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CX – Inferential or conjectural conclusions cannot be arrived at while confirming demand alleging clandestine removals; conclusive evidence mandatory: CESTAT

2019-TIOL-2280-CESTAT-DEL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
COURT NO. II

Excise Appeal No. 52716 of 2018

Arising out of common order in original No. 62/2018-CE, Dated: 25.05.2018
Passed by the Commissioner, Central Excise and Customs, Bhopal

Date of Hearing: 03.01.2019
Date of Decision: 03.05.2019

M/s LUCKY TOBACCO COMPANY PVT LTD
C/o R B SHUKLA, H NO 19, STAR HOMES
E-8 EXTENSION, ARERA COLONY
BHOPAL-462039 (M.P.)

Vs

COMMISSIONER, CENTRAL EXCISE AND CUSTOMS
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

WITH
Excise Appeal No. 52710 of 2018

R B SHUKLA
C/O R.B. SHUKLA, H.NO. 19, STAR HOMES
E-8 EXTENSION, ARERA COLONY
BHOPAL-462039 (M.P.)

Vs

COMMISSIONER, CENTRAL EXCISE AND CUSTOMS
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

WITH
Excise Appeal No. 52711 of 2018

RIZWAN KHAN 
H. NO. 10 80 FIT ROAD NEAR PETROL PUMP
HINOTIYA TULSINAGAR, BHOPAL (M.P.)

Vs

COMMISSIONER, CENTRAL GOODS AND SERVICE TAX
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

WITH
Excise Appeal No. 52712 of 2018


MURLI DHAR OJHA
FLAT NO. 303, SAI DEV APARTMENT
E7/91, ARERA COLONY BHOPAL-462016 (M.P.)

Vs

COMMISSIONER, CENTRAL GOODS AND SERVICE TAX
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

WITH
Excise Appeal No. 52713 of 2018

T K GHOSH 
116, PATEL NAGAR, MANDIDEEP
DIST-RAISEN (M.P.)

Vs

COMMISSIONER, CENTRAL GOODS AND SERVICE TAX
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

WITH
Excise Appeal No. 52714 of 2018

MOHAMMAD HASSAN HASHMI
DPX NO. 35, A1 GARDEN COLONY
ARIF NAGAR, NEAR NISHATPURA RAILWAY CROSSING
BHOPAL-462011 (M.P.)

Vs

COMMISSIONER, CENTRAL EXCISE AND CUSTOMS
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

WITH
Excise Appeal No. 53379 of 2018

Arising out of order in original No. 62/2018-CE, Dated: 25.05.2018
Passed by the Commissioner, Central Excise & Customs, Bhopal

BHARAT KUMAR PATEL
DIVYA HOMES, C4/30, CIVIL LINES
BHOPAL-462001 (M.P.)

Vs

COMMISSIONER, CENTRAL GOODS AND SERVICE TAX
HOSHANGABAD ROAD 48, ARERA HILLS
BHOPAL-462011 (M.P.)

Appellant Rep by: Shri Anil Mishra, Adv.
Respondent Rep by: Shri V B Jain, AR

CORAM: Anil Choudhary, Member (J)
Bijay Kumar, Member (T)

CX – M/s LTCPL and others have filed appeals against the impugned order confirming the demand of duty for alleged clandestine manufacture and clearance along with interest and equivalent amount of penalty on LTCPL – Shri R.B. Shukla and Shri Bharat Patel, both Directors of LTCPL are in appeal against Penalty on each of them for alleged violations – Shri Mohammad Hassan Hashmi, Commercial Manager and T.K. Ghosh Technical Head, both employees of LTCPL are in appeal against penalty on each of them for alleged abatement – Shri Murlidhar Ojha, Supervisor and Rizwan Khan Factory In charge, both employees of LTCPL are in appeal against penalty for alleged abatement – As regard to alleged factory stock difference and its removal, the factory was visited by a team of as many as 12 officers, who also resumed a reconciliation register on same day, under the same panchnama, prepared in presence of security guards of LTCPL – We further note there are no adverse remarks regarding stocks contained in the said panchnama and the allegations of shortages and excess have arisen vide reconciliation chart as late as on 04/04/2014, when Shri RB Shukla, Director LTCPL was asked to explain the differences shown, upon comparison of panchnama stock inventory with RG-1 register – In absence of any action on shortage / excess stock and in absence of any adverse observation or action by visiting team, it is difficult to understand as to how revenue could score a point seeking an explanation on 4/4/2014 and for which LTCPL representatives could have been called on 08/06/2010 itself – Furthermore authenticity of the reconciliation is doubtful where there are contentions that loose goods (unfinished) were counted as finished goods in absence of LTCPL representatives and comparision of same with RG-1 Register is untenable – There is a mention in Panchnama about the paper seal dated 7/6/2010, signed by an officer and pasted on the main gate, indicating that the factory was still under physical supervision – On 8/6/2010 also, same officer is a part of the visiting team – Allegations of unaccounted removals from factory, sealed and operating under departmental supervision cannot stand and an uncorroborated and vague statement of Shri R. B. Shukla does not come to help of revenue in this regard – Duty referred in Annexure –B to notice, cannot be demanded or confirmed.

