2019 (10) TMI 849 - AT - Central Excise

Clandestine removal - Pan Masala Gutka (PMG) - unaccounted raw material and finished goods - it is alleged that the receipts of various packing material and finished goods were not recorded in their records and therefore the goods found at factory in Dashrath, Baroda and Godown situated at Jasubhai Fulabhai Godown at N.H. No. 8, Dashrath, Baroda were seized - demand of ₹ 1,38,93,527/- made on the basis of trial run conducted by the officers - HELD THAT - The Appellant has challenged the trial run on the ground that the same was conducted arbitrarily and wrongly by the officers. Further the statements were retracted by way of affidavit and cross examinations - it is found that during investigation the persons whose statements were recorded had retracted their statements. During cross examination the employees and the director Shri R.M. Dhariwal has stated that the statements were recorded under threat, coercion and duress. In such case, only on the basis of statements and trial run to ascertain the consumption of PLR, demand cannot be made. On the basis of average consumption of Printed laminated, a packing material arrived on the basis of disputed trial run, it cannot be alleged that the Appellant has manufactured PMGs and the same in turn were removed clandestinely. Only on the basis of alleged average consumption of PLR, the charge of clandestine removal cannot be made. Only from PLR, PMG cannot be produced, it is a mere packing material. The show cause notice has not shown any unaccounted receipt or excess consumption of main raw materials i.e. Supari, Tobacco, Katha, kimam, perfume, menthol which are main raw materials for manufacture of PMG. The packing material would come into picture, only once raw material is consumed and the finished goods are produced - thus, on the basis of receipt of PLR (packing material) or trial run which is also even disputed, it cannot be concluded that the Appellant has manufactured unaccounted PMG and cleared the same without payment of duty. Cross-examination - the adjudicating authority has held that the cross examination should not have been allowed - HELD THAT - The grant of cross examination is valuable right of the assessee and request for same cannot be brushed aside by merely denying the same. In the present case the cross examinations of employees and the officers were allowed by the predecessor of the adjudicating authority and hence the same had to be considered - the statements given by the employees accepting clandestine removal stands retracted by them. In such case there is no reason to rely upon such statements to allege clandestine removal. Duty demand of ₹ 10,32,064.92 - demand has been made on the ground that 19669.351 Kgs of Plastic Laminated roll was found from the godown of the Appellant - HELD THAT - There is no evidence that the Appellant were to clear such PLR without payment of duty from their factory. Ultimately the said roll after release was consumed in the manufacture by the Appellant. In that case only on the limited ground that the PLR was found at godown of Appellant, the duty demand cannot be made as the goods were not intended to be removed without payment of duty nor there is any evidence to allege so. Confiscation of goods worth ₹ 29,12,368.93 - HELD THAT - The goods were raw material/ packing material except 2 gms PMG pouches which were lying in factory in strips form. As far as the raw material and packing material is concerned, the same were legally acquired and there is no case for seizure/ confiscation of same. In respect of finished goods, we find that the PNG were in strip form awaiting packing in inner cartoon and then corrugated boxes - there are no reason to seize/ confiscate the goods when the goods did not reach RG-1 Stage nor there was any preparation on part of assessee to remove the same clandestinely. Demand of ₹ 5,43,750/- has been confirmed on records of Sarco Roadlines - HELD THAT - No evidence has been adduced to show as to who from the Appellant concern consigned the goods and what is the origin of goods. In such case merely on the basis of transporter s record, it cannot be concluded that the goods were cleared clandestinely by the Appellant - demand not sustainable. Confiscation of goods seized from M/s Jivan Agencies, Raipur and M/s Vinayak Agencies, Jodhpur - goods has been seized on the ground that the same did not have any identification marks - HELD THAT - No evidence to show that the said goods were consigned by Appellant unit. Further we find that there are glaring inconsistencies in the statements of Shri Gautam Zabak, Partner of M/s Jivan Agencies. In one of his statement 28.11.94, he stated that the goods were received from Appellant Unit, Baroda and in next statement he stated that the goods were received from Pune Unit. Thus the statements of Shri Zabak were contradictory and without investigation and corroboration, it cannot be said that the Appellant had cleared the seized goods. Further Shri Zabak also retracted his statement. In such case, there are no reason to sustain the confiscation of seized goods. The demands, penalties and confiscation ordered by the adjudicating authority is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Validity of duty demand based on estimated production from a single trial run.
2. Reliability of retracted statements and cross-examinations.
3. Legitimacy of duty demand on PLR (Printed Laminated Roll) found in the godown.
4. Justification for confiscation of raw materials, packing materials, and finished goods.
5. Validity of demand based on transporters' records.
6. Confiscation of goods seized from third-party premises.

