government Examiner of questioned documents, Shimla gave his written opinion dated 12-6-1998, wherein he has stated that “the documents of this case have been carefully and thoroughly examined. The enclosed writings and signatures stamped and marked were all written by one and the same persons”.
11. From the above, it appears that all the documents were written by one and the same persons, though the dates and the name of the parties are different. When it is so then the genuineness of the documents cannot be accepted.
12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by pro-duction of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not in-vestigated the following aspects:
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials have been purchased.
(iii) To find out the dispatch particulars from the regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.
14. In the instant case, no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s. Singhal Cement Agency, M/s. Praveen Cement Agency; and M/s. Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof. The mis-chievous role of Shri Anil Kumar erstwhile Director with the assistance of Ac-countant Sri Vasts cannot be ruled out.
15. In view of the above, we are of the opinion that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material out side the books have been proved.
16. In the light of the above discussions and considering the totality of the case, we are satisfied that no case is made out for extra so called clandestine sale of the Portland Cement to the said parties. We are satisfied that the first appellate authority has right-ly deleted the addition and cancel the penalties. Hence we hereby set aside the impugned order passed by the Tribunal and restore the order passed by the first appellate authority, along with the reasons mentioned here-in.
17. In the result, all the appeals filed by the appellants are hereby allowed.”
7.4. Further, the Tribunal in Nova Petrochemicals v. Commissioner of C.Ex., Ahmedabad-II [Final Order Nos. A/11207-11219/2013 dated 26.09.2013], while dealing with a similar issue, has observed as follows:- “40. After having very carefully considered the law laid down by this Tribunal In the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following:
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwar-ranted assumptions;
(ii) Evidence in support thereof should be of:
(a) raw materials, in excess of that contained as per the statutory records;
(b) Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the facto-ry without payment of duty.
(c) Discovery of such finished goods outside the factory
(d) Instances of sales of such goods to identified parties.
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons au-thorized by him;
(f) use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and valid-ity cleared on payment of duty
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty
(i) links between the document recovered during the search and activities being carried on in the factory of produc-tion; etc.”
7.5. Therefore, by applying the ratio laid down in the above decisions and in the absence of any corroborative evidence available on record to substantiate the allegation of clandestine clearances in the impugned order, we hold that the demand confirmed in the impugned or-der on the basis of documents recovered from a third party, without any corroborative evi-dence, is legally not sustainable.
8. We also find that the Department has raised similar demands against M/s. Jai Balaji In-dustries (Unit III) & Others, on the basis of the documents recovered from the same third party viz. M/s SPRML, without any independent supporting evidence. The said de-mands raised have already been dropped vide Final Order No. 75583-75585/2020 dated 12.11.2020. The relevant part of the order of this Tribunal, while dropping the said demands are reproduced below for ready reference: –
“18. Though the above lines are a little difficult to comprehend, it can be made out that the Notice means to say that Shri Mahapatra could not disprove the allegation; it was accepted by Shri De-basis Samal and Shri Anil Jain of M/s SPRML and that in spite of the same Shri Mohapatra maintained that they have not cleared any goods other than those shown in authorised clearances. We find that the above is only an allegation and the department has not adduced any ev-idence whatsoever to establish the case of clandestine removal against the appellants. It was incumbent upon the department, who are al-leging, to prove the same with evidence. The reliability of such an evidence be-comes weak as the same comes from a third party. It has been alleged that the appellants have clandestinely removed 13,683.05 MT of MS Billets without payment of duty. The appellants submit that they would have required huge quantity of raw materials like iron ore, lam coke, steam coal, manganese and scrap. No evidence has been gathered to show the illegal and clandestine procurement of the said raw materials. We find that there is force in the argument of the appellant. In addition to the above, the Department did not produce evidence of consumption of electricity, deployment of labour and production of such billets. We find that without any investigation conducted in that direction, thereto without taking stock of raw materials and finished goods immediately after evidence was found at the end of M/s SPRML, allegation of clandestine removal cannot be sustained. It is also seen that statement of Shri Aditya Jajodia, Managing Director was not even recorded and it is surprising to see that while alleging clandestine removal of that magnitude responsible senior person like the Managing Director was not even questioned. Only Sh. Mohapatra who is an authorised signatory of the appellants has been questioned who did not accept any misconduct on their part. The allegation is only based on the data set to have been re-covered from the secret office of M/s SPRML and no other evidence has been put forth. We find that as averred by the learned Counsel for the appellants, reliance cannot be placed only on the evidence available with the Third Party as held in CCE, Delhi Vs Vishnu & Co. Pvt. Ltd. 2016 (332) ELT 793 (Delhi)
19. Moreover, cross examination of the Punch witness in whose presence the external hard drives were recovered and printouts taken, Sh. Debasis Sasmal, CFO of M/s SPRML and Sh. Anil Kumar Jain, Director of M/s SPRML was requested. The request for cross examination was not allowed. In the instant case, cross examination was re-quired as no evidence recovered at the end of the appellant was made available and no one from the appellant have agreed to the contents thereof. The appellants also contended that commissioner has not examined the witnesses under the provisions of Section 9D of Central Ex-cise Act, 1944. We find that in any other case, the same would not have consti-tuted any grave infraction; looking in to the facts of the case, where entire evidence is based on the records of third party and state-ments of the officers of such third party and where cross-examination was denied, the same assumes importance. Further, the appellants have alleged that while obtaining the electronic record at M/s SPRML, depart-ment did not adhere to the provisions of 36(B) of the Central Excise Act, 1944 and a certificate as required under Section 36B(4) is not issued. We find that neither the SCN nor the adjudication order have dealt with the facts relating to this issue and from the records of the case, it cannot be made out whether the same were followed. The learned commis-sioner did not controvert the allegations in the adjudication order. Therefore, we find that reliance on the records thus seized from M/s SPRML alone, do not help the case of department, unless the same are cor-roborated by other evidence.
