2015 (8) TMI 790 - HC - Central Excise

Duty demand u/s 11A - Shortage of goods found - Clandestine removal of goods - Held that - Specific defence had been taken by the manufacturer that no effort had been made to segregate the nuts and bolts into various sizes and to find the shortage by comparing the same with the recorded balance and there was huge stock of 91 lacs pieces of various sizes of nuts and bolts and it was impossible for the Department to come to a conclusive factual finding that there was shortage of 14,25,900 pieces of particular size and if they were all mixed together. The onus would lie upon the Department to undertake the said exercise which was not possible in such a short period due to the large number of inventory which was there at the site. Nothing was brought on record, in any manner, to show that to manufacture such a large amount of 14,25,900 pieces, there was material which had been consumed since neither any relevant record had been shown to show that electricity had been consumed or labour had been utilized to manufacture the said quantity. Neither the fact of purchase of raw material from the vendors or the sale to the consumers was brought on record. In the absence of any corroborative evidence, the levy of such a huge demand was, thus, totally arbitrary and has been rightly set aside. - Decided against Revenue.

Summary

Issues:
Appeal under Section 35-G of the Central Excise Act, 1944 against orders setting aside demand and penalty. Substantial questions of law raised by the appellant. Allegations of clandestine removal of goods without payment of Central Excise Duty. Confessional statement as the basis for the case. Validity of demand and penalty imposition. Lack of corroborative evidence.

Analysis:

1. Appeal against Orders:
The Revenue filed an appeal under Section 35-G of the Central Excise Act, 1944, challenging the orders passed by the Commissioner (Appeals) Central Excise and the Customs, Central Excise & Services Tax Appellate Tribunal, which set aside the demand and penalty imposed by the Adjudicating Authority. The appellant raised substantial questions of law regarding the rejection of the appeal without discussing relevant arguments and citations, the burden of proof in cases of clandestine removal, and the alleged perversity in the Tribunal's order.

2. Allegations of Clandestine Removal:
The respondent, a manufacturer of fasteners, was issued a show cause notice based on an inspection revealing a shortage of nuts and bolts valued at a significant amount, indicating evasion of tax. The notice was issued following the admission by the Proprietor that goods were cleared without payment of Central Excise Duty, without invoices, and without buyer information, suggesting clandestine removal.

3. Lack of Corroborative Evidence:
The respondent contended that no effort was made to segregate the stock of nuts and bolts into various sizes, making it impossible to verify the alleged shortage accurately. The defense argued that the Department failed to provide evidence of material consumption, purchase records, or sales transactions to support the claim of clandestine removal. The absence of corroborative evidence rendered the demand arbitrary and unjustified.

4. Validity of Demand and Penalty Imposition:
The Tribunal held that the confessional statement alone could not be the sole basis for imposing a demand and penalty, especially when retracted by the respondent. The confirmation of demand and penalty without considering the defense raised by the manufacturer was deemed illegal and rightly set aside by the Commissioner (Appeals) and upheld by the Tribunal. The retraction of the statement upon receiving the show cause notice further weakened the case against the respondent.

5. Conclusion:
The judgment dismissed the Revenue's appeal, emphasizing the lack of merit in the claim of clandestine removal due to insufficient evidence and unjust imposition of demand and penalty without proper verification or consideration of the respondent's defense. The decision highlighted the importance of corroborative evidence in tax evasion cases and upheld the orders setting aside the demand and penalty.