Tribunal Sets Aside Demand of Central Excise Duty, Interest, and Penalty in Excise Appeal No. 75370 of 2021

Case Name:

Excise Appeal No. 75370 of 2021 - M/s Raj Kumar Gupta (Alias) Shri Raj Kumar Sultania alias Shri Raju Sultania vs. Commissioner of CGST & Central Excise, Patna (CESTAT Kolkata)

Key Takeaways:

1. The Appellant was not found to be the actual manufacturer of the goods in question.

2. Lack of evidence to establish the Appellant’s involvement in the clandestine manufacturing and clearance of cigarettes.

3. The charge of clandestine removal is a serious one and must be proved by tangible, direct, affirmative, and incontrovertible evidence.

4. The Tribunal set aside the demand of duty, interest, and penalty imposed on the Appellant in the impugned order.

Case Synopsis:

The provided is a detailed account of the Excise Appeal No. 75370 of 2021, arising out of an Order-in-Original No. 16/MP/Commissioner/2018 dated 05.10.2018 passed by the Commissioner of CGST & Central Excise, Patna. The appeal was filed by M/s Raj Kumar Gupta (Alias) Shri Raj Kumar Sultania alias Shri Raju Sultania, against the demand of Central Excise Duty, interest, and penalty imposed on them.

This is outlines the contentions of both the Appellant and the Respondent, along with the final order of the Customs, Excise & Service Tax Appellate Tribunal, Kolkata, Eastern Zonal Bench. The Hon’ble Members of the Tribunal, Mr. Ashok Jindal (Member - Judicial) and Mr. K. Anpazhakan (Member - Technical), heard both sides and perused all appeal records before delivering the final order.

The Appellant contended that they were not the actual manufacturer of the goods and that the levy of Central Excise duty is upon the manufacturer. They argued that the department authorities had not made the actual manufacturer, M/s Ankit Tobacco Pvt. Ltd. (ATPL), a party to the proceedings. The Appellant also raised concerns about the lack of evidence to establish their involvement in the clandestine manufacture and clearance of cigarettes.

The Tribunal, after considering the contentions and the evidence presented, held that there was no evidence to establish the Appellant’s involvement in the clandestine manufacturing and clearance of cigarettes. The Tribunal also noted that the investigation had not questioned any of the Directors of M/s ATPL and no demand was raised on them. The Tribunal further emphasized that the charge of clandestine removal is a serious one and must be proved by tangible, direct, affirmative, and incontrovertible evidence.

Based on the lack of evidence to establish the Appellant’s involvement in the alleged clandestine activities, the Tribunal set aside the demand of duty along with interest and penalty imposed on the Appellant in the impugned order.

In conclusion, the Tribunal allowed the appeal filed by the Appellant, thereby ruling in favor of the Appellant and setting aside the demand of duty, interest, and penalty imposed on them.

FAQ:

Q1: What was the outcome of the appeal?

A1: The appeal filed by the Appellant was allowed, and the demand of duty, interest, and penalty imposed on them in the impugned order was set aside by the Tribunal.

Q2: What were the main contentions of the Appellant?

A2: The Appellant contended that they were not the actual manufacturer of the goods and raised concerns about the lack of evidence to establish their involvement in the alleged clandestine activities.

Q3: What was the basis for setting aside the demand of duty, interest, and penalty?

A3: The Tribunal found that there was no evidence to establish the Appellant’s involvement in the alleged clandestine manufacturing and clearance of cigarettes, leading to the decision to set aside the demand.

The Appellant, Raj Kumar Gupta alias Shri Raj Kumar Sultania alias Shri Raju Sultania has filed the present appeal aggrieved against the impugned order dated 05.10.2018 passed by the Commissioner, CGST & Central Excise, Patna – 1, Bihar. The Order portion of the impugned order passed by the Commissioner is as under:

I confirm the demand of Central Excise Duty including AED, NCCD, Education Cess and Secondary and higher Education Cess amounting to Rs.3,20,57,950/- (Rs. Three Crores Twenty lakhs fifty seven thousand nine hundred and fifty only) as per the annexure B1 B6 forming part of Show Cause Notice and Rs.1,09,55,570/- (Rs. One Crore Nine Lakhs fifty five thousand five hundred and seventy only) as per the annexure a1 to a4 of the Show Cause Notice. Thus totaling Rs.4,30,13,520/- (Rupees four crore thirty lakh thirteen thousand five hundred twenty only) of Central Excise Duty including AED, NCCD, Ed Cess and Secondary and higher Ed. Cess is hereby confirmed and order to recover the same from the noticee no. 1 under the provisions of Section 11A of the Central Excise Act, 1944.