As regard the demand of duty on the basis of Railway Receipts, it is necessary to examine the corroborative evidences from the stage of purchase and consumption of raw materials to manufacture of excisable goods, its transportation to consignee end, of railway booking, Statement of persons who booked the consignments and statement of railway authorities regarding their knowledge of the nature of consignments – Except for an allegation on the printer of packing materials for clandestine printing of packing material, there are no evidences for manufacture of huge quantities of Cigarettes, referred to and calculated on per RR Basis – Thus a total of 703,92,000 Cigarettes alleged to have been manufactured and cleared by LTCPL under such RRs – Though there are no quantification of raw materials required to manufacture such quantities, a sizable quantity of Cut Tobacco Cigarette Papers, PCT, Filter Rod, Aluminum Foil, BOPP Film, TOR, Shell, Slide, Gray wrapper, CFC, Masking Tape, Fevicol, etc would be required to be purchased and consumed – Admittedly none of the documents was recovered from the premises of LTCPL – It is also not the case of the Revenue that parcel agents maintained these Note Books under the instructions of LTCPL – These Note Books were not in the handwriting of any of the persons of LTCPL or its accountant or clerk or any employee – Thus the document upon which the SCN has placed strong reliance has no probative value – Merely because the document have been produced during investigation, it does not establish its probative value – The Supreme Court in case of Bareilly Electricity Supply has held that mere production of document does not amount to proof – No primary evidence has been produced by the Revenue to show that LTCPL has effected sale of such huge quantities of Cigarettes – There is no tangible evidence of LTCPL having actually produced alleged quantities of cigarettes out of non-duty paid or unaccounted raw materials – No transporter’s documents have been seized or produced by the Department to show transport of cigarettes from factory to Bhopal Station, and thus the nexus of the RRs and LTCPL Factory is apparently absent – The only basis of the demand is the number of bundles contained in RRs multiplied with assumed quantities – Even if the figures of bundles in the few seized documents tally, that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained The documents in question have not been resumed from LTCPLS premises – Therefore, the present demand, which has been confirmed by the impugned order, is not based on evidence, which, as this Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance, would justify a finding against the LTCPL – Inferential or conjectural conclusions cannot be arrived at in such cases, as has been done in the present demand, merely based on Railway Receipts and vague records – Unless there is conclusive evidence that LTCPL did actually manufacture such cigarettes and clandestinely cleared them without payment of duty, liability cannot be fastened on LTCPL on the basis of conjectures and surmises, as Supreme Court emphatically held in In Oudh Sugar Mills Ltd – 2002-TIOL-307-SC-CX-CB .

There is no evidence to establish manufacture and clandestine removal of alleged quantities by LTCPL on the basis of which demand of Rs. 657,50,888/- could sustain – Impugned order is therefore set aside – Consequently the penalties imposed upon the LTCPL and other appellants are also set aside: CESTAT

Appeal allowed

Case laws cited:

COMMISSIONER-OF-CENTRAL-EXCISE-DELHI-II-Versus-BALAJEE-PERFUMES” COMMISSIONER OF CENTRAL EXCISE DELHI-II Versus BALAJEE PERFUMES – 2017 (4) TMI 1288… Para 19

MAHAVIR METALS INDUSTRIES Versus COMMR. OF C. EX. & CUS., DAMAN, VAPI – 2012 (2) TMI 469 – CESTAT AHMEDABAD… Para 19

M/s Vishwa Traders Pvt. Ltd., & Others Versus CCE Vadodara – 2011-TIOL-1890-CESTAT-AHM… Para 19

