2022 (7) TMI 229 - AT - Central Excise

Clandestine manufacture and removal - Dillagi Supari - reliance placed upon the statements of various persons - retraction of statements - corroborative evidences or not - Confiscation of seized goods - penalty - HELD THAT - The demand against M/s Mahadev and Shri Anmol Mishra has been computed on the basis of number of machines found to be installed in respective factory premises. Also the demand of duty against M/s MSS on Gutka Mix/ Masala has been computed on the basis of quantity of goods sold in cash sales by M/s Shiv Udyog, and as shown in their VAT return. Similarly the finished goods and packing material found from different premises and vehicles has been confiscated and penalties has been imposed upon M/s Mahadev, M/s MSS and Shri Anmol Mishra and other Appellants holding that the goods belong to M/s MSS - It is found that Mr. Omprakash Talreja, Prop. of M/s Mahadev has challenged the impugned order on the ground that factory was rented out to Shri Abdul Salam, and hence the demand of duty from him is wrong, since the Gutka was manufactured by Shri Abdul Salam and hence Mr. Salam is the manufacturer. That the statements relied upon by the adjudicating authority are not reliable and that the duty demand itself is not sustainable, as on merits also there cannot be any duty demand. Ownership of factory premises of M/s Mahadev as on 18.02.2011 i.e on the day of the visit of the officers and demand of duty and penalty - HELD THAT - After considering the facts we find that first it ought to be seen as to whether the Agreement was signed with the consent of both the parties and the fact to be taken into account is whether the contracting parties intended to make it effective from 11.02.2011, and whether it was signed after 11.02.2011, which was not verified or doubted. The Adjudicating Authority failed to consider that the said contract was for transferring the unit making sweet supari. There is no scrutiny on point of the intention of Shri Abdul Salam to enter into contract for taking factory on rent, so as to determine that whether he was allured to enter into such contract, whether he received any consideration to enter into such contract and if so then what was the consideration/payment; whether the agreement was colourable device of M/s Mahadev or M/s MSS to start manufacturing Gutkha from 11.02.2011 keeping Abdul Salam in front. It had to be determined as to whether any alleged blank entry on any other date would be a conclusive proof that subject agreement was entered against blank entry, and when was the stamp paper for the agreement purchased and in whose name. We find that the impugned order is absolutely silent on these material issues and thus highly erroneous. The Agreement is a documentary evidence for the purpose of Rule 17 of PMPM Rules 2008, and when the contracting parties accept the agreement, it cannot be doubted. No evidence in the form of salary or his name appearing as an employee of M/s Mahadev, in the records of M/s Mahadev or with any statutory authority or his Income tax return or bank accounts shows that he has received any salary from M/s Mahadev. No consideration in any form has been received by Shri Anmol Mishra towards his alleged employment with M/s Mahadev. Further all persons connected with Mahadev i.e., Supervisor Shri Ramesh Dammani and workers, during cross-examination has retracted their statements and have clearly stated that the statements were given without knowledge and as per dictation of officers. Even otherwise also we find that statements of workers are not corroborated with any evidence. From the above facts we are of the view that Shri Omprakash Talreja cannot be considered as manufacturer of Gutka pouches and no duty demand can be made from M/s Mahadev. Consequentially it is also held that there is no ground to impose penalty on the co-appellants and the penalty is required to be set aside. Though we have held that no duty demand can be made from M/s Mahadev as they cannot be held to be operating the factory, but even otherwise also we find on merits, there is no reason to demand duty for the period 01.04.2010 to 18.02.2011 and the duty at the utmost could have been demanded for 18 days of February 2011 only, if we go by the reasoning of the adjudicating authority given by him for setting aside of duty demand till 01.04.2010 - Further as per adjudicating authority s own findings, no evidence of procurement of gutka mix, manufacture of Gutka pouches and clearance of Gutka pouches before 18.02.2011 by M/s Mahadev is on record, in that case no demand before February, 2011 can be made from M/s Mahadev. Demand and penalty made against M/s MSS - Corroboration of statements - HELD THAT - There is no evidence of receipt of manufactured tobacco from M/s Shiv Udyog or procurement of other raw material such as supari, kattha and lime which are required to manufacture Zarda masala by M/s MSS. The show cause notice and the impugned order has relied upon the retracted statement of Shri Anmol Mishra, terming him as Manager of M/s Mahadev and owner of Bhourasala premises, as well as by Supervisor of M/s Mahadev - Shri Ramesh Dammani, that Zarda masala was received from M/s MSS. Though such statements has been retracted, but we find that even there is no corroboration of such statements with even a single evidence. Only on the basis of retracted statements and coupled with fact that there is no procurement of raw material/ packing material, manufacture, clearance and transportation and receipt of consideration or identification of buyers, no duty demand can be made against M/s MSS. No