Private Records Alone Cannot Prove Clandestine Manufacture & Clearance: CESTAT Ahmedabad

Srini Link Vs Commissioner of CGST & Central Excise-Surat (CESTAT Ahmedabad)

The appellant, M/s. Srini Link, a manufacturer of PVC insulated electrical cables, automobile cables, lead-free cables, power cords, tinned copper wire and other products falling under Chapters 85, 74 and 39 of the Central Excise Tariff Act, challenged the order confirming central excise duty, interest and penalties on allegations of clandestine manufacture and clearance of finished goods.

The case originated from a search conducted by Central Excise officers on 10/11.01.2012, during which handwritten note pads, challan books and other private records were resumed. Based on these documents, the department suspected clandestine clearances without payment of duty. The statement of the authorised signatory, Shri Bhadresh R. Lade, was recorded under Section 14 of the Central Excise Act, 1944. He stated that finished goods had been cleared under recovered challans without invoices and without payment of excise duty. He also stated that missing challan book pages and certain transactions could be explained by either the partner, Shri D. Saravanan, or Shri Rajeshwaran Menon, another authorised signatory. The department, however, did not record statements of Shri Rajeshwaran Menon or Smt. Bhagyashree Churi, who allegedly authored or maintained the private records. Despite issuance of summons, Shri D. Saravanan did not join the investigation.

A show cause notice dated 20.11.2015 demanded central excise duty of ₹16,94,770 under Section 11A(4) of the Central Excise Act, 1944, along with interest under Section 11AA and penalties under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC. Separate penalties under Rule 26 were proposed against Shri D. Saravanan and Shri Bhadresh R. Lade. The adjudicating authority confirmed the demand, interest and penalties, and the Commissioner (Appeals) upheld that order. The present appeals challenged those findings.

The appellants contended that the resumed note pads and challan books contained unsigned transaction details and rough calculations without any basis. They submitted that no discrepancy was found in stock during the search and that there was no evidence of excess production, excess purchase of raw materials, excess electricity consumption, transportation, money trail or receipt of sale proceeds. They argued that the department had not investigated the alleged recipients named in the challan books or examined the persons who authored the private records. They also contended that the statement of Shri Bhadresh Lade could not be relied upon because he was not the author of the records and that their request for cross-examination had not been granted. They further challenged the invocation of the extended period of limitation, the valuation adopted for the alleged clandestine clearances and the imposition of penalties.

The Revenue argued that Shri Bhadresh Lade had clearly admitted clandestine removals and that his statement stood corroborated by the resumed private records. It submitted that the statement had never been retracted, that the recovered challan books demonstrated clearances outside the statutory procedure, and that the extended period and penalties were rightly invoked because the transactions had been deliberately kept out of statutory records.

The Tribunal observed that the entire case rested substantially on the private records resumed during the search and the statement of Shri Bhadresh Lade. It noted that although Shri Lade had stated that Shri Rajeshwaran Menon and Smt. Bhagyashree Churi had authored or maintained the crucial records, no statements of those individuals had been recorded. It further observed that no investigation had been conducted either at the suppliers’ end regarding unaccounted raw materials or at the recipients’ end to establish receipt of allegedly clandestinely removed goods. No evidence regarding transportation of the goods or other corroborative material had been brought on record.

Referring to earlier decisions, the Tribunal reiterated that allegations of clandestine manufacture and removal require positive and tangible evidence, including evidence relating to excess procurement of raw materials, actual removal of goods, identified buyers, transportation, sale proceeds, excess electricity consumption and other corroborative circumstances. It observed that the department had not established these factors in the present case. The Tribunal also noted that Shri Bhadresh Lade was not the author of the resumed records and that there was no voluntary admission by the partner of the firm. Further, the show cause notice did not explain the basis adopted for arriving at the value of the alleged clandestinely cleared goods for computing the duty demand.

The Tribunal distinguished the decisions relied upon by the Revenue on the ground that those matters involved voluntary admissions or other corroborative evidence establishing clandestine removal, whereas the present case lacked such supporting material.

Holding that the department had failed to produce positive evidence establishing unaccounted manufacture and clandestine clearance, the Tribunal set aside the impugned order confirming the excise duty demand, interest and penalty against the appellant. It also set aside the penalty of ₹20,000 imposed on Shri D. Saravanan under Rule 26 of the Central Excise Rules, 2002. Both appeals were allowed.

