No Penalty for Clandestine removal in absence of cogent evidence

Commissioner, Customs & Central Excise Vs Prakash Industries Limited (CESTAT Delhi)

Conclusion: Charge of clandestine removal and duty evasion was a serious charge having civil consequences upon the assessee. Such charge could not be confirmed unless there was sufficient corroborative evidence which lead to the inevitable conclusion of clandestine removal and only on the basis of third party evidence the charge of clandestine removal was not sustainable.

Held: The dispute in this appeal related to dropping of demand of Rs. 9,94,65,997/- by Commissioner out of the total proposed demand of Rs. 11,46,10,423/- in the show cause notice. The Commissioner had confirmed the balance demand of Rs.1,51,44,426/- along with equal penalty under Section 11AC. As the said amount of duty confirmed stood appropriated from the amount paid /debited during the course of investigation, it was further ordered assessee should be entitled to deposit reduced penalty of Rs.37,86,107/-, if they deposit the interest payable under Section 11AB within thirty days of service of the order. Further, penalty of Rs.50 lakhs was imposed on the assessee under Rule 25 of Central Excise Rules, 2002. Assessee had filed appeal against confirmation of duty amount of Rs. 1,51,44,426/- as well as penalty and confiscation. Revenue filed Appeal assailing the order-in-original against dropping of demand of Rs.9,94,65,997/- for alleged clandestine removal of 67170.156 MT of finished goods, which had been proposed in the show cause notice on the basis of third party record being the ‘bilty nakal register‘ (a sort of daily book) and on the basis of copies of GRs recovered from the transporters alleged to be corroborated with photocopies of GR notes etc. provided by a source/ complainant. It was held that there was no categorical admission of clandestine removal as alleged by the Revenue. So far the contention of Revenue that in view of the confirmation of the proposed demand of Rs. 1.51 crores (approximately) on the same analogy or set of evidence, by relying on the theory of preponderance of probability (Bhoormull’s case),the demand for the other proposed amount of Rs. 9.5 crores (approximately) should also have been confirmed. It was held that the charge of clandestine removal and duty evasion was a serious charge having civil consequences upon the assessee. Such charge could not be confirmed unless there was sufficient corroborative evidence which leads to the inevitable conclusion of clandestine removal. In the facts of the present case, we find that in absence of the relevant inputs necessary for production for the alleged quantity removed clandestinely, namely raw materials, electricity, labour etc., the condition precedent of manufacture is not established and in absence of such material evidence, only on the basis of third party evidence the charge of clandestine removal is not sustainable. It had been so held by the Hon‘ble Allahabad High Court in the case of Continental Cement Company vs. Union of India -2014 (309) ELT 411 (All). The investigation was silent as regards the evidence of delivery of the alleged clandestinely removed goods to the named consignee and the important evidence of flow back of cash to the assessee. Tribunal confirmed the order of Commissioners which related to the dropping of demand of duty for Rs.9,94,65,997/- and dismissed the appeal filed by the revenue.

FULL TEXT OF THE CESTAT DELHI ORDER

The dispute in this appeal relates to dropping of demand of Rs. 9,94,65,997/- by the ld. Commissioner out of the total proposed demand of Rs. 11,46,10,423/- in the show cause notice. The Commissioner has confirmed the balance demand of Rs.1,51,44,426/- along with equal penalty under Section 11AC of the Act. As the said amount of duty confirmed stood appropriated from the amount paid /debited during the course of investigation, it was further ordered the appellant shall be entitled to deposit reduced penalty of Rs.37,86,107/-, if they deposit the interest payable under Section 11AB within thirty days of service of the order. Further, penalty of Rs.50 lakhs was imposed on the appellant under Rule 25 of Central Excise Rules, 2002.

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