2019 (6) TMI 854 - AT - Central Excise

Clandestine manufacture and removal - sponge iron - demand solely on the basis of the statement of the Managing Director who was made to admit the duty liability by using force - corroborative evidences or not - HELD THAT - The entire case against the Appellant No. (1) was built on the basis of the statement of the Director Murari Lal Agarwal and there is no other evidence to establish the factum of clandestine clearance. Further the charge of clandestine clearance cannot be established merely on the basis of statement of the Director who has alleged coercion and undue influence exhorted on him for extracting confession. Further, consistently Courts have held that duty demand cannot be sustained solely on the basis of statement recorded during the course of investigation in the absence of corroborative evidences in the form of consumption of electricity, purchase of raw-material, electricity consumption, manpower, capacity of the factory to produce the alleged quantity, mode of transportation and sale of goods, receipt of sale proceeds and other documentary evidences. Burden to prove - HELD THAT - It is a settled law that allegation of manufacture and clandestine clearance, the burden lies on the Department to prove the charge against the assessee with proper and cogent evidence but in the present case the Revenue has not conducted complete investigation and relied upon merely the statement of the Executive Director and confirmed the duty demand is not sustainable in law. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Clandestine clearance of sponge iron and MS Ingots.
2. Duty demand based on statement of Managing Director.
3. Burden of proof on Department.
4. Lack of corroborative evidence.
5. Reduction of penalty for Executive Director.

Analysis:
1. The case involved appeals against separate orders dated 21.05.2018 by the Commissioner (Appeals) regarding clandestine clearance of sponge iron and MS Ingots. The investigation implicated both parties, leading to the joint discussion and disposal of both appeals. The Appellant No. (1) was accused of clandestine clearance, triggering a demand for Central Excise duty and penalties. The Commissioner (Appeals) upheld the demand for Appellant No. (1) but reduced the penalty for Appellant No. (2) under Rule 26 of the Central Excise Rules.

2. The appellant argued that the demand was solely based on the Managing Director's statement, allegedly obtained under coercion without corroborative evidence. The appellant cited multiple legal precedents emphasizing the need for corroborative evidence to sustain duty demands in cases of clandestine clearance. The burden of proof was highlighted to rest on the Department, which failed to provide proper and cogent evidence to support the allegations against the appellants.

3. The Department defended the impugned order, asserting that the Managing Director's admission of clandestine clearance was sufficient evidence. However, the appellant contended that the statement was extracted under pressure and coercion, lacking proper investigation to substantiate the allegations. The recovery of documents from the Managing Director's residence was cited as proof of the sponge iron receipt, but the lack of further investigation was criticized by the appellant.

4. The Tribunal analyzed the case and found that the entire case against Appellant No. (1) relied on the Managing Director's statement without additional evidence to establish clandestine clearance. Citing legal precedents, the Tribunal emphasized the necessity of corroborative evidence, such as consumption of electricity, purchase of raw materials, and other documentary evidence, to support duty demands in clandestine clearance cases. The discrepancies in the quantity of sponge iron purchased and the lack of complete investigation further weakened the Department's case.

5. Ultimately, the Tribunal concluded that the impugned orders were unsustainable in law due to the lack of proper evidence and investigative shortcomings. As the demand was deemed unsustainable, the penalty on both appellants was considered not imposable. Consequently, the Tribunal set aside both impugned orders, allowing the appeals of the appellants.