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2025 (6) TMI 428 - AT - Central ExciseClandestine removal - 204123.09 MT of iron scrap and steel scrap - no copy of relied upon documents were provided - Annual Statistics Report (ASR) can be a basis to allege clandestine clearance or not - difference in ASRs and Central Excise records - invocation of extended period of limitation - levy of penalty u/s 11AC of the Central Excise Act 1944 - HELD THAT - The demand in this case has been raised on the basis of comparison of the despatch figures contained in the Annual Statistics Report (ASR) published by PPCD wing of DSP with the clearance of scrap declared in the RT-12 returns during the relevant period. It is observed that ASR is a private document compiled by the Statistics Department of the appellant company for management information purpose. The method of compilation adopted by the Statistics Department is completely different from that required for maintenance of Central Excise records. The RT-12 returns are prepared based on tariff head wise groupings whereas ASRs are prepared based on product code suitable for managerial decision making. Thus it is observed that the data available in the ASR cannot be the basis to allege clandestine clearance and demanding duty on such clandestinely cleared goods. In the present case it is also observed that neither in the Show Cause Notice or in the impugned order is there any material disclosed which evidences movement of raw materials in excess of what has been declared or finished products on which allegedly no central excise duty has been paid use of more electricity water labour flow back of money from entities or persons to whom the said goods were allegedly cleared without payment of duty or input materials which were purchased in excess of that declared. There is also no evidence of use of any alleged excess inputs used by the appellant to establish manufacture of the alleged unaccounted quantity of the said goods during the said period - Moreover no evidence has been disclosed or brought on record to establish even prima facie of payment being made by the appellant to any alleged persons/parties from whom any excess raw materials were purchased from which the said excess scrap was generated. In the absence of any such corroborative evidence establishing manufacturing and clandestine clearance of scrap by the appellant the allegation of clandestine removal of goods against the appellant cannot be sustained. In the present case it is observed that the Department has not brought in any evidence on record to substantiate the allegation of clandestine removal by the appellant. Thus the demand of central excise duty confirmed along with interest is not sustainable and hence the same is set aside. Invocation of extended period of limitation - imposition of penalty u/s 11AC of the Central Excise Act 1944 - HELD THAT - The ASRs have been prepared by the Statistics Department of DSP for statistical purposes and regularly submitted to the jurisdictional Central Excise authorities during the next financial year. The demands have been raised on the same issue for the earlier years also. Thus the Department was very well aware of the issue and no suppression can be alleged on the part of the appellant. Hence extended period of limitation cannot be invoked in this case. For the same reason the penalty imposed on the appellant under Section 11AC of the Central Excise Act 1944 is not sustainable. Conclusion - i) The data available in the ASR cannot be the basis to allege clandestine clearance and demanding duty on such clandestinely cleared goods. ii) In the absence of any such corroborative evidence establishing manufacturing and clandestine clearance of scrap by the appellant the allegation of clandestine removal of goods against the appellant cannot be sustained. The impugned order is set aside - appeal allowed.
