2018 (1) TMI 101 - AT - Central Excise

Clandestine production and removal - Sugar - Held that - the allegation of excess unaccounted production of Sugar is purely based on the alleged excess production of Molasses reported by the appellant themselves vide letter dated 27/11/2012 and dated 01/05/2013. There is no dispute that the quantity of Molasses stored in the tank had been determined by dip reading. Determining the quantity of Molasses by dip reading is not a foolproof method as the volume of Molasses may undergo change due to variation of temperature. As such, on the basis of excess Molasses reported during stock taking, it cannot be alleged that there was excess production of Sugar. It is well settled principles of law that shortage of raw material, by itself cannot lead to the inevitable conclusion of clandestine clearances of the final product. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Allegation of excess unaccounted production of Sugar based on excess Molasses reported by the appellant
- Commissioner (Appeals) setting aside the demand of duty
- Lack of evidence by Revenue on excess manufacture and clearance of Sugar

Analysis:
1. The case involves the Revenue appealing against an order passed by the Commissioner (Appeals) regarding the demand of duty. The respondent, engaged in manufacturing various products, reported excess quantities of Molasses in their returns, leading the Department to allege clandestine clearance of Sugar without duty payment.

2. The Department issued three Show Cause Notices for recovery of Central Excise Duty based on the excess Molasses reported by the respondent. The Adjudicating Authority confirmed the demands and penalties. The respondent appealed to the Commissioner (Appeals) who set aside the demand of duty, prompting the Revenue to file the present appeal before the Appellate Tribunal.

3. The Tribunal observed that the allegation of excess unaccounted Sugar production was solely based on the reported excess Molasses by the appellant. However, determining Molasses quantity through dip reading is not foolproof due to volume changes from temperature variations. Citing a Supreme Court case, the Tribunal emphasized that allegations based on raw material calculations are flawed without substantial evidence of clandestine removal.

4. The Tribunal noted the lack of evidence presented by the Revenue to prove excess manufacture and clearance of Sugar. It highlighted legal principles stating that raw material shortage alone does not conclusively indicate clandestine clearances. References were made to judgments from Punjab & Haryana High Court and the High Court of Allahabad to support this legal standpoint.

5. Ultimately, the Tribunal found no merit in the Revenue's case due to the lack of substantial evidence supporting the allegations. Consequently, the appeal filed by the Revenue was rejected, affirming the decision of the Commissioner (Appeals) to set aside the demand of duty. The judgment underscores the importance of concrete evidence in establishing allegations of clandestine activities in excise matters.