By TIOL News Service

AHMEDABAD, AUG 11, 2015: THE case of the Revenue is that the appellant had clandestinely manufactured and removed HDPE/LLDPE bags during the period 1999 to 2000. During visit of the CE officers on 3.7.2001 to the factory of the main appellant, 23 sets of blank invoices (out of a book of 50) were found which were treated as 'parallel invoices'.

After investigation and recording of statements of customers,the department issued a SCN alleging clandestine removals under parallel invoices and seeking recovery of CE duty of more than Rs.26 lakhs along with penalties and interest.

The Addl. Commr. confirmed the demand and also imposed penalty on the Director.

In the first round of litigation, the Commissioner(A) allowed benefit of cum-duty price which reduced the duty demand to Rs.22 lakhs and so also the penalty.

The Tribunal had remanded the matter to the original authority and had directed the department to decide the issue afresh after providing all the relied upon documents sought by the appellant.

In denovo proceedings, the Additional Commissioner again confirmed the demand of Rs.26 lakhs (without extending any cum-duty benefit) and imposing penalties as earlier.

This time around, the Commissioner(A) upheld the order and, therefore, the appellant is before the CESTAT.

The appellant emphasized that as per the law established, in cases of clandestine manufacture and clearance, certain fundamental criteria is to be established by Revenue namely, purchase of excess raw materials, sales to identified parties, receipt of sales proceeds by cash, proof of transportation etc.

It is further submitted that entire demand is based on alleged parallel invoices as mentioned in the Annexure A-1, B-1 and C-1 to SCN; that the alleged clandestine clearances cannot be confirmed as there is no tangible evidence to prove receipt of excess raw material, clandestine manufacture of goods, removal of goods from factory, documents to support transportation of such clandestinely cleared goods from the factory or receipt of cash payments for such goods; that although appellant has accepted only shortage of finished goods found and paid duty thereon, appellant has not accepted any details of manufacture and clearance of goods clandestinely made under alleged parallel invoices.

A multitude of case laws was relied upon by the appellant to justify their submission that no CE duty is payable in the absence of any evidence to prove that goods have been manufactured and removed clandestinely without payment of CE duty.

The AR submitted that the confessional statements of appellants and consignment recipients have not been retracted &that parallel invoices and other complementary invoices recovered from the factory of main appellant corroborateclandestine manufacture and removal of finished goods.

The Bench observed -

+ When shortage of finished goods manufactured is not satisfactorily clarified, adverse presumption of its clandestine removal can be taken.

+ The appellant has paid duty on alleged shortages but has not accepted clandestine removals.

+ It is also observed that demand of duty is worked out on the basis of parallel invoices referred to in Annexure A-1, B-1, and C-1 to in SCN, but none of these parallel invoices have been found from the factory of the main appellant during search or follow up investigation.

+ I also find that 3 buyers have stated to have purchased the goods in question against payments made by demand drafts. The evidence of flow back of money from the buyers to appellant ought to have been a crucial evidence to establish link of goods cleared by the appellant to buyers. However, there is no evidence that the main appellant has received any amount with respect to clandestinely cleared goods. In the absence of clear evidences to the flow-back of money from buyer to appellant, clandestine removals are not conclusively established.

+ I also find that huge quantities of finished goods are alleged to have been manufactured and removed clandestinely during the period in question, but in the absence of no corroborative evidence of excess receipt and consumption of inputs, electricity, manpower requirement, transportation etc.

+ I also find that demands are also based on unsigned documents found from the premises of the main appellant, but such documents are neither recovered from the buyers nor recipients have been questioned thereon. The demands are based on the documents recovered from the third party, which are not accepted by the appellant.

+ A serious charge of clandestine production and illicit removal of the goods cannot be proved beyond reasonable doubt. Principle that suspicion however grave cannot take the place of evidence needs to be applied in the case in view of the case law relied upon by the appellant.

+ It is observed that there has to be an illicit manufacture of goods to indulge in clandestine removals for which extra raw material, extra manpower, transportation of finished goods, cash payments etc. are required to be established with a reasonable degree. In the absence of any corroboration on above factual details, the case of clandestine removals cannot be held as established on the basis of few parallel invoices recovered from a third party.

The duty demand of Rs.25.96 lakhs was set aside and along with it the equivalent penalty. Penalty imposed on Director was also dropped on the ground that the appeal was predominantly decided in favour of appellant.

(See 2015-TIOL-1659-CESTAT-AHM )