2024 (1) TMI 577 - AT - Central Excise

Clandestine removal - clearance of plywood and block board evading Central Excise duty - allegation only on the basis of the alleged supply of one of the raw materials as per the weighment slips recovered from Shri Ashok Aggarwal - HELD THAT - Department did not find it convenient to investigate the actual receipt of formaldehyde by the appellants from Shri Ashok Aggarwal, leave alone the establishment of purchase of other raw materials, consumption of electricity, deployment of labour, manufacture of excisable goods, clandestine removal, sale of excisable goods and receipt of sale proceeds etc. Department argues that a case of clandestine removal cannot be and need not be established with a mathematical precision. A serious charge like clandestine removal cannot be levelled on the basis of a mathematical calculation i.e just by calculating a quantum of plywood that could have been manufactured using the alleged receipt of formaldehyde. The Department has not made out any case of clandestine removal against the appellants and therefore, the impugned order is not sustainable and is liable to be set aside - Appeal allowed.

Issues Involved:
The issues involved in the judgment are clandestine removal of goods, invocation of extended period for demand, lack of investigation by the Department, and sufficiency of evidence for establishing clandestine removal.

Clandestine Removal of Goods:
The appellant, engaged in manufacturing plywood and board, was alleged to have evaded Central Excise duty by manufacturing and clearing plywood and block board without proper invoicing. The Revenue based its allegations on the alleged purchase of formaldehyde from a supplier, as per weighment slips recovered. However, the Department failed to investigate the actual receipt of formaldehyde by the appellants or establish the procurement of other raw materials, production processes, or financial transactions. The Tribunal found that the Department's case lacked clinching evidence to support the charge of clandestine removal. It was noted that a serious allegation like clandestine removal cannot be based solely on a mathematical calculation of potential production using the alleged raw material. Therefore, the Tribunal concluded that the Department did not establish a case of clandestine removal against the appellants, leading to the setting aside of the impugned order.

Invocation of Extended Period for Demand:
The appellant argued that the show-cause notice was issued two years after the statement of the supplier was recorded, and thus the extended period for demand could not be invoked. The Department's failure to conduct a timely investigation into the alleged transactions and production processes was highlighted by the appellant. However, the Tribunal did not delve into the issue of the extended period as it found the Department's case lacking in substantive evidence to prove clandestine removal.

Lack of Investigation by the Department:
The appellant contended that the Department did not investigate crucial aspects such as the actual transport of the raw material, questioning of drivers or transporters, procurement of other raw materials, manufacturing processes, sale of final products, and financial transactions. This lack of comprehensive investigation was emphasized as a key point in the appellant's defense. The Tribunal noted the absence of concrete evidence linking the appellants to clandestine removal due to the Department's failure to probe these critical aspects.

Sufficiency of Evidence for Establishing Clandestine Removal:
The Department's case primarily relied on the alleged supply of formaldehyde to the appellants as per weighment slips recovered from the supplier. However, the Tribunal found that this evidence alone was insufficient to prove clandestine removal, especially in the absence of a thorough investigation into the entire production and sales process. The Department's argument that clandestine removal does not require precise mathematical calculations was acknowledged, but the Tribunal stressed the need for more substantial evidence to support such serious allegations. Ultimately, the Tribunal held that the Department failed to establish a case of clandestine removal against the appellants, leading to the allowance of the appeal.

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