Third-Party Diaries Alone Can’t Prove Clandestine Removal | CESTAT Quashes Excise Demand Against Steel Manufacturer

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a substantial central excise duty demand, equivalent penalty on a steel manufacturer and a separate penalty of ₹3 crore imposed on its Director, holding that allegations of clandestine manufacture and removal cannot be sustained solely on the basis of entries found in third-party notebooks and loose papers without independent corroborative evidence. The bench of Ashok Jindal (Judicial Member), and K. Anpazhakan (Technical Member) has observed that statements recorded during investigation cannot automatically be treated as evidence unless statutory safeguards are complied with. It held that statements relied upon by the adjudicating authority were not admissible for establishing clandestine removal allegations The company was engaged in manufacturing TMT bars under a wet-lease arrangement with SAIL, under which the entire production capacity of the unit had been offered to SAIL. Under the agreement, the manufacturer was prohibited from producing goods for any third party and all production and dispatches were monitored by SAIL representatives posted at the factory. The dispute began after departmental officers visited the factory and related premises on August 14, 2014 and recovered notebooks and loose papers from the premises of one Joydev Karmakar, who was associated with a loading and unloading contractor. Based on entries in these notebooks, authorities alleged clandestine manufacture and clearance of excisable goods without payment of duty and eventually issued a show cause notice demanding duty. The manufacturer argued that the entire case rested on third-party documents maintained by a person who was neither an employee of the company nor directly connected with excise compliance. The company contended that there was no stock verification, no evidence of excess procurement of raw materials, no identification of buyers, no statements from transporters or vehicle owners, no evidence of abnormal electricity consumption and no proof regarding flow of funds. It further argued that SAIL itself never complained of unauthorized production or diversion of goods. The Tribunal closely examined the evidentiary foundation of the department's case and observed that the entire demand had been constructed on the basis of documents recovered from a third party. Referring to earlier precedents, including Prag Pentachem Pvt. Ltd., CBI v. V.C. Shukla, Raj Petroleum Products and P.D. Industries Pvt. Ltd., the Bench reiterated that private records, diaries or loose sheets maintained by third parties cannot by themselves establish clandestine removal unless supported by independent and corroborative evidence. The Tribunal noted that several critical investigative steps had not been undertaken by the department. There was no effort to identify or verify buyers, transporters or suppliers. Authorities also failed to establish excess production capability, additional consumption of electricity or procurement of raw materials necessary for alleged clandestine production. The Bench also found serious procedural defects in the adjudication process. The statements relied upon by the adjudicating authority had not been tested in accordance with Section 9D of the Central Excise Act, 1944. The Tribunal noted that cross-examination sought by the assessee had been denied and mandatory statutory requirements regarding admissibility of statements had not been followed. After considering the factual matrix and applicable precedents, the Bench concluded that the Revenue had failed to establish the charge of clandestine manufacture and removal through legally sustainable evidence. The Tribunal set aside the order along with the duty demand, interest liability and penalties imposed on both the company and its Director, allowing the appeals with consequential relief. Case Details Case Title: M/s SBIW Steels Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Durgapur Citation: JURISHOUR-1379-CES-2026(KOL) Case No.: Excise Appeal No.76606 of 2017 Date: 25 May 2026 Counsel For Appellant: N.K.Chowdhury, Advocate Counsel For Respondent: P.Das, Authorised Representative Click Here To Read Order Read More: Running Account Bills Can’t Be Rejected on Mere Technicalities: CESTAT Allows Rajasthan Housing Board CENVAT Credit

Third-Party Diaries Alone Can’t Prove Clandestine Removal | CESTAT Quashes Excise Demand Against Steel Manufacturer

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