2022 (1) TMI 1296 - AT - Central Excise

Clandestine manufacture and clearance - Sir Brand Pan Masala and Gutka - shortage of cenvatable inputs being used in the manufacture of finished goods as per stock record, being the packing materials/laminates - Demand of futy Rs. 2,98,262/- on M/s Seema - cross-examination of statements relied upon - confiscation as per provisions of Rule 25 of Central Excise Rules, 2002 recovery of Excise Duty under Section 11A (1) of the Central Excise Act - Demand-cum-Show Cause Notice issued - demand of Duty Rs. 1,60,377/- from M/s Seema Enterprises with penalty on i) RIL Rs. 5,000/- ii) Abhishek Sales Rs. 50,000/- iii) Nath Co. Varanasi Rs. 1,00,000/- - Demand-cum-Show Cause Notice issued vide C.No.121/INT/DGCEI/ HQ/07/9033-40 dated 07.11.2008 - Adjudicating Authority held that the unaccounted finished goods found in excess in the factory premises of M/s. Shanker valued at Rs.46,29,130/-are liable for confiscation under the provisions of Rule 25 of the Central Excise Rules, 2002. The duties and penalties have been mainly imposed on the basis of the 3rd party records (mainly transporter‟s records) and the statements of the various persons being the staff of the transporters, the authorised persons of the 3 manufacturers, Mr. Alok Krishna Gupta (Dealer/Purchaser), Railway Booking Agent and his associates and some of the buyers/re-sellers of the goods, manufactured by the 3 appellant manufacturers. HELD THAT - It is the stand of the 3 appellant manufacturers that they have been selling their goods throughout ex factory, at ex factory price. It is the buyer, who after taking delivery, arranges for the transportation themselves. Under the admitted facts, the 3 appellant manufacturers are neither the consignor nor the consignee, in any of the third party transporter‟s records, including the Railways. Almost all the persons, whose statements have been relied upon, have either retracted their statements, which were recorded during investigation and/or the veracity of their statements did not stand the test of cross examination during the adjudication proceedings. The ld. Commissioner has noted in para -50 of the impugned order, that all the respective persons have retracted from the revelation /acceptance made by them earlier in their statements tendered under Section 14 of the Act, mainly on one pretext or the other by claiming that - they were compelled to write their earlier statements under pressure by the Departmental Officers; or they had no alternative but to write the statements as dictated by the officers and put their signatures; or that they accepted their role in alleged clandestine removal solely under pressure/duress, put by the Departmental Officers and out of fear arising from the threat of being sent to jail; and most of them also stated that they did not file retraction before any Authority as they did not know what is retraction and what is the legal procedure for retracting from their statements. The stand of the ld. Commissioner is bad and without authority of law, in view of the scope of inquiry or adjudication, particularly with respect to the reliability of the statements recorded during investigation, as clarified by the Hon‟ble Punjab Haryana High Court in the case of Jindal Drugs 2016 (6) TMI 956 - PUNJAB HARYANA HIGH COURT and also by the Hon‟ble Supreme Court in the case of Vinod Solanki Vs. Union of India 2008 (12) TMI 31 - SUPREME COURT , wherein it is held that a person accused of commission of an offence is not expected to prove to the hilt that confession had been obtained from him by any inducement, threat or promise by a person in authority. Shri Dilip Gupta, (Railway Booking Agent), who, in his statement recorded during investigation, had stated that he was engaged in booking of goods of Sir Brand Gutka/Pan Masala as well as other brands from Kanpur Railway Station. He is the person, who stated the 4 point identification criteria of RRs relating to Sir Brand of Gutka/Pan Masala manufacturers. In his cross examination on 4.1.2017, he has retracted from his original statement stating that at the time of investigation, the statements were recorded under duress and coercion, he had to write as dictated to him by the officers. This fact is also evident from several contradictions in his statement recorded during investigation. The charge of clandestine removal is a serious charge and altering the civil liability of the person, and as such, the duty liability and penalty cannot be fastened on the basis of the hearsay evidence, and assumptions and presumptions based on the same. The Xerox copy of the RRs supplied by the Railways are not reliable as per the provisions of Section 36 A of the Central Excise Act, as no presumption against the appellant manufacturer is available to the Revenue. We further observe that 3rd party evidence at best is a good ground for suspicion, but in absence of corroboration with the records, etc. of the appellant manufacturer(s), the demand of duty cannot be sustained - Similarly, the demand confirmed for alleged clandestine clearance through Bihar Carrying Co. Pvt. Ltd. and Trimurti Roadlines (based on third party documents and statements) are also held to be unsustainable and accordingly are set aside. Proposed demand of duty of Rs.5.37 Crores (appox.) is concerned on the allegation of unaccounted receipt of packing materials from M/s Vinayak Ultraflex - HELD THAT - The ld. Commissioner has observed that suspicion howsoever strong cannot be the proof of clandestine removal, in absence of corroborative evidence. It has been held in the impugned order that the basic allegation of receipt of unaccounted inputs by M/s. Vinayak Ultraflex does not stand, particularly in view of the report of the Central Forensic Laboratory, Hyderabad, and thus, there is no reliable data of alleged clandestine manufacture by M/s. Vinayak Ultraflex and its clearances to the appellant manufacturers. Accordingly, we uphold the findings of the Commissioner, and dismiss the grounds taken by the Revenue. Demand of Rs.2,98,262/- on M/s. Seema Enterprises - HELD THAT - It is only alleged on presumption that the goods seized with the transporter have actually been despatched by M/s. Seema Enterprises. Further, we find that M/s. Seema Enterprises have not claimed such goods lying in seizure with the transporters, and such goods have already been auction sold by the Revenue. Accordingly, we hold that charge of alleged clandestine removal under the facts and circumstances, is not established. Further, the order of confiscation is bad as the goods are not available or in existence. Accordingly, we set aside the demand of duty and penalty as well as fine. Demand of Rs.1,60,377/- is concerned from M/s. Seema Enterprises as regards the goods seized in the premises of the two traders, and also the excess stock found in the factory premises of M/s. Seema - HELD THAT - The finished goods lying inside the factory are not amenable to seizure, unless the same are found outside the factory or despatched. As per the provisions of the Act and the Rules thereunder, the excisable goods are liable to seizure only after such goods are cleared from the factory i.e. outside the factory premises, if found, have been removed without payment of duty. We also hold that there is no provisions for seizure and/ or confiscation of the raw materials lying inside the factory premises. From the facts and circumstances emerging in the cross examination of the various key persons, whose statements have been relied upon, we are satisfied that in view of the facts emerging in the cross examination, the statements recorded during investigation are not reliable, being involuntary. It is, thus, established beyond any doubt that none of the oral statements obtained during investigation and relied upon documents (third party) can be given any credence or evidentiary value as the same have been found to be involuntary or tutored statements tendered under undue influence/duress/coercion exerted by the investigating officers. We also find that save and except the statements, there is absence of any substantial evidence to corroborate the third party evidences. Such oral evidences are not sufficient for confirmation of the charge of clandestine removal in absence of any corroboration, by way of some documentary evidence of the appellant - manufacturers. As the demand(s) of duty and penalty have been set aside, against all the three manufacturers of Sir Brand‟ Gutkha and Pan Masala, we set aside the penalties imposed on all the co-accused - Appeal allowed.