Cases Discussed

• Raghuveer Rolling Mills Vs. Commissioner of Central Excise (Tri.-All), (2024) 15 Centax 127 (Tri.-All)
• P. D. Industries P Ltd Vs. CCE, Raipur (Tri.-Del), 2017 (357) ELT 386 (Tri-Del)
• Reliance Forge Vs. CCE, Faridabad, 2017 (355) ELT 418
• Commissioner of Central Excise, Raipur Vs. Ravi Vaswani, 2017 (347) ELT 351
• shahi Exports P. Ltd Vs CCE, 2017 (347) ELT 310
• CC Vs. Yash Overseas, 2017 (345) ELT 566
• IMI Abrasives P. Ltd. Vs. CCE, 2017 (345) ELT 285
• Super Cassettes Ind. Vs. CCE, 2017 (347) ELT 145
• CCE Meerut-II Vs Vam Organic & Chemical Ltd., 2016 (342) ELT 174 (T)
• Capital Ispat Limited Vs. Commissioner of Central Excise, Jaipur, 2016 (340) ELT 697
• CCE Vs. PD Ind. Pvt. Ltd., Raipur, 2016 (340) ELT 249
• Sri Laxmi Ind Vs. CCE, 2016 (336) ELT 681
• Grover sons Vs CC New Delhi (Tri.-Delhi), 2016 (332) ELT 378 (Tri.-Delhi)
• Flevel International Vs. CCE, 2016 (332) ELT 416
• M/s. Vishnu & Co. Pvt. Ltd., 2016 (332) ELT 416
• C.C.Ex., Delhi Vs Bihariji Manufacturing Co. Pvt. Ltd. (Del), 2015 (323) ELT 106 (Del)
• Sharad Electronics Vs CCE, Delhi-IV (Tri.-Delhi), 2015 (328) ELT 560 (Tri.-Delhi)
• Portland Cement (I) Ltd Vs CCE, Lucknow (Tri.-Delhi), 2015 (326) ELT 304 (Tri.-Delhi)
• MP Goenka Vs. CC, Prev (Del), 2015 (318) ELT 409 (Del)
• Gupta Synthetics Ltd Vs. Commissioner of C. Ex., Ahmedabad-II (Tri.-Ahmd.), 2014 (312) E.L.T. 225 (Tri. – Ahmd.)
• Aum Aluminum Pvt. Ltd. Vs C.C.Ex., Vadodara, 2014 (311) ELT 354
• Chandan Tobacco Company Vs. Commissioner of C.Ex, Vapi (Tri.-Ahmd), 2014 (311) ELT 593 (Tri.-Ahmd)
• Karnavati Synthetics Ltd Vs CCE, Ahmedabad-I (Tri.-Ahmd), 2014 (304) ELT 696 (Tri.-Ahmd)
• SM Steel Ropes Vs. CCE, Mumbai (Tri.-Mum), 2014 (304) ELT 591 (Tri-Mum)
• Umesha Textiles P Ltd Vs. CCE, Mumbai (Tri.-Mum), 2014 (314) ELT 176 (Tri-Mum)
• Ahmednagar Rolling Mills P Ltd Vs. CCE, Aurangabad (Tri.-Mum), 2014 (300) ELT 119 (Tri-Mum)
• Nova Petrochemicals v. CCE, Ahmadabad-II, Final Order Nos. A/11207-11219/2013, dated 26-9-2013
• CC, Hyderabad Vs. Tallaja Impex (Tri.-Bang), 2012 (279) ELT 433 (Tri.-Bang)
• Atlas Conductors (Tri.-Mum.), 2008 (221) E.L.T. 231 (Tri.-Mum.)
• M/s. Bajrang Castings Pvt. Ltd., 2007 (216) ELT 623
• Ruby Chlorates (P) Ltd. v. Commissioner of C. Ex., Trichy (Tri.-Chennai), 2006 (204) E.L.T. 607 (Tri.-Chennai)
• Shivom Ply-N-Wood P Ltd Vs. CCE, Aurangabad (Tri.-Mum), 2004 (177) ELT 1150 (Tri.-Mum)
• Makers Casting Pvt. Ltd., Final Order No. 75279-75281/2022
• KP Abdul Majeed Vs. CC, Cochin (Ker), 2017 (51) STR 507 (Ker)

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The appellant, M/s. Srini Link, GIDC Industrial Estate, Umbergaon, Gujarat (Appellant) are manufacturing PVC insulated electrical cables, Automobiles cables, Lead free cables, Power cord, Tinned copper wire etc falling under Chapter 85, 74 and 39 of the schedule to the Central Excise Tariff Act, 1985.

