2023 (8) TMI 10 - AT - Central Excise

Clandestine removal - cigarettes - based on the statements of the third parties - cross-examination of such parties not allowed - corroborative evidences or not - Appellant is the actual manufacturer of the goods or not - demand alongwith penalty - HELD THAT - There is no evidence brought on record by the investigation to establish that the Appellant has engaged his labour to manufacture cigarettes in the Fatuha Daniyava Road premises where two cigarette making machines were found. There was no evidence available on record to implicate the Appellant in the manufacture of cigarettes found in the Fatuha Daniyava Road premises or at the other godowns. The cigarettes found the said premises were bearing the brands owned by M/s ATPL. Obviously M/s ATPL should be questioned first regarding the ownership of the goods, since they were registered with the department for the manufacture and clearance of cigarettes under various brand names owned by them. Apparently, the investigation has not questioned any of the Directors of M/s ATPL. No demand was raised on them. There is no evidence available on record to establish clandestine manufacture and clearance of cigarettes by the Appellant. The investigation has not brought in any evidence to establish that the Appellant had procured raw material or sale of impugned cigarettes by him to any person or obtained any payments from the alleged buyers or any transportation of the impugned cigarettes. In the absence of any such evidence to establish that the Appellant was the actual manufacturer of the cigarettes found at the unregistered premises at Fatuha Daniyava Road and the other godowns, the tag of manufacturer cannot be fixed on the Appellant - the Appellant cannot be considered as the manufacturer of cigarettes in this case and duty cannot be demanded from them for the cigarettes said to have been manufactured at the unregistered premised at Fatuha Daniyava Road and the cigarettes found at other godowns. Clandestine manufacture and clearance of cigarettes cannot be made merely on the basis of assumptions and presumptions. There must be tangible, direct affirmative and incontrovertible evidence available to establish clandestine clearance. The issue involved in the present appeals is clandestine removal of goods without payment of Central Excise duty. The charge of clandestine removal is a very serious charge which entails serious consequences which are both civil and criminal in nature. Hence, before levelling such serious charge of clandestine removal of goods, there must be sufficient evidence on record leading to conclusive proof of production of goods, their removal from the factory by any mode of transportation and clandestine clearances to buyers. The onus to establish such clandestine activities, resulting in confirmation of demand is placed heavily on the Revenue and is required to be discharged by production of sufficient, cogent and tangible evidences. The said allegation has to be proved by bringing on record evidences procurement of all the raw materials clandestinely in proportionate quantity and it must be proved to whom the goods have been sold. The Revenue has not brought in any evidence to corroborate the allegation that the Appellant were the actual manufacturers of the cigarettes. In their submissions, the Appellant cited various loopholes in the investigation and argued that the demand of duty made and penalty imposed on him in the impugned order are not sustainable. Penalty - HELD THAT - The demand of duty on the Appellant in the impugned order is not sustainable. Since, the evidence available on record does not indicate the involvement of the Appellant in the clandestine manufacturing and clearance of cigarettes, no penalty imposable on them. The demand of duty along with interest and penalty imposed on the Appellant in the impugned order is set aside - appeal allowed.

Issues Involved:
1. Demand of Central Excise Duty along with interest and penalty.
2. Allegation of clandestine removal of goods.
3. Appellant's status as the manufacturer.
4. Evidence supporting clandestine removal.
5. Investigation and procedural lapses.

Summary:

Demand of Central Excise Duty along with Interest and Penalty:
The Commissioner confirmed a demand of Central Excise Duty, including AED, NCCD, Education Cess, and Secondary and Higher Education Cess, totaling Rs. 4,30,13,520/-. Additionally, interest was ordered under Section 11AA, and a penalty equivalent to the duty amount was imposed under Section 11AC of the Central Excise Act. Various goods and machinery were also ordered for confiscation with an option to pay redemption fine.

Allegation of Clandestine Removal of Goods:
The case was initiated based on intelligence received by DGCEI, leading to searches at various premises. It was alleged that the Appellant was involved in the clandestine manufacture and removal of cigarettes without payment of duty from unregistered premises. The investigation relied on statements from third parties and the presence of cigarette-making machines and branded cigarettes at the unregistered premises.

Appellant's Status as the Manufacturer:
The Appellant argued that ATPL, a registered entity under the Central Excise Department, was the actual manufacturer of the cigarettes. The Appellant was neither a director nor an employee of ATPL. The demand was raised solely on the assumption that the Appellant was the owner of ATPL, without making ATPL a party to the proceedings.

Evidence Supporting Clandestine Removal:
The Appellant contended that there was no direct evidence linking him to the clandestine removal of goods. The demand was based on third-party statements, which the Appellant was not allowed to cross-examine. The investigation did not provide tangible evidence such as procurement of raw materials, manufacturing records, or transportation details to substantiate the allegations.

Investigation and Procedural Lapses:
The Tribunal observed that the investigation was flawed, relying heavily on third-party statements without corroborative evidence. No statements were recorded from key individuals like Shri Mahesh, and ATPL was not questioned. The investigation failed to establish the Appellant's involvement in manufacturing or clandestine removal of goods.

Judgment:
The Tribunal held that the Appellant could not be considered the manufacturer of the cigarettes in question, as defined under Section 2(f) of the Central Excise Act, 1944. There was no evidence to support the allegations of clandestine manufacture and clearance. The demand of duty, along with interest and penalty, was set aside. The appeal filed by the Appellant was allowed, and the impugned order was overturned. The Tribunal emphasized that serious charges like clandestine removal must be supported by direct, affirmative, and incontrovertible evidence, which was lacking in this case.

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