POLYFILL SACKS Versus COMMISSIONER OF C. EX. & CUS., VADODARA-I – 2009 (5) TMI 666 – CESTAT, AHMEDABAD… Para 19

KOTHARI POUCHES LTD. Versus COMMISSIONER OF C. EX., NEW DELHI – 2000 (9) TMI 177 – CEGAT, NEW DELHI… Para 19

M/s Continental Cement Company Vs Union of India – 2014-TIOL-1527-HC-ALL-CX… Para 20

Oudh Sugar Mills Ltd v Union of India – 2002-TIOL-307-SC-CX-CB… Para 20

FLEVEL INTERNATIONAL VERSUS COMMISSIONER OF CENTRAL EXCISE- 2015-TIOL-2230-HC-DEL-CX… Para 20

Arya Fibres Pvt. Ltd. v. CCE, Ahmedabad-II – 2014-TIOL-15-CESTAT-AHM… Para 20

KUBER TOBACCO PRODUCTS LTD. VERSUS COMMISSIONER OF C. EX., DELHI 2013 (290) E.L.T. 545 (Tri. – Del.)… Para 20

T.G.L Poshak Corp. v CCE, 2002 (140) ELT 187… Para 20

ASWANI & CO. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-I2015 (327) E.L.T. 81 (Tri. – Del.)… Para 23

PHIL ISPAT PRIVATE LIMITED and others Vs C.C.E. & S.T. -RAIPUR reported 2018 (11) TMI 912 – CESTAT NEW DELHI… Para 23

CCE, Delhi-1 Vs. Vishnu & Co. Pvt. Ltd. – 2015-TIOL-279 2 -HC-DEL-CX… Para 23

Commissioner Vs. Motobhai Iron and Steel Industries – 2014-TIOL-1617-HC-AHM-CX… Para 23

CCE Vs. Brims Products – 2011 (271) ELT 184 (Pat)… Para 23

Indo Green Textile Pvt. Ltd. Vs. CCE, Thane, Mumbai – 2007 (212) ELT 343 (Tri–Mum)… Para 23

Kothari Pouches Ltd. Vs. CCE, New Delhi – 2001 (135) ELT 531 (Tri. – Del)… Para 23

Rama Shyama Papers Ltd Vs. CCE, Lucknow – 2004 (168) ELT 494 (Tri. – Del)… Para 23

Shree SidhbaliIspat Ltd Vs. CCE, Nagpur – 2017 (357) ELT 724 (Tri. – Mumbai)… Para 23

CC v D. Bhoormull – 2002-TIOL-253-SC-CUS… Para 25

Pullangoda Rubber Produce Company Ltd. v. State of Kerala, 1972 (4) SCC 683… Para 30

Bareilly Electricity Supply v Workmen, 1971 (2) SCC 617… Para 32

Life Insurance Corporation of India & Anr v Rampal Singh Besin (2010) 4 SCC 491… Para 32

Oudh Sugar Mills Ltd v Union of India – 2002-TIOL-307-SC-CX-CB… Para 36

M/S ARYA FIBRES PVT. LTD., M/S NOVA PETROCHEMICALS LTD. AND OTHERS VERSUS CCE AHMEDABAD-II – 2014-TIOL-15-CESTAT-AHM… Para 37

Oudh Sugar Mills Ltd v Union of India – 2002-TIOL-307-SC-CX-CB… Para 37

Deena Paints v CCE: 2001 (43) RLT 805… Para 37

CCE, Meerut v Moon Beverages Ltd., 2002 (150) ELT 976… Para 37

Kabra Enterprises & others v CCE, 1999 (109) ELT 571… Para 37

Kothari Products Ltd and others v CCE, Kanpur, 2003 (159) ELT 1187… Para 37

CCE v Raman Ispat, 2000 (121) ELT 46… Para 37

Brims Products v CCE: 2001 (130) ELT 719… Para 37

CCE v Laxmi Engg. Works, 2001 (134) ELT 811 (Tri-Delhi)… Para 37

Hilton Tobacco v CCE, 2005 (178) ELT 378… Para 37

Vishwa Traders Pvt. Ltd v CCE – 2011-TIOL-1890-CESTAT-AHM… Para 37

CCE v Dhariwal Industries Ltd – 2010-TIOL-1498-CESTAT-BANG… Para 37

Centurian Laboratories v CCE, Vadodara, 2013 (293) ELT 689… Para 37

Pan Parag India v CCE, 2013 (291) ELT 81)… Para 39

M/S PELICAN TOBACCO (INDIA) PVT. LTD.,& OTHERS VERSUS COMMISSIONER OF CUSTOMS, C.E. & S.T., AGRA – 2019-TIOL-43-CESTAT-ALL… Para 45