(ii) I order for the recovery of interest at the applicable rate from the noticee no. -1 on the amount as confirmed at para 105 (i) above under the provisions of Section 11AA of the Central Excise Act.

(iii) I impose a penalty of Rs.4,30,13,520/- (Rupees four crore thirty lakh thirteen thousand five hundred twenty only), upon the noticee no. -1 Shri Rajkumar Gupta alias Raju Sultania alias Rajkumar Sultania, under the provisions of Section 11AC of the Central Excise Act for the reasons discussed above.

(iv) I order to confiscate 16,54,261 sticks of filter cigarettes of ‘sunils Two’ & ‘India 10’ brands valued at Rs.32,38,409/- which were seized on 3005.2014 from the unregistered cigarette manufacturing factory of Shri Raju Sultania running in the name and style of M/s Shani Dev Enterprises at Vill.- Mohiuddinpur (Vill.-Narma), Fatuha Daniayava Road, Nai Sadak, Dist.-Patna under Rule 25 of the Central Excise Rules, 2002. However, I give an option to pay redemption fine in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I order to confiscate the unaccounted stock of raw materials/paking materials totally valued at Rs.93,974/- which were seized on 30.05.2014 from the unregistered cigarette manufacturing factory of Shri Raju Sultania, running in the name and style of M/s Shani Dev Enterprises at Vill-Mohiuddinpur (Vill- Narma), Fatuha Daniayava Road, Nai Sadak, Dist.- Patna under Rule 25 of the Central Excise Rules, 2002. However, I give an option to ay redemption fine in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I also order to confiscate the unaccounted stock of raw materials/packing materials totally valued at Rs.5,43,675/- which were seized on 30.05.2014 from the undeclared godown o Shri Raju Sultania situated in the vicinity of unregistered cigarette manufacturing factory, running in the name and style of M/s Shani Dev Enterprises at Vill.- Mohiuddinpur (Vill-Narma), Fatuha Daniayava Road, Nai Sadak, Dist.- Patna under rule 25 of the Central Excise Rules, 2002. However, I give an option to pay Redemption fine in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I further order to confiscate the unaccounted quantity of Rs.2,52,10,000 sticks of non-filter and filter cigarettes of various brands valued at Rs.4,20,68,760/- which had been seized on 30.05.2014 from the undeclared godown of Shri Raju Sultnia Situated at Didarganj, Near Godrej Warehouse, Fatuha, Dist.-Patna under Rule 25 of the Central Excise Rules, 2002. However, I give an option to pay redemption fine in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I also order to confiscate the unaccounted stock of raw materials / packing materials totally valued at Rs.12,37,770/- which had been seized on 30.05.2014 from the undeclared godown of Shri Raju Sultania situated at Didarganj, Near Godrej Warehouse, Fatuha, Dist.- Patna under Rule 25 of the Central Excise Rules, 2002. However, I give an option to pay Redemption fine in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I order to confiscate the unaccounted quantity of 4,79,500 sticks of filter cigarettes of various brands valued at Rs.9,35,025/- seized on 30.05.2014 the undeclared godown of Shri Raju Sulatania situated at Jharkhand Tola, Village-Daniyava, Dist.- Patna under Rule 25 of the Central Excise Rules, 2002. However, I give an option to pay Redemption fie in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I also order to confiscate the Two mak 8 machines, two duplex machine and two East India packing machines illegally installed in the unregistered cigarette manufacturing factory situated at village Mohiuddinpur (Village Narma) Daniyava Fatuha Road, Nai Sadak, Dist. Patna. However, I give an option to pay Redemption fine in lieu of confiscation which shall be 50% of the value of the goods.

I also order to confiscate the unaccounted quantity of Rs.3,24,000 sticks of filter cigarettes of “India 10’ brand valued at Rs.6,48,000/-, illicitly manufactured and clandestinely cleared without payment of Central Excise duty by Shri Raju Sultania and were seized on 18.11.2014 from the business premised of Shri Anand Tejwani, Proprietor of M/s Shankar Traders, G.E.Road, Opp.- Kikabhai Compex, Near, Jalaram Sweets, Rajnardgaon (C.G.) under Rule 25 of the Central Excise Rules, 2002. However, I give an option to pay Redemption fine in lieu of confiscation which shall be 50% of the value of the goods. The release of such goods on payment of redemption fine shall be done only after the goods are found to be fit for human consumption and meets the other legal requirement relating to health and safety.

I impose a penalty of Rs.4,30,00,000/- (Rupees four crore thirty lakh only) upon shri Ramesh Sultania (Noticee no. 2), under the provisions of rule 26 of the Central Excise Rules, 2002 for the reasons discussed above.

I impose a penalty of Rs.4,30,00,000/- (Rupees four crore thirty lakh only) upon Shri Lallu Parsad (Noticee no. 4), under the provisions of Rule 26 of the Central Excise Rules, 2002 for the reasons discussed above.

