2021 (7) TMI 97 - AT - Central Excise

Clandestine manufacture and clearance - Cigarettes - non accountal of goods in RG-I register - physical control as per the Central Excise law or not - HELD THAT - It is found that only for not finding the statutory register being RG-I and Form-4 at the time of inspection by the Officers of DGCEI, adverse inference have been drawn without reference to the records of the appellant available with the Department, being the various returns filed from time to time and the inspection reports available on record. Admittedly, the audit has taken place in the factory premises of the appellant on 20.05.2013, which is four days before the date of search or inspection by the DGCEI. There is no adverse report on record by the Officers of the Audit team nor there is any whisper of any discrepancy in the stock of finished goods and raw material with respect to the quantity entered in the statutory register. There are no instance of clandestine clearance or attempt to clear clandestinely have been brought on record. Thus, there is absence of mens rea or any attempt by appellant to clandestinely clear the finished goods lying in the factory as on the date of inspection or at any point of time. This Tribunal have repeatedly held that any finished goods found not entered in the RG-I register on the date of inspection, are not liable for confiscation in absence of any finding of attempted clandestine removal of the excisable goods. Further, raw material which was found lying in the factory of the appellant was admittedly not manufactured by the appellant and as such the same is not dutiable in the hands of the appellant. Thus, there is no requirement of confiscation of raw material in the facts and circumstances - reliance placed in the case of COMMISSIONER OF CENTRAL EXCISE LUCKNOW VERSUS M/S. SHUBH METALS AND M/S. SHUBH METALS VERSUS COMMISSIONER OF CENTRAL EXCISE, LUCKNOW 2015 (1) TMI 1039 - CESTAT NEW DELHI . A bare reading of Rule 25 read with Section 11AC of the Act, the order of confiscation and penalty can be made only in case of fraud, collusion, wilful mis-statement, suppression of facts or any contravention of the provisions of the law with intent to evade duty. There is no such allegation in the facts of the present case save and except non finding or non production of the statutory register RG-I and Form-IV for the reasons that the same were missing and could not be located. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of clandestine production and clearance.
2. Non-production of statutory records (RG-I and Form-IV registers).
3. Confiscation of finished goods and raw materials.
4. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002.
5. Validity of the show cause notice and subsequent orders.

Issue-wise Detailed Analysis:

1. Allegation of Clandestine Production and Clearance:
The appellant, a cigarette manufacturer, was accused of evading Central Excise duty through clandestine production and clearance. A search operation on 24.05.2013 led to the seizure of finished goods valued at ?37,23,000 and detention of raw materials. The appellant failed to produce statutory records during the search, raising suspicion of clandestine activities.

2. Non-production of Statutory Records (RG-I and Form-IV Registers):
During the search, statutory records (Form-IV and RG-I registers) were not found. The appellant claimed these records were misplaced during a relative's marriage. They later submitted photocopies, which were deemed unreliable as the audit team denied obtaining such copies. The appellant's failure to produce original records led to adverse inferences against them.

3. Confiscation of Finished Goods and Raw Materials:
The Revenue argued that the appellant failed to maintain RG-I registers, making the finished goods liable for confiscation. The appellant contended that the goods were within the factory and not intended for clandestine removal. The Tribunal noted discrepancies in the stock-taking process and found no evidence of clandestine clearance. The Tribunal also highlighted that raw materials found in the factory were not manufactured by the appellant and thus not dutiable.

4. Imposition of Penalty under Rule 25 of the Central Excise Rules, 2002:
The Revenue imposed penalties under Rule 25, citing non-maintenance of statutory records. The appellant argued that Rule 25 could only be invoked in conjunction with Section 11AC, which was not mentioned in the notice. The Tribunal agreed, citing precedents where penalties were set aside due to the non-invocation of Section 11AC. The Tribunal found no evidence of fraud, collusion, or intent to evade duty, making the penalty unjustified.

5. Validity of the Show Cause Notice and Subsequent Orders:
The show cause notice and subsequent orders were challenged for being based on assumptions and without concrete evidence of clandestine activities. The Tribunal observed that the factory was under the physical supervision of Central Excise officers, and no discrepancies were reported during the audit conducted on 20.05.2013. The Tribunal found the show cause notice defective for non-joinder of necessary parties and ruled that the confiscation and penalties were not warranted.

Conclusion:
The Tribunal set aside the impugned order, finding it legally unsustainable. The appellant was entitled to consequential benefits, as the allegations of clandestine production and clearance were not substantiated by concrete evidence. The Tribunal emphasized the need for clear evidence of intent to evade duty for invoking penalties and confiscation under Rule 25 and Section 11AC.