1988 (2) TMI 204 - AT - Central Excise

Issues Involved:
1. Alleged unaccounted production and illicit removal of snuff.
2. Receipt and consumption of non-duty-paid unmanufactured tobacco.
3. Penalty imposed on the appellants and M/s. Patel Fulabhai Jivabhai & Sons.
4. Alleged breach of principles of natural justice during adjudication.

Issue-wise Detailed Analysis:

1. Alleged Unaccounted Production and Illicit Removal of Snuff:
The appellants were accused of manufacturing and removing 30,279.4 kgs of snuff without payment of duty and without following Central Excise formalities. The investigation included manufacturing experiments to determine the quantity of unmanufactured tobacco consumed in snuff production. The results indicated that the appellants consumed 21,297.52 kgs and 5,597.48 kgs of unmanufactured tobacco for producing 24,066.2 kgs of Special Brand Snuff and 6,213.2 kgs of Sada Brand Snuff, respectively. The show cause notice alleged that the appellants engaged in illicit manufacturing and removal of snuff, evading duty through fraud, willful misstatement, and suppression of facts.

2. Receipt and Consumption of Non-Duty-Paid Unmanufactured Tobacco:
The investigation revealed that the appellants received 4,000 kgs of deshi black chopadia tobacco from M/s. Patel Fulabhai Jiwabhai & Sons without the prescribed central excise transport document and without payment of duty. This tobacco was allegedly used in the illicit manufacture of snuff. The show cause notice alleged that the appellants received and consumed a total of 26,895 kgs of contraband unmanufactured tobacco, violating the provisions of Rule 32, 40, and 42 of the Central Excise Rules, 1944.

3. Penalty Imposed on the Appellants and M/s. Patel Fulabhai Jivabhai & Sons:
The Collector of Central Excise demanded duty on the illicitly removed snuff and the non-duty-paid tobacco received by the appellants. Additionally, a penalty of Rs. 2,000/- was imposed on the appellants. M/s. Patel Fulabhai Jivabhai & Sons, who allegedly supplied the non-duty-paid tobacco, were also penalized Rs. 2,000/- under Rule 32. The appellants contested the penalties, arguing that the other party to the proceedings was penalized minimally compared to the heavy duty and penalties imposed on them.

4. Alleged Breach of Principles of Natural Justice during Adjudication:
The appellants argued that the Collector proceeded on assumptions and did not investigate their claims and submissions. They contended that the ex-parte adjudication by the Collector was a breach of natural justice principles, as they were not given a fair opportunity to present their defense. The appellants claimed that they requested an inquiry through independent officers and a subsequent hearing, which the Collector did not grant. The Board's order, which rejected the appellants' appeal, was criticized for not addressing the detailed arguments and evidence presented by the appellants.

Judgment Analysis:
The Tribunal noted that the Board's order lacked detailed discussion of the grounds raised by the appellants. The Tribunal emphasized that the Collector was not bound to conduct investigations on the points raised by the appellants but should have provided them with a fair opportunity to present their evidence. The Tribunal found that the appellants were under the mistaken belief that the Collector would conduct an inquiry and then inform them about the personal hearing, which led to the ex-parte decision.

The Tribunal observed that the Collector did not give the appellants a final notice rejecting their request for further investigation and did not provide a clear and unambiguous opportunity for a personal hearing. The Tribunal held that the principles of natural justice were not adequately observed, as the appellants were not given a practical opportunity to produce their evidence. Consequently, the Tribunal set aside the impugned orders and directed that the proceedings should continue from the stage of the show cause notice. The Collector was instructed to give the appellants an opportunity to be heard, allow cross-examination and examination of witnesses, and permit the presentation of evidence. The appeal was allowed by remand.

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