CESTAT set aside Rs 50 lakh excise duty demand against Sharp Mint over lack of proof of clandestine removal.

May 13, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a central excise duty demand of more than Rs. 50 lakh against Sharp Mint Limited, holding that allegations of clandestine manufacture and removal cannot be sustained merely on assumptions without concrete evidence.

In a significant ruling on the evidentiary standards required in excise evasion cases, the tribunal observed that serious allegations such as clandestine removal must be supported by “tangible evidence” and not by presumptions arising from the mere presence of goods in a godown. The appeal was decided by a bench comprising Justice Ashok Jindal, Member (Judicial), and K. Anpazhakan, Member (Technical), through Final Order No. 50873/2026 dated May 13, 2026.

The dispute arose from a fire incident that took place at the company’s factory premises on June 16, 1998. Sharp Mint Limited, formerly known as Sharp Menthol India Ltd., claimed that several unaffected stocks were shifted to a godown after the fire damaged storage tanks in the factory. Years later, during searches conducted by excise authorities in July 2006, officers allegedly discovered large quantities of menthol-related products stored in drums without proper identification or supporting documentation. Samples collected during the search reportedly contained Menthol, Peppermint Oil, and Terpenoidal Rejects.

Based on the investigation, the department issued a show cause notice in July 2007 seeking confiscation of goods, recovery of central excise duty amounting to Rs. 61.28 lakh, along with interest and penalties under Rule 25 of the Central Excise Rules, 2002. An adjudication order passed in 2008 confirmed the duty demand and imposed penalties and redemption fine.

The matter had earlier reached CESTAT, which in 2015 partly allowed the appeal and remanded the case to the adjudicating authority with directions to examine insurance documents and apply the legal principles laid down by the Delhi High Court in the case of Flevel International. Following the remand, the Principal Commissioner again confirmed a revised duty demand of Rs. 50.28 lakh with interest and penalty through a de novo order dated December 12, 2023.

Before the tribunal, the company argued that the goods found in the godown belonged to stock shifted after the 1998 fire and were manufactured long before the company obtained central excise registration on May 27, 2005. According to the appellant, goods manufactured prior to registration could not be subjected to excise duty under the circumstances of the case. The company also relied upon insurance survey reports, arbitral proceedings, and Delhi High Court findings to establish that substantial quantities of unaffected stock had indeed been relocated after the fire incident.

Sharp Mint further challenged the department’s method of segregating and sampling drums during the investigation. The company pointed out that out of 1,629 drums found in the godown, investigating officers had randomly divided them into 14 groups without expert assistance or logical criteria. The appellant highlighted that even the tribunal, in its earlier remand order, had termed the segregation and sampling exercise “totally illogical.”

The Revenue, however, maintained that the company had failed to establish any credible link between the 628 drums reportedly saved from the 1998 fire and the 1,629 drums seized in 2006. The department argued that no documentary proof existed to show lawful movement or storage of the goods over the intervening years.

After examining the record, CESTAT found substantial merit in the appellant’s arguments. The tribunal held that the adjudicating authority failed to comply with the earlier remand directions requiring strict adherence to the Delhi High Court’s ruling in Flevel International.

The tribunal stressed that clandestine manufacture and removal are serious charges requiring strong corroborative evidence such as excess procurement of raw materials, proof of actual removal of finished goods, transportation records, identified buyers, sale proceeds, or abnormal electricity consumption. It noted that no such evidence had been produced either during investigation or in the re-adjudication proceedings.

Quoting the Delhi High Court’s decision in Flevel International and the Tribunal’s ruling in Arya Fibers Pvt. Ltd., CESTAT reiterated that “there should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions.”

The bench also rejected the department’s reasoning that the mere presence of seized goods automatically established unaccounted manufacture. It observed that the authorities had presumed the use of illicit raw materials without any documentary or oral evidence linking the goods to clandestine production activities.

Setting aside the impugned order, the tribunal concluded that the allegation of clandestine removal had not been established in law. Consequently, the demand of central excise duty, along with interest and penalty, was quashed.

The ruling is expected to have wider implications for indirect tax enforcement cases involving allegations of clandestine production and removal. The judgment reinforces that excise authorities must rely on concrete evidence rather than presumptions, especially in cases involving old stock disputes, post-fire inventory claims, and undocumented goods. The decision also strengthens judicial scrutiny over departmental investigations where sampling methods, documentary trails, and evidentiary standards are questioned.

Case Title: Sharp Mint Limited (Formerly Sharp Menthol India Ltd.) v. Commissioner, CGST & CX, Delhi North
Case No.: Excise Appeal No. 51692 of 2025
Counsel for Appellant: Shri Mihir Mehta, Advocate
Counsel for Revenue: Shri R.K. Mishra, Authorised Representative