Facts of the Case

  • The Department conducted searches at the premises of Vimla Rolling Mills Pvt. Ltd. and its director on 21 September 2005.
  • During the search, unaccounted copper ingots and certain slips (“kachi parchis”) were allegedly found and a panchnama was prepared.
  • A Show Cause Notice dated 31 July 2007 was issued.
  • The adjudicating authority confirmed a demand of ₹4,34,73,449.87 along with penalty and interest by order dated 27 March 2009.
  • The CESTAT, by order dated 26 December 2016, allowed the appeals of the respondents and set aside the demand.
  • The Department filed appeals before the Delhi High Court under Section 35G of the Central Excise Act.

Issues Involved

  1. Whether the CESTAT erred in setting aside the excise duty demand based on seized slips and statements.
  2. Whether reliance on retracted statements and allegedly contradictory evidence was legally sustainable.
  3. Whether any substantial question of law arose for consideration under Section 35G of the Central Excise Act, 1944.

Petitioner’s (Department’s) Arguments

  • The Department relied on seized slips indicating production, stock, and fuel consumption to establish clandestine manufacture.
  • Statements of company officials were used to interpret the entries in the slips.
  • It was contended that the CESTAT erred in discarding such evidence and setting aside the demand.

Respondent’s Arguments

  • The statements relied upon by the Department were retracted and allegedly recorded under coercion.
  • The evidence based on slips was unreliable and lacked corroboration.
  • Contradictions in statements of witnesses rendered the Department’s case unsustainable. 

Court’s Findings / Order

  • The Court observed that the CESTAT had carefully appreciated the evidence and found contradictions in the statements relied upon by the Department.
  • The explanation of the witnesses regarding the seized slips was inconsistent and unreliable.
  • The Court held that the findings of the CESTAT were not perverse.
  • It was concluded that no substantial question of law arose for consideration.
  • Accordingly, the appeals filed by the Department were dismissed.

Important Clarification

  • Mere reliance on private records such as slips without corroborative evidence is insufficient to establish clandestine manufacture.
  • Retracted statements, especially when alleged to be obtained under coercion, carry weak evidentiary value unless independently corroborated.
  • High Court will not interfere with factual findings of CESTAT unless perversity is demonstrated.

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8823-DB/SMD11082017CEAC232017_164928.pdf

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