2018 (5) TMI 814 - AT - Central Excise

Clandestine removal - entire case of the Revenue is based upon the records recovered from M/s Monu Steels and based upon the statement of the representative of M/s Monu Steels - Held that - The law i.e. as to whether the third party records can be adopted as an evidence for arriving at the findings of clandestine removal, in the absence of any corroborative evidence, is well established - the findings of clandestine removal cannot be upheld based upon the third party documents, unless there is clinching evidence of clandestine manufacture and removal of the goods. Penalty u/r 26 of CER on M/s Kailash Traders - it is alleged that that he has supplied the unaccounted raw material to the appellant - Held that - there is virtually no evidence to show that such entries relate to the actual transportation and supply of the raw material to the present appellant - penalty not justified. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand of duty, interest, and penalty - Challenge in present appeal. Imposition of penalty on Director. Use of third-party records as evidence for clandestine removal. Imposition of penalty on supplier of unaccounted raw material.

Analysis:
The judgment addresses the challenge to the confirmation of duty demand, interest, and penalty amounting to ?30,09,782. Additionally, a penalty of ?5,00,000 was imposed on the Director under Rule 26 of Central Excise Rules, 2002. Initially, a demand of ?8.99 crores was issued based on allegations of clandestine removal, primarily linked to electricity consumption. However, the Commissioner reduced the demand based on a Supreme Court decision but upheld ?39,09,782 of the demand.

The core of the demand was based on entries in the records of a consignment agent, M/s Monu Steels. The records indicated that the appellant had sold goods to M/s Sapna Steels without paying duty. The Revenue's case relied heavily on M/s Monu Steels' records and a statement from their representative. Notably, the Director of the appellant denied any knowledge of M/s Monu Steels and no inquiries were made from the buyer, M/s Sapna Steels, raising doubts on the evidence.

The judgment discussed the legal precedent regarding the use of third-party records as evidence for clandestine removal. It referred to various decisions, emphasizing that findings of clandestine activities cannot be sustained solely on third-party documents without concrete evidence of such activities. This legal principle was crucial in evaluating the Revenue's case against the appellant.

Furthermore, a penalty of ?50,000 on M/s Kailash Traders for supplying unaccounted raw material to the appellant was discussed. The penalty was based on entries in the trader's records without substantial corroborative evidence. The judgment highlighted the lack of proof linking the raw material supply to the clandestine activities of the appellant, leading to the penalty being set aside.

In conclusion, the appeals were allowed, providing relief to the appellant based on the analysis of the evidence and legal principles discussed during the proceedings.