MOHTESHAM MOHD. ISMAIL VERSUS SPL. DIRECTOR, ENFORCEMENT DIRECTORATE – 2007-TIOL-174-SC-FEMA… Para 46

FINAL ORDER NOS. 50617-50623/2019

Per: Anil Choudhary:

M/s Lucky Tobacco Company Pvt Ltd (LTCPL) and others have filed appeals against the impugned order confirming the demand of duty of Rs.6,57,50,888/- for alleged clandestine manufacture and clearance along with interest and equivalent amount of penalty on LTCPL. Shri R.B. Shukla and Shri Bharat Patel, both Directors of LTCPL are in appeal against Penalty of Rs. 50,00,000/- on each of them for alleged violations. Shri Mohammad Hassan Hashmi, Commercial Manager and T.K. Ghosh Technical Head, both employees of LTCPL are in appeal against penalty of Rs. 20,00,000/- on each of them for alleged abatement. Shri Murlidhar Ojha, Supervisor and Rizwan Khan Factory In charge, both employees of LTCPL are in appeal against penalty of Rs. 5,00,000/- for alleged abatement. All the appeals are taken together for disposal as impugned order is arising from a common investigation and notice.

2. Facts of the case are that on an intelligence that LTCPL were clandestinely manufacturing and clearing Midland, Super match, Jet Brands of cigarettes without payment of Central Excise duty by suppressing the production, its factory at Bhopal was searched.

3. LTCPL Bhopal Factory was searched on 14/05/2010. It is alleged that an altercation took place between the visiting officers and the employees of LTCPL. An FIR was filed by the Officers against LTCPL employees and the Central Excise Officer posted in factory for physical supervision. It was alleged that the mob including employees of LTCPL and others were instigated to attack and rob visiting officers. Charges were of the unlawful assembly, assaulting and obstructing public servant, rioting obstruction of public servants, voluntarily causing hurt, snatching of purse, mobile and documents etc. It was alleged that vital and incriminating documents were snatched during such altercations. Another similar incident of altercation took place during the simultaneous search at M/s Ayodhya Graphics, Printers of packing materials of cigarettes, where it was alleged and reported to police. However, in view of contradictory and inadequate evidences all the accused including the Central Excise Inspector posted in factory for physical supervision, were acquitted by Hon’ble Special Judge& 1St Additional Session Judge vide order dated 01/03/2017. In impugned order the concerned LTCPL employees and the proprietor of M/s Ayodhya Graphics have been penalized whereas the Inspector of Central Excise posted for physical supervision has been exonerated for want of evidences.

4. The Factory of LTCPL was again searched on 08/06/2010 under panchanama, on 18/06/2010 for stock taking and on 05/08/2010 for destruction of unused packing materials and for clearance of stock of raw material and finished goods. On the subsequent reconciliation of Records and Stock, it is alleged, there was a stock difference, calculated as on 8/6/2010 which involved a duty Rs. 367057/-. Appellant LTCPL contended that the difference is due to loose packets /quantities which were counted as Finished stock, as against finished quantities reflected in RG-1 Register. Notice on one hand refers to shortage of 52280 Sticks of Midland Filter Cigarettes and on other hand refers to excess stocks of 250400 Sticks of Midland Non Filter Cigarettes and 142610 Sticks of Jet brand Cigarettes. As seen from records, the reconciliation charts shown to Shri R. B. Shukla on 4/4/2014 have been disputed as erroneous to the extent that the Panchanama Dated 8/6/2010 mentions that loose Cigaretts on Machine Line and Tray are not included in Annexure-B. Whereas as per Annexure-B loose cigarettes kept in box & crates have been counted in stock as per Panchanama inventory Sr. No. 4, 5 & 6. It is also disputed as to why the Panchanama dated 8/6/2010 was drawn before security guards and not in presence of any authorized LTCPL representatives, who could have been called. It is also disputed as to why no action was initiated immediately against the quantities found in excess as alleged, and defective reconciliation is not tenable. It is also disputed by appellants that the Chart for ‘Midland Non Filter’ indicates panchanama stock as ( Annexure-B) on 8/6/2010 as 3,70,400 sticks and RG-1 Stock as 120000 ( 120 TU). Whereas the RG-1 copy available on records indicates the stock to be 120 TU (Thousand units) packed and 144 TU Loose (Total 264 TU or 264000 Cigarettes). In his statements Shri R. B. Shukla, Director LTCPL contended, proceedings on 8/6/2010 were conducted in absence of any authorized representative of LTCPL and stock taken includes loose cigarettes which did not reach RG-1 Stage. He also disclosed the names and details about raw material suppliers M/s Orion Tobacco Pvt Ltd., Bhopal for supply of Tobacco, PCT and TOR etc. and packaging material printers as M/s Ayodhya Graphics, Bhopal. He also stated to have appointed M/s Crown Trading and M/s Globus Trading as Sole Selling Agents to whom cigarettes were sold from factory on payment of duty. M/s Ayodhya Graphics has been alleged to have supplied printed packaging material under Kuchha Slips. He also gave details of the purchase of rights to manufacture Midland, Jet and Super match brands, from Brand owners.

