2011 (3) TMI 814 - AT - Central Excise

The department s case is one of clandestine production and removal of molasses by the assessee - Since molasses is a byproduct of sugar industry, molasses cannot be produced without producing sugar - In the instant case, there has been no allegation of clandestine production and removal of sugar from the assessee s factory. Therefore, without alleging clandestine production and removal of sugar, there cannot be any allegation relating to clandestine production and removal of molasses - In other words, the department s case has no legs to stand on its own. Consequently, the department s allegation has no corroborative evidence to support its case - Since molasses is a controlled item, both under the Central Excise law and also under the State excise laws, there cannot be any clandestine production and removal without the same being noticed by the State excise authorities - As rightly contended by the assessee, no case has been made against them by the State excise authorities who issued transport permits for the assessee to remove molasses to their distillery - that the department has failed miserably in proving the case of clandestine production and removal. - Decided in favour of assessee.

Issues Involved:
1. Alleged clandestine removal of molasses without payment of duty.
2. Accuracy of the molasses stock records and physical verification.
3. Validity of statements recorded from company officials.
4. Compliance with Central Excise and State Excise regulations.
5. Adequacy of evidence for the alleged clandestine production and removal.

Detailed Analysis:

1. Alleged Clandestine Removal of Molasses Without Payment of Duty:
The department alleged that M/s. Shrigonda Sahakari Sakhar Karkhana Ltd. (SSSKL) cleared molasses without paying duty, based on intelligence received and subsequent inspections. The show-cause notice demanded duty of Rs. 35,78,650/- under Section 11A(1) of the Central Excise Act, 1944, along with interest and penalties under Section 11AC and Rule 173Q of the Central Excise Rules, 1944. The Commissioner confirmed these demands and penalties.

2. Accuracy of the Molasses Stock Records and Physical Verification:
Inspections revealed discrepancies in the molasses stock: a shortage of 569.550 MTs in steel tank No. 1 and an excess of 94.650 MTs in steel tank No. 2. Samples from these tanks and katcha pits indicated varying Total Reducing Sugars (TRS) percentages, leading to the conclusion that some molasses were unfit for distillation. The department argued that the stock records were inaccurate and molasses were substituted with other liquids.

3. Validity of Statements Recorded from Company Officials:
Statements from company officials, including the Chief Chemist and Managing Director, admitted to the discrepancies in the molasses stock. However, the appellants contended that these statements were obtained under duress and were not reliable. They argued that the statements were written by a Central Excise officer and not in their own handwriting, questioning their authenticity.

4. Compliance with Central Excise and State Excise Regulations:
The appellants emphasized the dual control of molasses under both Central and State Excise laws, arguing that no molasses could be removed without State Excise permission. They highlighted that the State Excise authorities, who have strict control over molasses production and movement, did not report any shortages or clandestine removals. The appellants provided evidence of duty-paid molasses and transport permits issued by State Excise authorities, contradicting the department's allegations.

5. Adequacy of Evidence for the Alleged Clandestine Production and Removal:
The Tribunal noted that molasses is a byproduct of sugar production, and there was no allegation of clandestine sugar production. Without such an allegation, the claim of clandestine molasses production was unsustainable. The Tribunal criticized the department for not cross-checking records with the State Excise authorities and failing to investigate the procurement and processing of sugar cane required for the alleged excess molasses. The Tribunal cited several precedents, including Oudh Sugar Mills v. Union of India, emphasizing that duty demands cannot be based on assumptions and require clear evidence of removal without payment of duty.

Conclusion:
The Tribunal concluded that the department failed to provide substantial evidence of clandestine production and removal of molasses. The allegations were based on assumptions without corroborative evidence. Consequently, the Tribunal set aside the impugned order and allowed the appeals, emphasizing the need for tangible evidence in cases of alleged clandestine activities.

(Pronounced in Court on 9-3-2011)

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