20. We find that the Show cause Notice and the adjudication order rely heavily on the records recovered at M/s SPRML and the statements of Shri Debasis Samal and Shri Anil Kumar Jain of M/s SPRML. It is now a settled principle that clandestine removal is a charge and has to be proved with all other concerned activities. We find that the coordinate Bench of the Tribunal, in the matter of Nova Petro-chemicals v. CCE, Ahmedabad-II, in its Final Order Nos. A/11207-11219/2013, dated 26-9- 2013, held as under (in Para 40):
…..
21. We agree to the proposition of the learned Commissioner that the department is not required to prove clandestine removal by mathematical precision. However, the instant case, we find that not even single evidence has been brought on record to show clandestine removal, conclusively establishing at least in a sample transac-tion. We find that the Annexure-H contains alleged receipts by M/s SPRML date wise from the appellants. The Annexure contains Truck Nos. We do not find any investigation regarding the transportation at least, of which some evidence, in the form of Truck numbers, was available with the department. We also find that no stock verification has been conducted at the appellant’s premises to see if there were any discrep-ancies in the stock of raw material, finished products etc. The allegation is about clandestine removal of a huge quantity of 13,683.05 MT valued at Rs.52.00 Crores. To prove evasion of such magnitude, the depart-ment should have established the purchase of raw material, consumption of electricity, deployment of labour, arrangement of trans-portation, receipt at the customers’ end and financial transactions. Receipt of money in respect of not even a single transaction in the hands of the appellants has been proved with evidence. We find, in fact, that the de-partment has not at all attempted to investigate in that direction to prove the alleged clandestine removal. The show cause notice and the im-pugned order rely upon the only fact that DGCEI have recovered the documents from the secret premises of M/s. SPRML and that the officers of M/s. SPRML have accepted it. We find that this is not just enough. Investigation cannot be done in a short-cut manner. Having conducted no investigation whatsoever, department cannot confirm the demand only on the basis of documents seized from some other person, more so the contents of which were never accepted by the appellants and cross ex-amination was not allowed. If allegations can be made just on evidence ob-tained from third parties, there would be no dearth of such cases. We find that leaving alone proof with a mathematical precision, in the instant case, evidence made available is not even enough even for a Gross approximation. The appellant has relied upon a number of cases where-in it was settled that in order to prove the allegations of clandestine removal the department must bring on record cogent, positive and con-crete evidence to prove the said allegation, the said allegation cannot be sustained on the basis of assumptions and conjectures. We find, in view of the above, that the investigation and consequentially the allegation of clandestine removal, lacks credence and suffers from incura-ble lacunae.”
9. We also take note of the fact that similar demands raised against M/s. Puneet Steels & Alloys Pvt. Ltd. on the basis of the documents recovered from the same third party viz. M/s SPRML have also been dropped, as reported in 2017 (358) E.L.T. 1253 (Tri. – Del.).
10. Thus, on the basis of the discussions above and the decisions cited supra, we hold that there is no evidence produced by the department to substantiate the allegation of clandes-tine removal, other than the private records seized from the premises of M/s SPRML. Ac-cordingly, we hold that the demands of central excise duty confirmed in the impugned order on the basis of these documentary evidences is not sustainable. Accordingly, we set aside the same. As the demand of central excise duty is not sustained, the question of demand-ing interest and imposing penalty on the appellant-company does not arise and hence, the said demands also stand set aside.
11. Regarding the penalty imposed on the appellant no. 2, namely, Shri Satpal Bansal, Di-rector of the appellant-company, in terms of Rule 26(1) of the Central Excise Rules, 2002, we find there is no evidence available on record to indicate that he was involved in any clan-destine manufacture and clearance of finished goods. From a perusal of the records, it is evident that neither he nor the General manager has accepted the allegation of clandestine removal in their statements. Further, in view of the discussions in the preceding para-graphs, the demand of central excise duty raised and confirmed against the appellant-company has been found to be unsustainable. Thus, under such circumstances, the im-position of penalty on the appellant no. 2 herein is also found to be unwarranted and hence, we set aside the penalty imposed on him vide the impugned order.
12. In the result, we set aside the impugned order and allow the appeals filed by the appellants, with consequential relief, if any, as per law.
(Order pronounced in the open court on 18.02.2026)