1.1 On the basis of intelligence, Central excise officers searched the appellant’s factory on 10/11.01.2012 and resumed certain private records viz. hand written note pads, challan books etc. under Panchanama in the presence of Shri Bhadresh R. Lade, Authorised signatory of the unit. From the resumed documents, officers suspected that the appellant had clandestinely cleared finished goods without payment of duty. Statement of Shri Bhadresh R. Lade was recorded under Section 14 of the Central Excise Act, 1944 who admitted that finished goods have been cleared under the recovered challans without issue of invoice and without payment of excise duty. Regarding missing pages from 1-19 of the resumed challan book, he stated that either partner of the company or Shri Rajeshwaran Menon Authorised Signatory who authored those challans, can tell anything about clearances. Inspite of issue of several summons, Shri D. Saravanan, Partner of the appellant firm did not join investigation and avoided it on one or the other ground. The officers also did not record statement of Shri Rajeshwaran Menon and Smt. Bhagyashree Churi, Administrative Officer of the unit who authored notepad books.

1.2 After conducting investigation, Revenue issued a show cause notice dated 20.11.2015 to the appellant demanding central excise duty of Rs.16,94,770/- (including Education Cess and Secondary and Higher Education Cess) on clandestine clearances under Section 11A(4) along with interest under Section 11AA of the Central Excise Act, 1944 and penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. Separate penalty was proposed on Shri Bhadresh R. Lade, Authorised Signatory and Shri D. Saravanan, Partner of the appellant firm under Rule 26 of the Central Excise Rules, 2002 for their role in evasion of excise duty.

1.3 The show cause notice was adjudicated by the Assistant Commissioner who vide order dated 31.03.2017 confirmed the duty demand against the appellant along with interest, imposed equal penalty on the appellant unit and also imposed a penalty of Rs.20,000/- each on Shri D. Saravanan and Shri Bhadresh R. Lade. Aggrieved with the above order, all three filed appeals before Commissioner (Appeals) mainly contending non supply of RUDs, valuation of goods, inapplicability of extended period and insufficient evidence etc. Vide impugned order, the appellant authority confirmed the order of the Assistant Commissioner and rejected their appeal. Hence, this appeal.

2. Appellant firm took the following grounds in their appeal before the Tribunal:-

• Inspection of resumed documents by the appellant revealed that the note pad was containing some transaction details without any signature or name. The challan book in the name of M/s Ami Enterprises, Kalbadevi, Mumbai was having names of three parties which were not their clients. The note pad showed some rough calculations of value of goods and duty liability without any basis.
• They purchased raw materials through cheques and never indulged in cash transactions. The goods sold in Maharastra were routed through their Mumbai depot which is registered with Central Excise. Shri Rajeshwar Menon, Authorised signatory and Smt. Bhagyashree Churi, Administrative Officer of the unit who authored/maintained note pad books and challan book of M/s. Ami Enterprises have not been interrogated by revenue.
• They rely on CESTAT decision in the case of Reliance Forge Vs. CCE, Faridabad reported at 2017 (355) ELT 418, wherein, revenue’s case was based on the statement of the manufacturer admitting issuance of invoices without clearance of inputs to its supplier units. In Para-6 of the order, it is held that the statement of the appellant has not been controverted by any positive evidence by the revenue as from where the inputs have been procured by the appellant, if the inputs have not been supplied to the appellant under the invoices in question. The order was therefore, set aside.
• They also rely on the following decisions:-

a) CCE Meerut-II Vs Vam Organic & Chemical Ltd.-2016 (342) ELT 174 (T)

b) Grover sons Vs CC New Delhi-2016 (332) ELT 378 (Tri.-Delhi)

c) Sharad Electronics Vs CCE, Delhi-IV-2015 (328) ELT 560 (Tri.-Delhi)

d) Portland Cement (I) Ltd Vs CCE, Lucknow-2015 (326) ELT 304 (Tri.-Delhi)

e) Karnavati Synthetics Ltd Vs CCE, Ahmedabad-I-2014 (304) ELT 696 (Tri.-Ahmd)

