CESTAT Kolkata Quashes ₹7.06 Crore Excise Demand, Says PSU Appellant Cannot Be Alleged To Have Acted Mala Fide

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata has set aside a ₹7.06 crore central excise demand against public sector undertaking Neelachal Ispat Nigam Ltd., observing that the appellant, being a PSU, could not be alleged to have acted with mala fide intent to clear goods clandestinely.

A coram of Judicial Member Ashok Jindal and Technical Member K. Anpazhakan observed, "Further, the appellant being a public sector undertaking, we are of the opinion that the appellant cannot be alleged to be having mala fide intentions to clear the goods clandestinely."

The bench also found that the Revenue had failed to produce any tangible evidence of clandestine manufacture or removal. Instead, it relied only on stock shortages worked out through eye estimation and yield-based calculations.

The dispute arose after an external agency found shortages of pig iron, mixed coke, and crude tar during a stock verification exercise. Based on the survey report and a subsequent investigation, the Department alleged that the goods had been removed without payment of duty. It confirmed a demand of ₹7.06 crore along with interest and an equivalent penalty.

The PSU argued that the shortages were only notional. It said pig iron production was recorded using conversion ratios because there was no weighment facility after the hot metal stage, while dispatches were recorded on the basis of actual weighment.

Variations between book stock and physical stock were therefore inherent in the accounting methodology. The company also argued that the Department had not produced evidence of clandestine manufacture or removal, such as excess raw material consumption, transportation records, identified buyers, or receipt of sale proceeds.

The revenue argued that the stock shortages, statements recorded during the investigation and instances of pilferage established clandestine removal of excisable goods without payment of duty. It also relied on earlier decisions to support the demand.

The bench found that the stock verification itself was based on estimation. It noted that the Revenue had produced no actual weighment to contradict the appellant's explanation.

In large steel plants, production is often recorded using conversion ratios, while clearances are recorded on the basis of actual weighment. Variations between book stock and physical stock were therefore not unusual.

Relying on earlier decisions, the bench held that discrepancies in stock records alone cannot sustain an allegation of clandestine removal.

It reiterated that such allegations must be supported by corroborative evidence, including excess raw material consumption, actual transportation of unaccounted goods, identified buyers, receipt of sale proceeds or abnormal electricity consumption. The Revenue had established none of these in the present case.

The bench observed, "No tangible evidence has been brought on record by the Revenue; merely from shortages recorded by the auditors on eye estimation basis / yield basis, it has been inferred that there is clandestine removal of goods on the part of the appellant. Such inferences are drawn merely on the basis of assumptions and presumptions and the same cannot be a basis to sustain the allegation of clandestine removal of goods against the appellant."

The bench also held that the extended period of limitation could not be invoked.

It was observed that the appellant was a public sector undertaking, and the Revenue had not established any mala fides against it. The bench accordingly set aside the demand, interest and penalty

For Appellant: Advocates B.L. Narasimhan, Shri Rahul Tangri and Shri Sreeja Chakraborty,

For Revenue: Advocates S.K. Dikshit, Authorised Representative