5. INVESTIGATIONS OF RAILWAY RECEIPTS OF PVC BUNDLES, PP, PACKING MATERIALS: As per revenue, the copies of Railway Receipts were resumed from Bhopal and Jaipur Railway stations containing description of contents as PVC Bags, Packaging Material, Filter Paper, Advertisement Materials, etc. transported by rail from Bhopal. It is alleged that clandestinely manufactured cigarettes were transported under such railway receipts allegedly disguised under above description. Subsequent searches and investigations were conducted with Railway Parcel Agents, their principals as consignee and the Customers to whom cigarettes were sold by such consignees.

6. JAIPUR-INVESTIGATIONS FOR 77 RRs (BHOPAL- JAIPUR) RECEIVED FROM JAIPUR RAILWAY AUTHORITIES AND 29 RRs (BHOPAL–JAIPUR) RECEIVED FROM BHOPAL RAILWAY: Investigations were made in respect of 77 RRs received from Jaipur Railway and 29 RRs from Bhopal Railway, allegedly pertaining to transportation of clandestinely manufactured Cigarettes under disguise as PP, PVC Bags, Packaging Material, Filter Paper, Advertisement Materials etc. Out of the 77 RRs received from Jaipur railway 14 RRs were discarded for investigation purposes, as same pertained to a period before commencement of factory of LTCPL.

7. During the investigations of balance 63 nos of RRs at Jaipur, pocket size expense diaries (spiral Notebooks) of Parcel Agents were resumed during investigations. Such pocket diaries referring to amount of expenses of such parcel agents contain encrypted letters such as “J” and “M” allegedly for the Jet and Midland Brands of cigarettes of LTCPL, allegedly handled against the expenses entered on the day of the entry in such spiral pocket diaries. As stated by such parcel agents, such consignments though described in RRs’ as for PP, PVC Bags, Packaging Material, Filter Paper, Advertisement Materials etc., contained non-duty paid Cigarettes of LTCPL on which no duty was paid.

8. The actual recipient of such goods, Shri Trilokchand @ Tulsi Makhija of Vishnu Agencies, Jaipur, in his statements recorded under Section 14, stated to have been in contact with Shri RB Shukla, Director LTCPL, to whom he stated to have paid cash for the cigarettes received through railways. Another consignee dealer, Shri Suresh Chandra Tibra of Jaipur, stated in his statement to have received such cigarettes with bills and without bills as well from M/s Swastik Marketing, M/s Crown Trading and M/s Globus Trading, but denied to have any contact with anyone of LTCPL. He retracted his statement dated 22/7/2010. In his later statements he stated to have received Cigarettes from LTCPL and paid cash to persons authorized by Shri R. B. Shukla. Other investigations involve statements of distributors of Pan Masala, Bidi etc. who stated to have purchased cigarettes in cash from recipients of railway consignments.

9. A market Stock of around 18,500 Cigarettes was also seized in Jaipur during investigations for which separate proceedings have been initiated and same is not subject of present appeal. However it is observed that seized quantity is small as compared to the quantity declared as manufactured and cleared for payment of duties, and seized quantities are disputed as part of the quantities cleared on payment of duty. The proceedings initiated against such seizures are undertaken separately and therefore same are not part of present matters and not dealt herein.

