The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has affirmed that a voluntary, unretracted confessional statement made by a partner under Section 108 of the Customs Act, 1962, can constitute sufficient evidence to establish clandestine removal of goods and sustain a demand for differential central excise duty, even in the absence of corroborative material such as unaccounted raw material purchases or power consumption records.
Background & Facts
The Dispute
M/s Tarun Polymers, a manufacturer of plastic bags under Chapter 39 of the Central Excise Tariff Act, 1985, was investigated for alleged suppression of turnover and evasion of central excise duty during the financial years 2010-11 and 2011-12. The department alleged that the appellant cleared finished goods without issuing excise invoices and without payment of duty, thereby evading tax liability.
Key Facts
- On 10.01.2012, departmental officers conducted a search at the appellant’s premises in Kachigam, Daman, and recovered documents including lorry receipts (LRs), bank statements, balance sheets, job work challans, and private notebooks.
- Among the recovered LRs, some matched exactly with duty-paying invoices issued by the appellant, but a significant number of LRs had no corresponding excise invoice.
- The department calculated the value of goods cleared without invoices by referencing the average invoice value of similar goods cleared during the same period.
- Shri Chandrakant Jain, partner of M/s Tarun Polymers, was questioned and recorded a statement on 11.09.2015, approximately 3.5 years after the search.
- In his statement, Shri Chandrakant Jain admitted:
- The existence of LRs without matching excise invoices
- That goods described in those LRs were cleared without payment of duty
- That the valuation method adopted by the department was accurate
- That the clearance was done with intent to evade duty
- The statement was not retracted at any stage of the proceedings.
- The department also noted the presence of physical stock of Lay Flat Tubing and sweeping granules without any maintained stock register.
Procedural History
- 10.01.2012: Search conducted at appellant’s premises in Daman
- 01.10.2015: Show cause notice issued demanding differential excise duty of Rs. 5,69,381/- under Section 11A(4), interest under Section 11AA, and penalty under Section 11AC read with Rule 25(1)
- 30.11.2016: Assistant Commissioner confirmed duty demand of Rs. 5,69,381/-, interest, and imposed penalty of Rs. 5,50,000/- on the firm and Rs. 5,50,000/- on Shri Chandrakant Jain under Rule 26(1)
- 28.02.2018: Commissioner (Appeals) upheld the order
- 10.03.2026: Hearing before CESTAT West Zonal Bench, Ahmedabad
- 13.05.2026: Final order passed by CESTAT
Relief Sought
- Appellant M/s Tarun Polymers sought quashing of the duty demand, interest, and penalty, arguing that the demand was based on presumption and lacked corroborative evidence.
- Shri Chandrakant Jain sought deletion of the penalty of Rs. 5,50,000/- imposed on him personally, contending that once a penalty is imposed on the partnership firm, no separate penalty can be levied on a partner.
The Legal Issue
Can a confessional statement made by a partner of a partnership firm under Section 108 of the Customs Act, 1962, without retraction and voluntarily, serve as the sole basis for sustaining a demand for differential central excise duty and penalty under Section 11AC, even in the absence of corroborative evidence such as unaccounted raw material purchases or disproportionate power consumption?
Arguments Presented
For the Appellant
The appellant relied on multiple tribunal and high court judgments, including Aum Aluminum Pvt Ltd v. CCE, Vadodara, Bihariji Manufacturing Co. v. CCE, Delhi, and CCE v. Saakeen Alloys Pvt Ltd, to argue that clandestine removal cannot be established merely on the basis of unverified LRs. They contended that the department must prove:
- Unaccounted purchase and consumption of raw materials
- Payment of unaccounted freight
- Disproportionate power or labor usage
- Receipt of unaccounted sale proceeds
- Recovery of cash from premises
They further argued that the valuation of goods based on LRs without specification of quality or grade was arbitrary and unsustainable. Regarding the penalty on the partner, they relied on Pravin N. Shah v. CESTAT and D. Jewel v. Commissioner, asserting that a partner is not a separate legal entity from the firm and cannot be penalized independently when the firm has already been penalized.
For the Respondent
The department relied on the partner’s statement dated 11.09.2015, which was voluntarily recorded and never retracted. They cited Pooja Tex Prints Pvt Ltd v. Additional Commissioner, CCE v. Systems and Components Pvt Ltd, and S M Steel Ropes v. Commissioner, to argue that a voluntary confessional statement under Section 108 is admissible as substantive evidence. They emphasized that the statement admitted the modus operandi of clandestine clearance and accepted the department’s valuation method. The department also relied on Surjeet Singh Chhabra v. UOI and Amad Noormamad Bkali v. State of Gujarat to assert that non-contemporaneous retraction is irrelevant and that the statement, coupled with recovered LRs, was sufficient to establish guilt.
