2023 (9) TMI 562 - AT - Central Excise

Clandestine removal - chewing tobacco - packing machines were installed in the unregistered premised and as on 02.08.2010 two out of the four packing machines found there in running condition - validity of panchnama proceedings - Appellant contended that the Panchnama has not been drawn properly, since the Panchas were not the independent witnesses - procedure as mandated under Section 9D of the Central Excise Act, 1944, has been followed or not - evidences available on record indicate that four packing machines installed in the unregistered premises were in working condition - applicability of Rule 18(2) of the CTPM Rules. Whether the procedure as mandated under Section 9D of the Central Excise Act, 1944, has been followed in this case? If not followed, whether the statements recorded in this case can be relied upon to confirm the demands? - HELD THAT - The Panchas only witness the search proceedings carried out by the officers. They don't write the Panchnama as alleged by the counsel of the appellant. When the officers go for a search based on some specific intelligence, they may not get panch witnesses in the early hours. So, to save time and for ensuring smooth conduct of the search proceedings, sometimes the officers take panch witnesses along with them. There is no violation of the provisions of section 100(4) of the Cr.PC in this. The Appellant has not questioned the credentials of the panch witnesses. Just because they have been taken from a distant place, the panchnama proceedings will not be vitiated. Hence, the objection raised by the Appellant in this regard is rejected. The case of the Revenue is mainly based on the statements recorded from Shri Ajay Kumar, Sri Bishnu Charan Ghadei and Shri Ratikanta Ghadei and Shri Jhasaketan Bhoi, on 02.08.2010 and subsequently. However, it is observed that all the above persons have retracted their statement by sworn affidavits on 04.08.2010, which were submitted to the department on 01.08.2011. The adjudicating authority has rejected these sworn Affidavits on the ground they were filed as an afterthought. The Appellant stated that the workers did not know English and their request for recording of the statement in Odiya was not considered by the investigation officers. They were not knowing the contents and compelled to sign the statements - the procedure set out in Section 9D has not been followed by the adjudicating authority. Their request for cross examination of the panchas and others whose statements were relied upon in the impugned order must have been considered by the adjudicating authority. The adjudicating authority has not given any proper reason for rejecting their request for cross examination. Cross examination is all the more required when the statements stand retracted. A a perusal of Section 9D of the Central Excise Act, 1944 clearly establishes that unless a person who has made the statement is examined as a witness before the Adjudicating Authority, no reliance can be placed on any statement recorded under section 14 of the Central Excise Act. Any statement recorded under Section 14 of the Central Excise Act could be admitted in evidence only after the process of examination and cross examination is completed under Section 9D. For undertaking this exercise, it is not necessary that a person should have retracted from his statement. If the argument of the Adjudicating Authority is accepted, then the provisions of Section 9D would become otiose. This cannot be the intention of the legislature. The Tribunal in the case of M/S AMBICA ORGANICS, SHRI ANIL KUMAR GUPTA, SHRI VINOD KUMAR GUPTA VERSUS COMMISSIONER, CENTRAL EXCISE CUSTOMS, SURAT-I 2015 (3) TMI 825 - CESTAT AHMEDABAD , held that once it came on record that various statements recorded from the witnesses were not of voluntary in nature but were obtained under pressure, the same could not be admitted in evidence by the Adjudicating Authority. In the case of Hi Tech Abrasives, it has been held that the provisions contained in Section 9D, therefore, has to be construed strictly and held as mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence. The request for cross examination of the panchas and others whose statements were relied upon in the impugned order must have been considered by the adjudicating authority. The adjudicating authority has not given any proper reason for rejecting their request for cross examination. Cross examination is all the more required when the statements stand retracted. In view of the above, the statements recorded in this case cannot be relied upon to confirm the demands as the procedure set out in Section 9D has not been followed. Whether the evidences available on record indicate that four packing machines installed in the unregistered premises were in working condition and used for manufacturing of Chewing Tobacco? - HELD THAT - Four packing machines were found in the unregistered premises on the date of search on 02.08.2010. The contention of the Appellant is that all the four packing machines were damaged and not in operative condition. The machines were not installed. The machines were having stand and wheel for movement and they were not attached with the Earth. There was no evidence of usage of the packing machines, but the officers arranged them in such a manner as if those were being used in the manufacture and packing of Chewing Tobacco - Merely because there have been four inoperative defective machines lying in the godown of the factory, it cannot be said that they were used in the manufacture and packing of Chewing Tobacco. The photographs cannot be relied upon as a proof that the machines were in operating condition. Mere presences of the machines have been made as the basis of raising the demand for five months from April 2010 to August 2010. The investigation has not brought in any other evidence such as purchase of raw material, purchase of packing material, excess consumption of power during the period, buyers of the clandestinely cleared material, statements from transporters etc. It is observed that the unregistered premises, from where the four packing machines were found has been registered in the name of M/s Jaga Kalia Snax and Mixure. They also deal with Chewing Tobacco as traders - There is no evidence available on record to disprove the claim of the Appellant that the machines were non-operational and not used for manufacture of Chewing Tobacco. Mere statements alone are not sufficient to establish manufacture and clandestine clearance of chewing tobacco. In the absence of any other evidence other than the retracted statements, it is held that the investigation has not established that the four packing machines were in operating condition and used for clandestine manufacture and clearance of Chewing Tobacco. Whether evidences available indicate that Rule 18(2) of the CTPM Rules applicable in this case to demand duty in respect of all the 4 packing machines, from April 2010 onwards, as provided in the said Rules? - HELD THAT - The contention of the Appellant is that some damaged raw material and finished goods seized by the officers belonged to the trading activity of M/s Jaga Kalia Snax and Mixure. In such circumstances, the investigation must have probed further to establish the manufacture and clandestine clearance by means of other evidences. Instead, the investigation has relied solely on the statement to demand duty. There is no evidence available on record to disprove the claim of the Appellant that the the other two machines were non- operational and not used for manufacture of Chewing Tobacco. Mere statement alone is not sufficient to establish manufacture and clandestine clearance of chewing tobacco. This view has been held in the case of GOYAL TOBACCO CO. PVT. LTD. SHRI RAJESH GOYAL, DIRECTOR VERSUS CCE ST, JAIPUR-I 2017 (3) TMI 57 - CESTAT NEW DELHI where it was held that these evidences, the admissibility of which itself is legally not sustainable, cannot be the basis for confirmation of duty on the goods allegedly manufactured and cleared by the appellant. The investigation in the present case has been very sketchy and will not support the findings in the impugned order. Thus, the provisions of Rule 18(2) cannot be invoked in this case to demand duty for the period from April 2010 to August 2010. Accordingly, the answer is in the negative. Whether penalty under Rule 18(1) of the CTPM Rules read with Section 11 AC of the Central Excise Act, 1944, imposable in this case? - HELD THAT - Penalty is imposable under Rule 18 read with Section 11AC of the Central Excise Act, 1944, when it is established that Chewing Tobacco was produces and clandestinely removed. In view of the above findings, it is already held that the investigation has not established manufacture and clandestine clearance of Chewing Tobacco. Hence, the penalty provisions cited above are not applicable in this case. Accordingly, the penalty imposed on the Appellant is liable to be set aside. Hence, the answer is in the negative. Thus, the demands confirmed in the impugned order are not sustainable. As the duty demand is not sustainable, the demand of interest and penalty is also not sustainable - appeal allowed.

