Tribunal Rules in Favor of Appellant in Excise Duty Case

Case Name:

Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench : Ahmedabad - Regional Bench - Court No. 3 - Excise Appeal No. 10341 of 2015-DB (CESTAT of Ahmedabad)

Key Takeaways:

1. The Tribunal ruled in favor of the appellant, Pareshbhai Ramanbhai Amin, in a case involving the seizure of Pouch Packing Machines and the manufacturing of Pan Masala Containing Tobacco without the payment of Central Excise duty.

2. The Tribunal found that there was no clinching tangible evidence or any corroborative evidence against the appellant to connect him with the actual manufacture of the seized goods.

3. The premises where the machines and goods were found belonged to M/s Laxmi Tobacco Company, and the role of the owners of the premises in the manufacturing process could not be ruled out.

4. The impugned order-in-original dated 30.09.2014 against the appellant was set aside, and the appeal was allowed with consequential relief.

Case Synopsis:

A legal case involving the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench in Ahmedabad. The case revolves around Excise Appeal No. 10341 of 2015-DB, arising from an Order-in-Original passed by the Commissioner of Central Excise, Vadodara, dated 30.09.2014. The case involves the seizure of two Pouch Packing Machines (PPM) found installed in the premises of M/s Laxmi Tobacco Company, along with the manufacturing of Pan Masala Containing Tobacco, commonly known as “Gutkha”, without the payment of Central Excise duty.

The appellant, Pareshbhai Ramanbhai Amin, contested the duty demand confirmed with interest and penalty by the order-in-original, arguing that he is not the manufacturer liable to pay duty for the seized machines and goods. The appellant’s representative, Shri P.P. Jadeja, presented several arguments to support this claim, including the lack of evidence connecting the appellant to the manufacturing of the seized goods, the absence of a written partnership agreement, and the retraction of statements made during the investigation.

On the other hand, the Deputy Commissioner (AR) representing the Revenue reiterated the facts of the seizure and urged the rejection of the appeals filed by the appellants.

After considering the submissions from both sides and perusing the relevant records, the Hon’ble Members of the Tribunal, Mr. Ramesh Nair and Mr. C.L. Mahar, concluded that there was no clinching tangible evidence or any corroborative evidence against the appellant to connect him with the actual manufacture of the seized goods. They also noted that the premises where the machines and goods were found belonged to M/s Laxmi Tobacco Company, and the role of the owners of the premises in the manufacturing process could not be ruled out.

Based on their findings, the Tribunal set aside the impugned order-in-original dated 30.09.2014 against the appellant, Paresh Ramanbhai Amin, and allowed his appeal with consequential relief.

In summary, the Tribunal ruled in favor of the appellant, stating that the duty demand, interest, and penalty imposed on him were not sustainable, given the lack of evidence connecting him to the manufacturing and seizure of the goods.

FAQ:

Q1: What was the central issue in the legal case?

A1: The central issue involved ascertaining the liability for payment of duty under Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 in connection with the seizure of Pouch Packing Machines found installed in the premises of M/s Laxmi Tobacco Company.

Q2: What were the main arguments presented by the appellant?

A2: The appellant argued that there was no evidence connecting him to the manufacturing of the seized goods, the absence of a written partnership agreement, and the retraction of statements made during the investigation.

Q3: What was the outcome of the case?

A3: The Tribunal ruled in favor of the appellant, setting aside the impugned order-in-original and allowing the appeal with consequential relief.

The issue involved in the present case is to ascertain who is the manufacturer liable for payment of duty under Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 in connection with a case of seizure of two Pouch Packing Machines [PPM] found installed in the premises of M/s Laxmi Tobacco Company, during search of the said Premises by the Central Excise officers on 19.09.2013.

