2016 (8) TMI 932 - AT - Central Excise

Demand and imposition of penalties - Clandestine clearance of goods - shortages of final product detected by the officers at the time of their visit - documents recovered from the residential premises of one Shri Vinod Kumar Gupta relate to raw material received and dispatch of finished goods - Held that - the Revenue has not produced any evidence or not has even alleged that there was enhancement in the production capacity subsequent to fixation of APC. In such a scenario, the rejection of the stand is on a flimsy ground. In the absence of capacity of production of such a huge quantity of goods, their clearance is virtually impossible. Where the production capacity was fixed by the Commissioner prior to the period in question and it is not the Revenue s stand that subsequent to the fixation of ACP, the appellants have added any further machinery in their factory so as to enhance their production capacity. The Chartered Accountant s certificate clearly establish that no capital expenditure stand made by the assessee subsequently. Even the assumptive observations made by Commissioner may lead to enhancement in the production capacity to a little extent but same cannot lead to enhancement of the capacity to such a huge quantum which is almost four times the capacity fixed by the Commissioner. In the present case the entire case of the Revenue is based upon uncorroborated unverified entries in the documents recovered from the premises of third person as also upon the statements of some of the concerned persons, which depositions are also not very clear leading one to believe that the appellant was indulging in clandestine activities. A cumulative reading of the statements leads us to believe that same stand given in the context of trading activity of the assessee. As the Revenue has miserably failed to establish the manufacture of such huge quantity of the appellants final product and has not adduced any positive and sufficient tangible evidence for the clearance of the final product from the appellants factory to the customer s premises, we find no justification to uphold the impugned order of Commissioner. Accordingly, confirmation of demand and imposition of penalty on M/s. CIL is set aside. Consequently, the penalties upon other appellants, who are Managing Directors or Directors of the said company, or the raw material supplier or the alleged buyers of their final product and other employees of the company are also set aside. - Decided in favour of appellant with consequential relief

Issues Involved:
1. Demand of duty and imposition of penalties on M/s. Capital Ispat Ltd. (CIL) and its directors.
2. Allegations of clandestine manufacture and removal of goods.
3. Reliability of documents recovered from third parties.
4. Production capacity and electricity consumption as evidence of clandestine manufacture.
5. Statements of various individuals related to the case.

Detailed Analysis:

1. Demand of Duty and Imposition of Penalties:
The Commissioner confirmed a demand of duty amounting to ?2,16,01,815/- against M/s. Capital Ispat Ltd. (CIL) along with interest and an equivalent penalty under section 11 AC of the Central Excise Act, 1944. Penalties were also imposed on various individuals associated with CIL, including its directors and other companies alleged to be involved.

2. Allegations of Clandestine Manufacture and Removal of Goods:
The factory premises of CIL were searched, revealing shortages in stock and incriminating documents. Documents recovered from the residence of Shri Vinod Kumar Gupta indicated unaccounted receipt of raw material and unaccounted sale of goods. Statements from various individuals, including directors and employees of CIL, were recorded, leading the Revenue to suspect clandestine activities.

3. Reliability of Documents Recovered from Third Parties:
The entire case of the Revenue was based on documents recovered from the residence of Shri Vinod Kumar Gupta, who was not an official of CIL. The appellants argued that these documents related to trading activities, not manufacturing, and that the Revenue failed to verify which entries pertained to CIL’s manufacturing. The Tribunal noted that reliance on uncorroborated documents from a third party was insufficient to uphold the charge of clandestine removal.

4. Production Capacity and Electricity Consumption as Evidence of Clandestine Manufacture:
CIL contended that their production capacity, fixed under the Compounded Levy scheme, was 7452 MT per annum, and had not increased. The alleged clandestine manufacture of 9994.663 MT in three months was deemed impossible given their capacity and electricity consumption records. The Tribunal found that the Revenue's allegations were not supported by evidence of increased production capacity or alternative electricity sources.

5. Statements of Various Individuals Related to the Case:
Statements from individuals like Shri Vinod Kumar Gupta, Shri Sanjay Singhal, and others were scrutinized. The Tribunal found these statements to be vague and unsubstantiated, failing to conclusively link the entries in the recovered documents to clandestine manufacture by CIL. The Tribunal emphasized that the burden of proof lay with the Revenue, which had not sufficiently demonstrated the clandestine activities.

Conclusion:
The Tribunal concluded that the Revenue failed to provide sufficient evidence of clandestine manufacture and removal of goods by CIL. The demand of duty and penalties imposed were set aside, and all appeals were allowed with consequential relief to the appellants. The judgment highlighted the necessity for the Revenue to produce clear, corroborative evidence to substantiate allegations of clandestine activities.

← Previous Next →