CESTAT: Mere Shortage of Goods Not Proof of Clandestine Removal; Credit on Structural Steel Allowed

M/s Rana Sugar Ltd. faced excise demands after inspection revealed a physical shortage of 50,500 quintals of sugar, which the Department treated as clandestine removal. CENVAT credit of over Rs. 1.50 crore was also denied on structural steel items, paints, welding electrodes and computers, and service tax was demanded under reverse charge on sugarcane transportation freight.

After remand, the demands were again confirmed, leading to the second appeal before the Tribunal.

Issues Before Tribunal: Whether stock shortage alone can justify a charge of clandestine removal, whether CENVAT credit is admissible on structural steel used for machinery foundations and on ancillary items and whether service tax under reverse charge is payable on sugarcane freight when the cost is borne by farmers.

Tribunal’s Order: The Tribunal allowed the appeal in full. It held that clandestine removal cannot be presumed merely from stock shortage without corroborative evidence such as transport records, buyer details or proof of consideration. Due to regulated nature of sugar, clandestine clearance was found improbable.

The Tribunal held that structural steel used for machinery support and foundations is eligible for credit and that the Larger Bench ruling in Vandana Global is no longer good law. Credit for paints, welding electrodes and office computers was also allowed.

The Tribunal further held that no service tax under reverse charge was payable on sugarcane transportation, as freight was borne by farmers and not by the assessee.

To Read Full Judgment, Download PDF Given Below