Tangible Evidence Lacking: Delhi HC Clears Manufacturer Of Charges For 'Clandestinely' Clearing Goods To Escape Taxes

The Delhi High Court while letting off a maufacturer of charges for 'clandestinely' clearing goods to escape taxes has observed that 'tangible evidence' is requiured to support such allegations.

The Court was considering an filed under Section 35G of the Central Excise Act, 1944 against order passed by the Customs Excise and Service Tax Appellate Tribunal clearing the maufacturer of charges.

The division-bench of Justice Yashwant Verma and Justice Ravinder Dudeja observed, "In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the premises of the respondent, we hold that the impugned order dated 08.06.2017 passed by the CESTAT does not suffer from any serious error and does not merit interference. The appeal is therefore dismissed."

The Petitioner was represented by Advocate Jatin Kumar Gaur with SSC Harpreet Singh.

The respondent-assessee is engaged in the manufacture of copper ingots, and is registered with the Central Excise Department. The unit of the appellant-assessee was searched by the officers of Directorate General of Central Excise Intelligence. The residential premises of the father of the sole proprietor of the assessee was also searched. During the course of search of residential premises, currency amounting to ₹6,20,000/- was recovered and the same was seized by the officers of Revenue. During the course of search in the factory premises of the appellant-assessee, the officers detected shortage of 3500 Kgs of copper scrap valued at Rs. 3,85,000/-. Some records were also resumed by the officers from the factory premises of the assessee. Amongst the documents seized, spiral notebook “AUTHOR” was recovered. The statements of various persons were recorded. On the basis of investigation, the Department issued a Show Cause Notice in 2006 seeking confiscation of Indian currency on the ground that the said currency was the sale proceeds of the goods cleared clandestinely.

On the basis of documents recovered from the factory of the assessee and the statements recorded, the assessee was served with another SCN alleging that the assessee had been receiving substantial quantity of copper scrap without any bills/documents and was not entering the details of sale in the statutory records, that the scrap was used for manufacturing ingots and cleared to various parties after drying into wire rods on job-work basis without being accounted in any statutory records and without payment of duty. The assessee was alleged to have cleared 3,62,515.90 Kgs of copper wire. It was further alleged that 19,52,267 Kgs of ingots/wire bars appear to have been manufactured as per Bhatti register and were cleared without payment of duty, and that 3500 Kgs of scrap allegedly found short during the search was admitted to have been cleared after converting it into ingots and then to wire rods, that electricity facility was manipulated/tampered with to accommodate recorded production. Demand of duty and education CESS of Rs. 1,21,42,057/- was raised on alleged clearance of copper wire rod and Rs. 2,93,17,554/- on alleged clearance of copper ingots without payment of duty and of Rs. 62,832/- on the alleged shortage of copper scrap. 

Both the SCNs were adjudicated upholding the charges and confirming the entire duty demand. The matter was adjudicated again, the demand of duty on copper rods and confiscation of the seized currency was confirmed. The order dropped the duty on copper wire rods while accepting that the assessee could not have manufactured copper wire as they did not have wire drying facility. Two separate appeals were preferred by the appellant as also by the respondent against the Order before CESTAT. The appeal filed by the respondent was allowed while that of the Revenue was rejected by the CESTAT.

Counsel for the Respondent argued that Revenue failed to prove the allegations and consequently the demand of dues and penalty. It was submitted that the statements recorded under Section-14 of the Act were not voluntary. The statements were later retracted by the witnesses, and therefore, prudence demands that such retracted statements should not be accepted without independent corroboration. It was also argued that the recovered documents do not pertain to the respondent and there is no tangible evidence of clandestine removal of the goods or other evidence. The Counsel submitted that it was a case of no evidence and the view taken by the CESTAT is logical and as per law.

The Court was of the view that the charges of clandestine removal of goods connotes are accusations of serious nature and therefore evidence should also be equally strong to substantiate the charges and needs careful scrutiny and appreciation.

"In criminal cases, the standard of proof as required to prove the charges in a criminal trial is “proof beyond doubt”, whereas, the adjudication proceedings are in the nature of civil proceedings and not criminal proceedings and therefore, the standard of proof of civil proceedings i.e. preponderance of probability is applicable in adjudication proceedings," the Court observed.

The Court added that it is equally well settled that in adjudication proceedings to establish the charge of clandestine removal and under valuation, Revenue is not required to prove the case with mathematical precision. Such charges are to be established on the basis of “preponderance of probabilities.”

"However, the conclusions to be drawn are necessarily to be logical and not on the basis of presumptions and assumptions. Suspicion, howsoever grave, cannot replace the test of proof," the Court observed.

The Court was of the view that the mode of verification i.e. by eye estimation, if true, is no verification and no demand can be based on such eye estimation.With regard to the value of retracted confession, the Court cited Supreme Court's ruling in Vinod Solanki vs Union of India.

The Court concluded that there lacks 'tangible evidence' in the present case to prove the guilt of the manufacturer.

"The mere fact that the respondent agreed to deposit the duty amount to avoid any kind of litigation, itself cannot be held to be the basis for confirming the duty demand against the respondent. CESTAT found that the case of unaccounted manufacture and clearance was built upon only sketchy evidence without concrete corroboration and whatever evidences formed basis for the case of Revenue, fell short of the minimum requirement of credible case of clandestine removal," the Court observed.

The Appeal was accordingly dismissed.

Cause Title: Commissioner of Central Tax, GST Delhi East vs. ASP Metal Industries (2024 :DHC: 9415-DB)

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