Mere Tallying Some Diary Entries With Electricity Bills/Bank Statements Insufficient To Allege Tax Evasion: CESTAT
Pranav B Prem
The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a Central Excise duty demand of ₹2.16 crores imposed on M/s DD Iron & Steel Pvt. Ltd., holding that the demand was based solely on unverifiable, unauthenticated private documents seized during a 2012 search operation. The bench comprising Justice R. Muralidhar (Judicial Member) and Mr. Rajeev Tandon (Technical Member) held that the seized materials lacked evidentiary value and could not form the basis of an allegation of clandestine removal of excisable goods.
The appellant, engaged in the manufacture of Mild Steel Ingots falling under Sub Heading 7206.10.90, uses Sponge Iron, Pig Iron, Cast Iron, and similar inputs. On 01.09.2012, officials from the Directorate General of Central Excise Intelligence (DGCEI) conducted simultaneous search operations at various premises, including the factory-cum-office of the appellant and the residence of one Shri Surendra Prasad Gupta, the brother-in-law of the company’s director, Shri Musafir Jaiswal.
During the search, a spiral-bound pocket diary was seized from the director’s chamber and loose handwritten sheets described as a "trial balance" were recovered from the residence of Shri Surendra Prasad Gupta. These documents, along with statements from some individuals, formed the entire basis for the show cause notice issued to the appellant on 27.01.2016, alleging clandestine clearance of 5,816.66 MT of M.S. Ingots valued at ₹19.13 crore, attracting a Central Excise duty of ₹2,16,46,337. The adjudicating authority confirmed the duty demand with interest and penalty, including a personal penalty on the director.
The Tribunal, however, examined the nature and credibility of the documents relied upon by the Revenue and found them seriously lacking in probative value. The so-called “trial balance” was handwritten in pencil and exhibited two different handwritings—one for the description and another for the numerical entries—suggesting it was authored by two unidentified individuals. Importantly, it bore no signatures or indication of authorship and was inconsistent with basic accounting principles, as the debit and credit totals did not match. The Tribunal concluded that such a document, being tentative and alterable, could not be treated as a genuine trial balance.
Furthermore, the spiral diary (Navneet) seized from the director's chamber was also dismissed as a “dumb document.” The Tribunal noted that although it recorded date-wise entries of transactions, including quantities and party names, there was no indication that these entries pertained to unlawful clearances. The director had explained in his statement that the diary was used to record tentative orders, which were struck off once transactions were completed or canceled. This explanation was supported by the diary’s physical markings and lacked rebuttal from the Revenue through any conclusive investigation.
Critically, the Tribunal emphasized that the entire demand rested solely on these two private records, with no corroborative evidence. There were no findings of excess stock, unaccounted raw material purchases, extra electricity consumption, transport documents, or any admissions by buyers or transporters. Even though some diary entries approximately matched electricity bills or bank statements, the Tribunal observed that “mere tallying of certain entries does not make out these loose sheets to be a complete evidence” of tax evasion.
The Tribunal also noted a procedural violation in the denial of cross-examination of key witnesses, including the accountant and director, whose statements had been used against the assessee. Referring to Section 9D of the Central Excise Act, it held that such statements could not be relied upon without adherence to proper procedure, including offering an opportunity for cross-examination.
Relying on precedent including Continental Cement Co. v. UOI [(2014) 309 ELT 411 (All.)] and Arya Fibres Pvt. Ltd. v. CCE [2014 (311) E.L.T. 529 (Tri. - Ahmd.)], the Tribunal reiterated that clandestine removal of goods must be proven with tangible evidence such as unauthorized production, transportation records, buyer confirmations, or financial trails—none of which were presented in this case. It held that assumptions and approximations, even if they appear consistent with known expenditures, cannot substitute for concrete proof.
In conclusion, the Tribunal found that the Revenue had failed to discharge its burden of proof and that the entire case was built on unverifiable private documents lacking authenticity or corroboration. Consequently, the demand of ₹2.16 crores was quashed. The penalty imposed on the director was also set aside, as there was no evidence to establish his involvement in any wrongdoing. Accordingly, both appeals filed by the assessee and its director were allowed, and the impugned order was set aside in its entirety.
Appearance
Shri K. Kurmy, Advocate for the Appellant
Shri S. Dey, Authorized Representative for the Respondent
Cause Title: M/s DD Iron & Steel Pvt. Ltd. V. Commissioner of CGST & Central Excise
Case No: Excise Appeal Nos. 76871-76872 of 2016
Coram: Hon'ble Mr. R. Muralidhar [Member (Judicial)], Hon'ble Mr. Rajeev Tanodn [Member (Technical)]
