Clandestine removal – whether proved on mere discrepancy in production figures in BS & RT12 return

PJ/Case Laws/2011-12/1315

Case: Commissioner of C. Ex., Patna V/s Universal Polythene Industries

Citation: 2011 (270) E.L.T. 168 (Pat.)

Issue:- Clandestine removal – discrepancy in production figures in Balance sheet and RT12 return - whether demand can be confirmed on the basis of balance sheet?

Brief Facts:- Respondent manufactures ACSR Squirrel Conductors. The production figures of the year 1989-90 in RT-12 returns show manufacture of ACSR Squirrel Conductors to the extent of 102.150 kilometres only. However, in the balance sheet for the year 1989-90, it was found that respondent had manufactured ACSR Squirrel conductors to the extent of 332.150 kilometres. Thus, the respondent had suppressed production to the tune of 230 kilometres. Similarly, the production of ACSR Squirrel Conductors was shown as 304.630 kilometres in the balance sheet for the year 1990-91, whereas in the RT returns for the same period it was shown as 260.370 kilometres. In this way according to the Revenue, the respondent suppressed the production to the tune of 44.260 kilometres and the duty evaded on these accounts comes to Rs. 2,89,772. Revenue Authorities were of the opinion that the removal of the ACSR Squirrel Conductors to the extent indicated above is nothing but clandestine removal.

The Commissioner, however, observed that in the absence of any corroboratory evidence, the charge of clandestine removal is not fit to be accepted and, accordingly, it dropped the charge. Revenue’s appeal to the Tribunal also failed and it was dismissed by order dated 30-6-2000 [2001 (130) E.L.T. 228 Tribunal)] dismissed the appeal.

Hence, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue submits that the balance sheet of the respondent- manufacturer having been prepared by a professional, qualified Chartered Accountant recognized by the Institute of Chartered Accountants in terms of the provisions of the Company Act, same was not fit to be ignored. The balance sheet is prepared by the Chartered Accountant on the basis of the materials furnished by the manufacturer.

Reasoning of Judgement:- The High Court was of the opinion that in case of discrepancy between the balance sheet prepared by the qualified Chartered Accountant and RT-12, as a proposition of law it cannot be said that it is the balance sheet which will prevail. It will depend upon the facts and circumstances of each case. In the facts of a given case, RT-12 may prevail. Similarly in case of conflict, in a particular case the balance sheet may prevail. In case the manufacturer come out with plausible explanation and assigns valid reason for showing higher production in the balance sheet, the later may be accepted.

In the opinion of the High Court both are pieces of evidence and which deserve acceptance is to be decided on the basis of further material available. There is no material to suggest that the manufacturer had manufactured the quantity as shown in the balance sheet, then what has been shown in RT-12 returns. The Tribunal as also the Commissioner has noted the common feature that manufacturers show inflated figures of its production in the balance sheet for taking higher loan facilities from the Bank and accepted the plea of the manufacturer.

Accordingly, it was held that the balance sheet prepared by the Chartered Accountant can be ignored on relevant and good grounds. The grounds assigned by the Commissioner as also the Tribunal are good and valid grounds. Hence, the balance sheet prepared by the qualified Chartered Accountant is not conclusive proof in regard to the production. Reference answered in favour of respondent-assessee and against the appellant-Revenue.

Decision:- Appeal disposed off.

Comments: - It is very interesting decision where in inflated figures are shown in the Balance Sheet for some other purpose. But it does not mean that they should be accepted. It has to corroborated with evidences. If the person is able to give the proper clarification then no liability arises on him.

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PJ/Case Laws/2011-12/1315

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