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TMI Blog2023 (9) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... machines were found in sealed conditions (sealed by Central Excise Officers on 08.03.2010). In the unregistered premises, which is about 50 Mtrs. away from registered premises, four packing machines were found in a corner room. The officers found one machine was running to pack 'Surya Mark' (Khaini) of MRP Rs.2.00 and another packing machine was found packing Khaini of the same brand with MRP of Rs.1.50. Two other packing machines, although found installed in the premises, they were not running. The officers also found chewing tobacco raw material in the upper chamber of the room. Few packing material pouches were found attached to those two packing machines. The officers scanned images of both the pouches of chewing tobacco and the machines. The machines, raw-materials and finished goods were seized under a Panchnama. 2. Statement of Shri Ajay Kumar, a worker operating the machine, was taken who in his statement stated that two packing machines were working and other two machines were not running. Statement of another worker Shri Ratikanta Ghadei, who is the son of the Proprietor, was taken who also stated that two machines were working and other two machines were not running. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not installed. The machines were having stand and wheel for movement and they were not attached with the Earth. (ii) 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. The rejected pouches have been used for exhibiting that the machines have been used. 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 search was conducted on 02.08.2010, but the demand has been made for the entire month of August 2010, which is legally not tenable. (iii) The Panchnama has been drawn wrongly, since the Panchas were not the independent witnesses. They cannot come from 56 Km. away from their residence to the place of seizure at 5:30 A.M. They were not the local and independent witnesses. It was contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh evidence available to establish that the machines were not at all used. In the present case, the machines were scrapped and not capable of usage in the manufacturing process. As they have established that no manufacturing was possible with that four machines, the deemed manufacture provision cannot be invoked to demand duty. (viii). The Appellant cited the decision of GoyaL Tobacco Co. Pvt Ltd. Vs Commissioner of Central Excise and Service Tax, Jaipur-I, reported in 2017(348) ELT 720(Tri-Del) and contended that in this case on similar facts and circumstances, the Tribunal, Delhi has held that the provisions of CTPM Rules are not applicable and duty cannot be demanded on deemed basis as provided in Rule 18(2) of the said Rules. 5. The Ld. A.R. submitted that the investigation has established that 4 packing machines were installed in the unregistered premises owned by the Appellant. As per Rule 18(2) of the CTPM Rules, there is no need to establish any actual manufacture of goods. Mere installation of the machinery is sufficient to demand duty on deemed basis. Since the investigation has established the installation of 4 machines and the statements recorded from the workers av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requires to call local inhabitants as witness to draw panchanama, there appears to be no illegality if it is deviated depending on the circumstance without any malafide intention. In case of early bour searches and seizures, it may be difficult to call local panchas and in the present case, if the panchs are called from a distant place, the panchanam drawn cannot be challenged. Moreover, panchanama is not the only piece of evidence relied upon by the Department. The circumstances, inculpatory statement of the noticee and others, the way the packing machines have been procured by the noticee even for their registered premises etc goes against the noticee. Simply because panchas have been called from a distance place, the credentials of the panch witnesses cannot be doubted. Even the same panch may be called for a number of times without effecting the legal procedure. Further, the noticee had not taken the plea that the panchas are having inimical relations with them or they are having grudge against the noticee as held by the Apex Court in the case of Gyan Singh V. State of Punjab, Air 1974 SC 1074, at page 1026 (Para-5). " 8. We agree with the above findings of the adjudicating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the months and duty can be demanded even without any evidence of actual manufacturing. 9.3. Thus, the issues to be decided in this appeal are: (i) 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? (ii) 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? (iii) Whether evidences available indicate that Rule 18(2) of the CTPM Rules applicable in this case to demand duty in respect of 4 packing machines, from April 2010 onwards, as provided in the said Rules? (iv)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? 10. We observe that the premises where the 4 machineries were found has been registered in the name of M/s.Jaga Kalia Snax and Mixure. In his statement Shri Bishnu Charan Ghadei stated that he is the proprietor of both the companies. The Appellant Company, M/s Arunodaya Tobacco Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we observe 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. Immediately after giving the statements they retracted it by sworn affidavit before the Notary, but submitted later on 01.08.2011. Late submission does not mean that they agree with the contents of the statements. Even if the retractions were submitted to the department later, they remain as retracted statements only. The retracted statements have no evidentiary value in the absence of any corroborative evidence. Also, 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 was not considered by the adjudicating authority. They cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. We find that this view has been held by various decisions cited by the Appellant. 