• No discrepancy was found by the officers in the stock position during search of the factory. Also from the seized records, no evidence was found against entries found in the challan book of M/s Ami Enterprises, Mumbai. There is also no proof of transportation, money flow, production of excess goods, purchase of excess inputs and excess consumption of electricity.
• Allegation of clandestine removal cannot be constructed upon documents which are private in nature and maintained by the employee of the company. They rely on the following decisions wherein it is held that, “it is on Revenue to prove that manufacturing unit is engaged in illegal activities. For this purpose, Revenue is expected to produce evidence of movement of raw material from premises of raw material supplier to factory, actual manufacture of goods, and movement of final product from factory towards customers premises.”

a) Commissioner of Central Excise, Raipur Vs. Ravi Vaswani reported at 2017 (347) ELT 351.

b) Capital Ispat Limited Vs. Commissioner of Central Excise, Jaipur reported by 2016 (340) ELT 697.

c) Sri Laxmi Ind Vs. CCE reported at 2016 (336) ELT 681

• CESTAT Delhi in the case of CCE Vs. PD Ind. Pvt. Ltd., Raipur reported at 2016 (340) ELT 249 held that if department wanted to rely upon entries made in documents seized from the premises of third party, it was for them to prove genuineness of these entries with corroborative evidence. In their case, department did not issue even a single summon to Shri Rajeshwar Menon and Smt. Bhagyashree Churi who are stated to be author/custodian of note pad and challan book of M/s. Ami Enterprises. The note pads and challans were not signed or authenticated by any responsible person of the factory and value of the goods was arrived by the department based on a plain paper.
• Department has relied on the statement dated 11.01.2012 of Shri Lade, but his admission is not authenticated and reliable as he is not the author of these challans and note books. They rely on the decision in the case of CC Vs. Yash Overseas reported at 2017 (345) ELT 566 wherein, it was held that the show cause notice should not be issued merely on presumption and assumption. Similar rulings have been given in several other cases namely, shahi Exports P. Ltd Vs CCE reported at 2017 (347) ELT 310, IMI Abrasives P. Ltd. Vs. CCE reported at 2017 (345) ELT 285 and Super Cassettes Ind. Vs. CCE- 2017 (347) ELT 145.
• The challan book of M/s. Ami Enterprise contained name of four business firms viz., (i) M/s Vimal (ii) M/s Shrenath, (iii) M/s Sri Ranga and (iv) M/s Paragon but neither any investigation was conducted against them regarding receipt of finished goods cleared by the appellant nor have they been made noticee in the show cause notice.
• For clandestine removal, there should be unaccounted excess production of goods and for excess production, there should be purchase of unaccounted inputs and other basic raw materials. No such evidence has been produced by the department in their case. Hence, allegation of clandestine clearance is not sustainable. They rely on the decision of Hon’ble Delhi High Court in the case of Flevel International Vs. CCE reported at 2016 (332) ELT 416 which has also been accepted by Revenue and circulated to the field formations. Similarly, decision in the case of M/s. Vishnu & Co. Pvt. Ltd. reported at 2016 (332) ELT 416 and in the case of M/s. Bajrang Castings Pvt. Ltd. reported at 2007 (216) ELT 623 have been accepted by the revenue.
• Despite repeated requests, they have not been provided with basis of arriving at the value of goods or duty demand in their case.
• Extended period of limitation has been invoked in an arbitrary manner without citing the grounds and evidences. There is also no investigation at the end of the recipients. In absence of proper reasoning being given in the impugned order, confirmation of demand and imposition of penalty is not sustainable.
• There is no proposal for confiscation of goods and hence, penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11 AC is not imposable. Being registered with the department, they have been filing regular returns and therefore, Rule 25 of the Central Excise Rules, 2002 is not attracted as none of the conditions specified therein are satisfied.
• It has been held in several decisions of Hon’ble Supreme Court that there is no room for presumptions and assumptions in the matter of taxation.

In view of the above, appellant firm prayed for allowing their appeal and setting aside the impugned order.

2.1 Shri D. Saravanan, partner of the firm (Appellant No.2) has also taken the above points in his appeal to pray that he is not liable to any penalty under Rule 26 of the Central Excise Rules, 2002. He prayed for setting aside the penalty imposed on him by allowing his appeal.