Impose a penalty of Rs.4,30,00,000/- (Rupees four crore thirty lakh only) upon shri Deepak Singh (Noticee no. 3), under the provisions of Rule 26 of the Central Excise Rules, 2002 for the reasons discussed above.

I impose a penalty of Rs. 4,30,00,000/- (Rupees four crore thirty lakh only) upon Shri Santosh Jodhwani (Noticee no. 5) under the provisions of Rule 26 of the central Excise Rules, 2002 for reasons discussed above.

I impose a penalty of Rs.4,30,00,000/- (Rupees four crore thirty lakh only) upon Shri Anand Tejwani (Noticee no. 6) under the provisions of Rule 26 of the central excise rules, 2002 for the reasons discussed above.

If the amount determined at para 105(i) above is paid within 30 days from the receipt of the order along with the interest payable, then as per proviso to Section 11AC of the Act, the penalty imposed at para 105 (iii), (xii) (xiii), (xiv) (xv) and (xvi) above will be only 25% of the amount determined at para 101(i) above. The benefit of reduced penalty shall be available only if the reduced amount of penalty has also been paid within the period of thirty days from the receipt of this order.

2. The Appellant states that the present dispute relates to the demand of Central Excise Duty including AED, NCCD, Ed. Cess, and secondary and higher Ed. Cess amounting to Rs. 4,30,13,520/- for the period of May, 2013 and May, 2014, and penalty imposed on the Appellant. The impugned order deals with various demands, however, the present appeal is only against the demand of duty along with interest and penalty imposed on the Appellant in the impugned order.

3. The briefly stated facts of the case are that on the basis of an intelligence received by the DGCEI (Hqrs.), a search was conducted at the business premises of one Shri Santosh Kr Jodhwani, Proprietor of M/s S.S.D. & Company, situated at Ramdev Market, Near Gole Bazar, on account evasion of Central Excise duty by way of suppression of production and clandestine removal of cigarettes without payment of central excise duty. Search was also conducted at a godown situated adjacent to Maa Durga temple. During the search it was found that stock of filter and non-filter cigarettes of various brands was found wherein the manufacturer was mentioned as “M/s Ankit Tobacco Pvt. Ltd.” (hereinafter referred to as “ATPL”) and the said Santhosh Kr. Jodhwani failed to produce any purchase documents against the stock of cigarettes found at the premises.

3.1 The Appellant states that ATPL is registered under the Central Excise under central excise registration no. AAICA8640FEM001 having its place of business at Sahadra, Noorpur, Patna, Bihar - 800008 and is engaged in the business of manufacturing cigarettes of different brands classifiable under Central Excise Tariff Heading No.s 24022010 and 24022040 of the First Schedule to the Central Excise Tariff Act, 1985. The said factory was under the Physical Supervision and control of the Central Excise Officers.

3.2 During the course of search, a statement of Shri Santosh Kr Jodhwani, was recorded u/s 14 of the said Act wherein he stated that they have purchased the cigarettes from ATPL without any bills. He further stated that he used to contact Shri Mahesh for purchase of cigarettes and the orders were placed on phone and that the cigarettes were received in his godown directly from ATPL and that the payments were made in cash to different traders upon the instructions of Shri Mahesh. Shri Santosh Kr Jodhwani, also stated that the Appellant is owner of ATPL.

3.3 The Appellant states that search was later carried out at the premises of ATPL including an unregistered factory premises of ATPL situated at Village – Mohiduddinpur (Village – Narma), Fatuha Daniyava Road, Dist. Patna and two other godowns situated in and around Patna, on 30.05.2014. From the statements recorded during the course search, it was alleged that the Appellant was the owner of ATPL and the unregistered factory premises of ATPL situated at Fatuha Daniyava Road.

The Appellant had taken two godowns on rent in Patna and that they were engaged in manufacturing cigarettes from the unregistered premises at Fatuha Daniyava Road, without payment of central excise duty and cleared the same clandestinely from the said premises. In consequence to the said investigation, a show cause notice dated 28.11.2014 was issued to them by the Addl. Director General, DGCEI, New Delhi with the allegations that the Appellant is the owner of ATPL and the unregistered factory premise of ATPL and that the Appellant has engaged in clandestine removal of filter and non-filter cigarettes under different brand names. The said Notice was adjudicated by the Ld. Adjudicating Authority vide the impugned Order-in-Original dated 05.10.2018 wherein the entire demand as proposed in the Notice was confirmed along with interest and imposition of equivalent penalty. The present proceedings are against the demands confirmed against the Appellant in this impugned order.