12.2 The Tribunal in the case of Ambica Organics Vs. CCE & Customs, Surat-1, reported as 2016 (334) ELT 97 (Tri. - Ahmd), 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. The same clearly lost its evidentiary value.The relevant portion of the order is reproduced below: 7. After hearing both the sides and on perusal of the records, I find that the Central Excise officers while visiting the factory of the appellant, recovered a USB drive in the appellant's premises. The USB drive was connected with computer and a printout was taken by the computer expert accompanied with the Central Excise officers. The printout gives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being relied upon by the Department in support of the SCNs. Since it is relying on such statements, it is the responsibility of the Department to ensure their presence for cross-examination. As already mentioned, whenever such witnesses (i.e. six of them) were produced for cross-examination they resiled from their earlier statements. 43. It is not a matter of mere coincidence that none of the witnesses who were cross-examined stood by their earlier statements. It is one thing to overlook this feature on the premise that all of them were under the pressure and control of the noticees. The other approach is to view this with some caution and ask what might be the case if the remaining witnesses were also produced for cross-examination? Importantly, what would be the prejudice caused to the noticees, in such circumstances, by their non-production for cross- examination? Thus a doubt is created in favour of the noticees when such witnesses do not turn up for cross-examination. It is the latter approach that has weighed with the CESTAT. That, in view of this Court, was a possible approach and does not render its order perverse on that score. 12.4. Regarding the procedure to be follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein. 6. Section 9D of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.&K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.T.R. 225 (Del.). Para 12 of the said decision clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well. 7. There can, therefore, be no doubt about the legal position that the procedure prescribed in sub-section (1) of Section 9D is required to be scrupulously followed, as much in adjudication proceedings as in criminal proceedings relating to prosecution. 8. As already noticed herein above, sub-section (1) of Section 9D sets out the circumstances in which a statement, made and signed before a Gazetted Central Excise Officer, shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the statement, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in SLP (C) No. 21831/1994, dated 3-1-1995 [since reported in 1995 (75) E.L.T. A177 (S.C.)], wherein it was held that the order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby. 13. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz. (i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and (ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. 14. There is no jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudication proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests of justice. 17. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which evidence-in-chief has to precede cross- examination, and cross-examination has to precede re-examination. 18. It is only, therefore,- (i) after the person whose statement has already been recorded before a Gazetted Central Excise officer is examined as a witness before the adjudicating authority, and (ii) the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence, that the question of offering the witness to the assessee, for cross- examination, can arise. 19. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply to Respondent No. 2 to summon the makers of the said statements, so that the Revenue would examine them in chief before the adjudicating authority, i.e., before Respondent No. 2. (ii) A copy of the said record of examination-in-chief, by the Revenue, of the makers of any of the statements on which the Revenue chooses to rely, would have to be made available to the assessee, i.e., to Ambika and Jay Ambey in this case. (iii) Statements recorded during investigation, under Section 14 of the Act, whose makers are not examination-in-chief before the adjudicating authority, i.e., before Respondent No. 2, would have to be eschewed from evidence, and it would not be permissible for Respondent No. 2 to rely on the said evidence while adjudicating the matter. Neither, needless to say, would be open to the Revenue to rely on the said statements to support the case sought to be made out in the show cause notice. (iv) Once examination-in-chief, of the makers of the statements, on whom the Revenue seeks to rely in adjudication proceedings, takes place, and a copy thereof is made available to the assessee, it would be open to the assessee to seek permission to cross-examine the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the statement of the Director Mr. Narayan Prasad Tekriwal and the basis of the finding recorded by the adjudicating authority as well as Customs, Excise and Service Tax Appellate Tribunal, has been the statement of the Director as recorded by the investigation officer during investigation. Section 9D of the Central Excise Act of 1944 reads as under: Section 9D - Relevancy of statements under certain circumstances. A statement made and - (1) signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, - When the person who made the statement is (a) dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or when the person who made the statement is (b) examined as a witness in the case before the Court and the Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority followed by the opinion of the adjudicating authority then the statement should be admitted. The said provision in the statute book seems to have been made to serve the statutory purpose of ensuring that the assessee are not subjected to demand, penalty interest on the basis of certain admissions recorded during investigation which may have been obtained under the police power of the Investigating authorities by coercion or undue influence. 