2. Brief facts of the case are that on a specific intelligence that illicit manufacturing and clearance of Pan masala containing tobacco falling under tariff item 24039990, commonly known as "Gutkha", attracting levy of Central Excise duty under section 3A of Central Excise Act, 1944, was being carried out from premises of M/s Laxmi Tobacco Company, situated near Bahucharaji Mata Temple, Village Vasna, Taluka Borsad, Distt. Anand, Central Excise Officers searched premises of M/s. Laxmi Tobacco Company on 19.09.2013. The Officers noticed that in Godown No.3 of said premises of M/s Laxmi Tobacco Co., two Pouch Packing Machines (Form, Fill and Seal - FFS) were found installed and in working condition manufacturing notified goods i.e. "Pan Masala Containing Tobacco" falling under tariff 2403 99 90, known as "Gutkha". It was also noticed that duplicates of leading brand of "Vimal", "Rajkolapuri", "Gomti" were being manufactured there. During said search, it was also noticed that the notified goods were being manufactured without Central Excise Registration and no duty was paid under Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. Therefore, the said 2 Pouch Packing Machines, Raw Materials and Packing Materials found were placed under the seizure. Machines and goods valued at Rs. 15,53,700/- were seized under Panchnama dated 19.09.2013 drawn at premises of M/s Laxmi Tobacco Company, under reasonable belief that the same were of offending nature and goods liable to its confiscation.

2.1 During investigation, statements of Shri Purshottambhai Chhotabhai Patel (alias das kaka owner of the premises of M/s Laxmi Tobacco Co., from where packing machines, the notified goods, raw materials & packing materials were found) were recorded. Statements of S/Shri Paresh R Amin [Appellant] and Ashwinbhai S/o Purshottambhai Chhotabhai Patel were also recorded.

2.2 After completing Investigation, it is the case of the Revenue that Shri Pareshbhai R. Amin and Shri Ashwin Purshottambhai Patel had created partnership for illicit manufacture & clearance of Pan Masala with Tobacco, without payment of Central Excise duty and without following procedures prescribed by the Rules. Accordingly, SCN dated 14.03.2014 was issued to Shri Pareshbhai Ramanbhai Amin, Shri Ashwin Purshottambhai Patel and Shri Purshottambhai C. Patel for recovery of the Central Excise duty totally of Rs 4.32 Crores to be recovered in 2 equal proportion from Paresh R. Amin and Ashwin P. Patel for the period from April-2013 to September-2013 and to recover interest and also to impose penalties on Shri Pareshbhai R. Amin, Shri Ashwin Purshottambhai Patel and Shri Purshottambhai C. Patel. The SCN was objected by all three by their reply filed. However, vide impugned O-I-O No. VAD-EXCUS-001-COM-21-14-15 dated 30.09.2014, adjudicating authority i.e. Commissioner of Central Excise, Vadodara-I has ordered recovery of duty Rs. 4.32 Crores and divided it equally between Pareshbhai Ramanbhai Amin and Ashwin Patel for their duty liability of Rs.2,16,00,000/- with interest u/s 11AA of Central Excise Act and imposed penalty of Rs. 2,16,00,000/- each u/s 11AC of Central Excise Act on these two individual persons. Impugned order-in-original dated 30.09.2014 has imposed penalty of Rs. 25,00,000/- under Rule 26 of Central Excise Rules, 2002 on Shri Purshottambhai C. Patel.

3. Aggrieved by the order-in-original No. VAD-EXCUS-001-COM-21-14-15 dated 30.09.2014, the appellant Shri Pareshbhai Ramanbhai Amin has filed the present appeal.

4. Shri P. P. Jadeja, Learned Consultant, appearing for the Appellant Shri Pareshbhai Ramanbhai Amin submits that the duty demand confirmed with interest and penalty by the order-in-original against Appellant is not sustainable. He submits that Shri Pareshbhai R Amin is not “manufacturer”, who is liable to pay duty with interest & penalty in respect of the two seized Machines and the goods seized during search on 19.09.2013, which can be seen from the followings :-

a) Specific intelligence for illicit manufacturing and clearance of “Gutkha", was in respect of M/s Laxmi Tobacco Company, situated near Bahucharaji Mata Temple, Village Vasna, TalukaBorsad, Dist. Anand, Gujarat.

