CESTAT Lays Down Strict Standards for Proving Clandestine Removal; Quashes Massive Excise Demand Against Miraj Product

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi while quashing the massive excise demand against Miraj Product has held that the allegations of clandestine activity must be supported by “tangible, positive and corroborative evidence” and not merely on suspicion or theoretical assumptions. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that no document or record was found at the premises of the appellant showing or supporting clandestine manufacture or clearance of finished goods. There was no excess or short stock either of raw material or packing material or finished goods found during search at Unit-I of the appellant where the pouch packing takes place and from where clearance of finished goods was made. The case pertains to M/s Miraj Product Pvt. Ltd., a manufacturer engaged in the production and packaging of branded lime-mixed chewing tobacco under tariff classification 2403 99 10. The company operated through two units in Nathdwara: Unit-II (Processing Unit): Responsible for mixing raw tobacco with lime, drying, grading, and preparing processed tobacco. Unit-I (Packing Unit): Used for pouching and final clearance of the finished product under the brand “Miraj” or “Mirage.” The dispute primarily concerns Unit-I, where the department alleged large-scale clandestine production and removal of chewing tobacco without payment of central excise duty during the period 2002–2006. The Directorate General of Central Excise Intelligence (DGCEI) issued a show cause notice in 2007, alleging that the company had procured unaccounted raw tobacco from multiple suppliers; Received unaccounted packaging materials through alleged dummy firms; Possessed the capacity to produce far more pouches than recorded; Cleared finished goods through undisclosed channels using dealers and intermediaries; and Engaged in cash-based, unrecorded sales through certain dealers. Based on these allegations, the department estimated that the company clandestinely manufactured and cleared crores of tobacco pouches, leading to a substantial duty demand. The adjudicating authority confirmed a demand of ₹20.41 crore, while dropping a portion of the demand based on a Supreme Court ruling on valuation. The Commissioner observed that the statements recorded during investigation retain evidentiary value even if retracted. Cross-examination is not an absolute right in quasi-judicial proceedings. The department’s case was based on credible and corroborated evidence, including transport records and supplier statements. The assessee failed to satisfactorily explain discrepancies in raw material and packaging records. The assessee contended that the case was based on assumptions and theoretical calculations, not concrete evidence. There was no proof of actual clandestine manufacture or removal. Statements relied upon by the department were not tested through cross-examination, violating Section 9D of the Central Excise Act. No corroborative evidence existed regarding: excess raw material procurement, unaccounted finished goods, and actual sales or receipt of proceeds. The department argued that the investigation covered the entire supply chain, including procurement, production capacity, and distribution. Evidence from transporters and suppliers indicated fabricated documentation and dummy firms. The company’s installed machinery indicated a much higher production capacity than declared. Documentary and oral evidence together established clandestine activity. A central issue before the Tribunal was whether the department had discharged its burden of proof in establishing clandestine manufacture and removal. The Tribunal relied extensively on settled jurisprudence, particularly the decision in Arya Fibers Pvt. Ltd., to outline the essential criteria for proving such allegations. The Tribunal observed that private records or statements alone are insufficient unless corroborated; denial of cross-examination can undermine reliance on statements; and the burden lies squarely on the department to prove allegations with credible and verifiable evidence. A major legal flaw identified by the Tribunal was the improper reliance on statements recorded under Section 14 of the Central Excise Act without complying with Section 9D. The Tribunal clarified that the statements can be used as evidence only after the person is examined as a witness, and the adjudicating authority determines their admissibility. The assessee must be given an opportunity for cross-examination. Case Details Case Title: M/s. Miraj Product (P) Ltd. Versus The Commissioner Citation: JURISHOUR-636-CES-2026(DEL) Case No.: EXCISE APPEAL NO. 50988 OF 2025 Date: 06.04.2026 Counsel For Appellant: B.L. Narasimhan Counsel For Respondent: Gurdeep Singh Click Here To Read Order Read More: A.Y. 2026–27: Know ITR Filing Deadlines

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CESTAT Lays Down Strict Standards for Proving Clandestine Removal; Quashes Massive Excise Demand Against Miraj Product

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