3. During arguments, learned Advocate pleaded that duty demand has been confirmed against the appellant on presumptions and assumptions as revenue has not conducted any inquiry regarding unaccounted purchase of raw materials required to manufacture finished goods alleged to have been clandestinely removed from the factory. Revenue has also failed to show excess consumption of electricity or excess payment of wages to the employees or excess payments to the transporters. They have also failed to conduct any inquiry at the recipient end to establish clandestine clearance. The allegations are based on private records such as note pads, copy of the challan books etc. resumed during search of their factory. Entire allegations are based on the statement of Shri Bhadresh Lade who is not the author of note pads and challan books. No corroborative statement has been recorded of their partner Shri D. Saravanan. There is also no investigation at the end of Shri Rajeshwaran Menon said to be the author of note pads and delivery challans, or of Smt. Bhagyashree Churi, Administrative Officer who maintained the note pads. The request for cross-examination was not afforded in this case and therefore, as held in a series of decisions of the Tribunal as well as of Hon’ble High Courts, evidence which are not properly corroborated, are not admissible. They rely on the following decisions:-

a) Aum Aluminum Pvt. Ltd. Vs C.C.Ex., Vadodara, 2014 (311) ELT 354

b) C.C.Ex., Delhi Vs Bihariji Manufacturing Co. Pvt. Ltd., 2015 (323) ELT 106 (Del)

c) Gupta Synthetics Ltd Vs C.C.Ex., Ahmedabad, 2014 (312) ELT 225 (Tri Ahmd)

d) Chandan Tobacco Company Vs Commissioner of C.Ex, Vapi, 2014 (311) ELT 593 (Tri Ahmd)

e) Raghuveer Rolling Mills Vs Commissioner of Central Excise, (2024) 15 Centax 127 (Tri.-All)

Learned Advocate also argued that since duty demand is not sustainable, hence neither the firm nor it’s Partner are liable to any penalty. He prayed for allowing their appeals by setting aside the impugned order confirming duty demand along with interest and penalty on the appellants.

4. Opposing the prayer, learned AR mentioned that the authorised signatory of the company Shri Bhadresh Lade has clearly admitted clandestine removal of finished goods without issue of invoice and without duty payment. His say is also corroborated by the seized private records. This statement of Shri Lade was never retracted. Recovery of challan books of M/s. Ami Enterprises, Mumbai shows clearances of goods without following the central excise procedure. He justifies denial of cross examination by the Adjudicating Authority on the ground that the persons of the appellant firm did not appear during investigation process despite issue of several summons. On valuation of clandestinely cleared goods and consequential duty liability, he pleaded that the appellant has challenged these calculations without any evidence and that, they have not provided any alternate calculations. He justifies invocation of extended period in the case on the ground that transactions of clandestine removal were deliberately kept out of statutory records to evade duty payment. He also justifies penalty on Shri D. Saravanan as well as on Shri Bhadresh Lade under Rule 26 of the Central Excise Rules, 2002. He pleaded for upholding the order by setting aside all the appeals.

4.1 In support of his say, learned AR relies on the following decisions:-

a. Ahmednagar Rolling Mills P Ltd Vs. CCE, Aurangabad-2014 (300) ELT 119 (TriMum)

b. SM Steel Ropes Vs. CCE, Mumbai-2014 (304) ELT 591 (Tri-Mum)

c. Umesha Textiles P Ltd Vs. CCE, Mumbai-2014 (314) ELT 176 (Tri-Mum)

d. P D Industries P Ltd Vs. CCE, Raipur-2017 (357) ELT 386 (Tri-Del)

e. KP Abdul Majeed Vs. CC, Cochin-2017 (51) STR 507 (Ker)

f. Shivom Ply-N-Wood P Ltd Vs. CCE, Aurangabad-2004 (177) ELT 1150 (Tri-Mum)

g. CC, Hyderabad Vs. Tallaja Impex-2012 (279) ELT 433 (Tri-Bang)

h. MP Goenka Vs. CC, Prev- 2015 (318) ELT 409 (Del) {Also upheld by Hon’ble Apex Court vide 2015 (324) ELT A81 (SC)}

