2012 (4) TMI 558 - AT - Central Excise

Clandestine removal - Gutkhas - Revenue entertained a view that the assessee has overstated the consumption of supari as main raw material for the manufacture of Gutkha to the tune of 8.70% and 2.33% respectively - Held that - demand cannot be sustained without any tangible evidence, based only on inferences involving unwarranted assumptions - appeal allowed.

Issues Involved:
1. Interception of truck and seizure of Gutkha.
2. Motive for showing excess receipt of tobacco and overstating consumption.
3. Clarity on the consumption of supari.
4. Status of M/s. Balaji Trading Co. as a dummy unit.
5. Use of production capacity as corroborative evidence.
6. Basis for demand on consumption of raw material.
7. Reliability of the statement of the transporter.
8. Standard of proof for clandestine removal.
9. Confirmation of demand based on shortage of supari and other evidences.
10. Demand based on supari consumption and SIIR, Delhi test report.
11. Applicability of input-output ratio and test report to past periods.
12. Existence of suppression of facts and misdeclaration.
13. Penalty on Shri S.H. Chhajed, Proprietor.
14. Penalty on M/s. Manish Roadways.
15. Penalty on Shri D.G. Khaniya.
16. Penalty on M/s. Balaji Trading Co.
17. Penalty on M/s. K.T. Enterprises.

Detailed Analysis:

1. Interception of Truck and Seizure of Gutkha:
The court examined whether the interception of the truck and the seizure of Gutkha could be relied upon as corroborative evidence. It was concluded that the interception and seizure could be used as corroborative evidence, supporting the allegations of clandestine removal.

2. Motive for Showing Excess Receipt of Tobacco and Overstating Consumption:
The court analyzed whether there was a motive for the appellant to show excess receipts of tobacco and overstate consumption. It was concluded that the appellant overstated consumption to ensure that the consumption of tobacco and supari would tally with the quantity of Gutkha produced.

3. Clarity on the Consumption of Supari:
The court examined if the Commissioner was clear about the consumption of supari. It was concluded that the Commissioner rightly understood the consumption of supari, based on the input-output ratio and the test report.

4. Status of M/s. Balaji Trading Co. as a Dummy Unit:
The court analyzed whether M/s. Balaji Trading Co. was a dummy unit. It was concluded that the activities and records of M/s. Balaji Trading Co. could be used as corroborative evidence of clandestine removal, indicating it was a dummy unit.

5. Use of Production Capacity as Corroborative Evidence:
The court examined if the difference between production capacity and actual accounted production was used as corroborative evidence. It was concluded that the production capacity was used only as corroborative evidence and not for demanding duty.

6. Basis for Demand on Consumption of Raw Material:
The court analyzed if the demand was based on the input-output ratio of supari and Gutkha. It was concluded that the demand for duty was based on the input-output ratio provided by the proprietor and confirmed by the test report.

7. Reliability of the Statement of the Transporter:
The court examined whether the statement of the transporter could be relied upon. It was concluded that the statement of the transporter could be relied upon as one of the corroborative evidences.

8. Standard of Proof for Clandestine Removal:
The court analyzed whether the findings of clandestine removal needed to be proved beyond doubt or by preponderance of probability. It was concluded that the findings needed to be proved by preponderance of probability.

9. Confirmation of Demand Based on Shortage of Supari and Other Evidences:
The court examined if the demand of Rs. 5,76,158/- could be upheld based on shortage of supari and other evidences. It was concluded that the duty demand had to be upheld based on the shortage of supari, input-output ratio, test report, and other evidences.

10. Demand Based on Supari Consumption and SIIR, Delhi Test Report:
The court analyzed if duty could be demanded based on supari consumption and the SIIR, Delhi test report. It was concluded that duty could be demanded on this basis.

11. Applicability of Input-Output Ratio and Test Report to Past Periods:
The court examined if the input-output ratio and test report could be applied to past periods. It was concluded that the result of the test and input-output ratio could be applied to the past period from 2002-2005.

12. Existence of Suppression of Facts and Misdeclaration:
The court analyzed whether suppression of facts and misdeclaration existed. It was concluded that suppression of facts and misdeclaration existed, justifying the invocation of the extended period and confirmation of demand.

13. Penalty on Shri S.H. Chhajed, Proprietor:
The court examined if the penalty of Rs. 25 lakhs imposed on Shri S.H. Chhajed could be upheld. It was concluded that the penalty could be upheld.

14. Penalty on M/s. Manish Roadways:
The court analyzed if the penalty of Rs. 2 lakhs on M/s. Manish Roadways could be upheld. It was concluded that the penalty could be upheld.

15. Penalty on Shri D.G. Khaniya:
The court examined if the penalty of Rs. 2 lakhs on Shri D.G. Khaniya could be upheld. It was concluded that the penalty could be upheld.

16. Penalty on M/s. Balaji Trading Co.:
The court analyzed if the penalty of Rs. 2 lakhs on M/s. Balaji Trading Co. could be upheld. It was concluded that the penalty could be upheld.

17. Penalty on M/s. K.T. Enterprises:
The court examined if the penalty of Rs. 2 lakhs on M/s. K.T. Enterprises could be upheld. It was concluded that the penalty could be upheld.

Final Order:
In view of the majority order, the impugned order of the Commissioner was set aside, and the appeals were allowed with consequential relief to the appellants.

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