2022 (6) TMI 1259 - AT - Central Excise

Clandestine Removal - Cigarettes - unaccounted stock - It is alleged that no raw-material was shown to have been issued for manufacturing of 9,80,000/- cigarettes (98 cartons) which was lying in stock - no entry for receipt or issue of raw-material after 28.04.2010 - HELD THAT - It is found from the facts on record that the sole reason for confirming the above demands and imposing penalties on Appellants is alleged incriminating papers/ records seized from third parties viz. traders, railway agent and transporter and their statements. None of the alleged incriminating documents and papers were seized from M/s ETCL or person connected with the said firm. The central excise duty is on manufacture and removal of goods and it can be recovered from the manufacturer when there is evidence of manufacture and removal of goods. The charges of clandestine manufacture and removal has to be shown by adducing evidence of receipt of unaccounted raw/packing material in factory, use of raw material for unaccounted manufacture of finished goods, installed capacity, consumption of electricity, labour employed and payment made to them, clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, receipt of sale proceeds. We find from the records that not a single evidence to the above effect has been led either in the show cause notice or the impugned order. The show cause notice and the impugned order even fails to show manufacture of excess cigarettes. The statement of the director of M/s ETCL Shri Shyam Khemani is exculpatory. No evidence of production staff or labour/ loading person is on record which can show that cigarettes were manufactured and cleared clandestinely. No excess raw material or any evidence was found. The adjudicating authority has heavily relied upon the records and statements of traders, godown owners, railway agent and transporter staff, and the alleged incriminating papers found from them. However we find that the transport records viz. Challan and RRs shows the goods as 'pop / Allu Papdi or have some other description but none of these records shows the goods as Cigarettes. It is only on the basis of statements of the traders/ transport staff of M/s Lucky Bagga Transport and Railway Agent, the allegation has been made that the cigarettes were transported under mis-description of goods. However there is no corroborative evidence at the end of M/s ETCL, that the goods were cleared from their factory. None of these documents and statements which are all of third party records do not prove clandestine removal of goods from the factory of M/s ETCL. The case against M/s ECTL is purely on the basis of third party statements, seizures and records be it traders, transporters or railway agent. Not a single record or document was seized from M/s ETCL or its director. Merely on the basis of entries available in code words in the records of transporter and the railway agent, it cannot be concluded that the cigarettes were produced and cleared by M/s ETCL clandestinely. Further there is no investigation to establish any linkage of goods seized from traders or third party godown with the goods manufactured in registered factory of M/s ETCL. No evidence has been adduced to establish that seized goods were manufactured in the factory of the appellants and were clandestinely cleared and transported to the alleged places. There cannot be a demand of duty of central excise without establishing manufacture of excisable goods. In absence of any linkage of the factory of appellants with the alleged Railway Receipts or third party private records or with third party statements, there are no grounds to hold manufacture and clandestine removal of such huge quantities of cigarettes. The demand based upon Railway receipt and document of transporters is not sustainable since there is no evidence or nexus of M/s ETCL factory with such RRs and other evidences - There are no evidences of transportation of cigarettes from ETCL to Railway station or LBTC and in absence of same it cannot be held that there was any clandestine removal of the finished goods, especially when all the other evidences were seized from the third party and not from the premises of ETCL. There are no purchase of unaccounted raw material viz. tobacco, filter rod, cigarette papers, CFC Cartons or raw material and finished goods storage at factory. There are no evidence of transportation of goods from factory. No person from the transporter firm or railway has named any person from ETCL who might have booked the consignments. No person from the statements makers has named any person connected with ETCL who has dealt with them. The demands on the basis of calculation of transport records and railway receipt is derived on assumption basis since these are private records. Further in respect of finished goods allegedly cleared by M/s ETCL, no investigation nor any primary or secondary evidence such as transporters statement, truck drivers statements, loading or unloading evidences or statement of persons handling goods at Itarsi Station or taking the goods to Lucky Bagga Transport is on record. Neither there is evidence of sale or receipt of any consideration by M/s ETCL. The revenue has not brought on record even the primary evidence of any nexus of ETCL with alleged Railway Receipts or Lorry Receipts of Lucky Bagga Transport carrying description of goods as poly bundles, PP, or packaging materials. All the purported documentary evidences with cryptic entries have been sourced by revenue from unrelated third parties No evidence has been seized from factory and hence demand cannot be made from ETCL. The private record of third party i.e entries in notebooks or diaries of railway parcel agents and road transport agency without any basis cannot be alleged to be pertaining to alleged clandestine removal of Cigarette by M/s ECTL as held in case of ASWANI CO. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-I 2014 (12) TMI 1213 - CESTAT NEW DELHI . Coming to the reliance placed in show cause notices on statements and documents of third parties viz. trader, transport clerks, and railway agent which is sole basis for demand, it is found that the Appellant during adjudication had sought cross examination of persons and panchas/witnesses and traders/transport employees whose statements were relied upon in the show cause notices - since the persons who were called upon for cross examination have refused/retracted from their statement and there is no corroboration of their statements from M/s ETCL, hence the statements and their record cannot be made basis to demand duty from M/s ETCL - the impugned order passed by the adjudicating authority by relying upon partly the statements and not considering the cross examination is not appreciable and erroneous. The revenue has not found a single document/ record showing any illicit production and removal of goods from M/s ETCL or its director, nor any consideration against alleged clandestine removal has been shown to have been received by M/s ETCL. Further as regard note book maintained by Shri CSM Althaf, Railway Agent, it is not the case of the Revenue that parcel agents maintained these Note Books under the instructions of ETCL. Further, these Note Books were not in the handwriting of any of the persons of ETCL or its accountant or clerk or any employee. Thus the relied upon document has no probative value. Merely because the document has been produced during investigation, it does not establish its probative value. Also, the Adjudicating authority has not given any findings on the submission of the Appellant that other manufacturers were making fake/ counterfeit cigarettes bearing brand name(s) of M/s ETCL and even the department knew about the same. There is no evidence of manufacture of excess cigarette by M/s ETCL. The allegation of clandestine production and removal has to be established against any person by independent and tangible evidence in the form of receipt of raw material in factory and non accountal thereof, use of such raw material in clandestine manufacture of finished goods, consumption of electricity, labour employed and payment made to them, packing material used, discrepancy in stock of raw materials and finished products, security gate records, independent evidence of transportation of goods and its linkage from removal from factory, transport documents, receipt of goods by the buyer and receipt of sale proceeds by the consignor. No such evidence has been brought on record. The show cause notice and the impugned order has not found any evidence from factory showing contravention of law. No evidence of clandestine removal of goods from the factory or any instance is on record. Hence there is no reason to demand duty. Demand is set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of clandestine removal of cigarettes by M/s ETCL.
2. Confiscation of alleged excess stock of cigarettes.
3. Demand of duty based on third-party records and statements.
4. Penalties imposed on M/s ETCL, its director, transporters, godown owners, and departmental officers.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Removal of Cigarettes by M/s ETCL:
The Revenue alleged that M/s ETCL was involved in the clandestine removal of cigarettes based on searches and seizures conducted at various locations, including traders, transporters, and railway agents. The adjudicating authority relied on third-party records, such as transport documents, railway receipts, and statements from traders and transport staff, to support the allegations. However, the Tribunal found that there was no direct evidence linking M/s ETCL to the clandestine removal of cigarettes. The statements from third parties were not corroborated by any evidence from M/s ETCL's factory, and the alleged incriminating documents were seized from unrelated third parties. The Tribunal emphasized that the central excise duty is on the manufacture and removal of goods, and the charges of clandestine removal must be supported by tangible evidence, which was lacking in this case.