4. In their grounds of appeal the Appellant made the following submissions:

(i) The Ld. Adjudicating Authority has grossly erred in confirming the demand against the Appellant when it is settled that the levy of Central Excise duty is upon the manufacturer and that the Appellant is not a manufacturer, rather ATPL is the manufacturer of cigarettes however the department authorities had not even made ATPL a party to the impugned proceedings.

(ii) The Ld. Adjudicating Authority has confirmed the demand on the Appellant merely on the surmises that the Appellant is the owner of ATPL when it was already on record of the departmental authorities that ATPL is duly registered with the Central Excise Department and the registration was granted to them after due verification by the Central Excise Department and that ATPL had been discharging duty and were filing prescribed returns with the department and that ATPL is duly registered under the companies Act, 1956 and has a separate legal identity in the eyes of law.

(iii) The Appellant states that ATPL is the manufacturer of the cigarettes which is alleged to be clandestinely removed, however, no demand was raised against ATPL rather an artificial case had been booked against the Appellant.

(iv) The Appellant states that there is neither any fact nor any statement on record pointing out that the Appellant has himself dealt with the clandestine removal of the goods or any evidence stating that the Appellant had procured raw material, or sale of impugned cigarettes by him to any person or obtained any payments from the alleged buyers or any transportation of the impugned cigarettes in clandestine manner.

(v) The Appellant states that the entire demand raised on the Appellant is based on the statements of the third parties which the Appellant was not allowed to cross-examine even when the Appellant had sought for cross-examination of the persons whose statements were relied upon to confirm the demands against him.

(vi) The Appellant states that the entire basis of confirmation of demand by the Ld. Adjudicating authority is nothing but reiteration of the contents of the SCN without refuting any of the submissions made by the Appellant and thus the demand suffers from infirmity.

(vii) The Appellant states that to establish the allegation of clandestine removal, the department has to undertake examination of various persons who may be a part of such removal such as transporters, customers etc. In the case of the Appellant, the department has not proceeded to inquire against Mr. Mahesh who had stated that the goods were sold by the Appellant to him and the same was the very basis of the start of the investigation against the Appellant.

(viii) The Appellant states that it is a settled principle that the allegation of clandestine removal is a serious one and the same has be brought on record by the department, which has not at all been done in the present case.

(ix) The Appellant relied on the decision of the Tribunal in the case of M/s AMBICA IRON AND STEEL PVT LTD vs COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX , ROURKELA 2022-TIOL-67-CESTAT-KOL wherein it has been held that clandestine manufacture and removal of excisable goods is to be proved by tangible, direct, affirmative and incontrovertible evidences relating to (i) Receipt of raw material inside the factory premises, and non-accounted thereof in the statutory records; (ii) Utilization of such raw material for clandestine manufacture of finished goods; (iii) Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, discrepancy in the stock of raw materials and final products.The department could not bring in any such evidence to substantiate their allegations in the present case.

(xi) The Appellant relied on the decision of the Tribunal Kolkata in the case of M/s. Jai Balaji Industries Limited (Unit-III) Vs. Commissioner of CGST & CX, Bolpur Commissionerate, FINAL ORDER NO. 75583-75585/2020 dated 12/11/2020 wherein it has been held that there should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions.

(xii) The Appellant also relied upon the decision in the case of M/s MSP SPONGE IRON LTD vs COMMISSIONER OF CGST, CENTRAL EXCISE AND CUSTOMS ROURKELA, COMMISSIONERATE 2020-TIOL-523-CESTAT-KOL wherein it has been held that Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence.

(xiii) The Appellant also stated that it has been consistently held by various High Courts and Tribunals that no demand of clandestine manufacture and clearance can be confirmed purely on assumptions and presumptions and the same is required to be proved by the Revenue by direct, affirmative and incontrovertible evidence, as has been held in the following cases :-

Bihar Foundary & Castings Ltd. Vs. CCE, Ranchi [2019 (8) TMI 527 – CESTAT Kolkata]

Continental Cement Company Vs. Union of India [2014 (309) E.L.T. 411 (All)] – 2014-TIOL-1527-HC-ALL-CX

Balashree Metals Pvt.Ltd. Vs. UOI [2017 (345) ELT 187 (Jhar.)] = 2016-TIOL-2590-HC-JHARKHAND-CX

CCE, Meerut-I Vs. R.A. Castings Pvt.Ltd. [2012 (26) S.T.R. 262 (All.)] Popular Paints and Chemicals Vs. CCE & Customs, Raipur [2018 (8)

TMI 473 (Tri.-Delhi) = 2019-TIOL-1239-CESTAT-DEL

(xiv) In view of the above submissions, they prayed for setting aside the demands of duty and penalty against the appellant.