Detailed Analysis:

1. Validity of Duty Demand Based on Estimated Production from a Single Trial Run:
The Tribunal found that the duty demand of ?1,38,93,527/- was based on an arbitrary trial run conducted by officers to estimate the consumption of PLR for manufacturing Pan Masala Gutka (PMG). The trial run was disputed by the appellants, who argued that the experiment was conducted unilaterally and without their representation. The Tribunal noted inconsistencies in the testimonies of departmental officers and employees, and emphasized that such an experiment could not reliably determine production over an extended period. The Tribunal referenced several judgments, including CCE Vs. Brims Products, which held that presumptions and assumptions cannot replace positive legal evidence. Consequently, the Tribunal concluded that the demand based on the trial run was unsustainable.

2. Reliability of Retracted Statements and Cross-Examinations:
The appellants argued that the statements of their employees and director, which allegedly admitted to clandestine removal, were obtained under duress and later retracted. The Tribunal found that the retractions, supported by cross-examinations, cast doubt on the authenticity of the statements. The Tribunal highlighted the importance of cross-examination as a fundamental right and noted that the discrepancies in the officers' testimonies further undermined the reliability of the trial run. The Tribunal cited judgments such as Arya Abhushan Bhandar and Swadeshi Polytech, reinforcing the principle that retracted statements require substantial corroboration by independent evidence.

3. Legitimacy of Duty Demand on PLR Found in the Godown:
The Tribunal addressed the duty demand of ?10,32,064.92 on 19669.351 Kgs of PLR found in the appellants' godown. It was noted that the PLR was not intended for removal without payment of duty and was eventually used in manufacturing. The Tribunal concluded that merely finding PLR in the godown did not justify the duty demand, as there was no evidence of intent to evade duty.

4. Justification for Confiscation of Raw Materials, Packing Materials, and Finished Goods:
The Tribunal examined the confiscation of goods worth ?29,12,368.93, which included raw materials, packing materials, and 2 gms PMG pouches. It was determined that the raw materials and packing materials were legally acquired and not subject to confiscation. Regarding the finished goods, the Tribunal found that the PMG pouches were in strip form and had not reached the RG-1 stage of accounting, thus there was no basis for their seizure. The Tribunal referenced cases like Anchal Prints Pvt. Ltd. and Mohit Rollers P. Ltd., which supported the conclusion that goods not ready for removal could not be confiscated.

5. Validity of Demand Based on Transporters' Records:
The Tribunal addressed the demand of ?5,43,750/- based on the records of Sarco Roadlines, which allegedly showed clandestine removal by the appellants. The Tribunal found that the demand was based on third-party records without any evidence linking the goods to the appellants. The absence of corroborative evidence from the appellants' factory led the Tribunal to conclude that the demand was unsustainable.

6. Confiscation of Goods Seized from Third-Party Premises:
The Tribunal reviewed the confiscation of goods from M/s Jivan Agencies and M/s Vinayak Agencies. It was noted that the goods lacked identification marks, but no evidence linked them to the appellants. The Tribunal found inconsistencies in the statements of Shri Gautam Zabak, partner of M/s Jivan Agencies, and determined that the contradictory and retracted statements could not substantiate the confiscation. Consequently, the Tribunal set aside the confiscation of the seized goods.

Conclusion:
The Tribunal set aside the demands, penalties, and confiscations ordered by the adjudicating authority, allowing the appeals filed by M/s DIL and co-appellants, except for the appeal of Shri R.M. Dhariwal, which stood abated due to his demise. The Tribunal emphasized the necessity of positive legal evidence over presumptions and assumptions in proving charges of clandestine removal.