2025 (5) TMI 53 - AT - Central Excise

Clandestine manufacture and removal - stainless steel (SS) billets flats and rounds - existence of corroborative evidences or not - allegation is based on the records recovered from the appellant itself which showed actual daily production of the goods - demand of interest and penalty - extended period of limitation - HELD THAT - The quantity of goods shown as manufactured in the RG-1 register was lower than the quantity mentioned in the private registers. The present demand pertains to only two months namely August 2010 and September 2010. The appellant does not dispute the recovery of the documents or that the registers were their own records maintained by the staff. The submissions of the appellant is that the department failed to establish the clandestine manufacture and removal and sale of the goods through positive cogent evidence. Clandestine removal by its their nature is secretive. If every transaction is recorded in official registers and documents are issued then there cannot be clandestine removal. Therefore clandestine removal can only be established through indirect evidences - there is positive evidence in the form of the appellant s own records maintained privately that more goods were manufactured than what was recorded in the RG-1 register. Therefore the appellant was bound to pay excise duty on the entire production but had paid duty only on some part of the production. The contention of the appellant is that the department should show through positive evidence that there was a clandestine removal. If there were documents showing clearance of every consignment of the appellant then it would not be a clandestine removal. On the facts in this case there was sufficient evidence with the department to conclude that goods were clandestinely manufactured and cleared by the appellant. As far as the demand of excise duty under Rule 2 (3) (5) of the CCR is concerned this is on account of refractories and slag which the appellant had removed from the factory. There is no dispute about such removal - the entire demand of duty of excise in the impugned order needs to be upheld on merits. Extended period of limitation - HELD THAT - The extended period of limitation under Section 11A (4) can be invoked if duty is not paid short paid not levied short levied or erroneously refunded by reason of fraud or collusion or willful mis-statement or suppression of facts. In this case the allegation is the suppression of part of the production by the appellant - the extended period of limitation has been correctly invoked in this case. Demand of interest - HELD THAT - As the demand needs to be sustained consequently interest under Section 11AA also needs to be upheld. Penalty - HELD THAT - Penalty can imposed under Section 11AC if the duty is not paid or short paid by reason of fraud or collusion or willful mis-statement or suppression of facts or violation of Act or Rules with an intent to evade payment of duty. As it is found in favour of the Revenue on the question of suppression of facts there are no reason to take a different view on the question of penalty under Section 11AC also needs to be upheld. Proceedings and liabilities are affected or barred by the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code 2016 - HELD THAT - This Tribunal is not concerned with nor does it have any role in recovery of any dues. The CIRP proceedings do not determine the tax liabilities but only determine the recoveries. Further as per IBC 2016 institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment decree or order in any court of law Tribunal arbitration panel or other authority is prohibited. This position is also reflected in para d of the order of the NCLT enclosed with the letter of M/s Shyam Sel and Power Limited - This appeal is not against the corporate debtor but by the Corporate Debtor assailing the liability of duty and penalty. It is also not about the recovery of the dues. Nothing in the IBC prohibits this Tribunal from hearing and deciding on merits an appeal filed by the Corporate Debtor against the Revenue. Conclusion - i) The clandestine manufacture and removal can be proved by indirect evidence such as discrepancies in production records that extended limitation applies where suppression of facts is proved and that penalty and interest follow from confirmed duty demands. ii) The insolvency proceedings do not bar adjudication of appeals on merits. There are no infirmity in the impugned order. The impugned order is upheld and the appeal is dismissed.

Summary

The core legal questions considered by the Tribunal in this appeal revolve around the following issues:

(i) Whether the appellant clandestinely manufactured and removed stainless steel (SS) billets, flats, and rounds without paying central excise duty, as alleged by the department;

(ii) Whether the department's demand of excise duty, interest, and penalty under the relevant provisions of the Central Excise Act and Cenvat Credit Rules is justified and sustainable;

(iii) Whether the extended period of limitation under Section 11A(4) of the Central Excise Act is invokable in the present case;

(iv) Whether the penalty imposed under Section 11AC of the Central Excise Act is sustainable;

(v) Whether the duty demand relating to removal of used refractories and slag under Rule 3(5) of the Cenvat Credit Rules, 2004 is maintainable;

(vi) Whether the proceedings and liabilities are affected or barred by the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016.

In addressing these issues, the Tribunal undertook a detailed analysis as follows:

Clandestine Manufacture and Removal of Goods:

The department's case was based on the discovery during searches of private records maintained by the appellant which showed actual production quantities of SS billets and flats higher than those recorded in the official RG-1 production register. The discrepancy indicated suppression of production and clandestine removal without payment of duty. The department relied on recovered documents, panchnamas, and statements of company officials and staff, none of which were disowned or retracted by the appellant.