5. We have heard the rival submissions. Revenue has made this case on the basis of documents resumed from the appellant’s factory during search on 10/11.01.2012 as mentioned in Annexure-A to the Panchnama which included private note pads, private diaries, RG-23 A Pt I & II registers, Form IV register, RG-1 register, purchase invoices, excise returns, transporters’ record, ledgers of certain customers and suppliers, invoice book of M/s. Ami Enterprises, Mumbai and certain loose papers etc. and on the statement of Shri Bhadresh Lade, Authorised Signatory of the unit. As per his say, goods shown in Note pad, writing pad and in delivery challans of M/s. Amit Enterprises are their finished goods which have been cleared by the unit without duty payment and without invoice. He also revealed that Shri Rajeshwaran Menon, Authorised Signatory and Smt. Bhagyashree Churi, Administrative Officer of the unit, who authored/ maintained these crucial private records. We however find that revenue has not recorded any statement of these employees to confirm details of goods cleared clandestinely to various customers. The officers issued several summons for recording the statements of Shri. D Saravanan, Partner but they did not succeed as he avoided appearance before the officers on one or the other ground as mentioned in the show cause notice. We find that annexure B to the show cause notice shows value of finished goods cleared clandestinely during 2010-11 and 2011-12 and value of scrap/ waste cleared in 2011-12 on which duty calculation have been made. Thus, the charge of clandestine clearance, rests only on the statement of Shri Bhadresh Lade and resumed private records viz. note pads/ writing pads/ challan books.

5.1 We find that in the case of Gupta Synthetics Ltd. Vs. Commissioner of C. Ex., Ahmedabad-II reported at 2014 (312) E.L.T. 225 (Tri. – Ahmd.) it has been held that, there should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions. Evidence in support thereof should be of :

(a) Raw material purchase, in excess of what is shown in statutory records;

(b) Instances of actual removal of unaccounted finished goods 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 in cash, of such goods by the manufacturers or persons authorized by him;

(f) Use of electricity far in excess of what is necessary to manufacture goods shown as manufactured in statutory records and validly cleared on payment of duty;

(g) Statements of buyers with some details of illicit manufacture and clearance;

(h) Proof of transportation of goods, cleared without payment of duty;

(i) Links between the documents recovered during search and activities being carried on in the factory of production; etc.

5.2 Same principles have been followed in subsequent decisions including decision of CESTAT Allahabad in the case of Raghuveer Rolling Mills Vs. Commissioner of Central Excise reported at (2024) 15 Centax 127 (Tri.-All). Evaluation of evidences in the present case shows that revenue’s case is based on private records resumed during search of the factory and on the statement of Shri Bhadresh Lade. No investigation has been conducted either at the end of raw material suppliers or at the recipient end to whom alleged goods are claimed to have been cleared. As contended by the appellant in grounds of appeal, name of four such buyers surfaced in the challan books but no investigation seems to have been done at their end to corroborate receipt of clandestinely removed goods. There is also no evidence with regard to transportation of said clandestinely removed goods. Shri Bhadresh Lade whose statement revenue has heavily relied, is not the author of resumed private records and therefore, his admittal of clandestine clearance by the unit, is without any further supportive evidence. There is also no voluntary admission of the Partner’s of the firm. In this decision, Tribunal also cited Final Order No. 75279-75281/2022 in the case of M/s. Makers Casting Pvt. Ltd. where it was held that clandestine removal being a serious charge, cannot be alleged only on the basis of statement but has to be corroborated with tangible, concrete evidence and not on the basis of wild inferences or assumptions and presumptions. It requires to be substantiated by evidence encompassing various activities in the chain of events. We also find that the Tribunal in para 40 of its Final Order Nos. A/11207-11219/2013, dated 26-9- 2013 in the matter of Nova Petrochemicals v. CCE, Ahmadabad-II, held as under-

“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 Revenue.”

5.3 Similar findings have been given by majority decision of this Tribunal in the case of Aum Aluminum Pvt. Ltd. Vs C.C.Ex., Vadodara reported at 2014 (311) ELT 354 wherein, at para 60.7 & 60.8 it was held that-

“60.7 In the entire records of proceedings, there is no evidence to indicate that there was clandestine manufacturing. There is no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory. In the entire notice and the order there is no satisfactory and reliable independent evidence as regards the unaccounted manufacture and or receipt of the huge quantities of raw materials. There is also no cogent evidence about any freight payment for any such movement.

60.8 I do not find cogent evidence of disproportionate and unaccounted receipt and consumption of the raw materials required for manufacturing alleged quantity of unaccounted finished goods. I do not find tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material. I do not find cogent evidence of disproportionate power consumption, capacity utilization and labour employed, or any cogent evidence of clandestine manufacture of unaccounted quantity alleged as clandestinely removed. I find that unaccounted production in the factory of the appellant company has not been established. In Ruby Chlorates (P) Ltd. v. Commissioner of C. Ex., Trichy – 2006 (204) E.L.T. 607 (Tri.-Chennai), it was held that :-

“21 The settled legal position is that when several raw materials are involved, when a case of clandestine production and clearance is built on clandestine use of raw materials, the same should be proven with reference to unaccounted use of all such major raw matei1als”.

