CESTAT Sets Aside Excise Duty Demand Based on Private Diaries and Loose Sheets: A Landmark Ruling

In a significant judgment that underscores the importance of due legal process and evidentiary standards, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Kolkata Bench has set aside an Excise Duty demand of ₹8.14 crores against Akshaya Steel Works Pvt. Ltd., which was based solely on “Private Diaries” and “Loose Sheets.”

The Tribunal held that such documents, without proper corroborative evidence and lawful procedures, cannot form the basis for quantifying clandestine removal of goods or raising huge tax demands. Let’s break down the case and understand why this ruling is important for businesses and tax professionals alike.

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Background of the Case

• Company Involved: Akshaya Steel Works Pvt. Ltd.
• Period under Dispute: February 2008 to December 2008, and March 2009.
• Allegations: Clandestine removal of 17,930.033 MT of finished goods (Angles, Flats, Rods, etc.) without paying Excise Duty.
• Demand Raised: ₹8,14,17,461/- along with interest and penalties.
• Basis of Allegation: So-called evidence found in Private Diaries and Loose Sheets during a search on April 2, 2009.

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Company’s Operations & Defense

Akshaya Steel Works manufactures rolled products and undertakes job-work for leading companies such as Tata Steel, SAIL, and Adhunik Alloys Ltd. The raw materials used—MS Ingots and Concast Billets—are processed to manufacture angles and other rolled items.

The company argued:

• All job-work transactions were documented, and duties were paid.
• Private diaries and loose sheets were not maintained by the Director and had no official standing in production records.
• Cenvat Credit was duly availed for inputs, and ER1 Returns were properly filed.
• A major portion of the alleged removals was part of job-work clearances, duly recorded and taxed.

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CESTAT’s Observations

1. Delayed Show Cause Notice (SCN):
   • The Revenue had access to relevant documents by 2010, yet the SCN was issued only in December 2012.
   • The tribunal questioned the lack of continuous investigation between 2009 and 2012.
2. Irrelevance of Private Diaries and Loose Sheets:
   • The documents only referred to processing of raw material, not proof of final goods being removed.
   • No cross-examination or Section 9D compliance (under Central Excise Act) was undertaken for statements used against the assessee.
3. Invalid Penalty on the Director:
   • The Director denied knowledge of the said documents.
   • The penalty was quashed, since the base evidence itself was unsustainable.
4. No Proper Quantification:
   • The adjudicating authority failed to consider job-work clearances and their corresponding duty payments.
   • Claims involving ₹4.73 crores in cleared goods were ignored.
5. Time-Barred Demand:
   • Since the department was aware of the alleged contravention in 2009, the demand raised in 2012 was barred by limitation.

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Final Verdict by CESTAT

The two-member bench comprising R. Muralidhar (Judicial) and Rajeev Tandon (Technical) ruled:

• The entire demand was unsustainable, being based on unreliable and unauthenticated documents.
• Time limitation under excise law was violated.
• Penalty on the Director was invalid.
• The appeal was allowed, and the Order-in-Original was set aside.

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Why This Ruling Matters

This judgment reinforces that:

• Evidence must be credible, authenticated, and properly investigated.
• Private records or loose documents cannot be used as the sole basis for taxation.
• The authorities must issue SCNs within the statutory timeframe once they are aware of the alleged contravention.
• Proper application of Section 9D and adherence to natural justice is crucial.

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Frequently Asked Questions (FAQs)

❓ What are “Private Diaries” and “Loose Sheets” in tax investigations?

These are informal, non-official documents that may contain entries regarding transactions. Unless properly authenticated and linked with other evidence, they are not admissible for making tax demands.

❓ What is a Show Cause Notice (SCN)?

An SCN is a notice issued by the tax department requiring the assessee to explain why action should not be taken against them for an alleged violation.

❓ What is Section 9D of the Central Excise Act?

Section 9D deals with the admissibility of statements recorded during investigations. It mandates that such statements cannot be treated as evidence unless the deponent is examined and cross-examined.

❓ Can tax authorities demand excise duty after many years?

Only if the case involves fraud or suppression of facts, and the authorities can prove it. Even then, the extended period is limited to five years from the relevant date.

❓ Can penalties be imposed on company directors?

Only if there is direct evidence of knowledge or involvement in the violation. Otherwise, penalties cannot be imposed arbitrarily.

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Conclusion

The CESTAT ruling in the Akshaya Steel Works case is a landmark in reinforcing the principles of natural justice, statutory compliance, and evidentiary accountability in indirect tax proceedings. It sends a clear message that flimsy documentation and delayed action cannot replace proper investigation and procedural fairness.

For companies, this is a reminder to maintain clear, verifiable records and stand firm if faced with unjust tax demands based on questionable evidence.

📅 Published on: 27 June 2025
✍️ Author: CS Chhavi Goyal