Excise Duty Demands Cannot be Sustained on Mere Suspicion, says Kolkata Bench of CESTAT

Excise Duty Demands Cannot be Sustained on Mere Suspicion, says Kolkata Bench of CESTAT

CESTAT clarifies legal standards for evidence in clandestine removal allegations under the Central Excise Act

In a significant ruling, the Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal set a crucial precedent regarding the standards of evidence required to prove allegations of clandestine removal in excise cases. The tribunal emphasized that such charges must be supported by clear and corroborated evidence, rejecting the use of private, unverified records and unsubstantiated statements as the sole basis for confirming duty demands. This judgment came in the case of Everest Aluminium Pvt. Ltd. against the Customs, Excise, and Service Tax authorities, which was primarily focused on an alleged case of clandestine removal of goods without payment of due excise duty.

Case Background

The appellant, Everest Aluminium Pvt. Ltd., is a manufacturer of aluminium circles. During a routine inspection, the Anti-Evasion Unit of the Department of Revenue conducted a search at the company’s premises. During this search, the authorities allegedly discovered discrepancies, including shortages of inputs and finished goods, and also found handwritten note pads and private records. Based on these findings, the Department issued a show-cause notice, alleging clandestine removal of goods without the payment of duty. The Department raised a demand of Rs. 1.75 crore, including interest and penalties, citing these findings.

However, the appellant contested the charge, asserting that the allegations were built on mere assumptions derived from unverified private records and untested statements. The Commissioner (Appeals) upheld the demand, prompting Everest Aluminium Pvt. Ltd. to challenge the decision before the tribunal.

Key Arguments by the Appellant

The appellant’s legal counsel raised several critical points in its defence:

Reliability of Evidence: The counsel argued that the charge of clandestine removal was based entirely on unverified private records, whose authenticity could not be confirmed as the authors were unidentified and the records were never examined in detail.

Lack of Corroborative Evidence: The counsel pointed out the absence of corroborative evidence that could substantiate the claim of clandestine removal. Specifically, the department failed to provide proof of excessive procurement of raw materials, additional electricity consumption, deployment of extra labour, or the identification of any buyers of the alleged goods.

Stock Verification Issues: The defence also questioned the credibility of the stock verification carried out during the search, arguing that it was not only unreliable but also physically impossible, given the volume of goods involved.

Violation of Legal Provisions: The counsel further argued that statements recorded during the investigation were inadmissible as they failed to comply with Section 9D of the Central Excise Act. Additionally, the private records were deemed inadmissible as the conditions under Section 36B were not met.

Position of the Revenue Department

The revenue’s legal team stood by the findings of the lower authorities. They argued that the shortages, the private records, and the statements collectively formed a sufficient basis to confirm the charge of clandestine removal. They maintained that the records and evidence gathered during the search established a clear case of excise duty evasion.

Tribunal's Findings

In its detailed judgment, the CESTAT bench, consisting of Judicial Member R. Muralidhar and Technical Member K. Anpazhakan, made several key observations:

Need for Tangible Evidence: The tribunal emphasized that allegations of clandestine removal are serious and must be backed by clear, tangible, and corroborated evidence. Mere suspicion, unsupported by actual data or facts, cannot be used to levy excise duty demands.

Issues with Private Records: The tribunal categorically stated that the private records discovered during the search could not be relied upon. Since these records were neither authenticated under Section 36B of the Central Excise Act nor subjected to verification, they lacked legal value and could not be used to substantiate the charge of clandestine removal.

Inadmissibility of Statements: The tribunal found that the statements recorded during the investigation were inadmissible as evidence due to the non-compliance with Section 9D of the Central Excise Act, which outlines the procedure for the recording and admission of such statements.

Unreliable Stock Verification: The stock verification carried out during the search was deemed unreliable, as it lacked the necessary physical verification standards. Furthermore, no supporting evidence was provided to prove that the shortages discovered during the search were the result of clandestine removal.

Lack of Corroborative Evidence: The tribunal pointed out that the department had failed to provide any corroborative evidence that could support the claim of clandestine removal. For instance, there was no proof of unaccounted raw material, excess consumption of electricity, or the transportation of goods without duty payment.

Tribunal's Conclusion

After carefully examining the evidence and the legal arguments presented by both parties, the tribunal ruled in favour of the appellant, Everest Aluminium Pvt. Ltd. The demand of Rs. 1.75 crore, along with interest and penalties, was set aside. The tribunal emphasized that the mere existence of private records and untested statements, without any corroborative or tangible evidence, could not form the basis for a legitimate charge of clandestine removal.

Impact of the Ruling

This ruling serves as an important reminder that the burden of proof lies with the revenue authorities when alleging clandestine removal or excise duty evasion. The decision highlights the necessity of clear, corroborative, and verified evidence to substantiate such claims, and underscores the importance of following procedural safeguards established under the Central Excise Act. For manufacturers and businesses, the ruling reinforces the importance of maintaining proper records and ensuring that any accusations of duty evasion are based on sound and legally compliant evidence.

Conclusion

The CESTAT’s judgment in the case of Everest Aluminium Pvt. Ltd. reinforces the principle that accusations of clandestine removal must be substantiated by clear and reliable evidence. Unverified private records, untested statements, and physical verifications lacking proper documentation cannot form the basis for confirming excise duty demands. This case reaffirms the legal requirement for transparency, corroboration, and procedural compliance in excise-related investigations.