2018 (6) TMI 1250 - AT - Central Excise

Clandestine removal - demand primarily based upon consumption of electricity - The 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 as also the appellant s Director - 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 - Reference can be made to Hon ble Allahabad High Court decision in the case of Continental Cement Company Vs. Union of India 2014 (9) TMI 243 - ALLAHABAD HIGH COURT , where it was held that 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 - demand cannot be upheld. A part of the demand stands confirmed on the basis of shortages in the stock of the final product detected by the officers during the course of their visit to the factory on 6.6.2008 - Held that - The law is settled that such shortages, by themselves, cannot lead to the findings of clandestine removal in the absence of any evidence to show the manufacture and transportation and clearance as also the identification of the buyers - demand set aside. Penalty on Director - Held that - Inasmuch as the demands confirmed against the manufacturing unit stands set aside along with setting aside of penalty, the penalty on the Director is also required to be set aside - penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand of duty, interest, and penalty on the main appellant; Imposition of penalty on the Director in terms of Rule 26 of Central Excise Rules, 2002; Evidence based on third party records for clandestine removal; Confirmation of demand based on shortages in stock of final product.

Analysis:
The judgment deals with the challenge to the confirmation of duty demand, interest, and penalty on the main appellant, as well as the penalty imposed on the Director under Rule 26 of the Central Excise Rules, 2002. Initially, a substantial demand was raised against the appellant for alleged clandestine removal based on electricity consumption, but the Commissioner dropped a major part of the demand, upholding only a specific amount. The remaining demand was partly based on entries from a consignment agent, M/s Monu Steels, involving coded words referring to the appellant's manufacturing unit and a buyer named UP Rolling Mills, Raipur.

The Revenue's case heavily relied on records from M/s Monu Steels and statements from their representative and the appellant's Director to allege clandestine clearances. However, no inquiries were made from the buyer, M/s UP Rolling Mills, and there was a lack of corroborative evidence. The judgment cited legal precedents emphasizing that findings of clandestine removal cannot be upheld solely based on third-party documents without concrete evidence of clandestine manufacture and removal of goods.

Another part of the demand was confirmed based on shortages in the stock of the final product discovered during an inspection. The appellant argued that production and sales were recorded differently due to burning losses, and without evidence of clandestine clearance, the findings could not be upheld. The judgment highlighted that shortages alone cannot lead to conclusions of clandestine removal without evidence of manufacturing, transportation, clearance, and buyer identification.

Ultimately, the Tribunal found no justifiable reasons to uphold the confirmation of demand or penalty. Consequently, the demands against the manufacturing unit were set aside, leading to the setting aside of the penalty on the Director as well. The impugned orders were set aside, and both appeals were allowed with consequential relief.