17.10.2022: Clandestine Removal Of Goods Cannot Be Alleged Merely On The Basis Of The Diary Entries – CESTAT Allahabad

The Hon’ble CESTAT Allahabad vide its order dated 10th August, 2022 in the matter of M/s Raghuveer Rolling Mills Vs. Commissioner of Central Excise, Kanpur in Excise Appeal No. – 71145 of 2018, set aside the order raising demand of central excise, finding that the demand has been raised merely on the basis of entries in the notebook and the statement of the appellant, no other evidence has been put forth by the Department. Under these circumstances, the statement of the appellant has no validity as evidence.  The clandestine removal is a serious charge, the department has not adduced any additional evidence, not even on sample basis to substantiate the allegation of clandestine removal.

The Appellant filed the appeal before the Hon’ble CESTAT challenging the Commissioner (Appeals) dated 16.05.2018, whereby the adjudication order confirming the demand of Central Excise duty against the appellant was upheld.

Facts of the Case: –

  • The appellants are engaged in the manufacture of Iron Flats, spring Leaves and Agriculture implements.
  • An investigation was conducted by the officers of Central Excise subsequent to the visit at the premises of the Appellant.
  • That based on the aforesaid investigation, a show cause notice dated 28.02.2015, demanding Central Excise duty of Rs.11, 11,790, invoking proviso to Section 11A, along with interest and proposing penalty under Section 11AC of the Central Excise Act, 1944.
  • Thereafter, the order-in-original confirmed the duty demand demanded and imposed equivalent penalty under Section 11 AC of the Central Excise Act, 1944. That the Appellant filed an appeal against the said order-in-original before the Ld. Commissioner (Appeals), which was also dismissed vide order dated 16.05.2018 and the adjudication order was upheld.  Being aggrieved the appellant filed the present appeal.

Case of the Appellants: –

  • It was submitted on the behalf of the appellant that the entire case of department based on the entries in a Shristi Brand Notebook recovered during the search, however, the person who made entries in the said notebook has neither been identified nor his statement was recorded. Moreover, the proprietor of the company was made to accept the clandestine removal and to make deposit the amount towards duty.
  • That in addition to above, the show cause notice and investigation suffered from infirmities like (i) Panchanama is not as per the Code of Criminal Procedure; (ii) Admission by the proprietor is not evidence in itself to prove clandestine removal as held by Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs M/s Dhingra Metal Works ; in the case of M/s Vikram Cement (P) Ltd. Vs Commissioner of Central Excise reported as 2012 (286) E.L.T. 615 (Tri.- Del.), it was held that evidentiary statement of the director in the absence of any other evidence cannot establish the case of the assessee, the burden to prove is on the Department; (iii) Department has not established any shortage or excess in the raw material/final products to prove clandestine removal as held in the case of M/s Raj Ratan Industries Ltd. 2013 (292) E.L.T. 123 (Tri.-Del.); (iv) Statement was taken in duress and is not admissible as held by this Tribunal in the case of M/s Galaxy Indo Fab Ltd. 2010 (258) E.L.T. 254 (Tri.-Del.) and no evidence of deployment of additional work force/ labour is not proved; (v) the contents of the notebook cannot be believed as tractors cannot be used for transportation of goods of that quantities mentioned therein; (vii) A look at the notebook gives an impression that all the entries have been written with the same pen and at the same time; private record appears to have been sources and planted.
  • It was submitted that similar situation was dealt with by the Hon’ble High Court of Delhi in M/s Flevel International Vs Commissioner of Central Excise 2016 (332) E.L.T. 416 (Del.). Further, the Tribunal in the case of M/s Makers Casting Pvt. Ltd. vide Final Order No.75279- 75281/2022, held that clandestine removal cannot be alleged only on the basis of the statement but it has to be corroborated with tangible concrete evidence and not on the basis of wild inferences or assumptions and presumptions.

On the other hand, Authorised Representative for the revenue/respondent reiterates the findings of Order-in-Original and Order-in-Appeal and submits that the impugned order has extensively analysed the evidence submitted by the revenue and have upheld the charge of clandestine removal. Hence, the appeal is liable to be rejected.

Held: –

  • The Hon’ble Bench after considering the submissions made and facts of the case, found that the case of the Department is that the appellant is involved in clandestine removal and the basis of the said allegation is entries made in certain notebook recovered from the premises of the Appellant. However, the author of the notebook has not been identified, his statement was not recorded and that all the entries in the said notebook appeared to be made with the same ink at same time.
  • It was found the entries in the notebook were not subject to examination by the handwriting expert, the author of the notebook has been neither identified nor his statement/explanation was taken. It has been held in a catena of judgments that a serious charge like clandestine removal cannot be established without tangible evidence or procurement of raw material, deployment of labour, consumption of electricity, manufacture of excisable goods, sale of excisable goods, transportation of excisable goods and receipt of consideration etc.
  • Further, apart from entries in the notebook and the statement of the appellant, no other evidence has been put forth by the Department. Thus, under these circumstances, the statement of the appellant has no validity as evidence.
  • It was also found that the argument made on the behalf of the revenue that ‘only a tractor has registration and not the trolley and therefore, reference to tractor should be read as reference to tractor with trolley’, seems to be an assumption as the entries in the diary distinctly mention tractor and tractor trolley separately.
  • That taking reference of Tribunal’s decision in Nova Petrochemicals v. CCE, Ahmadabad-II, in its Final Order Nos. A/11207-11219/2013, dated 26-9-2013, it was found that clandestine removal is a serious charge and requires to be substantiated by evidence encompassing various activities in the chain of events.
  • Lastly, it was held by the Hon’ble Bench that the department has not adduced any additional evidence, even on a sample basis to substantiate the allegation of clandestine removal as per above. Hence, In the absence of evidence, the allegations raised by the department are not substantiated.  For this reason, impugned order cannot be sustained.

 The Hon’ble CESTAT with the above findings, set aside the impugned order and allowed the appeal with consequential relief.

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