5. The Ld. A.R. stated that the investigation has established that the Appellant is the actual manufacturer of the goods. The statements recorded during investigation clearly established that the Appellant was the brain behind the manufacturing and clandestine clearance of cigarettes. Accordingly, they prayed for dismissing the appeal filed by the Appellant.

6. Heard both sides and perused all appeal records.

7. We observe that the initial investigation was conducted against Shri. Santhosh Kr. Jodhwani, wherein stock of filter and non-filter cigarettes of various brands of M/s ATPL was found. The said Santhosh Kr. Jodhwani failed to produce any purchase documents against the stock of cigarettes found at his premises. In his statement, he stated that he used to contact Shri Mahesh for purchase of cigarettes and the orders were placed on phone and that the cigarettes were received in his godown directly from ATPL and that the payments were made in cash to different traders upon the instructions of Shri Mahesh. But, we observe that no statement was recorded from Shri. Mahesh to confirm the statement of shri Santhosh Kr. Jodhwani. The investigation has blindly accepted the statement of Shri Santosh Kr Jodhwani, without any evidence. Shri Santhosh Kr. Jodhwani in his statement stated that the Appellant is owner of ATPL. We observe that the investigation has not brought in any evidence to substantiate this claim.

8. We observe that search was later carried out at the premises of ATPL including an unregistered factory premises of ATPL situated at Village – Mohiduddinpur (Village – Narma), Fatuha Daniyava Road, Dist. Patna and two godowns situated in and around Patna on 30.05.2014. During the search two cigarette making machines were found in the unregistered premises of ATPL situated at Fatuha Daniyava Road. Cigarettes bearing the brand name of ATPL were found in that premises. Accordingly, it was concluded that the Appellant was engaged in manufacturing of cigarettes from the said unregistered premises at Fatuha Daniyava Road, without payment of central excise duty and cleared the same clandestinely from the said premises. The investigation arrived at this conclusion manily on the ground that ATPL brand cigarettes were found in the said premises and the statements recorded from the Appellant and various third parties.

9. In their submissions the Appellant stated that the Ld. Adjudicating Authority has erred in confirming the demand against the Appellant when it is settled that the levy of Central Excise duty is upon the manufacturer and that the Appellant is not a manufacturer, rather ATPL is the manufacturer of cigarettes however the department authorities had not even made ATPL a party to the impugned proceedings. The Ld. Adjudicating Authority has confirmed the demand on the Appellant merely on the surmises that the Appellant is the owner of ATPL when it was already on record of the departmental authorities that ATPL is duly registered with the Central Excise Department and the registration was granted to them after due verification by the Central Excise Department and that ATPL had been discharging duty of central excise. ATPL is duly registered under the companies Act, 1956 and has a separate legal identity in the eyes of law. Having two directors and the appellant is neither the director nor the employee of ATPL. ATPL is the manufacturer of the cigarettes which is alleged to be clandestinely removed, however, no demand is raised against ATPL.

10. We agree with the contention of the Appellant. Central Excise duty is payable on the excisable goods manufactured by a manufacturer. Section 2(f) of the Central Excise Act, 1944 defines a ‘manufacturere’ as below:

“(f) 5 " manufacture" includes any process,- (i) incidental or ancillary to the completion of a manufactured product;

(ii) Which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, (5 of 1986). and the word" manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable, goods, but also any person who engages in their production or manufacture on his own account;]”

From the above definition, it can be seen that in order to construe a person as a ‘manufacturer’ it must be established that he employs his labour for production of goods or engages himself directly and produce goods on his own account.

11. In the present case, we observe that there is no evidence brought on record by the investigation to establish that the Appellant has engaged his labour to manufacture cigarettes in the Fatuha Daniyava Road premises where two cigarette making machines were found. There was no evidence available on record to implicate the Appellant in the manufacture of cigarettes found in the Fatuha Daniyava Road premises or at the other godowns. The cigarettes found the said premises were bearing the brands owned by M/s ATPL. Obviously M/s ATPL should be questioned first regarding the ownership of the goods, since they were registered with the department for the manufacture and clearance of cigarettes under various brand names owned by them. Apparently, the investigation has not questioned any of the Directors of M/s ATPL. No demand was raised on them. The investigation has blindly relied on the third party statements and concluded that ATPL brand cigarettes were manufactured by the Appellant in their unregistered premises at Fatuha Daniyava Road and demanded duty from them.

