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TMI Blog2024 (3) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... - Mere presence of the packing machine alone is not sufficient to establish manufacture and clandestine clearance of chewing tobacco. In the absence of any other evidence, we hold that the investigation has not established that the packing machine was in operating condition and used for clandestine manufacture and clearance of Chewing Tobacco - question is answered in negative. Whether evidences available indicate that Rule 18(2) of the CTPM Rules is applicable in this case to demand duty in respect of one FFS packing machine, from 08th March, 2010 onwards, as provided in the said Rules? - HELD 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., to establish clandestine manufacture and clearance of Chewing Tobacco from the unregistered premises - the one FFS packing machine found in the unregistered premises has not been fixed with two vital parts, without which the machine cannot be operationalized. In such circumstances, the investigation must have probed further to establish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gence (DGCEI) visited and searched the office premises of the appellant-company and the residential premises of Shri Sadhu Ram Agarwal, Partner of the appellant-company. During the course of search and joint verification, they visited an unregistered premises which is adjacent to the registered factory premises of the appellant, wherein they found one packing machine of INDOPACK SYSTEM make and 27 rolls of plastic pouches printed with Maruti Special Khaini in Hindi and Maruti Subasit Kada Khaini in Oriya. Shri Sadhu Ram Agarwal, Partner, available with the officers at the time of joint verification informed that they have not registered the INDOPACK SYSTEM make packing machine found in the unregistered premises with the Central Excise Department under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 (hereinafter referred to as CTPM Rules 2010 ). As per Rule 6 of the CTPM Rules, 2010, the appellant was required to declare the number of packing machines and pay central excise duty as prescribed under Notification. As the appellant has not declared the one FFS packing machine available in the unregistered premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that there was no truth in the allegation of the Department that the machine kept in the unregistered premises has been used for packing Maruti Special Khaini by the appellant. 3.1 Regarding the demand of central excise duty by invoking the provisions of Rule 18(2) of the CTPM Rules, 2010, the Appellant submits that the provisions of the said Rules are not applicable in this case as they have established that the one FFS packing machine available in the unregistered premises was not capable of being used in the manufacture of Chewing Tobacco. Rule 18(2) cannot be made applicable when there is enough evidence available on record to establish that the machine was not in use. Accordingly, they contended that the packing machine which is not in working condition need not be declared to the Department as per the CTPM Rules. In the present case, they have established that the packing machine did not have the vital parts and hence the machine was not capable of packing Chewing Tobacco. Therefore, they contended that the demand of central excise duty cannot be raised as per the deemed manufacture provision available under Rule 18(2) of the CTPM Rules 2010. 3.2 The Appellant cited the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered premises during the search on 24.01.2012. Hence, by virtue of Rule 18(2) cited above, the said packing machine was deemed to be in operation since 08th March, 2010 and duty has been demanded w.e.f. 08.03.2010. In the impugned order, it has been held that as per the aforesaid Rule 18(2) of CTPM Rules, the one FFS packing machine available in the unregistered premises can be considered as operational during the months from 08th March, 2010 to 31st January, 2012 and duty can be demanded even without any evidence of actual manufacturing. 6.3 Thus, we observe that the issues to be decided in this appeal are: - (i) Whether the evidences available on record indicate that one FFS packing machine installed in the unregistered premises was in working condition and used for manufacturing of Chewing Tobacco? (ii) Whether evidences available indicate that Rule 18(2) of the CTPM Rules is applicable in this case to demand duty in respect of one FFS packing machine, from 08th March, 2010 onwards, as provided in the said Rules? (iii) Whether penalty under Section 11AC of the Central Excise Act, 1944, is imposable in this case? (i) Whether the evidences available on record indicate that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Chewing Tobacco. Accordingly, the answer to question no. (i) above is in the negative. (ii) Whether evidences available indicate that Rule 18(2) of the CTPM Rules is applicable in this case to demand duty in respect of one FFS packing machine, from 08th March, 2010 onwards, as provided in the said Rules? 