The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside excise duty demands, interest liabilities, and penalties of Rs. 1 crore+ and has held that allegations of clandestine clearance cannot be sustained merely on the basis of private records, notebooks, pen-drive data, and uncorroborated statements without independent and tangible evidence.
The bench of Ashok Jindal (Judicial Member) and K.Anpazhakan (Technical Member) has observed that the allegations of clandestine removal constitute a serious charge and therefore require strong, positive, and independent evidence. The Bench noted that the department’s case was primarily built upon discrepancies found in pen-drive data, notebooks, daily reports, and statements, but lacked corroborative material establishing actual clandestine production and clearance.
The department had confirmed central excise duty demands against the manufacturers along with interest and penalties under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002. The Tribunal’s decision was delivered by a Bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan through Final Order Nos. 75827-75829/2026 pronounced on July 3, 2026.
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The case originated from intelligence received by the Directorate General of GST Intelligence (DGGI), Guwahati Zonal Unit, alleging that one of the manufacturers had clandestinely cleared 15–20 percent of its production of MS Ingots to a related rolling mill unit. According to the department, these ingots were used for the clandestine manufacture and removal of finished steel products such as MS Square Bars, MS Patti, and MS Angles without payment of central excise duty.
Based on this intelligence, DGGI officers conducted searches in March 2018 at factory premises, corporate offices, and other locations connected with the companies. During the search operations, officials recovered notebooks, loose sheets, daily production reports, dispatch records, and pen drives allegedly containing unofficial production and clearance data.
The department claimed that scrutiny of these documents revealed multiple instances of goods being transported and cleared without corresponding excise invoices. Investigators also alleged discrepancies between statutory records and internal production records, as well as excess consumption of raw materials indicating unaccounted production.
According to the show cause notice, the seized records suggested that large quantities of MS Ingots and finished steel products were cleared without payment of duty. The department further alleged that production and dispatch reports demonstrated clandestine movement of goods between the two manufacturing units and suppression of production figures in statutory records.
Relying on these records, the authorities quantified alleged duty evasion of approximately ₹41.36 lakh by one unit and ₹59.87 lakh by the other. The director was also proceeded against on the ground that he was actively managing the affairs of both companies and was allegedly involved in the clandestine transactions.
The adjudicating authority confirmed the demands and imposed penalties, leading to the appeals before the Tribunal.
The appellants argued that the entire case rested on assumptions and unauthenticated private records. They contended that the department had failed to establish actual clandestine manufacture or removal of goods through legally admissible and corroborative evidence.
The manufacturers further argued that there was no investigation into crucial factors normally associated with clandestine production, such as procurement of excess raw materials, abnormal electricity consumption, employment of additional labour, transportation arrangements, identification of buyers, or recovery of sale proceeds. They maintained that no independent evidence existed to support the serious allegations levelled by the department.
Another major contention raised by the appellants was that the show cause notice, issued in January 2022 for a period extending from December 2016 to June 2017, was barred by limitation and that the department had wrongly invoked the extended period without establishing fraud, suppression, or wilful misstatement.
The Tribunal emphasised that merely because entries were absent from statutory records or appeared in private documents, it could not automatically be inferred that clandestine removals had taken place. It held that such allegations must be supported by evidence demonstrating actual manufacture, transportation, sale, and receipt of consideration for the goods allegedly removed without payment of duty.
In reaching its conclusion, the Bench relied extensively on judicial precedents, including decisions of the Calcutta High Court, Patna High Court, Supreme Court, and various Tribunal benches, all of which stress that clandestine removal cannot be established on presumptions, assumptions, or uncorroborated private records alone.
The Tribunal reiterated that for sustaining a demand based on clandestine manufacture and removal, the Revenue must ordinarily establish factors such as procurement of excess raw materials, excess power consumption, deployment of additional labour, actual transportation of goods, identification of buyers, and flow-back of sale proceeds. In the present case, no such comprehensive investigation had been conducted.
The Bench referred to several landmark decisions which consistently hold that clandestine removal charges are quasi-criminal in nature and therefore require proof through tangible and convincing evidence. The Tribunal observed that reliance solely on private records or statements, without independent corroboration, is legally insufficient to sustain excise demands.
Particular reliance was placed on precedents holding that assumptions drawn from private notebooks, transport records, or internal documents cannot substitute for proof of actual clandestine production and clearance. The Tribunal noted that courts have repeatedly rejected excise demands founded only on presumptions and unsupported inferences.
Concluding that the department had failed to discharge the burden of proving clandestine manufacture and removal through credible and corroborative evidence, the Kolkata Bench allowed all the appeals. Consequently, the excise duty demands, interest liabilities, and penalties imposed on both manufacturing units as well as on the director were set aside.
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