2017 (4) TMI 151 - AT - Central Excise

Clandestine manufacture and removal - excess stock of MS Ingots to the tune of 116.487MT and shortage of stock of Sponge Iron and Pig Iron found - demand - Held that - the entire demand is based on the loose sheets and other private records recovered from the respondent s factory. Such private records raise doubt that the respondent has procured raw materials and not accounted the same in the records. Moreover, the author of such documents/private record has not been identified. From the records, it is found that no person of the respondent has explained the entries found in such private records. The Director or anyone else of the respondent has ever been questioned about such details found in the private records. Under these circumstances, the demand upheld on the basis only of such private records cannot be sustained. The allegation of unaccounted procurement of raw-material has not been corroborated by any other document recovered by Revenue during investigation. The department has not carried out investigation into many aspects. The evidences presented by the department, at best, can be considered as a reason to doubt whether the respondent has indulged in clandestine clearances. However, in the absence of clinching evidence supporting the charge of alleged manufacture and clearance, it is to be held that Revenue has not succeeded in proving the allegation of clandestine manufacture and clearance. Appeal dismissed - decided against Revenue.

Issues:
1. Central Excise duty demand for clandestine removal of MS Ingots.
2. Cenvat credit demand under Rule 14 of the Cenvat Credit Rules, 2004.
3. Admissibility of evidence based on private records.
4. Corroboration of allegations of clandestine removal.
5. Sufficiency of evidence for duty demand.

Central Excise Duty Demand for Clandestine Removal of MS Ingots:
The appeal was filed by the Revenue against the Order-in-Original dated 05.09.2011 passed by the Additional Commissioner, confirming duty demands against the respondent for clandestine removal of MS Ingots. The Revenue alleged that the respondent had clandestinely removed finished goods without proper accounting. The Commissioner (Appeals) set aside the demand of Central Excise duty but upheld the demand for inadmissible Cenvat credit. The Revenue challenged the dropping of the Central Excise duty demand, citing discrepancies found during verification and reliance on tangible evidence like computer data and documents. However, the respondent argued that the evidence was not admissible as it did not meet the legal requirements.

Cenvat Credit Demand under Rule 14 of the Cenvat Credit Rules, 2004:
The demand for inadmissible Cenvat credit of &8377; 27,800/- was upheld by the Commissioner (Appeals) but was not challenged by the Revenue in their appeal. The respondent did not contest this demand in their cross-objection, indicating acceptance of this part of the order.

Admissibility of Evidence Based on Private Records:
The Revenue based their demand on private records seized during the search operation at the respondent's factory. The Commissioner (Appeals) held that the demand could not be sustained solely on the basis of loose slips and private records without corroboration. The respondent argued that the evidence was not admissible as the author of the documents was not identified, and no explanation was provided by the respondent regarding the entries in the private records.

Corroboration of Allegations of Clandestine Removal:
The Revenue alleged clandestine removal of MS Ingots based on unauthenticated loose slips and private records. The respondent contended that the allegations were not substantiated by independent material or corroborative evidence. The Commissioner (Appeals) set aside the demands due to lack of evidence regarding the purchase of raw materials, transportation, labor usage, and flow of funds.

Sufficiency of Evidence for Duty Demand:
The Tribunal found that the demand for duty was solely based on calculations and private records without concrete evidence of clandestine manufacture and clearance. The Commissioner (Appeals) and various case laws emphasized the need for tangible evidence to support allegations of clandestine removal. The Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals) order setting aside the demand for excise duty due to insufficient evidence.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing the importance of tangible evidence to substantiate allegations of clandestine removal and duty demands. The decision highlighted the necessity of corroborative evidence and proper investigation to support duty demands in excise cases.

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