The assertion of clandestine removal cannot be proved merely by the testimony of some transporters

The Bombay High Court has ruled that accusations of clandestine removal of goods cannot be proven solely based on the testimony of a few transporters. In this case, M/s. Filatex India Ltd. was accused of removing polyester yarn without paying excise duty. However, the court found that the company had followed proper procedures, including intimating the department about job work and maintaining records. The court concluded that without further evidence of evasion, the transporters' statements were insufficient to establish clandestine removal.

The Hon'ble Bombay High Court in the Principal Commissioner of Central GST & C. v. Filatex India Ltd. [Central Excise Appeal No. 204 of 2019 dated September 8, 2022] held that the accusations of clandestine removal cannot be confirmed merely based on a statement of few transporters under the terms of Central Excise Act, 1944 ("the Central Excise Act").

Facts

M/s. Filatex India Ltd("the Respondent") is engaged in the manufacture of polyester yarn, and is the holder of Central Excise Registration. In an inquiry, it was observed that there was a clandestine removal of the polyester yarns by the Respondent from their factory for sale without payment of central excise duty and the same were not used for manufacturing fabrics.

Following this a show-cause notice dated June 8, 2009 ("the SCN"), was issued by the Commissioner, Central Excise raising demand of duty of Rs. 3,11,76,080/- under Section 11A(1) of the Central Excise Act along with interest and also a proposal to confiscate goods valued at Rs.10,93,00,281/-. Subsequently, Order in original dated June 22, 2011 ("the OIO") was passed confirming the demand and penalties were also imposed on the Joint Managing Director and other officers of the Respondent under Section 11AC of the Central Excise Act. 

Aggrieved by OIO the Respondent filed an appeal in the Customs Excise and Service Tax Appellate Tribunal ("CESTAT") and the appeal was allowed by the CESTAT vide Final order dated April 11, 2019 ("Final order") observing that mere statement by few of the transporters that they did not transport the fabric cannot be a ground to hold that no fabric was manufactured.

Lastly, after being aggrieved by the OIA, the Principal Commissioner of Central Goods and Service Tax ("the Appellant"), filed the present appeal under Section 35G of the Central Excise Act. 

Issue

Whether or not the Respondent can be held for clandestine removal of polyester yarns merely based on statements by the transporters?

Held

The Hon'ble Bombay High Court in Central Excise Appeal No. 204 of 2019 dated September 8, 2022held as under:

• Agreed with all the observations of the CESTAT that the Respondent before sending the polyester yarns for job work filed intimation with the Department as required under the Central Excise Rules, 2002, the Department was in knowledge of the job work activities, that while sending goods, the challans were prepared and the polyester yarn was acknowledged by the job workers of having been received, the Respondent has paid job work charges to the said job workers and also deducted TDS on such payments as found by the Tribunal from Form-16A etc.
• Thus, mere statement of some transporters that they did not transport the fabric cannot be a ground to hold that no fabric was manufactured.
•  Further, no evidence has been adduced to the effect that the Respondent had clandestinely removed the yarn from their factory for sale by evading central excise duty.
• Finally concluded that, there is no merit in this Appeal and the Appeal stands dismissed.