9.5 Undoubtedly, the proceedings are quasi criminal in nature because it results in imposition of not only of duty but also of penalty and in many cases, it may also lead to prosecution. 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 on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the amount of Rs. 11 lakhs towards excise duty and therefore in the facts and circumstances of the present case, the aforesaid statement of the Counsel for the Respondents cannot be accepted. This fact clearly proves the conclusion that the statements of the concerned persons were of their volition and not outcome of any duress." Accordingly, on the first and second question of law, we hold that the statement of the Director could not be treated as relevant piece of evidence nor could be relied upon without compliance of Section 9D of the Act. The two questions of law accordingly, stand answered in that mannert statements recorded without following the procedure as set out in Section 9D of the Central Excise Act, 1944 has no evidentiary value :-" 13. From the above discussion and the decisions cited above, we observe that the statements recorded cannot be relied upon to demand duty; unless the procedure set out in Section 9D are followed. We observe that the retracted statements have no evidentiary value in the absence of any corroborative evidence. In the instant case we find that the procedure set out in Section 9D has not been followed by the adjudicating authority. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon to demand duty. Hence, we would like to examine the other evidences available on record to substantiate the allegation of manufacture and clandestine clearance of chewing tobacco by using the remaining two packing machines. 14.2 We observe that 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. We observe 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. 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 mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. 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 Pvt Ltd. Vs Commissioner of Central Excise and S.T, Jaipur-I, reported in 2017(348) ELT 720 (Tri-Del). The relevant portion of the decision is reproduced below: "7. The whole case of the demand against the appellant is on the basis of the availability of three machines in the premises verified by the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for operation in terms of the Explanation II to Rule 19. If the inference of the Original Authority is considered as a legal ratio, then wherever the packing machines were lying, in any premises, including the premises of the manufacturer or seller of such machines, then the duty can be demanded from them in terms of the Compounded Levy Scheme. Apparently no such situation is covered by the Scheme. Presumptive duty liability as envisaged in the Compounded Levy Scheme of 2010 Rules cannot be extended to a level that automatic duty liability will arise in all cases, where some packing machines are found in a premises. 8. Rule 4 of the said Rules states that the factor relevant to the production of notified goods shall be the number of packing machines in the factory of the manufacturer. Rule 5 stipulates that the quantity of goods shall be determined to be as per the table appended therein. Rule 18(2) stipulates that if it is found that the goods have been manufactured or cleared from a unit, which is not registered with the jurisdictional Central Excise Officers, then the duty liability of such unit shall be determined on the basis of number of packing machines found available in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses with reference to prayer of the appellant regarding serious irregularities in panchnama and search proceedings. We find that the Commissioner recorded since the machines were found in an unauthorized premises, the cross-examination of the witnesses would not make any change. Similarly, cross-examination of the officers conducting search operation was also denied. We further note that the Hon'ble High Court of Rajasthan in Jupitor Industries and Another in Tax Reference Case No. 28 of 2004, decided on 7-4-2006 [2006 (206) E.L.T. 1195 (Raj.)], while examining the duty liability with reference to another Compounded Levy Scheme, held that the manufacture of goods is a condition precedent for charging excise duty without which no levy can be made. The Rule cannot be made to go beyond the scope of the charging provisions. 10. Apart from the physical availability of three packing machines, the Revenue relied on the statements of Shri Rajesh Goyal (second appellant), Shri Rakesh Kumar, Shri Pramod Kumar Sharma, Shri Deepak Sharma, Shri Dinesh Jogi and Shri Babu Lal Meema. Shri Rajesh Goyal retracted his statement immediately at the earliest possible occasion. Though the other persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod. The presence of machines and certain statements of labourers and accountants were the only evidences, which resulted in confirmation of demand. We find 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. 11. After careful consideration of the impugned order and the grounds of appeal, we find that the impugned order has fallen short in appreciating the factual position, evidence gathered and applicable legal provisions in arriving at the findings of non-payment of duty. The order is not sustainable for more than one reason as recorded above. 12. Accordingly, we set aside the impugned order. The appeals are allowed. 15.3. We observe that the facts and circumstances of the the case mentioned above is similar to that of the case and the ratio of this decision is squarely applicable to the present case on hand. By following the decision cited above, we hold that the provisions of Rule 18(2) cannot be invoked in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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