12. We observe that there is no evidence available on record to establish clandestine manufacture and clearance of cigarettes by the Appellant. The investigation has not brought in any evidence to establish that the Appellant had procured raw material or sale of impugned cigarettes by him to any person or obtained any payments from the alleged buyers or any transportation of the impugned cigarettes. In the absence of any such evidence to establish that the Appellant was the actual manufacturer of the cigarettes found at the unregistered premises at Fatuha Daniyava Road and the other godowns, the tag of ‘manufacturer’ cannot be fixed on the Appellant. The Appellant do not fall within the definition of ‘manufacturer’ as defined under Section 2(f) of the Central Excise Act, 1944. Accordingly, we hold that the Appellant cannot be considered as the manufacturer of cigarettes in this case and duty cannot be demanded from them for the cigarettes said to have been manufactured at the unregistered premised at Fatuha Daniyava Road and the cigarettes found at other godowns. Clandestine manufacture and clearance of cigarettes cannot be made merely on the basis of assumptions and presumptions. There must be tangible, direct affirmative and incontrovertible evidence available to establish clandestine clearance. This view has been supported by various decisions of the Hon’ble High Courts and Tribunals.

13. In the case of M/s AMBICA IRON AND STEEL PVT LTD vs COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX , ROURKELA 2022-TIOL-67-CESTAT-KOL, the Tribunal has held as under:

“13.We find that the issue of ‘question of fact’ to be decided in this case is whether the Appellant has clandestinely removed the goods on which the duty demand has been made.

14.The clandestine manufacture and removal of excisable goods is to be proved by tangible, direct, affirmative and incontrovertible evidences relating to (i) Receipt of raw material inside the factory premises, and non-accounted thereof in the statutory records; (ii) Utilization of such raw material for clandestine manufacture of finished goods; (iii) Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, discrepancy in the stock of raw materials and final products; (iv) Clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, transporters’ documents, such as L.Rs., statements of lorry drivers, entries at different check posts, forms of the Commercial Tax Department and the receipt by the consignees; (v) Amount received from the consignees, statement of the consignees, receipts of sale proceeds by the consignor and its disposal. Whereas, in the instant case, no such clinching or corroborative evidences to the above effect have been brought on record.

15.In the instant case, the entire case of the Revenue is based on the Kaccha Chithas seized from the residence of the Director. The manner in which the said Kaccha Chithas is seized has been strongly agitated by the Appellant. We find that the said Kaccha Chithas/documents should have been seized in the presence of the Director. There is considerable force in the contention of the Appellant that the Kacha Chithas relied upon by the Revenue cannot be a basis to uphold the serious charge of clandestine clearance. It is settled legal position that charge of clandestine clearance is a serious charge and the onus to prove the same is on the Revenue by adducing concrete and cogent evidence. In the absence of corroborative evidence, the issue of fact i.e. in the present case “the charge of clandestine clearance” cannot be levelled against the assessee.

16.We find that in the entire proceedings, no evidence, much less corroborative evidence, has been adduced to show that input goods has been procured to manufacture goods for clandestine clearance. No efforts have been made by the investigating agencies to establish the existence of any unaccounted manufacturing activity in the form of unaccounted raw material, shortage of stock, shortage of raw material/finished goods, excess consumption of electricity, unaccounted labour payments, interrogation of buyers/transporters or any incriminating record/document to suggest any flow back of cash etc.

The Revenue authorities in this case have failed to discharge the burden of proving the serious charge of clandestine clearance or undervaluation with cogent and clinching evidence. It has been consistently held that no demand of clandestine manufacture and clearance can be confirmed purely on assumptions and presumptions and the same is required to be proved by the Revenue by direct, affirmative and incontrovertible evidence, as has been held in the following cases :-

• Bihar Foundary & Castings Ltd. v. CCE, Ranchi [2019 (8) TMI 527-CESTAT, Kolkata] - Para 18

• Continental Cement Company v. Union of India [2014 (309) E.L.T. 411 (All.)] - Para 12

• Balashree Metals Pvt. Ltd. v. UOI [2017 (345) E.L.T. 187 (Jhar.)] - Para 5(vi)

• CCE, Meerut-I v. R.A. Castings Pvt. Ltd. [2012 (26) S.T.R. 262 (All.) = 2011 (269) E.L.T. 337 (All.)]

• Popular Paints and Chemicals v. CCE & Customs, Raipur [2018

(8) TMI 473 (Tri. - Delhi)] - Para 17

17.We further find that the Revenue had neither disclosed any material nor described the method of stock taking to counter the case.

We are unable to accept the contention of the Revenue without any basis, such as, the details of the weighment slip, counting slip etc., as the case may be. It cannot be on the basis of eye estimation or otherwise.

18.The Learned Commissioner has asserted in the impugned order that the demand based on the Kacha Chithas and the statement of Director is sustainable and that no further corroboration was required in view of the clinching nature of the oral and documentary evidence establishing clandestine production and removal of finished goods at para 17.2 of the Order-in-Original is clearly contrary to the judicial precedents cited supra.