2. Confiscation of Alleged Excess Stock of Cigarettes:
The Revenue confiscated 6,92,000 cigarettes allegedly found in excess during a search at M/s ETCL's factory on 14.05.2010. The Tribunal found that the Panchnama proceedings did not mention the stoppage of production on the day of the search. The production of cigarettes from 10 AM to 6 PM on 14.05.2010 was not considered, leading to an erroneous conclusion of excess stock. The Tribunal also noted that the signatures of the Inspector in charge were not obtained on the Panchnama, and the investigating officer himself admitted that the goods produced on 14.05.2010 might have been seized. Consequently, the confiscation of the alleged excess stock was deemed unsustainable.

3. Demand of Duty Based on Third-Party Records and Statements:
The demands of Rs. 1,03,74,648/- and Rs. 28,39,43,195/- were based on third-party records, such as transport documents, railway receipts, and statements from traders and transport staff. The Tribunal found that these records and statements were not corroborated by any evidence from M/s ETCL's factory. The alleged incriminating documents did not show any direct link to M/s ETCL, and the statements of third parties were not reliable without corroboration. The Tribunal emphasized that the demand of duty cannot be based solely on third-party records and statements without independent and tangible evidence of clandestine removal. The Tribunal also noted that the adjudicating authority did not grant cross-examination of key witnesses, which was a violation of the principles of natural justice.

4. Penalties Imposed on M/s ETCL, Its Director, Transporters, Godown Owners, and Departmental Officers:
The Tribunal found that the penalties imposed on M/s ETCL, its director, transporters, godown owners, and departmental officers were not sustainable. The allegations of clandestine removal were not supported by sufficient evidence, and the statements of third parties were not reliable. The Tribunal also noted that the departmental officers performed their duties in good faith, and there was no evidence of their involvement in any wrongdoing. The penalties imposed on the officers were deemed arbitrary and without basis.

Conclusion:
The Tribunal set aside the impugned order, finding that the allegations of clandestine removal and the penalties imposed were not supported by sufficient evidence. The appeals were allowed, and the confiscation of the alleged excess stock and the demands of duty were deemed unsustainable. The Tribunal emphasized the importance of tangible and corroborative evidence in cases of clandestine removal and the need for adherence to principles of natural justice.