2018 (12) TMI 1106 - AT - Central Excise

Clandestine manufcature and removal - Zarda - findings are based upon the result of investigations made by DGCEI during the course of search in the appellant s factory premises, residence as also in the premises of one of the distributor of the appellant - Held that - It is a fact on record that during the search of the factory premises, no discrepancies were found in the stock of either the raw material or the final product of the appellant. Further the search of the residential premises of the Director resulted in recovery of one invoice of M/s Sanjay & Co. being Invoice No.155 dated 20.08.2011 indicating sale of 2,600 kg of aromatic material. Further, a meager quantity of the final product was also recovered from the distributor s premises. The Revenue s entire case is based upon the recovery of the said excess material from the business premises of M/s Shantilal J. Sopariwala, which the appellant have admitted having been cleared without payment of duty either as samples or as replacements for the damaged goods and have already discharged duty of ₹ 34 thousand (approx.) on the same. Whether such recovery of small quantity of appellant s final product from the business premises of their distributor, lead to allegation of huge quantity of clandestine removal by appellant, thus leading to confirmation of demand to the extent of around ₹ 4.6 crores? - Held that - It is well established law that allegations of clandestine removal are required to be made on the production of sufficient and positive evidences, thus leading confidence to the Revenue s stand. Even for applying the theory of preponderance of proportionality there has to be evidences on record so as to inspire confidence in the Revenue s theory of clandestine removal. The said findings cannot be arrived at on the basis of assumptions & presumptions. However, merely because some excess quantity of final product was recovered from the appellant s distributor premises will not lead to the inevitable conclusion of removal of 1,39,307.14 Kg of the appellants final product zarda in a clandestine manner - Even, as per the settled law, the goods found in the open market are to be considered as duty paid unless there is sufficient evidences to prove to the contrary. Revenue has not referred to any evidence to show that the said goods were cleared in a clandestine manner. However, as the appellant has not contested duty involved in the said excesses, the same is upheld. There is virtually no evidence of the identification of the buyers to whom the said goods have been sold. Further the Revenue has not made any efforts to identify the transporters through whom the said goods were cleared. The value of such clandestinely cleared goods is huge and their needs to be some evidences of receipt of consideration of the same from the buyers. There is nothing on the record to reflect upon the receipt of any consideration. The clandestine removal findings cannot be solely based upon either the statements or recovery of documents issued by third party and there has to be clinching evidences on record to establish such removals. No doubt that such evidences cannot be expected to be upto last degree but the same should be in the nature of evidence so as to inspire confidence in the Revenue s allegations and to tilt the weight of the evidences in favour of the Revenue. In the present case, having already observed that the invoice of M/s Sanjay & Co. showing doubtful removal of one of the raw material cannot be held to be a sufficient evidence so as to inevitably lead to the findings of clandestine removal in the absence of any other evidences corroborating the above stand of the Revenue, the impugned order is unsustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegations of clandestine manufacture and clearance of goods without payment of duty.
2. Recovery of excess stock from the distributor's premises.
3. Recovery of invoices indicating unaccounted procurement of raw materials.
4. Reliance on third-party documents and statements.
5. Evidence of procurement of other raw materials.
6. Mathematical calculations based on input-output ratios for determining clandestine clearance.
7. Lack of corroborative evidence such as identification of buyers, transporters, and receipt of consideration.

Detailed Analysis:

1. Allegations of Clandestine Manufacture and Clearance of Goods Without Payment of Duty:
The Commissioner of Central Excise confirmed a duty of ?4,66,18,716/- against M/s Sughandhi Snuff King Pvt. Ltd. for alleged clandestine manufacture and clearance of Zarda without payment of duty. The Tribunal noted that allegations of clandestine removal must be based on "sufficient and positive evidences" and cannot be upheld on "assumptions & presumptions." The mere recovery of a small quantity of final product from the distributor's premises does not justify a conclusion of large-scale clandestine removal.

2. Recovery of Excess Stock from the Distributor's Premises:
The Revenue's case was partly based on the recovery of excess stock of Zarda from the premises of M/s Shantilal J. Sopariwala. The appellant admitted that the excess stock was due to replacements for damaged goods and agreed to pay the duty of ?34,340/-. The Tribunal held that this small excess stock does not substantiate the allegation of clandestine removal of a large quantity of Zarda.

3. Recovery of Invoices Indicating Unaccounted Procurement of Raw Materials:
An invoice (No. 155) recovered from the Director's residence showed the sale of 2,600 kg of aromatic material. The appellant contended that this was a clerical mistake and that the materials were received under a different invoice (No. 06), which was duly recorded. The Tribunal found this explanation credible and noted that the seller also admitted the mistake during cross-examination.

4. Reliance on Third-Party Documents and Statements:
The Tribunal emphasized that reliance on documents issued by third parties and statements made by them cannot be considered as "legal and proper evidences" for clandestine removal. The proprietor of M/s Ridhi Sidhi Goods Carrier, who was supposed to have transported the goods, denied such transportation during cross-examination.

5. Evidence of Procurement of Other Raw Materials:
The Tribunal observed that the Revenue did not investigate the procurement of other essential raw materials like raw tobacco, which constitutes 90% of the final product. The absence of evidence regarding the procurement of other raw materials weakens the case for clandestine manufacture and removal.

6. Mathematical Calculations Based on Input-Output Ratios for Determining Clandestine Clearance:
The Adjudicating Authority used input-output ratios to calculate the alleged clandestine removal of Zarda. The Tribunal held that such "mathematical calculations" cannot be the sole basis for serious allegations of clandestine activities. The Tribunal cited various decisions that reject the use of input-output ratios as the sole evidence for clandestine removal.

7. Lack of Corroborative Evidence Such as Identification of Buyers, Transporters, and Receipt of Consideration:
The Tribunal noted that there was no evidence identifying the buyers of the allegedly clandestinely removed goods, nor were there any efforts to trace the transporters. Additionally, there was no evidence of receipt of consideration for the clandestinely cleared goods. The Tribunal emphasized that such serious charges require "clinching evidence" regarding various aspects like procurement of raw materials, use of electricity, and flow of funds.

Conclusion:
The Tribunal set aside the impugned order of the Commissioner, finding it unsustainable due to the lack of concrete evidence supporting the allegations of clandestine manufacture and clearance. The appeals were allowed with consequential relief to the appellants. The judgment highlights the necessity of tangible and affirmative evidence for allegations of clandestine removal, rejecting reliance on assumptions, presumptions, and mathematical calculations based on input-output ratios.