discrepancy in stock was noticed on 19.02.2011, when the factory of M/s MSS was visited by the officers. The alleged quantity of Zarda Masala cleared i.e., 1082,479 Kgs. has been calculated on the basis of VAT returns of M/s Shiv Udyog, without any corroborative evidence at the end of M/s MSS. Hence the allegation of clearance of Zarda Masala by M/s MSS is not sustainable. There is no acceptance on the part of the Appellants that the goods were owned by them. The revenue did not cause any enquiry with the supplier regarding purchaser/ recipient of said goods nor tried to ascertain the same. Only for the reason that the vehicle had some quantity of Gutka Mix and lamination roll, outer packing and gutka pouches bearing name of M/s MSS, it cannot be said that the seized goods had ownership of M/s Mahadev or M/s MSS. None of the persons from M/s Mahadev or M/s MSS have owned the goods or accepted the transportation. In case of lamination and outer packing or acetate, neither M/s Mahadev or M/s MSS were in manufacturing of said goods and hence the same cannot be held to be non duty paid. No enquiry has been caused from the regular supplier of M/s MSS to ascertain as to whether the lamination and outer pouches were consigned by them. In such case we find that no case is made out to impose penalty on M/s Mahadev or M/s MSS. Hence the penalty imposed upon them is required to be set aside in case of both the show cause notices. From perusal of photographs and above facts, we are of the view that the machines cannot be said to be packing machines. We find that if the machines are being made basis of demanding duty liability under PMPM Rules, in that case the first and foremost primary requirement is presence of a packing machine. In absence of feeding hoppers, and given the fact as recorded by the adjudicating authority that some parts were missing, we are of the view that seized equipments do not fit into the definition of Packing Machines as provided in Rule 2(c) of PMPM Rules 2008. The levy is on installed packing machines and it cannot be on dismantled and/or incomplete equipment. Hence on this ground alone the proceedings against the appellants are liable to be set aside, as PMPM Rules for the purposes of fictional and deemed manufacture and levy requires strict interpretation of term packing machine and the intendments arrived in impugned order are thus void and baseless. The show cause notice and the impugned order has not brought any evidence that Shri Anmol Mishra has earned any amount from alleged manufacture and removal. In such case there is no reason to implicate him as manufacturer. Not a single supplier of raw material or buyer of finished goods has been identified. Only on the basis of call records and assumption, he cannot be burdened with duty demand. Consequentially no duty can be demanded or penalty can be imposed upon him. Also there is no reason to impose penalty on Shri Sunil Sadhwani or Shri Amarchand Upadhyay. The impugned order has held that Shri Sadhwani was instrumental in storing the seized goods being partner in a firm producing gutkha and pan masala. We find that no physical/ material evidence in relation to procurement, storage, transportation, unloading, godownkeepers etc in relation to seized goods by Shri Sunil sadhwani or M/s MSS is on record. The Appellant and its partners were regularly complaining that duplicate products of their brands are being sold in the market. Even then no attempts were made for any forensic test or visual comparision or chemical analysis of the seized / abandoned materials with the goods of the appellants. In absence of such preliminary and vital investigations, the nexus of the seized goods is zapped with the appellants. Such nexus can not be presumed on the basis of retracted statements or reverse mathematical calulations. The impugned order confirming duty and imposing various penalties on appellants is thus not sustainable on the basis of such zapped nexus. Penalty under rule 26 of the CER, 2002 can be imposed on a person only when it is proved beyond doubt that the person dealing with excisable goods knew or had reason to believe that such excisable goods were liable to confiscation. There is no evidence on record to prove that Appellant has acted in a way to attract the penalty provisions of rule 26 of the CER, 2002. In view of above findings it is held that no penalty can be imposed upon M/s MSS or Shri Sunil Sadhwani. There are no justification to sustain the demands raised in the impugned order - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Ownership and operation of the factory premises of M/s Mahadev Shiv Shambhu Freshners Processors.
2. Validity and implications of the rent agreement between Omprakash Talreja and Abdul Salam.
3. Clandestine manufacture and clearance of Gutka pouches by M/s Mahadev and M/s MSS Food Processors.
4. Evidence and reliability of statements recorded during the investigation.
5. Application of Rule 17(2) of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008.
6. Confiscation of goods and machines seized from various premises and vehicles.
7. Imposition of penalties on various appellants under Rule 25 and 26 of Central Excise Rules, 2002.
8. Validity of the handwriting expert's report and its implications.
9. Cross-examination and examination-in-chief of witnesses and its impact on the case.
10. Seizure and confiscation of goods from the premises at 12-A, Private Industrial Area, Bhourasala, Sanwer Road, Indore.
11. Seizure and confiscation of goods from godowns and vehicles.
12. Demand of duty and penalties on M/s MSS Food Processors and other appellants.

