The assertion of clandestine removal cannot be proved merely by the testimony of some transporters

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The Hon’ble Bombay High Court in the Principal Commissioner of Central GST & C. v. Filatex India Ltd. [Central Excise Appeal No. 204 of 2019 dated September 8, 2022] held that the accusations of clandestine removal cannot be confirmed merely based on a statement of few transporters under the terms of Central Excise Act, 1944 (“the Central Excise Act”).

Facts:

M/s. Filatex India Ltd (“the Respondent”) is engaged in the manufacture of polyester yarn, and is the holder of Central Excise Registration. In an inquiry, it was observed that there was a clandestine removal of the polyester yarns by the Respondent from their factory for sale without payment of central excise duty and the same were not used for manufacturing fabrics.

Following this a show-cause notice dated June 8, 2009 (“the SCN”), was issued by the Commissioner, Central Excise raising demand of duty of Rs. 3,11,76,080/- under Section 11A(1) of the Central Excise Act along with interest and also a proposal to confiscate goods valued at Rs.10,93,00,281/-. Subsequently, Order in original dated June 22, 2011 (“the OIO”) was passed confirming the demand and penalties were also imposed on the Joint Managing Director and other officers of the Respondent under Section 11AC of the Central Excise Act.

Aggrieved by OIO the Respondent filed an appeal in the Customs Excise and Service Tax Appellate Tribunal (“CESTAT”) and the appeal was allowed by the CESTAT vide Final order dated April 11, 2019 (“Final order”) observing that mere statement by few of the transporters that they did not transport the fabric cannot be a ground to hold that no fabric was manufactured.

Lastly, after being aggrieved by the OIA, the Principal Commissioner of Central Goods and Service Tax (“the Appellant”), filed the present appeal under Section 35G of the Central Excise Act.

Issue:

Whether or not the Respondent can be held for clandestine removal of polyester yarns merely based on statements by the transporters?

Held:

The Hon’ble Bombay High Court in Central Excise Appeal No. 204 of 2019 dated September 8, 2022 held as under:

  • Agreed with all the observations of the CESTAT that the Respondent before sending the polyester yarns for job work filed intimation with the Department as required under the Central Excise Rules, 2002, the Department was in knowledge of the job work activities, that while sending goods, the challans were prepared and the polyester yarn was acknowledged by the job workers of having been received, the Respondent has paid job work charges to the said job workers and also deducted TDS on such payments as found by the Tribunal from Form-16A etc.
  • Thus, mere statement of some transporters that they did not transport the fabric cannot be a ground to hold that no fabric was manufactured.
  • Further, no evidence has been adduced to the effect that the Respondent had clandestinely removed the yarn from their factory for sale by evading central excise duty.
  • Finally concluded that, there is no merit in this Appeal and the Appeal stands dismissed.

(Author can be reached at info@a2ztaxcorp.com)

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CA Bimal Jain
A2Z Taxcorp LLP is a boutique Indirect Tax firm having its offices at New Delhi and Guwahati specializing in GST, Central Excise, Custom, Service Tax, VAT, DGFT, Foreign Trade Policy, SEZ, EOU, Export – Import Laws, Free Trade Policy, etc. It is a professionally managed firm having a team of experienced and distinguished Chartered Accountants, Company Secretary, Lawyers, Corporate Financial Advisors and Tax consultants to provide various services like litigation and representation, transaction advisory, diagnostic reviews/ health checks, audit defense & protection, retainership & compliance, configuration of tax efficient business model etc. Its clientele consists mainly of Foreign MNC, large/mid-sized Indian companies which includes exporters, FMCG, consumer durables, automobiles, aerated beverages, ceramic tiles, real-estate, hospitality, etc. Our clients include Varun Beverages Limited, Kajaria Ceramics Limited, L.G. Electronics India Private Limited, Shipra Hotel Limited, Multani Pharmaceuticals Limited, Shangri-La Eros Hotel etc. Flat No. 34B, Ground Floor, Pocket - 1, Mayur Vihar, Phase–I, Delhi – 110091 India Desktel:+91-11-42427056 Mobile:+91 8076563802 info@a2ztaxcorp.com www.a2ztaxcorp.com
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