2018 (5) TMI 1119 - AT - Central Excise

Clandestine removal - branded chewing tobacco under the brand name of Ratna - M/s PZF is engaged in the manufacture of Ratna brand chewing tobacco. Finished goods with the same brand were found and seized from two godowns belonging to Shri Dinesh Gupta (Mittal). Packing materials bearing the brand name have also been seized from the premises of certain other buyers. Whether the seized goods have been manufactured and clandestinely cleared from the factory of M/s PZF? Held that - no documents have been produced evidencing the licit nature of the seized goods - the Revenue has not brought any evidence on record regarding clandestine manufacture and clearance of the goods from the factory. No investigation appears to have been done in respect of procurement of raw materials or even the actual manufacture. The evidence, linking the seized goods to the factory of M/s PZF, is in the form of oral statements. Shri Purushottam Arya, Managing Partner admitted in his initial statements that seized goods were manufactured in the factory and cleared clandestinely without payment of duty but his statement was retracted subsequently. At the end of the buyers, both Shri Dinesh Mittal and Shri Dinesh Gupta in their statement have admitted that the seized goods were purchased from M/s PZF but without payment of duty. The statements of the buyers form a critical evidence in arriving at a decision in the present case - matter remanded to adjudicating authority to re-adjudicate the matter after following the procedure laid-down in Section 9D - appeal allowed by way of remand.

Issues Involved:
1. Clandestine manufacture and clearance of goods.
2. Confiscation of seized goods.
3. Demand of central excise duty.
4. Imposition of penalties.
5. Admissibility of retracted statements.
6. Compliance with Section 9D of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Clandestine Manufacture and Clearance of Goods:
The Department alleged that M/s Prabhat Zarda Factory (PZF) clandestinely cleared branded chewing tobacco under the brand name "Ratna" without paying duty. Investigations included searches at multiple premises and the interception of a truck. Finished goods bearing the "Ratna" brand were found in godowns without any documents evidencing licit nature, leading to their seizure. The Managing Partner of PZF initially admitted to such activities, valuing unaccounted clearances at approximately ?12 lakhs per month for two years, but later retracted his statement. The General Manager's corroborating statement was not retracted. However, no concrete evidence of clandestine manufacture and clearance, such as procurement of raw materials or actual manufacturing records, was presented by the Revenue.

2. Confiscation of Seized Goods:
The adjudicating authority confiscated the finished goods seized from various premises and allowed the option to redeem them on payment of a redemption fine of ?30 lakhs. Since no documents were produced to prove the licit nature of the goods, the confiscation order was upheld. However, the redemption option is available only to the owner of the goods.

3. Demand of Central Excise Duty:
The adjudicating authority demanded central excise duty amounting to ?52,99,602 on the clandestinely cleared goods. The appellants argued that the duty demand was based solely on statements without substantial evidence linking the goods to PZF's factory. The Tribunal noted the absence of corroborative evidence such as raw material procurement or manufacturing records.

4. Imposition of Penalties:
Penalties were levied on various persons connected with PZF and the buyer. The Tribunal's decision on penalties would follow the determination of the main issues regarding clandestine manufacture and clearance.

5. Admissibility of Retracted Statements:
The Managing Partner's inculpatory statement was retracted, and the appellants contended it should not be considered. The Tribunal acknowledged the retraction and noted the need for compliance with Section 9D of the Central Excise Act, which mandates certain procedures for admitting statements as evidence.

6. Compliance with Section 9D of the Central Excise Act:
The appellants argued that the adjudicating authority did not follow the mandatory procedure under Section 9D, as highlighted by the Punjab & Haryana High Court in the case of M/s Jindal Drugs (P) Ltd. The Tribunal agreed, emphasizing that the statements of buyers were critical evidence. The Tribunal cited the High Court's directive that statements recorded during investigation must be examined in chief before the adjudicating authority, and the assessee must be given an opportunity to cross-examine the makers of the statements.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for re-adjudication. The adjudicating authority is directed to follow the procedure laid down in Section 9D of the Central Excise Act, ensuring compliance with the principles of natural justice and allowing the assessee to cross-examine the witnesses. The re-adjudication should consider the admissibility and relevance of the statements in accordance with the statutory requirements and judicial precedents.

Pronouncement:
The judgment was pronounced in court on 18.05.2018.

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