Delhi tribunal dismisses excise duty demand relying exclusively on production ratios

The Customs, Excise and Service Tax Appellate Tribunal in Delhi recently set aside an excise duty demand that was raised against a manufacturer solely on the basis of production ratios derived from ER-5 returns. The bench held that authorities cannot sustain a duty demand merely by calculating discrepancies using statutory return ratios without establishing actual clandestine manufacture and removal of excisable goods through concrete corroborative evidence. In indirect tax adjudication, revenue authorities often attempt to quantify alleged tax evasion by comparing input-output ratios or production figures declared in statutory returns like ER-5 against theoretical capacities.

However, judicial consensus requires tangible proof such as clandestine procurement of raw materials, undeclared consumption of power, or unauthorized transportation and sale of finished goods to substantiate a demand. Without investigating these operational aspects, raising tax demands on mathematical assumptions alone remains legally unsustainable under established jurisprudence. Tax practitioners and corporate finance teams handling legacy excise disputes should review pending show-cause notices and demands that rely exclusively on statistical ratios.

Companies must audit their historical ER-5 filings alongside production records to identify similar vulnerabilities and prepare robust defense submissions. The bottom line is that taxpayers can successfully invalidate arbitrary revenue demands by insisting on concrete physical evidence rather than statistical inferences.