Somesh Arora: Clandestine Removal- Standard of proof in Central Excise- Whether preponderance of evidence or proof beyond doubt?


The difficulties being faced by lawyers and other parties to the courts in matters of clandestine removal in Central Excise pertains not only to subjective appreciation of evidence which can vary from courts to courts, but also to standard of evidence that may be required to prove a case. Incidentally not many matters after final decisions actually travel to Supreme Court or High Courts, as in most cases there being no question of law involved but only appreciation of evidence, such matters hardly get through beyond admission stage. It is, therefore, that  even the standard of proof warranted has been subject matter of variance in case law pertaining to clandestine removal in the Central Excise. As per earlier trend, a difference in scale of evidence in prosecution and departmental adjudication proceedings had become discernible. In this regard, in 1984 (17) E.L.T. 513(Tribunal)  INDIAN CORK MILLS LTD. AND OTHERS  Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY, it was held- ` There is a considerable difference between adjudication proceedings and prosecution. Strict rules of evidence are not applicable to adjudication proceedings. The nature and extent of proof required in an adjudication proceedings is different from the nature and extent of proof required in a criminal prosecution. In the case of criminal prosecution the burden of establishing the guilt of the accused is always on the prosecutor and that burden has to be discharged beyond reasonable doubt. But in an adjudication proceedings the initial burden of establishing the charges lies on the department. When once this initial burden is discharged by the department by adducing satisfactory evidence then the onus shifts to the delinquent to rebut the evidence against him. Further, in an adjudication proceeding the department is not required to establish the guilt beyond reasonable doubt. The pre-ponderence of probability is the test to be applied.’


 The trend in recent years is culled out in the following case law, most of which are at the Tribunal level. In 2001 (130) E.L.T. 228 (Tri. - Kolkata)  COMMISSIONER OF C. EXCISE, PATNA Versus UNIVERSAL POLYTHELENE INDUSTRIES, the reverse trend had started appearing in observations, when it was held`It is well settled that charge of clandestine removal and clearance is a serious charge against the manufacturer which is required to be discharged by the Revenue by production of sufficient and tangible evidence. We do not agree with the Revenue’s stand taken by them in the memo of appeal that standard of proof in such cases has to be necessarily on the basis of preponderance of probabilities and not on the basis of absolute proof.’ In 2003 (158) E.L.T. 49 (Tri. - Kolkata) I.O.C. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CALCUTTA-II,   it was held - `It is well settled law that the charges of the clandestine removal are required to be established by the Revenue by production of sufficient positive and corroborative evidences. Distance between “may be true” and “must be true” is long and is required to be covered by legal and unimpeachable evidence before a person can be held to be guilty of clandestine removal.’ However, in the matter of Gulabchand Silk Mills v. CCE, Hyderabad-II, 2005 (184) E.L.T. 263 (Tri.-Bang.), it was opined -`We cannot expect persons indulging in clandestine clearance to faithfully put the details of all such clearances in some register and append their signature. This is never done. Hence, clandestine activity at best can be established only by circumstantial evidence. It should also be borne in mind that it will be humanly impossible to establish every link in the chain of clandestine activity.  In later case law, however again the scale of evidence atleast in some cases was reiterated to be beyond doubt, this was especially in the matter of 2007 (218) E.L.T. 242 (Tri. - Del.) D.P. INDUSTRIES Versus COMMISSIONER OF C. EX., ALLAHABAD, where it was pointed out that-` The suspicion, however, strong cannot take the place of evidence. There are several decisions of the Tribunal holding that clandestine clearance has to be established beyond reasonable doubt and not on the basis of preponderance of probability. Merely on the basis of private E records, clandestine clearances cannot be upheld. There should be sufficient corroborative evidences. Further in 2009 (244) E.L.T. 363 (Tri. - Del.) SUPER TYRES PVT. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, PANCHKULA,the test applied again was preponderance of probability with the following words `If the above facts and circumstances are taken in totality, on the yardstick of preponderance of probability, the conclusion reached by the Commissioner that the appellant has indulged in suppression of production and clandestine removal appears legal and proper’

Similarly, in the matter of  2011 (267) E.L.T. 241 (Tri. - Ahmd.) SHREE NATHJEE INDUSTRIES Versus COMMISSIONER OF C. EX., SURAT-I- it was observed -`It may be mentioned here that the allegations and findings of clandestine removal are required to be proved beyond doubt by Revenue. The evidence required for arriving at finding of clandestine removal, should not be the one which raises the doubt against an assessee, but should be one which prove the Revenue’s case beyond doubt.’

But this proposition about proof beyond doubt received thumbs up from a High Court  in 2011 (271) E.L.T. 184 (Pat.): COMMISSIONER OF CENTRAL EXCISE Versus BRIMS PRODUCTS. The observations on the subject were-`In our opinion, since the charge was for clandestine manufacture and surreptitious removal of finished final product, the same is required to be proved beyond doubt by the Revenue. Presumptions and assumptions cannot take place of positive legal evidence, which are required for proving the charge.’

In all the cases where standard of proof was held to be beyond doubt, the benefit of doubt was conferred on the assessee. However, prior to this the matter even amongst the various benches of CESTAT on such a basic proposition never got resolved through a larger bench verdict. The one case, where the differences came to fore was, as reported in 2012(282) E. L. T. 234 (Tri. Ahmedabad) in the matter of Shreeji Aluminium Pvt. Ltd. Vs. CCE, Vapi – where by the majority view it was held that in the matters of Clandestine removal, Standard of proof is not  beyond doubt, but was preponderance of probability . However, there should be more than 50% chance that proposition is true.

In the above matter, though the verdict went in favour of assessee, the majority view did not favour the proposition that evidence required is `beyond doubt’. Incidentally, the majority verdict in that matter had not considered the direct judgment which is on central excise and of higher judicial authority of Patna High Court in the matter of M/s Brims product cited supra. Therefore, it appears that the minority view in that case about the standard of evidence required is correct. However, it is unfortunate that the fate of assessees is being decided and demands confirmed or let off even when the authorities in Tribunal level have held views in variance and no serious attempt has been made to reconcile the same through larger bench, all these years. At least now that we have verdict of a High Court, the minimum that can be done till the issue gets resolved at the apex level, is to follow the judgment of H.C. of Patna.