19.We further find that the contention of the Learned Commissioner in the impugned Order-in-Original that it is neither feasible nor desirable to cause enquiry at all possible points concerning the clearances at Para 17.5 of the impugned order itself clarifies that the demand has been raised solely on the basis of assumptions and presumption and no corroborative evidence was brought out by the Revenue except the so called Kacha Chithas and statement of Director.

20.We are of the view that the Learned Commissioner made a fundamental error by making assumptions only just to confirm the demand on the allegation of clandestine clearance. It is a well settled position of law that serious allegation cannot be made merely on assumptions and presumptions and in the absence of detailed supporting evidence, the charge of clandestine removal cannot be upheld.

21. In view of the above discussions, the impugned order cannot be sustained and accordingly the same is set aside. The appeal is allowed with consequential relief as per law.”

14. In the case of M/s. Jai Balaji Industries Limited (Unit-III) Vs. Commissioner of CGST & CX, Bolpur Commissionerate, FINAL ORDER NO. 75583-75585/2020 dated 12/11/2020, it has been held as under:

“20. We find that the Show cause Notice and the adjudication order rely heavily on the records recovered at M/s SPRML and the statements of Shri Debasis Samal and Shri Anil Kumar Jain of M/s SPRML. It is now a settled principle that clandestine removal is a charge and has to be proved with all other concerned activities. We find that the coordinate Bench of the Tribunal, in the matter of Nova Petrochemicals v. CCE, Ahmedabad-II, in its Final Order Nos. A/11207-11219/2013, dated 26-9-2013, held as under (in Para 40) :

“After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following :

(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; (ii) Evidence in support thereof should be of: (a) Raw materials, in excess of that contained as per the statutory records; (b) Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty. (c) Discovery of such finished goods outside the factory (d) Instances of sales of such goods to identified parties. (e) Receipt of sale proceeds, whether by cheque o by cash, of such goods by the manufacturers or persons authorized by him; (f) Use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validity cleared on payment of duty (g) Statements of buyers with some details of illicit manufacture and clearance; (h) Proof of actual transportation of goods, cleared without payment of duty (i) Links between the documents recovered during the search and activities being carried on in the factory of production; etc.

21. We agree to the proposition of the learned Commissioner that the department is not required to prove clandestine removal by mathematical precision. However, the instant case, we find that not even single evidence has been brought on record to show clandestine removal, conclusively establishing at least in a sample transaction. We find that the Annexure-H contains alleged receipts by M/s SPRML date wise from the appellants. The Annexure contains Truck Nos. We do not find any investigation regarding the transportation at least, of which some evidence, in the form of Truck numbers, was available with the department. We also find that no stock verification has been conducted at the appellant’s premises to see if there were any discrepancies in the stock of raw material, finished products etc. The allegation is about clandestine removal of a huge quantity of 13,683.05 MT valued at Rs.52.00 Crores. To prove evasion of such magnitude, the department should have established the purchase of raw material, consumption of electricity, deployment of labour, arrangement of transportation, receipt at the customers’ end and financial transactions. Receipt of money in respect of not even a single transaction in the hands of the appellants has been proved with evidence. We find, in fact, that the department has not at all attempted to investigate in that direction to prove the alleged clandestine removal.

The show cause notice and the impugned order rely upon the only fact that DGCEI have recovered the documents from the secret premises of M/s. SPRML and that the officers of M/s. SPRML have accepted it. We find that this is not just enough. Investigation cannot be done in a short-cut manner. Having conducted no investigation whatsoever, department cannot confirm the demand only on the basis of documents seized from some other person, more so the contents of which were never accepted by the appellants and cross examination was not allowed. If allegations can be made just on evidence obtained from third parties, there would be no dearth of such cases.

We find that leaving alone proof with a mathematical precision, in the instant case, evidence made available is not even enough even for a Gross approximation. The appellant has relied upon a number of cases wherein it was settled that in order to prove the allegations of clandestine removal the department must bring on record cogent, positive and concrete evidence to prove the said allegation, the said allegation cannot be sustained on the basis of assumptions and conjectures. We find, in view of the above, that the investigation and consequentially the allegation of clandestine removal, lacks credence and suffers from incurable lacunae.”

15. In the case of M/s MSP SPONGE IRON LTD vs COMMISSIONER OF CGST, CENTRAL EXCISE AND CUSTOMS ROURKELA, COMMISSIONERATE 2020-TIOL-523-CESTAT-KOL, the Tribunal has held as under:

“8. I further find that the private documents recovered at the premises remains unrebutted by the department. I also find that the allegation of clandestine manufacture and removal in the present case is based on the (a) computer generated sheets and (b) loose papers which cannot be relied upon as evidence, inasmuch there is no indication in the orders passed by the authorities below that the appellant was maintaining computerised records of their production and clearance of goods and whether any other computerised sheets were traced out in the files withdrawn. I find that there is no compliance of Section 36B of the Act as held by Hon'ble Supreme Court in the case of Anwar P.V. Vs. P.K. Baseer, MANU/SC/0834/2014 and further followed by this Tribunal in the case of Popular Paints vide Final order dated 06.08.18. I further find that the learned Commissioner (Appeals) erred in relying upon Section 36A of the Act, which is not applicable to the facts of the present case.