b) Excise Preventive Officers raided & searched premises of M/s Laxmi Tobacco Company on 19/09/2013, details of which were recorded in Panchnama dated 19.9.2013 drawn.

c) During the said search, the Central Excise officers noticed that in the Godown No.3 of M/s Laxmi Tobacco Co., 2 Pouch Packing Machines (Form, Fill & Seal - FFS) were found installed and in working condition manufacturing duplicate brands of notified goods i.e. "Pan masala containing tobacco" falling in CTH 2403 99 90, known as "Gutkha". Duplicates of brand names of "Vimal", "Rajkolapuri", "Gomti" were manufactured. During search, some quantities of notified goods of various brands, raw materials / packing materials required to manufacture such "Gutkha" were found in premises. Notified goods were manufactured without Central Excise Registration and duty was not paid under Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, Pouch Packing Machines, goods and raw materials and packing materials were also placed under seizure.

d) The letter head of M/s Laxmi Tobacco Co was also found which shows details of packing materials rolls and finished goods.

e) The Residential Premises of Shri Pareshbhai R. Amin was searched. Panchnama dated 20-09-2013 shows that search in connection with inquiry against M/s Laxmi Tobacco Company.

f) Residence of Shri Purshottambhai Patel was searched. Panchnama dated 20.09.2013 shows that the search was in connection with the inquiry against M/s Laxmi Tobacco Company.

g) In statement dated 19-09-2013 of Shri Purshottambhai Patel has stated that consignments of “Gutkha” manufactured were being transported under the Invoices, duly concealed underneath bags of tobacco cleared by M/s Laxmi Tobacco Co.

h) In statement dated 04-12-2013 of Shri Ashwinbhai Purshottambhai Patel, for Q-12 :- how you have cleared gutkha from your godown, he has replied that “The gutkhas were cleared under Invoices of M/s Laxmi Tobacco and the parcels were placed under the bags of Tobacco and loaded in our own tempo and transported out of our premises”.

i) Except confessional statements of co-notice, there is no independent corroborative evidence to show that Appellant Paresh R. Amin was a partner in alleged Gutkha manufactured. There is no separate PAN of firm or partnership deed or there is no rent agreement or any evidence to connect Appellant Pareshbhai R Amin with manufacturing of gutkha in question.

j) Shri Pareshbhai R. Amin has also retracted from his statement vide his letter dated 01-11-2013 from Jail and contended that he (Paresh Amin) was called during search by Shri Purshottambhai Patel and he has been falsely implicated in this case. Paresh Amin had forwarded the same to the Joint Commissioner, Central Excise, Vadodara through Jailor which was forwarded under covering letter O.W. No. 67871 dated 13-11-2013. Thus, the confessional statement recorded by threat & duress are not valid evidence. Copy of the retraction along with its free English translation is submitted.

k) Statements of co-noticee are also not valid evidences as cross examination of the co-noticee and panchas has not been allowed and the same have not been taken on records in terms of section 9D of Central Excise Act 1944.

l) Except the statements, there is no evidence to show that undeclared Pouch Packing Machines were owned by Appellant and actual manufacture was carried out by Appellant and cleared the notified gutkha without payment of duty and Appellant received sale proceeds of such notified goods.

m) In view of the above, there is no tangible evidence to prove that Shri Pareshbhai R Amin is a manufacturer, liable to pay duty with interest and penalty. There is no evidence to connect Shri Pareshbhai R Amin with actual manufacturing notified goods, except statements, which are not valid under the law. In absence of any independent and/or tangible or corroborative evidences on record against Shri Paresh R Amin, he cannot be considered as the manufacturer liable to pay duty, interest and penalty.

4.1 Shri Jadeja submits that levy of duty under Central Excise Act is on „manufacture‟ as defined in Section 2(f) of Central Excise Act, 1944 and the person who carries out „act of manufacture‟ is only „manufacturer‟ who is liable to pay duty becomes an „assessee‟ by virtue of Rule 2(c) and has to take Registration as per provisions of Rule 9 of Central Excise Rules, 2002.

