2018 (1) TMI 307 - HC - Central Excise

Clandestine removal - Whether the Tribunal has erred in setting aside the demand, interest and penalty without giving a categorical and conclusive finding on the veracity of the basis of arriving at suppressed production? - Held that - The revenue failed to produce any cogent evidence in respect of raw-materials, which was required for production of Starter Motors. Also, the revenue did not allege anywhere that the assessee was buying any unaccounted for copper wire, yolk, bearings, brakes, slot insulators, laminations and commutators, which are also required for the manufacture of starter motors as in the absence of these essential raw-materials, it was thus not possible for the assessee to manufacture their final product with just Armature Assemblies. The department it may be stated here in the present case has not been able to discharge the burden of proof by way of any real evidence of any kind of clandestine removal. It has not even made an attempt to make a search and investigation in the matter. The Tribunal has rightly come to the conclusion that there was no case of clandestine removal - appeal dismissed - decided against Revenue.

Summary

Issues involved:
Appeal under Section 35-G of the Central Excise Act, 1944 against Tribunal's order. Questions of law: 1. Veracity of suppressed production basis. 2. Burden of proof on department. 3. Validity of CESTAT decision.

Analysis:
The case involved an appeal by the department against a Tribunal order. The department raised questions regarding the veracity of suppressed production basis, shifting the burden of proof, and challenging the CESTAT decision. The appellant, engaged in manufacturing D.C. Starter Motors, was suspected of clandestine activities. Physical verification revealed discrepancies in stocks, indicating clandestine manufacture and removal of goods. Various irregularities were uncovered, including unrecorded production, cash transactions, and unauthorized supply of goods. The department issued a show cause notice, leading to penalties and demands confirmed by the adjudicating authority.

Upon appeal, the Commissioner upheld the decision, prompting the party to approach the Tribunal. The Tribunal, after thorough examination, found the revenue's evidence lacking. It noted the absence of substantial proof of clandestine activities, emphasizing the necessity of concrete evidence to support such serious allegations. The Tribunal highlighted the importance of establishing the procurement of essential raw materials for manufacturing, which the revenue failed to do. It also stressed the burden of proof on the revenue to substantiate charges of clandestine removal convincingly.

The Tribunal's analysis emphasized the legal principles governing clandestine removal cases. It cited precedents to support the requirement of concrete evidence and the burden of proof on the revenue. The Tribunal concluded that the revenue failed to establish the case of clandestine removal beyond doubt. It highlighted the lack of incriminating statements, buyer inquiries, and comprehensive investigations. The Tribunal ultimately ruled in favor of the assessee, dismissing the appeal and absolving them of the charges due to insufficient evidence presented by the department.

In light of the detailed examination and legal principles applied, the High Court upheld the Tribunal's decision. It concurred with the findings that the revenue failed to provide substantial evidence of clandestine activities. The Court emphasized the necessity of concrete proof in such cases and noted the revenue's failure to discharge the burden of proof. Consequently, the Court ruled in favor of the assessee, affirming the Tribunal's decision and dismissing the appeal.