Legally, clandestine removal is secretive and cannot be established solely by direct evidence such as transport documents or invoices, which would negate secrecy. The Court reiterated that clandestine removal can be proved by indirect evidence, including discrepancies in production records and corroborative statements. The appellant's own private records served as positive evidence of higher production than officially recorded, establishing suppression of goods and evasion of duty.

The appellant contended that the department failed to produce cogent positive evidence such as transport receipts or proof of unaccounted dispatch, and that assumptions and presumptions cannot substitute for proof. However, the Tribunal found this argument untenable given the nature of clandestine removal and the sufficiency of the indirect evidence presented. The appellant's failure to explain or disown the recovered private records was significant.

Hence, the Tribunal held that the department had established clandestine manufacture and removal, warranting confirmation of the duty demand on the suppressed production.

Demand of Duty on Used Refractories and Slag:

The department also demanded excise duty on removal of used refractories and slag valued at Rs. 51,53,050/- under Rule 3(5) of the Cenvat Credit Rules, 2004. There was no dispute about the removal of these goods without payment of duty. The Tribunal upheld the demand, noting the appellant's failure to contest this aspect substantively.

Extended Period of Limitation:

The department invoked the extended period of limitation under Section 11A(4) of the Central Excise Act, applicable where duty is not paid or short paid due to fraud, collusion, willful misstatement, or suppression of facts. The appellant challenged this invocation.

The Tribunal examined the facts and concluded that suppression of production quantities constituted suppression of facts with intent to evade duty, justifying the extended limitation period. Thus, the extended period was correctly invoked and the demand was not barred by limitation.

Interest and Penalty:

Interest under Section 11AA was claimed on the duty amount confirmed. The appellant argued that interest was not recoverable if the duty was not recoverable. Since the Tribunal upheld the duty demand, the interest claim was also upheld as consequential.

Penalty under Section 11AC was imposed on the appellant for evasion of duty by suppression of facts. The appellant disputed the penalty's sustainability. The Tribunal found that penalty is warranted where duty is not paid or short paid due to fraud, collusion, or willful suppression. Given the findings on suppression, the penalty imposition was justified and upheld.

Effect of Corporate Insolvency Resolution Process (CIRP):

After the matter was reserved, a letter was received from a third party stating that the appellant had undergone CIRP under the Insolvency and Bankruptcy Code, 2016, and that dues prior to the effective date of the resolution plan had been dealt with and discharged by the Resolution Professional. The letter requested closure of the proceedings in light of the NCLT order.

The Tribunal clarified that the CIRP proceedings determine recoveries but do not adjudicate tax liabilities or bar the Tribunal from deciding appeals on merits. The IBC prohibits institution or continuation of recovery proceedings but does not preclude adjudication of appeals by the corporate debtor against the Revenue. The appeal before the Tribunal was by the corporate debtor challenging the liability, not a recovery proceeding. Therefore, the Tribunal retained jurisdiction to decide the appeal on merits.

The Tribunal noted that the appellant or its successor could have withdrawn the appeal but could not insist on non-adjudication. If successful, the appellant could seek consequential relief such as refunds.

Conclusions:

The Tribunal found no infirmity in the impugned order confirming the duty demand, interest, and penalty. The extended period of limitation was correctly invoked. The evidence, including the appellant's own private records and statements, established suppression of production and clandestine removal. The demand on removal of used refractories and slag was also sustainable. The CIRP proceedings did not affect the Tribunal's jurisdiction to decide the appeal.

Accordingly, the appeal was dismissed and the impugned order upheld.

Significant holdings include the following verbatim excerpts and core principles:

"Clandestine removal, by its their nature, is secretive. If every transaction is recorded in official registers and documents are issued, then there cannot be clandestine removal. Therefore, clandestine removal can only be established through indirect evidences."

"The appellant neither disowns the records, which were recovered from it nor does it show as to why the production was recorded in them differently than in the RG-1 register."

"The extended period of limitation under Section 11A (4) can be invoked if duty is not paid, short paid, not levied, short levied or erroneously refunded by reason of fraud or collusion or willful mis-statement or suppression of facts."

"Penalty under Section 11AC can be imposed if the duty is not paid or short paid by reason of fraud or collusion or willful mis-statement or suppression of facts or violation of Act or Rules with an intent to evade payment of duty."

"The CIRP proceedings do not determine the tax liabilities but only determine the recoveries. Further, as per IBC, 2016, institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law Tribunal, arbitration panel or other authority is prohibited. This appeal before us is not against the corporate debtor but by the Corporate Debtor assailing the liability of duty and penalty."

In sum, the Tribunal established that clandestine manufacture and removal can be proved by indirect evidence such as discrepancies in production records, that extended limitation applies where suppression of facts is proved, and that penalty and interest follow from confirmed duty demands. The insolvency proceedings do not bar adjudication of appeals on merits. The impugned order confirming duty, interest, and penalty was upheld and the appeal dismissed accordingly.