Merely on the basis of stock statement submitted with banks undervaluation cannot be proved

Stock statements given by assessee to banks for purposes of getting credit facilities do not prove undervaluation in absence of any evidence of flowback of additional consideration from buyer to manufacturer

In the Instant case, the Department alleged undervaluation and clandestine clearances on ground that Synfab Sales (the Respondent) was clearing the goods from its factory gate at very low value in the name of non-existing firms, while the goods were actually being cleared to godown at Bhiwandi (Maharashtra) and Surat (Gujarat) from where they are subsequently being sold through brokers to actual buyers at a higher value. The Department alleged undervaluation of stocks merely relying upon the stock statements furnished by the Respondent to banks for the purpose of getting credit facilities.

The Hon’ble Supreme Court relying upon the decision of CCE Vs. Beekaylon Synthetics Ltd. [2003 taxmann.com 77 (New Delhi – CESTAT)]held that stock statements given by assessee to banks for purposes of getting credit facilities do not prove undervaluation in absence of any evidence of flowback of additional consideration from  buyer to manufacturer.