2018 (7) TMI 523 - AT - Central Excise

Clandestine removal - mis-match in respect of quantity of finished goods namely, PVC compound and master batch for the financial year 2012- 2013 - Held that - Apart from the mis-match of quantity, there is no corroborative evidences - Although the appellants claimed that Chartered Accountant made a clerical mistake of entering figures of raw materials instead of finished goods, while preparing the balance sheet and filing of form 3CD, but since it is not supported by any corroborative evidence, therefore, it did not find favour with the department - The charge of clandestine removal cannot be established merely on the ground of difference in the balance sheet and the statutory record unless the same is corroborated by any other evidence showing receipt of raw material, consumption of the same, production and removal of the final product in excess of statutory records. It is settled legal position that charge of clandestine removal and clearance is serious charge against the manufacturer which is required to be discharged by the Revenue by production of sufficient and tangible evidence. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the extended period of five years should be invoked for demand and recovery of Central Excise duty.
2. Whether Central Excise duty amounting to a specific value should be demanded and recovered.
3. Whether interest payable on the leviable duty amount should be recovered.
4. Whether penalty under specific rules should be imposed for contravention of provisions of the Central Excise Act.

Analysis:
1. The appellant, engaged in manufacturing PVC compound, master batch, and PVC sleeve, faced a shortage/excess of raw materials during an audit. The department issued a show cause notice invoking the extended period of five years under Section 11A(4) of the Central Excise Act, alleging suppression of facts to evade duty payment. The appellant explained the discrepancy as a clerical error by their Chartered Accountant, supported by a certificate. However, the department did not accept this explanation, leading to demand and recovery proceedings. The Tribunal emphasized that the charge of clandestine removal requires tangible evidence, citing relevant legal precedents. The absence of corroborative evidence beyond the mismatch in records led to the Tribunal setting aside the demand, interest, and penalty, as the charge was not substantiated conclusively.

2. The adjudicating authority confirmed the demand for Central Excise duty based on the alleged clandestine removal of goods. The Commissioner (Appeals) upheld this decision. However, the Tribunal noted that the charge relied solely on the discrepancy in the quantity of finished goods reported, without additional evidence. The legal principle requiring the Revenue to prove clandestine activities with affirmative evidence was reiterated. The absence of such evidence beyond the record mismatch led to the Tribunal overturning the decision to demand and recover the Central Excise duty, as the charge was not adequately supported.

3. The department sought to recover interest on the leviable duty amount under Section 11AA of the Act. The Tribunal highlighted the burden on the Revenue to prove clandestine activities with positive evidence. In this case, the lack of substantial evidence beyond the discrepancy in records undermined the justification for interest recovery. As the charge of clandestine removal was not conclusively proven, the Tribunal set aside the interest recovery along with the demand and penalty, emphasizing the necessity for tangible proof to support such claims.

4. The penalty under Rule 25 of the Central Excise Rules, 2002, and Section 11AC(a) of the Central Excise Act was imposed for contravention of various provisions. However, the Tribunal reiterated that the burden to prove clandestine activities rests with the Revenue, requiring substantial and affirmative evidence. In the absence of such evidence beyond the record mismatch, the Tribunal concluded that the imposition of the penalty was unwarranted. Consequently, the Tribunal set aside the penalty along with the demand and interest, emphasizing the need for concrete evidence to support allegations of clandestine activities.