Sunvik Steels’ Alleged 478.2-Tonne TMT Removal Lacked Corroboration, So CESTAT Sets Aside ₹27.88-Lakh Duty Demand

In brief

The question

1. Whether the seized records and statements sufficiently established the clandestine removal of 478.2 MT of TMT bars/rods during 19–29 July 2008.

The court held

The Tribunal answered the issues in favour of the appellants, holding that clandestine removal had not been proved by sufficient positive evidence.

It also directed

It set aside the impugned order, including the duty demand and penalties imposed on the company and the Managing Director, and allowed both appeals.

01Facts

Sunvik Steels manufactured sponge iron, MS ingots/billets and TMT rods.

pp. 2–4

The department alleged that the company had under-accounted 513.227 MT of MS ingots and clandestinely cleared 478.2 MT of TMT bars/rods between 19 and 29 July 2008, relying principally on seized private records, including an “Executive Diary,” and statements by company employees and its Managing Director.

pp. 2–4

The original authority confirmed duty of Rs. 27,88,152 and imposed penalties under Section 11AC of the Central Excise Act, 1944 and Rule 26 of the Central Excise Rules; the Commissioner (Appeals) upheld that order.

pp. 2–4

The company and its Managing Director appealed to the Tribunal.

pp. 2–4

02Issues

i.1. Whether the seized records and statements sufficiently established the clandestine removal of 478.2 MT of TMT bars/rods during 19–29 July 2008.

p. 4

ii.2. Whether the duty demand and penalties imposed on the company and its Managing Director could be sustained in the absence of corroborative evidence of clandestine removal.

pp. 9–10

03Law Applied

The department bears the burden of proving clandestine manufacture and removal.

p. 9

Although direct evidence may rarely be available and the charge may be established on a preponderance of probabilities, conjecture and surmise are insufficient; positive evidence is required.

p. 9

The Tribunal applied the Madras High Court’s decision in Commissioner of C. Ex., Coimbatore v. SVA Steel Re-Rolling Mills Ltd., 2018 (362) E.L.T. 411 (Mad.), which states that the burden lies heavily on the department to establish clandestine production and removal.

p. 9

The penalties at issue were imposed under Section 11AC of the Central Excise Act and Rule 26 of the Central Excise Rules.

p. 2

Provisions in the judgment · 3 · Linked ones open on LawLens

Central Excise Act, 1944 Section 11 Section 14 Section 4

04Reasoning

The Tribunal found that the alleged shortage concerned MS ingots, which were not the finished goods and were said to have been captively consumed.

pp. 6–9

The inference that those ingots resulted in the clandestine manufacture and clearance of TMT bars was not supported by corroborative evidence.

pp. 6–9

Although the “Executive Diary” contained entries relating to quantities and clearances, and employees and the Managing Director made statements about the records, the department produced no supporting evidence such as electricity-consumption data, transport or dispatch records, or customer details establishing the alleged removals.

pp. 6–9

Applying the requirement of positive evidence, the Tribunal held that the private records and statements, without such corroboration, did not discharge the department’s burden.

pp. 9–10