2003 (12) TMI 212 - AT - Central Excise

Clandestine removal of Pan Masala Star Gutkha - Proof - Processing Loss (waste generated during manufacture) - Quantum of clandestine clearance and duty evasion - Confiscation of land, building, plant, machinery, etc - HELD THAT - We find that the demand of the department is based only on theoretical calculation of PLR which is not the main input of the appellants. The main product of appellant is Star Gutkha and as mentioned in the preceding paragraphs for preparation of Gutkha the main raw materials such as Supari, Katha, Tobacco, Menthol, Cardamom, lime etc. are needed. As contended by the ld. Consultant of the appellant, the wastage was claimed around 22% as against 14.69% allowed by the department. Though there is no statutory permissible limit fixed under the law, however, the ld. Consultant has contended that as per the trade practice the wastage of 22% is easily allowed in the manufacture of Pan Masala which is neither unreasonable nor illogical. The practice itself has assumed the force of law by its usage in the trade for a long time and as such we do not find any justification on the part of the department not to have allowed wastage of 22%. Besides, we find that when the department has based his case on the statement of certain parties and when the statements were retracted in writing by them, it was imperative on the department to have brought corroborative evidence to substantiate the allegation of clandestine removal. The department having not done so, has lost their right to raise the demand merely on presumption/assumption. In a case of its kind the department was duty bound to have brought direct, tangible, corroborative and strict evidence to prove the clandestine removal beyond reasonable doubt. We do agree with the contention of the ld. SDR that mathematical accuracy cannot be expected in such a matter. However, it does not mean that the Department is absolved of its responsibility to bring on record the tangible, strict, positive, direct and corroborative evidence to prove clandestine removal beyond reasonable doubt as there is no evidence of actual excess production, removal of such excess production, transport of such excess production, confirmation from buyers and receipt of unaccounted cash towards sale of such unaccounted clearances. From the replies to the show cause notice dated 9-10-97, 6-1-97, 2-2-97, 17-2-97 on pages 120 to 211, it is crystal clear that the appellants have submitted specific replies to the points raised by the department and as such it was incumbent on the department to prove their case beyond reasonable doubt. In the absence of any strict, tangible, direct, positive and corroborative evidence, we do not find any justification to sustain the demand raised in this case. We, therefore, set aside the impugned order and allow the appeals filed by the appellants with consequential relief, if any.

Summary

Issues Involved:
1. Clandestine removal of Pan Masala "Star Gutkha".
2. Demand and recovery of Central Excise duty.
3. Confiscation of goods.
4. Imposition of penalties.
5. Confiscation of land, building, plant, machinery, etc.

Summary:

The case pertains to the clandestine removal of Pan Masala "Star Gutkha". The appellant No. 1, a manufacturer of Gutkha, was alleged to have removed goods without accounting for them, based on an intelligence report followed by a search operation on 15/16 November 1996, which led to the seizure of incriminating documents and recording of statements from key officials.

The manufacturing process involved several raw materials, and the CMD provided detailed statements on raw material requirements and losses during manufacturing. A show cause notice dated 11-8-1997 was issued alleging unaccounted wastage and discrepancies in raw material records, leading to demands for Central Excise duty, confiscation of goods, and imposition of penalties u/s 11A and Rule 9(2) of the Central Excise Rules, 1944.

The appellants denied the allegations, arguing that the department's case was based on assumptions and theoretical calculations of the number of pouches per kg of PLR, without considering actual raw material usage and wastage. They contended that wastage of raw materials, particularly Supari and Tobacco, was normal in their industry and had been accounted for in their balance sheets. They cited several case laws to support their defense against the allegations of clandestine removal.

The Tribunal found that the department's case was based on theoretical calculations and lacked direct, positive, and corroborative evidence. It emphasized that in cases of clandestine removal, the burden of proof lies on the department to provide substantial evidence of excess production, removal, and sale of goods. The Tribunal noted that the department failed to provide such evidence, relying instead on presumptions and assumptions.

The Tribunal referred to several case laws that established the need for tangible evidence in cases of alleged clandestine removal and found that the department's reliance on assumptions was insufficient to sustain the demand. The Tribunal concluded that the appellants had adequately accounted for wastage and that the department had not proven its case beyond reasonable doubt.

Consequently, the Tribunal set aside the impugned order, allowing the appeals filed by the appellants with consequential relief, if any, and emphasized that the demand could not be sustained on the grounds of presumption alone.