CESTAT Upholds Excise Duty Demand for Clandestine Clearances Based on Unretracted Confessional Statement

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld a central excise duty demand of Rs. 5.69 lakh against a Daman-based plastic bag manufacturer for alleged clandestine removal of finished goods without payment of duty. The bench of Satendra Vikram Singh (Technical Member) has set aside the separate penalty imposed on the partner of the firm, holding that once a partnership firm has been penalised, a separate penalty on the partner is not sustainable in the absence of a distinct role attributed to him. The matter arose after departmental officers conducted a search at the premises of the manufacturer on 10 January 2012 and recovered various documents, including lorry receipts (LRs), bank statements, invoices, notebooks and job work challans. During investigation, the department found that while some lorry receipts matched excise invoices issued by the assessee, several other LRs had no corresponding duty-paying invoices. Based on these documents, the department alleged suppression of taxable turnover during FY 2010-11 and 2011-12. A show cause notice dated 1 October 2015 was issued demanding differential excise duty of ₹5,69,381 along with interest and penalties under Sections 11A, 11AA and 11AC of the Central Excise Act, 1944. The adjudicating authority confirmed the demand and imposed an equal penalty on the firm, while also imposing a penalty of ₹5.50 lakh on the partner under Rule 26(1) of the Central Excise Rules, 2002. The Commissioner (Appeals) subsequently upheld the order, leading to appeals before the Tribunal. Before the Tribunal, the assessee argued that the entire demand was based merely on lorry receipts recovered from the factory premises without independent corroboration from transporters or buyers. It was contended that the department failed to establish excess production, procurement of unaccounted raw materials, excess electricity consumption, additional manpower utilisation, freight payments or receipt of unaccounted sale proceeds. The assessee further submitted that clandestine removal allegations cannot be sustained merely on assumptions and presumptions. The appellant also challenged the valuation methodology adopted by the department, arguing that the lorry receipts did not specify quality or grade of goods and that the department had arbitrarily adopted values based on invoices issued during nearby dates. Several judicial precedents were cited to contend that clandestine removal charges require strong corroborative evidence and cannot rest solely on loose documents or assumptions. The Revenue, however, relied heavily on the statement of the partner recorded on 11 September 2015, nearly three-and-a-half years after the search. According to the department, the partner admitted that goods covered under several lorry receipts had been cleared clandestinely without issuance of invoices and without payment of excise duty. The Revenue argued that the statement was voluntary, never retracted and therefore constituted admissible evidence sufficient to sustain the demand. The Tribunal accepted the Revenue’s stand and observed that the partner had expressly admitted the valuation methodology as well as the clandestine clearances reflected in the lorry receipts. The Bench noted that there was no evidence to show that the statement was recorded under coercion or duress and that the statement had never been retracted. The Tribunal held that recovery of lorry receipts for which no corresponding excise invoices existed, coupled with the confessional statement of the partner, constituted sufficient evidence to establish clandestine removals. The Bench rejected the argument that additional corroborative evidence such as excess raw material consumption, electricity usage or unaccounted cash recovery was mandatory in every case. Relying on various judicial precedents including the Gujarat High Court ruling in Pooja Tex Prints Pvt Ltd and Supreme Court decisions concerning admissibility of confessional statements recorded under fiscal laws, the Tribunal reiterated that voluntary confessional statements can form the sole basis for sustaining duty demands if they remain unretracted. The Bench also referred to a recent Calcutta High Court ruling observing that delayed retractions of confessional statements may be treated as “calculated afterthoughts” unless supported by evidence of coercion. Further reliance was placed on Supreme Court observations affirming the evidentiary value of voluntary statements recorded under Section 108 of the Customs Act. The Tribunal upheld the excise duty demand, interest liability and equal penalty imposed on the partnership firm by invoking the extended limitation period under the Central Excise Act. However, on the issue of penalty imposed on the partner, the Tribunal ruled in favour of the appellant. Referring to the Gujarat High Court judgment in Pravin N. Shah v. CESTAT, the Bench held that once a partnership firm has been penalised, a separate penalty cannot ordinarily be imposed on a partner unless a specific independent role is attributed to him under Rule 26. Since no such distinct role had been established in the present case, the Tribunal set aside the penalty of ₹5.50 lakh imposed on the partner. Case Details Case Title: Tarun Polymers Versus Commissioner Of Central Excise And Service Tax- Daman Citation: JURISHOUR-1243-CES-2026(AHM) Case No.: Excise Appeal No. 12126 of 2018- SMC Date: 13.05.2026 Counsel For Appellant: Jagdish Surti, Advocate Counsel For Respondent: Sunita Menon, Superintendent (AR) Click Here To Read Order Read More: Clandestine Removal Cannot Be Alleged on Assumptions Alone: CESTAT Quashes Rs. 50 Lakh Excise Demand

CESTAT Upholds Excise Duty Demand for Clandestine Clearances Based on Unretracted Confessional Statement

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