However, Appellant is individual and not an Assessee or a manufacturer. Investigation shows that it was undeclared factory. Revenue has wrongly alleged that Appellant was partner who have contravened provisions of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 in connection with unregistered manufacturing unit detected and goods seized during of Panchnama on 19.9.2013. He also submits that manufacture is not under any dispute, but, the investigation, unfortunately, has not been able to identify the actual “manufacturer” who is liable to pay disputed duty and has erred in assuming Appellant to be a manufacturer. The evidences relied upon in SCN/order-in-original are not enough to confirm the duty demanded by show cause notice against this Appellant. He submits that duty demanded jointly and severally divided between 2 persons, considering them “Partners” or “Association of Person” is not justified in absence of any such evidence to prove “Partnership Firm” or “Association of Persons”. He submits that contention is that Paresh R Amin is not connected with manufacture or seized Machines or Gutkha and he (Amin) is not 'manufacturer' is unreasonably rejected in order-in-original holding that appellant clandestinely engaged in Gutkha manufacture. Order-in-original has committed grave error in confirming duty against this appellant who is not the manufacturer of seized Gutkha and seizedtwo Machines. It is submitted that Commissioner has not correctly appreciated that Assuming without admitting that there may be some doubt considering evidence of statements, but established principle “suspicion however grave it may be, it cannot take place of evidence” is still applicable in this case. Suspicion has to be proved with reliable evidence, which are not there in facts.

4.2 He submits that it is settled law that an authority making an order in exercise of quasi-judicial function must record judicious reasons in support of order it makes. Quasi-Judicial order must also be supported by just and fair reasons. The fair reasons in support of a quasi-judicial order is basic rule in terms of the Natural Justice. Appellant Shri Pareshbhai Ramanbhai Amin is not having any factory and he is not manufacturer of goods in factory where two Machines and goods were found on 19.09.2013. The definition of “Factory as per section 2(e) of Central Excise Act 1944, “factory” means any premises, including the precincts thereof, wherein or in any part of which excisable goods are manufactured, or wherein or in any part of which any manufacturing process connected with production of these goods is being carried on or is ordinarily carried on. Except the confessional statements recorded around search on 19.09.2013, There is no independent supporting evidence brought on record to indicate (i) clandestine manufacture; (ii) clandestine/ disproportionate/ unaccounted purchase, receipt, consumption of inputs and packing material, required for manufacturing quantity of Gutkha clandestinely from factory; (iii) freight payment for any such movement; (iv) unauthorized payment for procuring unaccounted inputs and packing material; (v) disproportionate power consumption, capacity utilization and labour employed; and (vi) unaccounted sales proceeds in substantial cash from factory or office premises in direct control of Shri Pareshbhai Ramanbhai Amin, backed by confirmation giving by anyone on such transaction. Thus Link between Machines found installed in factory of someone else and documents recovered in search and activities of this Appellant is not established any nexus with clandestine manufacture of goods in question. Entire case was based on unjustified assumptions on the statements of co-noticee relied without following procedure envisaged in section 9D of Central Excise Act 1944, which are not free from doubt. There were fatal infirmities with products and there was no evidence connecting appellant with said undeclared factory and Appellant was not having any nexus with undeclared factory detected by the officers on 19.09.2013. In absence of evidence, it was unjustified to fasten duty and penal liability on this Appellant.

4.3 He submits that clandestine removal is a serious accusation, which is required to be established with cogent evidences. For Evidence relied upon, Revenue is not relieved of burden of producing credible evidence in respect of fact in issue. Mere presumptions and assumptions are not enough. There is a difference between „might have‟ and „must have‟ has to be travelled by Revenue by production of clear evidence. Appellant submit that in the judgment in case of Oudh Sugar Mills Ltd. v. Union of India - 1978 (2) E.L.T. (J 172) (S.C.), it has been held by the Hon‟ble Supreme Court that finding which has been arrived at without any tangible evidence and is based only on inferences involving unwarranted assumptions is vitiated by an error of law. The Commissioner has committed grave error in confirming duty against this Appellant, when duty is on Assessee having “Factory” where Pan Masala Packing Machines and goods are found.