I further find that the alleged private records cannot be relied upon as evidence without any corroborative evidence. I find that the Hon'ble Chhattisgarh High Court in the case of Hi-Tech Abrasives Ltd. Vs. CCE&C, Raipur, 2018 (362) ELT 961 (Chhattisgarh), has held that:-

“12.2 We have gone through the detailed order passed by the adjudicating authority and we find that so far as the demand of challenge in the present case is concerned it rested only on two materials. One was the so called statement of the Director which the adjudicating authority and the Customs, Excise and Service Tax Appellate Tribunal received in advance as admission of clandestine removal by the Director of the appellant/Company and the other was the notebook which contained certain entries, which according to the adjudicating authority constitute relevant material to draw inference of clandestine removal by the avoidance of payment of duty. Once we have held that the statement of the Director could not be admitted as relevant piece of evidence, there is no question of there being any admission on the statement of the Director of the company.

Then the only other material left is unverified private document in the form of certain entries made in the note book, seized during search operations.

8.1 I further find that the Hon'ble High Court of Allahabad in the case of Continental Cement Company Vs Union of India, 2014 (309) ELT 411 (All.) = 2014-TIOL-1527-HC-ALL-CX , has held that the department is required to adduce clinching evidence of the nature of purchase of raw material, use of electricity, sale of final products, payment, realization of sale proceeds, mode and flow back of funds. The relevant extract of the judgment is reproduced here for ready reference:-

"12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :

(i) To find out the excess production details.

(ii) To find out whether the excess raw materials have been purchased.

(iii) To find out the dispatch particulars from the regular transporters.

(iv) To find out the realization of sale proceeds.

(v) To find out finished product receipt details from regular dealers/buyers.

(vi) To find out the excess power consumptions.

13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.

I further find that admittedly, in the present case, no such investigation has been conducted by the department qua purchase of raw material, use of electricity, sale of final products, payment, realization of sale proceeds, mode and flow back of funds. Similar view has been taken by the following judgements of the Hon'ble High Courts and this Tribunal, which have been affirmed by the Hon'ble High Courts and Supreme Court…..

9. I further find that merely deposit of money at the time of investigation would not amount to acceptance of allegations of clandestine manufacture and removal as alleged by the department. It is well settled law that, payment of money at the time of investigation would be treated as a deposit under protest, which is held in following judgements.

10. I further find that burden to prove allegation of clandestine manufacture and removal is heavily on the department and has to be discharged by producing clinching evidence on record, which has not been discharged by the department in the present case.

11. In the light of the above discussions, the impugned order cannot be sustained and is accordingly set aside. The appeal filed by the appellant is allowed with consequential relief as per law.”

16. We observe that the issue involved in the present appeals is clandestine removal of goods without payment of Central Excise duty. The charge of clandestine removal is a very serious charge which entails serious consequences which are both civil and criminal in nature.

Hence, before levelling such serious charge of clandestine removal of goods, there must be sufficient evidence on record leading to conclusive proof of production of goods, their removal from the factory by any mode of transportation and clandestine clearances to buyers. The onus to establish such clandestine activities, resulting in confirmation of demand is placed heavily on the Revenue and is required to be discharged by production of sufficient, cogent and tangible evidences.

The said allegation has to be proved by bringing on record evidences procurement of all the raw materials clandestinely in proportionate quantity and it must be proved to whom the goods have been sold.

17. In the present case, we observe that the Revenue has not brought in any evidence to corroborate the allegation that the Appellant were the actual manufacturers of the cigarettes. In their submissions, the Appellant cited various loopholes in the investigation and argued that the demand of duty made and penalty imposed on him in the impugned order are not sustainable. The decision cited by him supports his contention.

18. In view of the above discussion and following the decisions cited by the Appellant, we hold that the demand of duty on the Appellant in the impugned order is not sustainable. Since, the evidence available on record does not indicate the involvement of the Appellant in the clandestine manufacturing and clearance of cigarettes, no penalty imposable on them.

19. Accordingly, we set aside the demand of duty along with interest and penalty imposed on the Appellant in the impugned order.

20. In view of the above discussion, we allow the appeal filed by the Appellant.

(Pronounced in the open Court on…28.07.2023..)

Sd/-

(Ashok Jindal)

Member (Judicial)

Sd/-

(K. Anpazhakan)

Member (Technical)