2018 (10) TMI 1152 - AT - Central Excise

Clandestine production and removal - no corroborative evidences - case of appellant is that demand raised on the basis of the discrepancies noticed between the private records and the daily stock Register - whether they have been rightly fastened with duty of ₹ 1,09,39,523/- along with equal amount of penalty for alleged suppression of production and clandestine clearance of the finished goods? - penalties on directors. Held that - As per Panchanama, during search, on physical verification of goods by the officers of central excise, no excess or shortage of either finished goods or raw materials were found. Further, on some of the occasions the production of sponge iron is more recorded in daily stock account (RG-1) as compared to the private records, relied upon by the department. This raises serious doubt about the actual production of sponge iron mentioned in private record - the private record does not show actual figure of production. With respect to demand of ₹ 85,77,991/- - Held that - There is neither allegation nor evidence of removal of goods, without payment of duty. It is well settled law that duty of excise is to be paid at the time of removal of goods as held by the Hon ble High Court of Gujarat in the case of Asstt. ACIT Vs. Narmada Chematurpetrochem Ltd., 2010 (8) TMI 263 - GUJARAT HIGH COURT , wherein it was held that mere production or manufacturing of goods by itself is not sufficient to demand duty of excise. The Hon ble Court has held that liability to pay excise duty arise only when both events namely manufacturing of excisable goods and removal of such goods, takes place. With respect to demand of ₹ 23,61,452/- - Held that - There is no corroborative evidence relied upon by the department. Despite the name of the customers, truck no. & other details mentioned in the private records, no attempt has been made to investigate the matter at the end of the buyers, transporters, etc. In the present case, there is no evidence of excess purchase of raw material, transportation thereof, sale of finished goods, realization of sale proceeds, excess power consumption, transportation of finished goods - during search no goods were found in excess or short - Hon ble High Court of Patna in the case of CCE Vs Brims Products 2008 (9) TMI 603 - PATNA HIGH COURT relied upon, where the Hon ble High Court held that assumptions and presumptions cannot take place of positive legal evidence which is required for proving the charge. The allegation of clandestine manufacture and removal are vague and liable to be set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the appellant company was rightly fastened with duty of ?1,09,39,523/- and an equal amount of penalty for alleged suppression of production and clandestine clearance of finished goods.
2. Whether the penalties imposed on the directors of the appellant company were justified.

Issue-Wise Detailed Analysis:

1. Duty and Penalty on Suppression of Production and Clandestine Clearance:

The appellant company, engaged in the manufacture of sponge iron, was accused of suppressing production and clandestinely removing finished goods. The central excise officers, during a visit on December 15, 2008, seized several documents indicating discrepancies between the recorded production in private documents and the official daily stock account (RG-1). The department alleged suppression of production amounting to 3351.335 MT of sponge iron, valued at ?6,10,79,702/-, and clandestine removal of 912.070 MT, valued at ?1,63,14,716/-, resulting in a duty demand of ?1,09,39,523/-.

The appellant argued that the charge of suppression and clandestine removal could not be upheld without corroborative evidence. They contended that discrepancies between private records and the daily stock register alone were insufficient to confirm the duty demand. The appellant emphasized the need for evidence such as procurement of raw materials, dispatch of finished goods, excessive electricity consumption, and financial transactions to substantiate the allegations.

The department relied on statements from the Assistant Process Manager and other documents to support their case. However, the appellant pointed out that the physical stock of goods matched the book records, and the demand was based on assumptions and presumptions without concrete evidence.

2. Penalties on Directors:

The penalties imposed on the directors of the appellant company were challenged on the grounds that the primary duty demand itself was based on unsubstantiated assumptions. The appellant argued that without concrete evidence of clandestine removal, the penalties on the directors were unjustified.

Tribunal's Findings:

The Tribunal noted that during the search, no excess or shortage of finished goods or raw materials was found. The discrepancies in private records did not conclusively prove actual production figures. The Tribunal emphasized that duty of excise is to be paid at the time of removal of goods, and mere production or manufacturing of goods is insufficient to demand duty. The Tribunal cited precedents from the High Courts of Gujarat and Allahabad, which held that liability to pay excise duty arises only when both manufacturing and removal of goods take place.

The Tribunal found no corroborative evidence to support the demand for ?85,77,991/- for suppressed production or ?23,61,452/- for clandestine removal. The department failed to investigate crucial aspects such as excess raw material purchase, dispatch particulars, realization of sale proceeds, and excess power consumption. The Tribunal held that assumptions and presumptions could not replace positive legal evidence required to prove the charge of clandestine removal.

Conclusion:

The Tribunal concluded that the allegations of clandestine manufacture and removal were vague and unsubstantiated. Consequently, the duty demand of ?1,09,39,523/- and the penalties imposed on the appellants were set aside. The order was pronounced in the open court on October 17, 2018, providing consequential relief to the appellants in accordance with law.

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