Issue-wise Detailed Analysis:

1. Ownership and Operation of the Factory Premises of M/s Mahadev Shiv Shambhu Freshners Processors:
The tribunal found that the factory premises were rented out to Abdul Salam from 11.02.2011, and thus, Omprakash Talreja was not responsible for any activities conducted in the factory after this date. The rent agreement was accepted as valid, and the tribunal held that there was no evidence to show that Omprakash Talreja was operating the factory after renting it out.

2. Validity and Implications of the Rent Agreement:
The tribunal accepted the rent agreement between Omprakash Talreja and Abdul Salam as valid. The statements of Abdul Salam and the notary public, Shri D.B. Pujari, were considered, and it was concluded that the agreement was not ante-dated. The tribunal found that the agreement was genuine and that the factory was indeed rented out to Abdul Salam.

3. Clandestine Manufacture and Clearance of Gutka Pouches:
The tribunal found no evidence of clandestine manufacture and clearance of Gutka pouches by M/s Mahadev or M/s MSS Food Processors before February 2011. It was held that the demand for the period before February 2011 was not sustainable. The tribunal also found that the statements of the workers and other individuals were not reliable as they were retracted during cross-examination.

4. Evidence and Reliability of Statements:
The tribunal held that the statements recorded during the investigation were not reliable as they were retracted during cross-examination. The tribunal emphasized that the statements were recorded under duress and were not corroborated by any material evidence.

5. Application of Rule 17(2) of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008:
The tribunal found that the application of Rule 17(2) for the period before February 2011 was not justified as there was no evidence of manufacture and clearance of Gutka pouches. The tribunal held that the rule could only be applied from the date of actual manufacture and clearance, which was February 2011.

6. Confiscation of Goods and Machines:
The tribunal held that the confiscation of goods and machines from the factory premises and vehicles was not justified as there was no evidence linking the goods to M/s Mahadev or M/s MSS Food Processors. The tribunal set aside the confiscation orders.

7. Imposition of Penalties:
The tribunal set aside the penalties imposed on various appellants, including Omprakash Talreja, Anmol Mishra, Amarchand Upadhyay, Sunil Sadhwani, and Ramesh Kumar Damani. The tribunal found that there was no evidence of their involvement in any clandestine activities.

8. Validity of the Handwriting Expert's Report:
The tribunal found the handwriting expert's report to be unreliable as the expert was not qualified and had a tainted reputation. The tribunal held that the report could not be used as evidence against the appellants.

9. Cross-examination and Examination-in-chief:
The tribunal emphasized the importance of cross-examination and examination-in-chief in determining the reliability of statements. The tribunal found that the statements recorded during the investigation were not reliable as they were retracted during cross-examination.

10. Seizure and Confiscation of Goods from Bhourasala Premises:
The tribunal found that the machines seized from the Bhourasala premises were incomplete and not capable of packing Gutka pouches. The tribunal held that the demand of duty and penalties based on these machines was not justified.

11. Seizure and Confiscation of Goods from Godowns and Vehicles:
The tribunal set aside the confiscation of goods seized from godowns and vehicles as there was no evidence linking the goods to M/s MSS Food Processors. The tribunal also set aside the penalties imposed on the appellants in relation to these seizures.

12. Demand of Duty and Penalties on M/s MSS Food Processors:
The tribunal set aside the demand of duty and penalties on M/s MSS Food Processors as there was no evidence of clandestine manufacture and clearance of Gutka mix. The tribunal held that the demand was based on assumptions and not supported by material evidence.

In conclusion, the tribunal set aside the impugned order and allowed the appeals filed by the appellants with consequential relief. The tribunal emphasized the importance of material evidence and the reliability of statements in determining the liability of the appellants.