2019 (8) TMI 1682 - AT - Central Excise

Clandestine manufacture and clearance - allegation of suppressed sales by the Income tax department - suppression of sales - presence of corroborative evidence or not - HELD THAT - The provisions of the Central Excise law and the Income tax law are radically different and taxability under the income tax law does not ipso facto attract taxability under the central excise law in as much as an income may or may not be the result of manufacture which has to ascertained by undertaking an independent enquiry to this effect. However the follow-up enquiry conducted by the Central Excise Department to corelate such unnamed loose sheets in the instant case is entirely half-hearted and incomplete inasmuch as no efforts were made to adduce any evidence what-so-ever to support the charge of clandestine manufacture (in the form of purchase of un-accounted raw materials manufacture of finished goods consumption of electricity production capacity etc.) and neither is there any independent evidence to support the charge of clandestine clearance against Appellant No. 1. Even the statement of the buyers named in the loose sheets have not been recorded - no basis has been disclosed in the Notice or the impugned order passed thereunder as to how the alleged suppressed sale of 30.97 Crores has been worked out from the loose sheets when the audited turnover of the Appellant Mo. 1 during the relevant period was in excess of the year-wise amount reflected in the loose sheets. Therefore the entire proceedings are completely motivated and confined to the findings of the income tax survey. The decision of the Tribunal in M/S. RAVI FOODS PVT. LTD. OTHERS VERSUS CCE HYDERABAD 2010 (12) TMI 290 - CESTAT BANGALORE fully supports the view that in the absence of any corroborative evidence of clandestine manufacture of final product it cannot be said that there was clandestine removal of goods for the purposes of Central Excise Law merely based on information received from the income tax department regarding admission by the assessee of any undisclosed income/suppressed sales. The assessment orders passed by the Income Tax Department consequent to the survey that the alleged suppressed sale was not included in the income of the Appellant No. 1 but in framing the assessment of M/s Swagath Plastic Pvt. Ltd. in accordance with the disclosure statement dated 20 October 2014 made by the Uma Group. Further the loose sheets identified as Page 58 to 60/UPL-4 on the basis of which the charges have been framed in the present proceedings are duly referred in the Income Tax Assessment Orders of M/s Swagath Plastic Pvt. Ltd. for the year 2011-12 to 2014-15. Therefore the whole edifice of the present central excise demand on Appellant No. 1 is flawed and cannot survive. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Alleged clandestine manufacture and clearance of excisable goods worth ?30.97 Crores, reliance on Income Tax Department's information, confirmation of penalty against Director, admissibility of evidence from loose sheets, quantification of demand, burden of proof on revenue, lack of corroborative evidence, serious charge of clandestine activities, motivation of proceedings based on Income Tax Department's findings.

Analysis:
1. Allegation of Clandestine Activities:
The case involved allegations of clandestine manufacture and clearance of excisable goods worth ?30.97 Crores against the Appellant No. 1. The basis of this allegation was information shared by the Income Tax Department, leading to a follow-up enquiry by the Central Excise Department. However, the Tribunal noted that the nature of taxability under income tax law does not automatically imply taxability under central excise law, necessitating an independent inquiry to establish any clandestine activities.

2. Admissibility of Evidence:
The central issue revolved around the admissibility and reliability of evidence from unnamed loose sheets as the primary basis for confirming the charges. The Appellants contested the use of these loose sheets, arguing they were inadmissible under the Indian Evidence Act. The Tribunal highlighted the importance of corroborative evidence and the need for a thorough investigation to support charges of clandestine activities.

3. Quantification of Demand:
One of the key contentions raised was the quantification of the demand based on the alleged suppressed sales of ?30.97 Crores. The Appellants questioned the methodology used to arrive at this figure, especially considering discrepancies between the party-wise sales summary in the loose sheets and the audited accounts of the Appellant. The lack of clarity in how the demand was calculated raised doubts about the validity of the entire proceedings.

4. Burden of Proof and Lack of Corroborative Evidence:
The Tribunal emphasized that the burden of proof lies heavily on the revenue authorities when confirming charges of clandestine activities. In this case, the Tribunal observed a lack of independent evidence to substantiate the allegations, with the entire case seemingly motivated by findings from the Income Tax Department without additional corroboration. The Tribunal stressed the need for tangible evidence to support serious charges like clandestine manufacture and clearance.

5. Seriousness of the Charge and Motivation of Proceedings:
The Tribunal underscored the seriousness of charges related to clandestine activities, emphasizing that such allegations cannot be based on mere assumptions or presumptions. The Tribunal noted that the proceedings appeared to be solely driven by the Income Tax Department's findings, without conducting a comprehensive investigation to establish the charges independently. The decision highlighted the importance of concrete evidence in cases involving serious allegations.

6. Decision and Relief Granted:
After a detailed analysis of the contentions raised by the Appellants and considering the lack of substantial evidence to support the charges, the Tribunal set aside the impugned order. The appeals filed by the Appellants were allowed, providing them with consequential relief. The decision emphasized the necessity of robust evidence and due process in cases involving allegations of clandestine activities to ensure fair adjudication.