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TMI Blog2015 (12) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... e retracted, the CCE and the CESTAT should have produced other independent corroborative evidence. That clearly was not available in the present case. It is the statement of Mr. Gautam that has been relied upon to hold that there was 'maximum involvement' of Mr. Rakesh Kumar Garg in the clandestine activity although as already noticed hereinbefore the statement of Mr. Gautam was a weak evidence. Even in the statement of Mr. Santosh Garg, there was no admission about his being involved in the management or control of AJP. No cross-examination was offered of any of the witnesses whose statements were relied upon in the order of the CCE. There is no question of application of Rule 25 since that applies only to the actual manufacturer of the excisable commodity whereas that is not even the case of the Department vis-a-vis the three Appellants. - entire duty was raised on the basis of the capacity of the packing machines for the period 1st April, 2000 to 31st August, 2002, whereas the Department after having conducted the search on 20th October, 2000 did not, in fact, apprehend a single consignment clandestinely removed after 20th October, 2000 up to 31st August, 2002. - prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law was framed: Whether the Tribunal is right in imposing penalty of ₹ 5 crores on the Appellant under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944 Background facts 4. The brief facts leading to the present appeals are that M/s. Amar Jyoti Packers ( AJP ), a sole proprietary firm of which Ms. Mahesh Kumar Gautam was sole proprietor, was engaged in manufacturing pan masala and gutka of 'Rajdarbar' brand. Mr. Devi Das Garg (the Appellant in CEAC No. 3 of 2011), was one of the two partners of M/s. Sonal Food Products ( SFP ) which owns the Rajdarbar , Rahat , Rustam , and Raj Tilak brands used to manufacture gutka and pan masala by AJP. One of his sons Mr. Santosh Kumar Garg (the Appellant in CEAC No. 2 of 2011) is the other partner in SFP. Mr. Rakesh Kumar Garg (the Appellant in CEAC No. 1 of 2011) is the other son of Mr. Devi Das Garg. 5. It is stated that AJP was set up on 1st April 2000 for the manufacture of gutka and pan masala. On 13th April 2000, AJP entered into a franchisee agreement with SJP for using the aforementioned brand names. Six months thereafter, i.e., on 20th October 2000 the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities of gutka and pan masala had been manufactured and clandestinely cleared without payment of excise duty and thereby there was deliberate evasion of payment of excise duty. The statements of Mahesh Kumar Gautam 9. The SCN also mentioned that summons was issued to Mr. Mahesh Kumar Gautam, the Proprietor of M/s. AJP on seven dates and except for the summons dated 23rd April 2002 none of the other summons was responded to. Mr. Mahesh Kumar Gautam appeared on 26th April 2002 and gave a statement wherein besides submitting photocopies of the agreement for using the Rajdarbar brand and the rent agreement with the owner of the premises at Khasra No.223, Village Budhpur, Delhi, he admitted to the correctness of the panchnama drawn up on 20th October, 2000, which had been signed by Mr. Vinod Kumar Bansal. Mr. Gautam was stated to have produced a copy of the agreement dated 13th April, 2000 between SFP and AJP which was signed by Mr. Santosh Kumar Garg and Mr. Devi Das Garg, as Partners of SFP. He is stated to have admitted to working as a pujari in the temple in the house of Mr. Rakesh Kumar Garg and getting ₹ 2000-3000 per month. He stated that Mr. Rakesh Kumar Garg had go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced per day in the RG-1 register. Mr. Bansal confirmed his signature dated 4th July, 2001 as the authorised signatory of M/s. ST. 13. Mr. Bansal made a further statement on 17th July, 2003 where he is stated to have admitted to having worked with AJP from March 2000 till January, 2003. A third statement was tendered by him on 23rd February, 2004 wherein he is supposed to have reiterated his earlier statement tendered on 20th October, 2000. A fourth statement was tendered on 1st March, 2004 when he was confronted with bill books containing invoices. He was also shown the bill books of M/s. Krishna Packers but he could not say anything about the invoice books. In a statement made on 5th March, 2004 he agreed that there was a difference in the consumption of the raw materials as shown in the books of AJP to an extent of 8383 kgs but was unable to explain the reasons therefor. Other statements 14. Mr. Dinesh Kumar made a statement on 19th March, 2004 accepting his earlier statement made on 20th October, 2000. He worked in AJP as a typist and looked after the work of Central Excise in the absence of Mr. Bansal. He too was earlier working with Krishna Packers till 31st March 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that he was introduced to Mr. Devi Das Garg by a relative, Mr. Vinod. He confirmed that goods were sold to AJP and Mr. R.K. Enterprises. He was also a Proprietor of M/s. Surya Ornaments, which would purchase old jewellery and convert them into gold bars, which were further sold. He confirmed that gold jewellery worth ₹ 66,70,000 was purchased from the Garg family and that they sold the gold bars made therefrom for ₹ 80.00 lakh. Between April and September 1999, he admitted to having purchased ₹ 2 crore of jewellery from the Garg family which was then converted into gold bars and sold for ₹ 2,84,44,028/-. A further statement was made by him on 31st October, 2003. He conveyed lack of knowledge of the buyers of the gold bars. He made a further statement on 19th February, 2004 when he claimed to be unable to explain the presence of stock of mixture of kattha and chuna; stock of mixture of kattha, chuna and menthol (perfume) on 31st October, 2001 as per panchnama. 