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2026 Supreme(Online)(Kar) 30452
THIS CEA FILED UNDER SEC.35G OF THE CENTRAL EXCISE ACT, 1944 ARISING OUT OF ORDER DATED 25/02/2011 IN FAINAL ORDER NO.176 TO 180/2011, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO SET ASIDE THE FINAL ORDER NO.176 TO 180/2011 DATED 25/02/2011, PASSED BY THE CESTAT, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS APPEAL HAVING BEEN RESERVED FOR JUDGMENT ON 11.06.2026 COMING ON FOR PRONOUNCEMENT THIS DAY, RAJESH RAI K, J., DELIVERED THE FOLLOWING:
CORAM: HON'BLE MR. JUSTICE S.G.PANDIT
and
HON'BLE MR. JUSTICE RAJESH RAI K
For the Appellants/Petitioners: Aravind V. Chavan
For the Respondents: Vani H
Clandestine manufacture and removal of goods cannot be established solely on the basis of electricity consumption norms if such consumption reports are based on estimations lacking scientific rigor, test runs, or technical standards, and are unsupported by other tangible corroborative evidence.
Headnote:(A) Central Excise Act, 1944 - Section 11A, 11AB, 11AC, 35G - Central Excise Rules, 2002 - Rule 25, 26 - Clandestine removal and manufacture of excisable goods - Duty demand based on electricity consumption - Admissibility and reliability of expert opinion - Retracted statements of witnesses - The court held that clandestine production cannot be fixed solely on power consumption norms without accounting for scientific variations in furnace conditions, capacity, and raw material quality - Expert reports lacking test runs and standardizing data were found unreliable. (Paras 26, 28, 29)
(B) Evidence - Burden of proof - In cases of clandestine removal, the department must produce tangible evidence beyond suspicion - Retracted statements or unverified kachha slips without corroborative proof do not constitute sufficient grounds for duty confirmation. (Paras 28, 29)
Facts of the case:
The assessee was engaged in the manufacturing of ingots and rolled products. Investigation by Intelligence officials led to allegations of clandestine removal of goods based on excess electricity consumption reports and seized 'kaccha slips'. The Commissioner confirmed the duty demand, but the Tribunal set it aside, finding the evidence unreliable. The Revenue appealed against the Tribunal's decision.
Findings of Court:
The court held that the Tribunal correctly analyzed the evidentiary standards. The power consumption report relied upon by the department lacked scientific consistency and failed to account for furnace-specific variables. Retracted testimonies and unverified documents failed to establish a clear case of clandestine production.
Issues: Whether the Tribunal erred in law by setting aside the duty demand and penalty in a case of alleged clandestine removal of excisable goods, and whether it wrongly substituted its own appreciation of evidence for that of the Commissioner.
Ratio Decidendi: Clandestine manufacture and removal cannot be established solely on power consumption norms when such reports are not derived from scientific test runs or standard technical literature, and lack independent corroboration. The court must reject demands resting on vague evidence and retracted statements.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. procedural history and factual background of the duty evasion investigation. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14) |
| 2. arguments concerning sufficiency of evidence for clandestine manufacture and demand. (Para 15 , 16 , 17 , 18 , 19 , 20 , 21) |
| 3. assessment of evidence and standards for proving clandestine production. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30) |
CAV JUDGMENT
(PER: HON'BLE MR. JUSTICE RAJESH RAI K)
1. The appellant – Commissioner of Central Excise (hereinafter referred to as, 'revenue') has preferred this appeal assailing the order dated 25.02.2011 in Final Order Nos.176-180/2011 passed by the Customs, Excise and Service Tax Appellate Tribunal (for brevity, "Tribunal"), whereby the Tribunal allowed the appeals filed by the assessee in Appeal Nos.E/721-723/2007 and E/840/2008, and rejected the appeal filed by the revenue in Appeal No. E/737/2007 and confirmed the demand of duty covered under the show-cause notices dated 11.08.2006, 29.01.2007, and 29.10.2007 issued by the revenue, while rejecting the revenue's prayer for enhancement of duty.
2. The facts, in a nutshell, are that M/s. Saravana Alloy Steel Private Limited (for brevity, "SAPL") is engaged in the manufacture of non-alloy steel ingots and rolled products falling under Chapter 72 of the Central Excise Tariff Act, 1985. It has two units. The ingots procured from Unit I on a stock-transfer basis, as well as the ingots manufactured in Unit II, are captively consumed in the manufacture of CTD bars and rods.
3. Based on specific intelligence gathered by the officers of the Directorate General of Central Excise Intelligence, that SAPL was evading Central Excise duty by resorting to clandestine removal of excisable goods manufactured by it, search operations were conducted on 02.09.2004 at the factory premises of SAPL, the residence of the Managing Director of SAPL, and the premises of some of its dealers and raw material suppliers, and incriminating records/documents were seized. During the course of investigation, statements of several witnesses were recorded.
4. Subsequently, the investigation revealed that SAPL had clandestinely manufactured and cleared CTD bars. It was also found that the actual power consumed by SAPL for production of ingots and CTD bars was substantially higher than what was required for the accounted production. Therefore, an expert opinion was obtained from Sri G.S.Hegde, Chartered Engineer, to ascertain the actual power required for manufacture of ingots and CTD bars. Accordingly, he submitted his report dated 10.07.2006 and opined that the power required for the manufacture of ingots and CTD bars was 1000 KWH per MT and 200 KWH per MT, respectively.
5. Thus, it was revealed that SAPL had clandestinely manufactured and cleared its goods without payment of the appropriate Central Excise duty. Accordingly, Show Cause Notice No.24/2006-07 dated 11.08.2006 was issued by the Additional Director General, DGCEI, Bangalore, calling upon SAPL to show cause before the Commissioner of Central Excise, Bangalore-II Commissionerate, Bangalore, as to why:
(i) Central Excise duty of Rs.7,59,27,962/- being the duty payable on the goods clandestinely manufactured and cleared by them during the period from August 2001 to December, 2005, should not be demanded from them under proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944.
(ii) Amount of Rs.50,00,000/- paid by them towards the duty liability for the past period, should not be appropriated towards the duty determined and demanded at (i) above.
(iii) Interest for delayed payment of duty should not be demanded from them under Section 11AB of the Central Excise Act, 1944 in respect of the demand at (i) above.
(iv) Penalty should not be imposed on them under Section 11AC of the Central Excise Act, 1944 and also under Rule 25 of the Central Excise (No.2) Rules, 2001/Rule 25 of Central Excise Rules, 2002.
6. Apart from the above, another show ca