Summary

Issues Involved:
1. Procedure under Section 9D of the Central Excise Act, 1944.
2. Condition and usage of packing machines.
3. Applicability of Rule 18(2) of the CTPM Rules.
4. Imposition of penalty under Rule 18(1) of the CTPM Rules read with Section 11 AC of the Central Excise Act, 1944.

Summary:

1. Procedure under Section 9D of the Central Excise Act, 1944:
The court examined whether the procedure mandated under Section 9D was followed. The statements of Shri Ajay Kumar, Shri Bishnu Charan Ghadei, Shri Ratikanta Ghadei, and Shri Jhasaketan Bhoi, recorded on 02.08.2010, were retracted on 04.08.2010. The court found that these retracted statements have no evidentiary value in the absence of corroborative evidence and that the procedure set out in Section 9D was not followed. The adjudicating authority did not allow the cross-examination of the panchas and other witnesses, which was necessary given the retraction of statements. Therefore, the court held that the statements recorded could not be relied upon to confirm the demands.

2. Condition and usage of packing machines:
The court observed that the evidence did not indicate that the four packing machines found in the unregistered premises were in working condition and used for manufacturing Chewing Tobacco. The investigation did not bring any corroborative evidence such as purchase of raw material, packing material, or excess consumption of power. The court held that mere presence of the machines, without other supporting evidence, was insufficient to establish manufacture and clandestine clearance of chewing tobacco.

3. Applicability of Rule 18(2) of the CTPM Rules:
The court noted that Rule 18(2) would not apply if it was established that the packing machines were not capable of being used in the manufacture of Chewing Tobacco. The investigation relied solely on statements and failed to provide other evidence to establish that the machines were operational. The court held that the provisions of Rule 18(2) could not be invoked to demand duty for the period from April 2010 to August 2010.

4. Imposition of penalty under Rule 18(1) of the CTPM Rules read with Section 11 AC of the Central Excise Act, 1944:
The court found that penalty provisions under Rule 18(1) read with Section 11AC were not applicable as the investigation did not establish manufacture and clandestine clearance of Chewing Tobacco. Consequently, the penalty imposed on the Appellant was set aside.

Conclusion:
The court allowed the appeal filed by the Appellant, holding that the demands confirmed in the impugned order were not sustainable. As the duty demand was not sustainable, the associated interest and penalty were also not sustainable. The appeal was allowed with consequential relief, if any, as per law.