19. Mr. Manoj Bansal tendered his statement on 19th February, 2004 accepting the panchnama dated 20th October, 2000 in respect of the proceedings at the premises of M/s. ST. He confirmed the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 39,33,705/- to Surya Ornaments during the year 1999-2000. Mr. Rakesh Garg is supposed to have stated that his father received ₹ 1,40,01,717.51 as profit from M/s. Radhika International during the year 1999-2000. He also gave details of the jewellery sold by his mother during the year 1998-99 and 1999-2000 and that she gifted ₹ 40,00,000/- to Mr. Santosh Garg during the year 2000-2001. 25. Mr. Santosh Garg gave a statement on 9th August, 2002 stating that he was a partner in M/s. SFP of which his father was the owner. The company was established for the business of pan masala and gutkha and brand names Rajdarbar, Rajtilak, Rabat, Rustam were registered. He claimed that the company closed around 1995-96 and thereafter the brand names were franchised to other companies on the basis of royalty. He claimed that the brands were franchised to AJP by a franchise agreement. He submitted a copy of the ledger; account of royalties for the last two years from AJP. Another statement was tendered by Mr. Santosh Kumar Garg on 30th May, 2003 when he claimed to be the owner of Rajdarbar brand. 26. Mr. Mithilesh Kumar Tripathi gave his statement on 21st July, 2003 on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notion that he was only a front man for the Gargs. It was also contended that the show cause notice dated 4th May, 2004 was beyond the period of six months from the period under demand, i.e. 20th August, 2000 to August, 2002. 30. AJP raised a question as to how, after coming to know at the time of the raid on 20th October, 2000 that the machines were producing 200 pouches per minute, the Department could have allowed the clandestine removal thereafter of the excess quantity for a period of 22 months. The RT-12 forms submitted for the period post raid, i.e. October 2000 to August, 2002 had been received by the Department and this showed that the production did take place during the aforementioned period. Accordingly, it was contended that the demand for the period after October 2000 was untenable in law. AJP also submitted a technical report about pouch producing capacity of the machines installed in AJP factories. According to the said report it could never have been possible for them to produce 200 pouches per minute as alleged by the Department. 31. The noticee also sought the examination of the aforementioned persons whose statements have been recorded and relied upon in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Narsi Foods Pvt. Ltd in cash payment. The goods were dispatched through local tempos and approximately 60 workers were employed on daily wage basis against cash payment. Only kattha and supari instead of cut/grinded/mixed supari, kattha, chuna and illaichi were mentioned on the invoices/challans issued and signed by Mr. D.K. Sharma. (iii) The CCE also referred to the statements of, Mr. Sunil Kumar, Proprietor of M/s. ST and Mr. Manoj Bansal and held that M/s. ST was a front firm for the family. (iv) As regards the statements made on various dates from October, 2000 to February, 2004 by Mr. D.K. Sharma, Mr. Manoj Bansal and Mr. Sunil Kumar it was not mentioned by them that the mixture seized was not capable for being used in Pan Masala/gutkha. This stand, therefore, was an afterthought. It was nevertheless acknowledged that Mr. Sharma was not available for cross-examination. (v) Since the technical report produced was of a later date, i.e. 21st July, 2004, wherein it was stated that the machines installed in the premises of M/s.ST could not produce Pan Masala or tobacco, the CCE rejected the report holding it to be a dictated one and not reliable . The plea that the mixtur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants were the persons controlling AJP and its operations. The CESTAT rejected the plea that the said statement retracted by Mr. Gautam on the very next day, was obtained by subjecting him to duress and coercion. According to the CESTAT there was no denial that Mr. Gautam was working only as a pujari on monthly wages of ₹ 2,000 to ₹ 3,000 in the house of Mr. R.K. Garg and it was difficult to believe that overnight he became the manufacturer of a popular Rajdarbar brand Gutka and Pan Masala. 39. According to the CESTAT notwithstanding the retraction of the statement by Mr. Gautam it had the ring of truth . It was not known whether the police had taken any action on his complaint or any order of the court had been passed. The medical examination only showed his symptoms as loose motions, vomiting and abdominal pain with umbilical region tenderness and there was no remark or observation in the said report whether there were any signs of his being beaten up. Therefore, the CESTAT held that his retraction based on the complaint given by him to the police and the medical examination did not prove in any way that his statement dated 26th April 2002 had been recorded u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the use of Rajdarbar brand. A reference was made to the decision of the Supreme Court in Naresh J. Sukhawani v. Union of India 1996 (83) ELT 258 (SC) and it was held that the statement of Mr. Gautam was in the nature of an inculpable statement of a co-accused which could be used as substantive evidence against Mr. Gautam. Further the statement was corroborated by the statements of Mr. Dev Kumar Sharma and Mr. V.K. Bansal. Submission of counsel 44. This Court has heard the submissions of Mr. Krishna Kant, learned counsel for the Appellant and Mr. Satish Kumar, learned counsel for the Respondents. 