The core legal questions considered in this appeal are:
1. Whether the demand for central excise duty on alleged clandestine removal of iron and steel scrap by the appellant can be sustained based solely on discrepancies between the Annual Statistics Report (ASR) and the RT-12 returns filed by the appellant. 2. Whether the Department discharged the onus of proving clandestine manufacture and removal through positive and tangible evidence beyond mere inferences or assumptions. 3. Whether the invocation of the extended period of limitation and imposition of penalty under Section 11AC of the Central Excise Act, 1944, is justified in the facts of the case. Issue-wise Detailed Analysis: 1. Legitimacy of Demand Based on Discrepancies Between ASR and RT-12 Returns The legal framework requires that any demand for excise duty on alleged clandestine removal must be supported by positive evidence of such removal. The ASR is a private document compiled by the appellant's Statistics Department for internal management purposes, whereas RT-12 returns are statutory documents prepared as per tariff head-wise groupings for excise compliance. The Court observed that the method of compilation of ASR is entirely different from that of RT-12 returns, and hence, discrepancies between these two documents cannot form a valid basis for alleging clandestine clearance. The appellant's contention that ASR data is unsuitable for excise demand purposes was accepted, aligning with precedents where internal or managerial records cannot substitute statutory compliance documents. Several precedents were cited by the appellant, including Tribunal decisions and a High Court dismissal of Revenue's appeal, establishing that mere differences in internal statistics and statutory returns do not constitute clandestine removal. The Court emphasized that reliance solely on managerial records without corroborative evidence is insufficient to sustain a demand. 2. Onus and Standard of Proof for Clandestine Manufacture and Removal The Court reiterated the settled principle that the Department bears the onus to prove clandestine manufacture and removal by positive, tangible, and legally admissible evidence. The standard of proof is beyond reasonable doubt, not merely a preponderance of probabilities or circumstantial inferences. The appellant pointed out absence of any evidence such as excess raw material movement, increased consumption of utilities (electricity, water), unexplained cash flows, or statements from alleged recipients of unaccounted goods. The quantity alleged to have been clandestinely removed was substantial (over 20.41 lakh MT across four years), yet no evidence was produced demonstrating how, to whom, or by what means such goods were removed or payments received. The Court noted that the Show Cause Notice and impugned order failed to disclose any material evidencing excess inputs or outputs, or any corroborative evidence such as statements from buyers or suppliers, transportation records, or financial transactions linked to the alleged clandestine removal. Reliance was placed on authoritative Tribunal and High Court decisions which laid down specific criteria for establishing clandestine manufacture and clearance. These include:
The Court quoted extensively from a leading Tribunal decision which underscored that mere inferences or assumptions, or reliance on private/internal records, cannot sustain a finding of clandestine removal. The absence of any of these evidentiary elements in the present case led the Court to conclude that the Department failed to discharge its burden. Further, the Court referred to a recent decision of the Tribunal in the appellant's own case for a different unit, which held that even if stock discrepancies exist, duty can be demanded only when clandestine removal from the factory is proved. The present case lacked any such proof. 3. Extended Period of Limitation and Penalty under Section 11AC The Department invoked the extended period of limitation and imposed penalty on the basis of alleged suppression of facts by the appellant. The appellant contended that the ASRs were regularly submitted to the jurisdictional authorities and that the Department was aware of the issue, having raised demands for earlier years on similar grounds. The Court observed that since the Department had knowledge of the ASRs and related data, no suppression or concealment by the appellant could be alleged. Consequently, invocation of the extended period of limitation was unjustified. Similarly, the penalty under Section 11AC was held unsustainable for the same reason. Treatment of Competing Arguments The Revenue relied on the impugned order confirming the demand based on the ASR-RT12 discrepancy. The Court critically examined this reliance and found it legally untenable. The Department's failure to produce any corroborative evidence or to establish clandestine removal beyond statistical differences led to rejection of their contentions. The appellant's detailed submissions, supported by binding precedents, were accepted as correctly stating the law and facts. The Court gave due weight to the principle that benefit of doubt must be given to the assessee in absence of positive evidence. Significant Holdings The Court held: "We observe that the data available in the ASR cannot be the basis to allege clandestine clearance and demanding duty on such clandestinely cleared goods." "The Department is required to establish clandestine manufacture and removal through positive and tangible legal evidence. Clandestine clearance cannot be alleged merely on the basis of preponderance of probabilities or by way of inferences drawn based on calculations and alleged circumstantial evidence based on assumptions, presumptions and inferences." "In the absence of any such corroborative evidence establishing manufacturing and clandestine clearance of scrap by the appellant, we hold that the allegation of clandestine removal of goods against the appellant cannot be sustained." "The Department was very well aware of the issue and no suppression can be alleged on the part of the appellant. Hence, we hold that extended period of limitation cannot be invoked in this case. For the same reason, we hold that the penalty imposed on the appellant under Section 11AC of the Central Excise Act, 1944 is not sustainable." The Court conclusively set aside the impugned order confirming the demand, interest, and penalty, allowing the appeal with consequential relief.
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