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2026 Supreme(Online)(CESTAT) 151
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
Dilip Gupta, President, Hemabika R. Priya, Member (Technical)
M/s. Ashish Enterprises – Appellant
Versus
Principal Commissioner – Respondent
EXCISE APPEAL NO. 52020 OF 2024
For the Appellants/Petitioners: Shri Hardik Modh
For the Respondents: Shri S.K. Ray
The tribunal ruled that mere reliance on circumstantial evidence and third-party statements without tangible proof does not establish clandestine removal of goods under the Central Excise Act.
Headnote:(A) Central Excise Act, 1944 - Sections 11A, 11AA, and 11AC - Clandestine removal of goods - Appellant engaged in clandestine manufacture and removal of goods without payment of duty - Principal Commissioner confirmed duty demand with penalty based on circumstantial evidence and statements - Lack of tangible evidence of illicit clearance; mere reliance on diaries of third parties insufficient to prove charges. (Paras 1, 33-34, 90)
(B) Evidence in Duty Assessment - Essential criteria established for proving clandestine removal must include tangible evidence and not mere assumptions or third-party statements. (Paras 30, 34)
(C) Credibility of Witness Statements - Statements retracted under duress and without independent corroboration cannot form the basis for findings against the appellant. (Paras 26, 40)
(D)
Findings of Court:
The Tribunal found that the Prosecutor failed to establish the allegations against the appellant regarding clandestine removal. (Paras 90) (E)
Issues: The primary issue involves the necessary evidence to substantiate claims of clandestine manufacture and the proper use of witness statements within the ambit of the Central Excise Act. (Paras 30-34) (F)
Ratio Decidendi: Relying solely on circumstantial evidence and uncorroborated witness statements, particularly those made under duress, does not meet the legal standard for establishing clandestine operations. (Paras 34, 90) (G)
Result: The appeal is allowed, and the decision of the Principal Commissioner is set aside. (End of Order)
| Table of Content |
|---|
| 1. overview of the factual background of the case. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 17) |
| 2. findings based on investigations and evidence collected. (Para 19 , 20 , 21 , 22 , 23) |
| 3. arguments from the appellant's counsel regarding the lack of evidence. (Para 26 , 27 , 36 , 40 , 46) |
| 4. standard for establishing clandestine removal of goods. (Para 30 , 32 , 34) |
| 5. conclusion on the charge of clandestine removal and order. (Para 90 , 91) |
JUSTICE DILIP GUPTA:
M/s. Ashish Enterprises, the appellant has sought the quashing of that portion of the order dated 28.06.2024 passed by the Principal Commissioner, CGST and Central Excise, Bhopal, the Principal Commissioner that confirms the demand of central excise duty under section 11A with interest under section 11AA of the Central Excise Act, 1944 , the Central Excise Act. Penalty has also been imposed upon the appellant under section 11AC of the Central Excise Act and rule 28 of the Central Excise Rules, 2017 , the 2017 Rules
2. The appellant claims that it is engaged in the business of manufacture and sale of “Karamchand” brand Pan Masala and had cleared the goods on payment of appropriate GST and Compensation Cess and the details were duly disclosed in the monthly returns.
3. The appellant further claims that it had earlier decided to venture into manufacture of KC Brand Zafrani Zarda for which it started trial production but the application filed for registration of brand name “KC”, was not registered. The appellant also arranged some old and dilapidated machinery for manufacture of Zarda on sample basis and also purchased raw tobacco and accounted for in its book of accounts but since the appellant did not get satisfactory results, it did not pursue manufacturing Zafrani Zarda.
4. Directorate General of Goods and Services Tax Intelligence, the DGGI Ahmedabad Zonal Unit conducted search at the premises of the appellant and distributors, sub-distributors and two transporters on 09.11.2020 and 13.11.2020 on receiving intelligence that the appellant and its distributors clandestinely removed the manufactured goods (Pan Masala and Zafrani Zarda) without cover of invoice and without payment of appropriate amount of tax. The proceedings of the search were recorded in Panchnama dated 09.11.2022 (RUD-1) and 13.11.2022 (RUD-13).
5. The investigating authority seized the following documents from the premises of the appellant:
6. According to the appellant, none of the above documents show illicit clearance of the goods manufactured by the appellant and cleared clandestinely and the Panchnama dated 09.11.2020 also does not describe the documents/diaries found in any detail and merely mentions a brief name which is incapable of identifying the exact records seized. The appellant also claims that none of the purchase/sales invoices seized were relied upon in the show cause notice.
7. During the investigation, statements of Ratan Makhija (Proprietor of the appellant) and Basant Makhija (Brother of Proprietor) were recorded from morning of 09.11.2020 till night of 11.11.2020. Ratan Makhija retracted his statements through an Affidavit dated 12.11.2020. Basant Makhija also retracted his statement through an Affidavit dated 12.11.2020. Basant Makhija also retracted all his earlier statements before Additional Chief Metropolitan Magistrate, Ahmedabad.
8. Follow up search was conducted against a transporter called M/s Sarco Roadlines Pvt. Ltd., Sarco Roadlines on 09.11.2020 and 10.11.2020. During the search, the following documents (diaries/register/files) were seized under a Panchnama:
9. Statement of Firoz Khan was recorded on 11.11.2020. Statement Mustaq Abdul Gani Khokhar, Director of Sarco Roadlines was recorded on 22.11.2021.
10. Search was also conducted at the premises of a transporter called M/s. Data Goods Carrier, Data Goods Carrier at Gwalior on 09.11.2020. The following documents were seized from the premises:
11. Search was also simultaneously conducted on 09.11.2020 at another office of