45. It is submitted by Mr. Kant that the CESTAT erred in failing to notice that no penalty could have been imposed on the Appellants under Rule 26 of the CE Rules 2002 as there was no allegation in the SCN or any conclusion drawn in the order in original by the CCE or by the CESTAT itself to the effect that any of these Appellants ever received or purchased any goods from AJP or sold any goods manufactured by AJP. There was no evidence also that any of the Appellants supervised the dispatch or the removals made by AJP or provided any distribution network assistance to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or rupees ten thousand, whichever is greater. 49. Rule 209A of the CE Rules 1944 was more or less similarly worded. These are penal provisions that call for a strict interpretation. Therefore, in order that penalty may be levied, it will have to be satisfactorily proved that the ingredients of Rule 26 of the CE Rules 2002 are existent qua the person proposed to be subject to the penalty. In other words, for the purposes of levy of penalty the Department would have to show the actual involvement of the person sought to be penalised in the actions of possessing, transporting, removing, keeping, concealing, selling or purchasing, etc. of the excisable goods, which he knows or has reason to believe are liable to confiscation. 50. In Gian Mahtani v. The State of Maharashtra AIR 1971 SC 1898 it was observed by the Supreme Court that the main accused, who played the leading role in extensi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to rely on such statement without seeking independent corroboration. 55. The decision in K.I. Pavunny v. Assistant Collector, Central Excise (supra), holds that where a confession is shown to be involuntary, as a matter of prudence, the authority should seek some independent corroboration. In the present case the fact that an FIR was registered by Mr. Gautam against the excise officials immediately after the statement was given is a strong indication of the lack of voluntariness in making the statement. 56. In Ravindran and Peter John v. The Superintendent of Customs 2007-TIOL-89-SC-CUS, the Supreme Court cautioned that a confession cannot form the sole basis of a conviction under the Customs Act. Two other decisions that are relevant in this context are V. Ananthraman v. Union of India 2003 (151) ELT 278 (Bom.) and Nicco Corporation Ltd. V. Commissioner of Service Tax 2014 (307) ELT 228 (Cal.). 57. As pointed out by the learned counsel for the Appellants certain other crucial factors which do not appear to have been considered either by the CCE or the CESTAT are that Mr. Gautam continued filing documents on behalf of AJP even after the conclusion of the search proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y doing puja archana and I am also doing the same work because I am free/unemployed. When asked about purchase of plant and machinery of AJP, he stated that had purchased some machines from the market. No question was asked about the Gargs being the real owners of the business. Consequently the Court fails to appreciate on the reading of the above statement dated 4th November, 2003, as has been done by the CCE and the CESTAT, that Mr. Gautam reaffirmed the statement made on 26th April, 2002. 60. On 12th March 2004, Mr. Gautam was again shown his earlier statement dated 26th April, 2002 and asked to reaffirm it. This time again when asked who used to do the mixing of the scent and zarda etc., he named Mr. V.K. Bansal. He also stated that he had seen his statement of 4th November 2003 and read it and he was fully satisfied with it. A reading of the statement dated 12th March 2004 shows that according to Mr. Gautam, it was essentially Mr. V.K. Bansal who was looking after the work of AJP. When asked: Who used to look after the factory and its office and account works in Amar Jyoti Packers , Mr. Gautam answered: The accounts relating to Amar Jyoti Packers and other office work we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT which set aside the duty demand as well as penalty, that reliance has been placed on the incriminating statements of the share brokers who had not been produced for cross-examination. In Union of India v. M.S.S. Foods Products Ltd. 2011 (264) E.L.T. 165 (MP), the proceedings against the Respondent therein for clandestine removal of gutka ended in quashing of the demands by the CESTAT. This was because no material was brought on record to indicate to whom the imported goods were sold and how the goods were clandestinely removed from the factory. It was observed that excise duty cannot be levied merely on the basis of assumption or presumption. Reliance in that case was placed on the statement of the proprietor of the Respondent and it was held that since there was no admission in the said statement that the seized product was manufactured by the Respondent or cleared from its factory premises, the said statement was not sufficient to initiate action against the Respondent. 66. As already noticed there is no question of application of Rule 25 since that applies only to the actual manufacturer of the excisable commodity whereas that is not even the case of the Department vis- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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