“22. In a case of clandestine removal the department should produce positive evidence to establish the same. In the absence of corroborative evidence, a finding cannot be based on the contents of loose chits of uncertain authorship. Department has not produced evidence of use of inputs to prove that there was manufacture of unaccounted finished product. …”

Moreover, in the case of Atlas Conductors [2008 (221) E.L.T. 231 (Tri.-Mum.)], this Tribunal has taken a clear view that the demand cannot be on presumption of manufacture but on the basis of actual manufacture which is the basis to come to conclusion, and I notice that the findings of the adjudicating authority are without any evidence and is not correct view and is liable to be set aside.”

5.4 We further find that Hon’ble Delhi High Court in the case of C.C.Ex., Delhi Vs Bihariji Manufacturing Co. Pvt. Ltd. reported at 2015 (323) ELT 106 (Del) held that in case of clandestine removal of goods, revenue has to adduce positive/ tangible evidence and demand of duty based on assumptions and presumptions cannot be sustained. Revenue challenged the above decision before Hon’ble Supreme Court which upheld the said decision as reported at 2015 (323) E.L.T. A23 (S.C.).

5.5 This Tribunal in the case of Chandan Tobacco Company Vs. Commissioner of C.Ex, Vapi reported at 2014 (311) ELT 593 (Tri.-Ahmd) has again held that the charges of clandestine removal are a serious accusation and therefore, proof which is required is to be established with cogent evidence. The evidences should be carefully examined and weight attached depending on facts of each case. For applying test of preponderance of probability, though every link of the process is not required to be proved, yet revenue is not relieved of burden of producing some credible evidence in respect of the fact in issue. Mere presumptions and assumptions are not enough. Vast difference between “might have” and “must have”, has to be travelled by revenue by production of evidence of record. Manufacturing and clearance of final product without payment of duty only cast doubt on assessee for past period and cannot take place for legal evidence.

5.6 We have also gone through various case laws relied upon by revenue but we observe that facts contained therein, are entirely different and cannot be compared with this case. In Ahmednagar Rolling Mills P. Ltd. case, assessee had admitted clandestine removal and also made voluntary payment of Rs. 80 Lakhs towards duty evaded. In Umesha Textiles P. Ltd. case, clandestine manufacture and clearance was established from the records and also admitted as per statements. Likewise, in P. D. Industries P. Ltd. case, statement of General Manager and incriminating documents/ records established clandestine removal of sponge iron. The decision of Hon’ble Delhi High Court in the case of M. P. Goenka relates to smuggling of Chinese silk and so, the facts are entirely different. Similarly, decision of Hon’ble Kerla High Court in K. P. Abdul Majeed case is related to smuggling of foreign gold biscuits and thus, facts are different. The decision in the case of M/s. Shivom Ply-N-Wood Pvt. Ltd. is a stay order given by the Tribunal and thus, issue in this case is not decided on merits. In the case of SM Steel Ropes Vs. CCE, Mumbai reported at 2014 (304) ELT 591 (Tri-Mum), matter was decided in favour of revenue as there was voluntary admission of clandestine clearance by the Managing Partner of the firm. The demand was based on the figures given by the Managing Partner in his statements which was not retracted.

5.7 In the present case, facts are entirely different from relied upon cases as neither the Partner has tendered voluntary admission of unaccounted manufacture and clandestine clearance of finished goods nor is there any statement of the authors of private records confirming authenticity of the details contained therein. There is also no enquiry at the end of the recipients and transporters. The show cause notice does not explain how revenue has arrived at the value of clandestinely cleared goods for calculating the demand of excise duty.

5.8 We therefore hold that the department in this case has not been able to adduce any positive evidence for alleging unaccounted manufacture and clandestine clearance of finished goods by the appellant. Accordingly, we set aside the impugned order confirming central excise duty demand against the appellant along with interest and penalty. We also set aside penalty of Rs.20,000/- imposed on Shri D. Saravanan, Partner of the firm under Rule 26 on the same ground.

6. Both the appeals are allowed.

(Pronounced in the open court on 29.06.2026)