Hence, order-in-original confirming duty in respects of machines found at the said M/s Laxmi Tobacco Company on 19.09.2013 cannot be confirmed on this appellant not having his factory. Commissioner has not correctly appreciated facts that Paresh Amin has no link with Machines or seized goods. Such goods were manufactured by factory not belonging to Appellant Paresh Amin. There is no such agreement found or adduced on record during investigation connecting Paresh R Amin with the said unit of M/s. Laxmi Tobacco Company. The duty liability of production of branded Gutkha can be fastened on factory where machines are found, but duty cannot be fastened on this appellant, without any such expressed agreement authorizing him to manufacture branded Gutkha at said factory where seized 2 Machines are found installed. Thus, evidences relied are not sufficient to fasten duty liability against this appellant Paresh Amin. Thus, the order inoriginal qua Appellant is bad in law and duty demands and penalty imposed deserves to be set aside allowing Appeal by Shri Paresh R. Amin.

5. Shri Tara Prakash, Deputy Commissioner (AR) appearing on behalf of Revenue, reiterates the facts of seizure of two PPM and the goods found on 19-09-2009 as well as finding of the impugned order-in-Original. He also submits to reject the Appeals filed by Appellants.

6. We have carefully considered the submissions made by both sides and perused relevant records. The main issue is to decide/ascertain who is the manufacturer liable for payment of duty in this case. There is no dispute on the facts that on a specific information, Central Excise Officers have detected an unregistered factory on 19.09.2013, where 2 Pouch Packing Machines [PPM] were found installed and in working condition, manufacturing notified goods i.e. "Pan Masala Containing Tobacco" known as "Gutkha". Some notified goods, raw materials and packing materials totally worth Rs. 15 lakhs required to manufacture such "Gutkha" were also found lying there, which are seized on 19.09.2013. Both the sides have fairly agreed that said unregistered factory has not followed Rules or paid duty under Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 in respect of 2 pouch packing machines [PPM] found installed at the premises of M/s Laxmi Tobacco Company on 19.09.2013. We find that the Revenue‟s this case is on the basis of two main factors (1) seizure of 2 PPM found duly installed in the premises and the seizure of inputs, packing materials and finished goods in premises on 19.09.2013 (2) statements recorded during the investigation.

6.1 We find that during the investigation, statements of Paresh R Amin, Purshottambhai C Patel and Ashwin Purshottam Patel have been recorded. These Statements show that partnership between Shri Paresh R Amin, and Shri Ashwin Purshottam Patel was created for illicit manufacture of Gutkha at Godown No. 3 in the premises of M/s Laxmi Tobacco Company, 2 Machines were brought by Shri Ashwin Patel, Purchase of inputs and sale of final products was on cash basis, Notified goods manufactured were cleared under Invoices of Laxmi Tobacco Co and transported out of said premises in vehicles of Laxmi Tobacco Co under the bags of Tobacco.

However, no such written agreement of partnership is found or produced by anyone. No evidence of rent paid by Paresh Amin or received by Purshottam C Patel from Paresh Amin or Ashwin Patel for rent of Godown No. 3 is found or produced by anyone, where two PPM and goods are found. Shri Paresh Amin has contended in retraction letter dated 01.11.2013 that he was called in the factory by Shri Purshottambhai C Patel during search on 19.09.2013 and that he has been falsely implicated in the case. We find that adjudicating authority has not taken statements on record in terms of section 9D of Central Excise Act 1944 and not allowed cross examination of Panch Witnesses, Purshottambhai C Patel and Ashwin P Patel, sought on behalf of Appellant Shri Paresh R Amin, by his advocate. Therefore, these statements relied upon against Shri Paresh Amin needs to be excluded from the can of evidences, as per decisions relied upon by Paresh Amin in reply to show cause notice and decision of Apex Court in Andaman Timber Industries - 2015 (324) E.L.T. 641 (S.C.). Appellant has relied decision of Apex Court in cases of Swadeshi Polytex Limited vs. Collector - 2000 (122) ELT- 641 (S.C.) and Lakshman Exports Limited v. CCE - 2002 (143) ELT 21 (S.C.) for the proposition that whenever any statement is relied upon, opportunity to cross-examine maker of statement be given. Decision in J & K Cigarettes Limited v. CCE in 2011 (22) STR 225 (Del.) is also relied upon by Paresh Amin in reply to show cause notice.