The Court's Analysis
The Tribunal undertook a detailed analysis of the evidentiary value of confessional statements under Section 108 of the Customs Act, 1962. It noted that while the appellant cited several judgments requiring corroborative evidence for clandestine removal, those cases involved situations where no admission was made by the accused.
"In this case, I find that Shri Chandrakant Jain, Partner, in his statement dated 11.09.2015 has not only admitted recovery of lorry receipts (LRs) under which they had dispatched final goods to various customers during 2009-10 to 2011-12 but also accepted that these LRs contain name of the party, description of goods, quantity dispatched and the amount charged by the transporter. After comparing LRs with the copy of invoices issued by appellant on corresponding dates, he accepted that some sales invoices issued during 2010-11 and 2011-12 completely tally with description shown in LRs, but majority of LRs do not have corresponding central excise invoices issued during above period. In respect of such LRs, he admitted to have cleared goods shown in LRs in a clandestine manner without preparing any invoice and without payment of central excise duty with intent to evade central excise duty."
The Tribunal emphasized that the partner’s admission was not made under duress, was not retracted, and was consistent with the documentary evidence recovered - namely, the LRs without matching invoices. It distinguished the appellant’s cited precedents on the ground that they involved situations where no admission was recorded.
The Tribunal further relied on S M Steel Ropes v. Commissioner, where CESTAT Mumbai held that a voluntary confession can form the sole basis for conviction, and on K.I. Pavunny v. Asstt. Collector, where the Supreme Court held that admitted facts need not be proved. It also cited Amad Noormamad Bkali v. State of Gujarat, where the Supreme Court affirmed that Section 108 statements, if voluntary, are admissible and do not attract the bar under Sections 24, 30, or 34 of the Indian Evidence Act.
The Tribunal rejected the argument that the absence of unaccounted raw material purchases or power consumption records invalidated the demand, stating:
"Recovery of some LRs for which there is no corresponding duty paying invoice coupled with admittal statement of the partner in the firm are sufficient evidence to establish charges of clandestine clearance."
Regarding the penalty on the partner, the Tribunal accepted the appellant’s reliance on Pravin N. Shah v. CESTAT and D. Jewel v. Commissioner, noting that a partnership firm and its partners are not separate legal entities for the purpose of penalty imposition under Rule 26(1) when no specific role or culpability is attributed to the partner beyond his position in the firm.
The Verdict
The appellant M/s Tarun Polymers failed in its challenge to the duty demand of Rs. 5,69,381/-, interest under Section 11AA, and penalty of Rs. 5,69,381/- under Section 11AC(1)(c) read with Rule 25(1). The demand, interest, and penalty on the firm were upheld. However, the penalty of Rs. 5,50,000/- imposed on Shri Chandrakant Jain under Rule 26(1) was set aside, as no separate penalty can be levied on a partner once the partnership firm has been penalized. The appeals were disposed of accordingly.
What This Means For Similar Cases
Confessional Statements Are Sufficient Without Corroboration
- Practitioners must now treat voluntary, unretracted Section 108 statements as potent evidence - even in the absence of unaccounted raw material, power usage, or cash recovery.
- The burden shifts to the assessee to prove coercion or inducement; mere delay in retraction (e.g., 3.5 years) does not invalidate the statement.
- In appeals, challenge the voluntariness of the statement, not the lack of corroborative material.
Penalty on Partner Cannot Be Imposed If Firm Is Penalized
- Once a penalty is imposed on a partnership firm under Section 11AC, no separate penalty can be levied on a partner under Rule 26(1) unless a specific role or independent culpability is established.
- This principle is now firmly established by CESTAT Ahmedabad and Gujarat High Court precedents.
- Tax practitioners should immediately challenge any separate penalty on partners in similar cases, citing Pravin N. Shah and D. Jewel.
Valuation Based on LRs Is Valid If Admitted
- If the assessee admits the valuation methodology used by the department (as the partner did here), objections to quality or grade specifications in LRs become irrelevant.
- This provides a clear path for revenue authorities to rely on invoice-based valuation when the assessee has accepted it.