8. The next question to be answered is whether Rule 18(2) of the CTPM Rules can be made applicable in this case to demand duty in respect of the one FFS packing machine found in the unregistered premises, for the period from 08th March, 2010 onwards, as provided in the said Rules. Rule 18(2) of CTPM Rules states that: - if it is found that goods have been manufactured in or cleared from a unit which is not registered with the jurisdictional Central Excise Office, then, the duty liability of such unit shall be determined on the basis of number of packing machines found available in the premises of the unit and the retail sale price of the pouches manufactured with the aid of such packing machines and unless evidence to the contrary is provided to the satisfaction of the Central Excise Officer, such machines shall be deemed to have been in operation, in case of financial year 2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual condition of the machine at the time of detention of the said machines has become crucial. We note that the appellant on various occasions (25-2-2011, 18-3-2011, 19-5-2011, 4-7-2011, 8-7-2011, 14-7-2011) repeatedly requested for examination of the machines by the experts. The same was not accepted by the Department. We are not able to understand as to why such a vital aspect of investigation, that too on repeated requests of the appellant, was not accepted by the Revenue. Apparently, such examination by experts would have clearly brought out the exact status of the machines, the possibility of such machines having been put to use for clandestine manufacture, etc. The inference by the Commissioner that the machines were plugged in, the motor can be fitted at any time to run the machine, is fallacious. The Original Authority himself records that some of the essential parts in the machines were missing and in absence of recovery of these missing parts from the premises it can be actually argued that the said machines were not in working conditions on the date of visit by the officers. The Original Authority records that though the machines may not be in working condition on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n many occasions during the course of investigations. No verification or technical examination of the machines have been carried out by the department to establish the functional capability of the machines. Since the machines were detained and were under custody of the department, the repeated prayer of the appellant for technical examination is the only rebuttal the appellant could make in terms of Rule 18(2). Admittedly, the machines were not in operation at the time of the visit by the officers and were not having many essential parts including motors. This has been recorded in the impugned order. However, the Original Authority inferred that the machines can be made operational easily and the appellant failed to establish that they were not in operation during the impugned period. We find that such inference is not supported either by fact or by law. We note that the status of each machine with details of essential parts that were not found were submitted by the appellant before the Original Authority. However, the Original Authority chose to give a finding that the mere presence of machines along with the statements of admission regarding manufacture of dutiable items is suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmined. In this connection, we note that denial of cross-examination and relying on the statements, put the impugned order in legal jeopardy. The provisions of Section 9D of the Central Excise Act, 1944 is very clear. By now, it is well-settled legal position that the Adjudicating Authority, if he intends to rely on the contents of any statement recorded under the Central Excise Act, 1944, then the procedure, as prescribed under Section 9D, has to be followed scrupulously. In fact, in a recent decision, the Hon ble Punjab Haryana High Court in the case of Jindal Drugs Pvt. Ltd. - 2016 (340) E.L.T. 67 (P H) held that Adjudicating Authority cannot straightaway rely upon the statement recorded during the investigation before the central excise officer, unless and until, he can legitimately invoke clause (a) of Section 9D(1). The statements given under Section 14 are to be examined before the Adjudicating Authority and if the same is not done, it cannot be taken as reliable evidence. If the maker of the statement is examined by the Department, cross-examination of the said person must be allowed, if sought for by the assessee. We find legal ratio regarding cross-examination of the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Section 11AC of the Central Excise Act, 1944, only when it is established that Chewing Tobacco was produced and clandestinely removed. In view of the above findings, we hold 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 to question no. (iii) at paragraph 6.3 is in the negative. 10. In view of the above findings, we answer the questions raised at paragraph 6.3, as below: - (i) The evidences available on record do not indicate that the one FFS packing machine found in the unregistered premises was in working condition and used for manufacturing of Chewing Tobacco. (ii) Rule 18(2) of the CTPM Rules is not applicable in this case to demand duty in respect of the one FFS packing machine found in the unregistered premises, from 08th March, 2010 to 31st January, 2012. (iii) Penalty under Section 11AC of the Central Excise Act, 1944 cannot be imposed in this case. 11. In view of the above discussion, we hold that the demand of Central Excise Duty confirmed in the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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