Clandestine manufacture cannot be inferred without cogent, tangible corroborative evidence.

The appellant-company manufactured low-tension electrical equipment and also traded in spare parts and components.

The Department alleged that goods shown as traded had actually been manufactured and cleared by the company without duty, and confirmed a duty demand of Rs.5,40,14,634, interest and penalties under Section 11AC of the Central Excise Act, 1944 and Rules 26 and 27 of the Central Excise Rules, 2002.

The allegation relied, among other things, on vendors who could not be traced, a transporter’s statement, the company’s logo on some components, the value of spare-parts sales, and the absence of factory records.

The company challenged the demand, maintaining that it had purchased and resold the disputed goods and that its manufacturing clearances qualified for the SSI exemption under Notification No. 08/2003-C.E.

On appeal, the Tribunal found no sufficient evidence that the disputed traded goods had been manufactured by the company.

1. Whether the Department established that the goods declared as traded were, in fact, manufactured and clandestinely cleared by the appellant-company

2. Whether the appellant-company’s manufacturing clearances attracted duty after application of the SSI exemption, and whether its claimed duty payments for 2013–14 and 2014–15 required verification

3. Whether the extended period of limitation and the penalties imposed on the company and its director were sustainable

Under Section 9D of the Central Excise Act, 1944, an investigative statement cannot be treated as substantive evidence unless the statutory conditions governing its admissibility and use are satisfied.

A charge of clandestine manufacture and removal requires cogent, tangible and affirmative evidence; it cannot rest on suspicion, assumptions or isolated circumstances.

The Tribunal relied on Continental Cement Company v. Union of India, which identifies corroborative evidence such as raw-material procurement, electricity use, transport, sales and receipt of sale proceeds as relevant to proving clandestine removal, and on Nova Petrochemicals v. Commissioner of C.Ex., Ahmedabad-II, which similarly sets out evidentiary indicators of clandestine manufacture and clearance.

Notification No. 08/2003-C.E. provides SSI exemption subject to its prescribed clearance limits.

Under Nizam Sugar Factory v. Collector of Central Excise, the extended period cannot be invoked on the same facts where those facts were already known to the Department through earlier proceedings.

Penalties under Section 11AC and Rule 26 require a sustainable legal basis for the alleged evasion or the individual’s culpable connection to it; Rule 27 may apply to an independent procedural contravention.

The Tribunal held that the vendor enquiries did not prove fictitious purchases: only 31 of 187 vendors were investigated, 17 confirmed the transactions, and the inability to locate some others later did not establish that the goods were manufactured by the appellant.

The transporter’s statement was not shown to have been tested under Section 9D; neither the logo on some components, the nature of the customers, nor the comparatively high value of spare-parts sales proved manufacture.

The Department also produced no adequate corroboration concerning excess inputs, electricity, labour, production capacity or movement of goods, while the appellant’s stated low electricity consumption was inconsistent with the scale of production alleged.

The Tribunal accepted the Chartered Accountant’s certificate in the absence of material undermining its reliability: the certified manufacturing clearances for 2010–11 to 2012–13 were below the Rs.1.50 crore threshold, while the figures for 2013–14 and 2014–15 exceeded it and required verification of the claimed duty payments.

It further found the extended-period allegation unsustainable because the Department had previously issued a notice on substantially the same issue and had been informed of the company’s activities.

It remanded the matter solely to verify the correctness of the appellant’s claimed duty payments for 2013–14 and 2014–15, while recognizing its eligibility for SSI exemption up to the prescribed limit for those years.

The Section 11AC penalty against the company and the Rule 26 penalty against its director were set aside; the Rule 27 penalty of Rs.5,000 for non-maintenance of records was upheld.

The impugned order was modified accordingly, and the appeals were disposed of on those terms.