6.2 In view of the above, we are of the considered view that there is no clinching tangible evidence or any corroborative evidence against Appellant Shri Paresh R Amin to connect him with actual manufacture and also to establish him as a manufacturer. Thus, Shri Paresh R Amin cannot be treated as the manufacturer liable to duty, interest and penalty in this case. However, the facts of seizure of two PPM found duly installed and goods seized in the premises on 19.09.2013 also have to be considered independently even without the support of any such of statements. It is undisputed fact that the premises where the said two PPM were found installed and raw materials, packing materials and finished goods seized in the premises on 19.09.2013 was actually the premises of the said M/s Laxmi Tobacco Company and it belongs to Shri Purshottambhai C Patel. It is a fact that Shri Purshottambhai Patel has neither produced any rent agreement nor it was found in investigation allowing S/Shri Ashwin P. Patel and Paresh R Amin, said Godown No.3, where two PPM were found installed and the goods were found. It is not acceptable that owner of any premises would allow any third party to enter his premises to carry on business, may it is for the licit or the illicit business by any such third party. Any person with reasonable prudence will at least prepare a written rent agreement and clear evidences of rent receipts to keep his skin safe of any such illicit business, if any. Shri Purshottambhai C Patel is father of Shri Ashwinbhai Patel and in their Father-Son relation partnership document may not be necessarily prepared at all times. We also find that the inquiry was on information specifically against M/s Laxmi Tobacco Company, Seized goods and 2 Machines [PPM] were found in premises of Laxmi Tobacco Co, duly installed were in working condition. Notified goods manufactured were being cleared from factory under Invoices of Laxmi Tobacco Company in vehicles of Laxmi Tobacco Company. Therefore, Appellant Shri Paresh Amin cannot be considered a manufacturer liable to pay excise duty with interest and penalty, in the facts of this case. The owners of the said premises where the two PPM and goods are found cannot escape out of their responsibilities for the same and for manufacture and the liability to pay duty thereon under the Rules.

The role of Shri Ashwinbhai Patel and his father Shri Purshottambhai C Patel as owners of the premises in the manufacture cannot be ruled out. In view of the undisputed fact that there is no partnership deed between the appellant Shri Pareshbhai R Amin and Shri Ashwinbhai Patel, factory premises was not rented out to so called partnership firm as there was no rent agreement or payment of rent, the machines were not found purchased by the so called partnership firm or even Shri Pareshbhai R. Amin, the goods were cleared on the letterhead of Laxmi Tobacco Company etc, it cannot be said that the appellant is the manufacturer therefore even if the fact of clandestine manufacture and its clearance is established but the appellant not being manufacturer, liability of duty, penalty cannot be fastened against the appellant.

7. As per our above discussions and findings the impugned order confirming demand of duty with interest and Penalty is not sustainable against the Appellant Shri Paresh Ramanbhai Amin.

The impugned order-in-original No. VAD-EXCUS-001-COM-21-14-15 dated 30.09.2014 qua Shri Paresh Amin is set aside. The Appeal of Appellant Shri Paresh Ramanbhai Amin is allowed, with consequential relief, as per the law

(Pronounced in the open court on 31.10.2023)

(Ramesh Nair)

Member (Judicial)

(C L Mahar)

Member (Technical)