2020 (1) TMI 533 - AT - Central Excise

Clandestine manufacture and removal - Pan Masala containing Tobacco - manufacture and removal even after the surrender of registration in May, 2007 without declaring these machines as required under Rule 6 of Pan Masala Packing Machines (Capacity Determination Collection of Duty) Rules, 2008 - HELD THAT - The investigations carried out by DGCEI do not bring home the charge of manufacture and removal of Pan Masala Containing Tobacco and that of clandestine removal against the Appellant. We find that the test reports of samples of residues collected by the officers of DGCEI indicate the presence of tobacco only. Even the other test reports of other material sent for testing to the Chemical Examiner, Central Excise, Kolkata as referred by Ld. Authorized Representative also does not report the presence of Betel Nuts. Ld. Advocate for the Appellants has also disputed the manner and method of collection of samples of residues from alleged 11 Packing Machines and has disputed the test reports. Also, Betel Nuts are essential ingredients to classify any goods as Pan Masala containing Tobacco and that generally it contains more than 90% of Betel Nuts. Also, the officers did not find any Betel nuts in the factory of M/s. Paras Pan Products Pvt. Ltd. at the time of search. There is no evidence of any use of Betel Nuts in the factory of the Appellant or any evidence of purchase and use of Betel Nuts by the Appellant. Thus the revenue has failed to prove the manufacture and removal of Pan Masala containing Tobacco . It is the case of the Revenue that the department has made enquiry from 2 of the 3 suppliers of packaging material who have confirmed the supply of packaging material to the Appellant during April, 2008 to June, 2008 which was used by the Appellant for packing of Pan Masala containing Tobacco in their factory - in this regard that the documents relied upon by the Revenue nowhere mention the name of the Appellant in Challans being relied upon by the Revenue - the clandestine manufacture of goods cannot be alleged on the basis that the Appellant has procured unaccounted packing material and in turn used for manufacture of goods removed clandestinely. It is mere packing material. The Show Cause Notice has not shown any unaccounted receipt or consumption of main raw materials i.e. Supari, Katha, Kimam, Perfume, Menthol or Tobacco which are main raw material for manufacture of Pan Masala containing Tobacco . The packing material would come into picture only once raw materials are consumed and finished goods are produced. Reliability of statements - HELD THAT - The admissibility of evidence without following the procedure established under Section 9(D) (i) of the Act, is not admissible as an evidence in the investigation proceedings. The persons giving the statements have not been examined, cross examined by the adjudicating Authority/Appellant - thus, the statements recorded from the various persons have no evidentiary value. It is now well settled that charge of clandestine removal is a serious charge and must be proved by adducing tangible, cogent and affirmative evidence which are completely lacking in the instant case. The demands and penalties ordered by the Adjudicating Authority is not sustainable - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Evidence of manufacture and removal of Pan Masala Containing Tobacco.
2. Validity of test reports and sample collection procedures.
3. Admissibility and reliability of witness statements.
4. Applicability of Rule 6 and Rule 17(2) of the Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008.
5. Allegations of clandestine removal and burden of proof.
6. Imposition of penalties on the appellants.

Detailed Analysis:

1. Evidence of Manufacture and Removal of Pan Masala Containing Tobacco:
The Tribunal found that the investigations did not substantiate the charge of clandestine manufacture and removal of Pan Masala containing Tobacco. The test reports only indicated the presence of tobacco but did not confirm the presence of betel nuts, an essential ingredient for classifying any product as "Pan Masala containing Tobacco." The Tribunal emphasized that no betel nuts were found in the factory, and there was no evidence of their purchase or use by the appellants. Therefore, the revenue failed to prove the manufacture and removal of the said product.

2. Validity of Test Reports and Sample Collection Procedures:
The appellants disputed the manner and method of sample collection and the resulting test reports. The Tribunal noted that the definition of "Pan Masala containing Tobacco" requires the presence of betel nuts, which was not confirmed by the test reports. The Tribunal also highlighted the procedural lapses in sample collection, as the samples were not sealed or acknowledged by the appellants, and the test reports indicated insufficient sample quantity for quantitative estimation of nicotine.

3. Admissibility and Reliability of Witness Statements:
The appellants argued that the statements of witnesses were obtained under duress and without following the procedure prescribed in Section 9D(1) of the Central Excise Act, 1944. The Tribunal agreed, noting that the statements were retracted and obtained without cross-examination, rendering them inadmissible. The Tribunal cited various judicial precedents emphasizing the necessity of cross-examination to validate such statements.

4. Applicability of Rule 6 and Rule 17(2) of the Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008:
The Tribunal found that the appellants were not required to file declarations under Rule 6 as they were not manufacturing the notified goods during the relevant period. Additionally, Rule 17(2) precludes the application of these rules to unregistered units, further supporting the appellants' case.

5. Allegations of Clandestine Removal and Burden of Proof:
The Tribunal stressed that the charge of clandestine removal is serious and must be proven with tangible evidence. The revenue's case relied on uncorroborated third-party statements and assumptions without concrete evidence of raw material procurement, production, or transportation of finished goods. The Tribunal cited several judicial decisions underscoring the need for substantive proof in such cases.

6. Imposition of Penalties on the Appellants:
Given the lack of evidence supporting the allegations of clandestine manufacture and removal, the Tribunal found the imposition of penalties on the appellants unjustified. The Tribunal set aside the penalties, emphasizing that the revenue failed to meet the burden of proof required to sustain such charges.

Conclusion:
The Tribunal allowed the appeals filed by the appellants, setting aside the order of the Adjudicating Authority. The demands and penalties were deemed unsustainable due to the lack of concrete evidence and procedural lapses in the investigation. The Tribunal's decision was pronounced in the open court on 17/12/2019.

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