Excise duty cannot be demanded for clandestine removal based on third party evidence

The CESTAT has ruled that excise duty cannot be levied based solely on third-party evidence, such as records from another company or a director's statement. For such a demand to be valid, there must be a clear link between the allegations made by the revenue authorities and the taxpayer's own records. Furthermore, the taxpayer must not have made any admissions regarding the alleged clandestine transaction, and any third-party evidence must be corroborated and substantiated.

The CESTAT, New Delhi in the matter of M/s Shri Shyam Ingot & Castings Pvt. Ltd. v.Commissioner of Customs & Central Excise [Excise Appeal No. 52550 of 2019-SM dated August 08, 2022] held that there shall be consonance between the allegation levelled by the Revenue and the records presented against the taxpayer. Further held that the allegation cannot be justified in absence of any admission from the assessee against the alleged clandestine transaction. Moreover, third party records and statement by Director of the Company cannot be used against the assessee for non-joinder of the parties.

Facts

On the basis of intelligence, preventive officers of the Headquarter, Central Excise, Raipur ("the Respondent”) conducted searches at the factories and office premises of one M/s Pankaj Ispat Limited, Raipur ("M/s PIL”) and seized several records/ documents. On scrutinising the records/documents, discrepancies were revealed besides other by M/s PIL on against purchase of 245.960 MT of MS ingot from M/s Shri Shyam Ingot & Castings Pvt. Ltd. ("the Appellant”) without payment of excise duty. Accordingly, a follow up enquiry was conducted against the Appellant under summons mode. On comparison of information contained in the seized records of M/s PIL with the information contained in the records produced by the Appellant revealed that, the aforesaid quantities of M.S. ingots had not been accounted for in the records of the appellant’s factory. The Appellant, denied to the allegation of clandestinely removing 245.960 MT of M.S. Ingots during the relevant period to M/s PIL without payment of duty of Rs. 9,95,239/- in contravention of the various provisions of the Central Excise Act, 1944.

Show cause notice ("SCN”) was issued to the appellant for the demand of central excise duty amounting to Rs.7,95,239/- along with interest and penalty under Section 11AC(1)(c) of the Central Excise Act. The demand proposed in the SCN was affirmed along with 100% penalty upon the Director of the Appellant vide Order-In-Original ("OIO”), under Rule 26 of the Central Excise Rules, 2002 ("the Central Excise Rules”)

The Appellant aggrieved by the OIO, filed an appeal before the Commissioner (Appeals) which was consequently dismissed, alleging that the Director of M/s PIL has accepted the receipt of inputs. Being aggrieved by the decision of the Commissioner (Appeals), the Appellant filed appeal before this Tribunal.

Issue

Whether excise duty can be demanded for clandestine removal based on third party evidence?

Held

The CESTAT, New Delhi in Excise Appeal No. 52550 of 2019-SM dated August 08, 2022 held as under:

• Held that, there is no corroboration of the allegation of the Respondent with the records of this appellant, nor there is any admission on the part of the Appellant against the clandestine transaction. Further, the third-party records are not in consonance corroborated and unsubstantiated, and the statement of the Director of M/s PIL cannot be used against the Appellant both for non-joinder of the parties and also failure on the part of the Respondent to examine Sh. Pankaj Agarwal as its witness in the adjudication proceedings.
• Allowed the appeal and set aside the OIO.