Clandestine Removal

PJ/Case Laws/2011-12/1356

Clandestine Removal - proof of

Case: COMMISSIONER OF CENTRAL EXCISE Versus BRIMS PRODUCTS

Citation: 2011 (271) E.L.T. 184 (Pat.)

Issue:- Charge of clandestine removal – requires to be proved beyond doubt by leading corroborative evidence – mere finding of excess betel nuts in factory of Pan Masala manufacturer without further conclusive evidence cannot establish clandestine removal.

Brief Facts:- Respondent was engaged in manufacture of Pan Masala. During visit by Excise officers to their factory 4 bags containing 120 kgs of final product was found which had not entered in the register maintained by the respondent. The said goods were seized under the provisions of Central Excise Act, 1944. On finding some loose papers in the dustbin with endorsement regarding certain transactions, investigation was carried out at the transporters end, which according to Revenue, revealed that respondent had received some consignments of betel-nut, which were not entered in the stock account.

On the basis of aforesaid investigation, respondent was issued show cause notice alleging clandestine manufacture and removal of 1618 kgs of Pan Masala and demanding duty with respect to confiscation of 4 bags containing 120 kgs of final product which were not entered into the statutory records and also proposed imposition of penalty.

The Adjudicating Authority gave clean chit to the assessee with regard to two consignments out of four. After recording the finding that few torn slips found in the dustbin of the factory have not much significance in the light of incomplete investigation by the department and further that the investigation does not reveal actual purchase by the buyers of the Pan Masala. However, with regard to remaining two consignments, the opinion of the Central Revenue was that the assessee indeed had received those consignments of betel nut which is the main raw material for manufacture of Pan Masala. Thus, the Original Authority came to the conclusion that since one of the main raw materials, namely, Pan Masala, had been received by the respondent, it could be well presumed that the respondent had manufactured Pan Masala out of the above consignments which were subsequently, clandestinely removed and sold without payment of duty. As a result, Respondent was saddled with excise duty as well as penalty.

In appeal, the order of the Adjudicating Authority was confirmed by the First Appellate Authority.

Further appeal before the Tribunal by Respondent was allowed holding that the charge of clandestine manufacture and surreptitious removal was required to be proved beyond doubt by the Revenue, which they have failed to do. The Tribunal also held that the evidence collected during the course of investigation, merely creates doubt in favour of department. However, the same cannot take place of legal evidence.

Being aggrieved by order of the Tribunal, Revenue filed appeal before the High Court.

Appellant’s Contention:- Revenue submits that the evidence collected during the course of investigation at the transporters end confirmed receiving of consignment of large quantity of betel nut by the respondent which were not entered into the stock register. This evidence definitely weighed in favour of department's stand that consignments of betel nut must have been consumed for clandestine production and subsequent removal of final product without entering into the statutory books for the purpose of evading duty.

Revenue contended that records of different transporters clearly indicate that the consignments of betel nut were destined to reach the respondent. Thus, it could be safely presumed that those consignments of betel nut were used for production of Pan Masala and clandestine removal of the finished product.

Reasoning of Judgment:- The High Court from facts noted that the Central Excise Authority itself had held with regard to two consignments out of four that the investigation is incomplete and has been carried out only at the transporters end, thus, does not reveal actual purchase by the buyers. The Authorities with regard to the other two consignments have also extended benefit of doubt to the respondent. The High Court was of the opinion that there could not have any reason for arriving at different conclusion with regard to the remaining two consignments.

In their opinion, since the charge was for clandestine manufacture and surreptitious removal of finished final product, the same is required to be proved beyond doubt by the Revenue. One has to keep in mind that, though being the main ingredient, betel-nut is not the only raw material which is used in manufacture of Pan Masala. That apart, since the investigation has been carried only at the transporters end, no presumption could be drawn with regard to manufacture and removal of the final product. Presumptions and assumptions cannot take place of positive legal evidence, which are required for proving the charge. Even if, it is assumed that some raw materials were received at the factory of the respondent during the said period, the same cannot become conclusive proof of production and clandestine sale to different parties. Due to lack of positive evidence, benefit of doubt will always go in favour of the assessee.

Accordingly, the High Court answered the reference against Revenue and in favour of assessee. It was held that the receipt of one of the raw materials does not conclusively prove clandestine manufacture and surreptitious removal of finished final product.

Decision:- Appeal disallowed.

Comments:- It is now well settled that for proving the charge of clandestine removal only finding excess quantity is not enough, some positive legal evidence corroborating the charge of clandestine removal is also required. Otherwise the benefit of doubt will be extended to the assesee. The Department should collect evidences from all the possible sources before charging the assesee with charge of clandestine removal.

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PJ/Case Laws/2011-12/1356

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