2018 (6) TMI 779 - AT - Central Excise

Clandestine Removal - The entire case of the Revenue is based upon the records recovered from M/s Monu Steels and M/s. Kailash Traders and based upon the statement of the representative of M/s Monu Steels and M/s. Kailash Traders - Held that - The law i.e. as to whether the third party records can be adopted as an evidence for arriving at the findings of clandestine removal in the absence of any corroborative evidence is well established - It stand held in all these judgements that the findings of clandestine removal cannot be upheld based upon the third party documents unless there is clinching evidence of clandestine manufacture and removal of the goods. Penalty on M/s Kailash Traders in terms of Rule 26 of CER 2002 - it was alleged that he has supplied the unaccounted raw material to the appellant which has been further used by them for manufacture of their final product cleared clandestinely - Held that - The allegation was based upon the entries made in his record without there being any corroborative evidence - there is virtually no evidence to show that such entries relate to the actual transportation and supply of the raw material to the present appellant - penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Confirmation of duty of Central Excise against a company engaged in the manufacture of MS ingots.
2. Imposition of penalty on the company and individuals based on alleged clandestine clearances.
3. Reliance on third party records as evidence for clandestine removal.
4. Imposition of penalty on a registered dealer without sufficient evidence.

Analysis:
1. The judgment addresses the confirmation of duty of Central Excise amounting to ?36,15,236 against a company involved in the manufacture of MS ingots, along with the imposition of an identical penalty. The Commissioner initially issued a demand of ?27.3 crores based on allegations of clandestine removal, primarily linked to electricity consumption. However, the Commissioner reduced the demand based on a Supreme Court decision but upheld the ?36,15,236 demand.

2. The case against the company was primarily based on records from consignment agents, M/s Monu Steels and M/s. Kailash Traders. The Revenue alleged clandestine clearances based on these records. However, the Director of the company denied any association with M/s Monu Steels, and the Revenue failed to conduct further inquiries to substantiate their claims, such as contacting buyers or transporters.

3. The judgment delves into the legality of using third party records as evidence for clandestine removal without corroborative evidence. It references various legal precedents, including decisions from the Allahabad High Court and the Tribunal, emphasizing that findings of clandestine removal cannot solely rely on third-party documents without concrete evidence of wrongdoing.

4. Additionally, a penalty of ?50,000 was imposed on M/s Kailash Traders under Rule 26 of the Central Excise Rules, 2002, for allegedly supplying unaccounted raw material to the company. However, the judgment notes a lack of substantial evidence linking the entries in M/s Kailash Traders' records to the actual supply of raw material to the company. Consequently, the penalty on M/s Kailash Traders was set aside due to insufficient justification.

In conclusion, the judgment allows all three appeals, providing consequential relief to the appellant company in light of the insufficient evidence and legal precedents cited regarding clandestine removal and penalties imposed on the company and individuals involved.