Summary

Issues Involved:
1. Clandestine manufacture and clearance of goods.
2. Seizure of goods and raw materials.
3. Demand of central excise duty.
4. Imposition of penalties.
5. Reliability of third-party documents and statements.
6. Admissibility of evidence.
7. Seizure of goods at transporters' premises.
8. Alleged receipt of unaccounted packing materials.

Issue-wise Detailed Analysis:

1. Clandestine Manufacture and Clearance of Goods:
The main show cause notice dated 01.10.2009 alleged clandestine manufacture and clearance of "Sir Brand Gutkha/Pan Masala" by the appellants. The demand was based on three counts:
- Count A: Transportation through Railways with a total duty demanded of Rs. 33,18,54,918/-. The Commissioner confirmed Rs. 13,69,17,210/- based on 1005 Railway Receipts.
- Count B: Transportation through Road Transport Companies (Bihar Carrying Co., New Vikas Goods Carrier, and Trimurti Roadlines). The Commissioner confirmed part of the demand for Bihar Carrying Co. and Trimurti Roadlines but dropped the demand for New Vikas Goods Carrier.
- Count C: Alleged receipt of packing materials from Vinayak Ultraflex Pvt. Ltd. The Commissioner found the demand unsustainable and dropped it.

2. Seizure of Goods and Raw Materials:
Goods and raw materials were seized during searches conducted on the premises of the appellants and transporters. The seizures included finished goods and laminates found in excess or without proper documentation. The Commissioner confirmed some demands and penalties based on these seizures.

3. Demand of Central Excise Duty:
The demands were primarily based on third-party documents such as Railway Receipts, Forwarding Notes, and transporters' records. The Commissioner confirmed some demands but dropped others due to lack of corroborative evidence.

4. Imposition of Penalties:
Penalties were imposed on the appellants under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules. The Commissioner imposed penalties on the manufacturers and other appellants but dropped penalties on the proprietors of the units.

5. Reliability of Third-Party Documents and Statements:
The appellants argued that the demands were based on unreliable third-party documents and statements obtained under duress. The Commissioner noted that many statements were retracted during cross-examination and found inconsistencies in the evidence presented by the Revenue.

6. Admissibility of Evidence:
The Commissioner observed that the sole reliance on third-party documents and retracted statements was insufficient to establish clandestine removal. The Tribunal emphasized the need for corroborative evidence and held that the burden of proof lies with the Revenue.

7. Seizure of Goods at Transporters' Premises:
Goods seized at the premises of transporters were alleged to be clandestinely cleared by the appellants. The Commissioner found that the appellants were not the consignors or consignees of the seized goods and set aside the demands and penalties related to these seizures.

8. Alleged Receipt of Unaccounted Packing Materials:
The demand of Rs. 5,36,99,135/- on M/s Shankar for alleged receipt of unaccounted packing materials from Vinayak Ultraflex Pvt. Ltd. was dropped by the Commissioner. The Tribunal upheld this decision, finding the demand to be based on assumptions and lacking corroborative evidence.

Conclusion:
The Tribunal set aside the demands and penalties imposed on the appellants, except for a partial confirmation against Keyman Laminators. The appeals by the Revenue were dismissed. The Tribunal emphasized the need for substantial and corroborative evidence to establish charges of clandestine removal and held that reliance on third-party documents and retracted statements was insufficient.