10. RR-INVESTIGATIONS AT COIMBATORE: Similar railway receipts for despatches from Bhopal to Coimbatore by rail were investigated at Coimbatore. After seeing the shown RRs, Shri CSM Altaf , Railway Parcel Agent, in his statement recorded under Section 14 of the Central Excise Act 1944, stated interaila to be handling consignments of cigarettes, gutkha , Rubber, Spares, Motor Pumps etc. and also deposed that he has taken deliveries of railway consignments of shown RRs which mentioned goods as poly bundles, filter paper etc. but actually contained non duty paid cigarettes of “Midland” “jet”, “Super match” brands manufactured by LTCPL and such railway RRs were not accompanied by Central Excise Invoices as same were non duty paid; that details of such consignments are recorded in his the note book “ABC Deluxe book” resumed from his residence on 26/3/2011. He stated to have delivered the goods to one Mangalram Raj Purohit of Coimbatore. Shri Mangal Ram Rajpurohit of M/s Samuda Trading, Coimbatore, in his statement recorded under Section 14 of the Act, deposed to be dealing in Pan Masala, Khaini and Cigarettes and stated to be the recipient of alleged consignments covered under Bhopal to Coimbatore RRs . In his statement he stated to have received cigarettes in the consignments cleared by Railway Agent – CSM Altaf.

11. RR INVESTIGATIONS AT RAIPUR- 38 RRs received from Bhopal Railway were shown to one Shri Samay Singh Janghel, Railway Parcel Agent, Raipur, who in his statement recorded under Section 14 stated that he has not kept any records for one to one co-relation, but he vividly remembers to have cleared cigarettes of LTCPL under RRs having Description of Filter Papers, Yeast, Packing Materials, Advertising Materials etc. In his submissions before the Adjudicating Authority he denied to have dealt in cigarettes of LTCPL.

12. In his statements recorded under Section 14 of the Central Excise Act 1944, Director of LTCPL Shri R. B. Shukla, a co-appellant in this appeal, stated to have obtained brand rights of cigarettes to be manufactured, and the lease of the land for factory was stated to have been obtained from Shri Ajhar Sayeed. He stated to have purchased raw materials such as Cut Tobacco, Filter, PCT, and TOR from M/s Orion Tobacco Pvt Ltd., Mandideep, Bhopal and the printed packaging materials from M/s Ayodhya Graphics, Bhopal. He stated that the manufactured cigarettes were sold to M/s Globus Trading and M/s Core Trading and he is unaware of the ultimate buyers of cigarettes sold by M/s Globus and M/s Core who were selling such cigarettes in MP, Rajasthan, and South India, etc. For Mohammad Hashmi, M. D. Ojha and Rijwan Khan, he stated that after their arrest they are not in contact. He stated he was not attending factory regularly due to his ill health and had appointed three managers. He later came to know about few instances of clearances without duty payment by such managers. In his statement dated 30/04/2014 he contested the reconciliation chart, that the same involves loose quantities and the panchnama proceedings on 8/6/2010 as drawn in absence of LTCPL authorized persons.

13. Shri Bharat Patel another Director of LTCPL and a co-appellant, in his statements recorded under Section 14 of the Central Excise Act 1944 stated to be a technical person, who attended setting up of the factory and supervision of production and he was not promoter of LTCPL.

14. In addition, statements of few persons in Bhopal were recorded, summary details of which follow. In his statement the proprietor of the Printer of Packaging Material for LTCPL M/s Ayodhya Graphics, Shri Niraj Bhargava stated to have been printing on the coated paper and board supplied by LTCPL in autos and returned after printing against the charges received in cash from Mr. Hashmi of LTCPL. In his statement Shri Juber Taj of M/s MBM Finance and Investment Pvt Ltd., Bhopal, stated to have assigned non-exclusive manufacturing and trading rights to LTCPL from December 2009 and there was no overlapping of periods of rights, given to others subsequently. In his statement dated 07/07/2012 Shri Mukesh Jacob of M/s Globus Trading Co., Bhopal confirmed to have been purchasing Midland, Jet, Supermatch Brand cigarettes and selling the same. He expressed ignorance about any transaction of Non duty paid cigarettes. He further stated that his Manager Ritesh Herald, who has left the job who might have dealt with LTCPL for duty not paid cigarettes. Shri Khursheed Alam brand owner of “Jet’ Brand stated to have licensed LTCPL for Jet, Ronson and supermatch Brands.

15. Admittedly, Shri Ajhar Sayeed the landowner of factory land and Cigarette making machines, did not join investigations and summons issued were returned undelivered.

16. DUTY QAUNTIFICATION: As is seen from records, the demand of duty in respect of alleged stock differences in Bhopal Factory the demand has been confirmed for excess and shortage of stock as well, as indicated in the reconciliation charts. For the quantities alleged to have been clandestinely manufactured in factory of LTCPL and transported by rail, the demanded duty has been quantified by considering each Bag/ package/ bundle mentioned under an RR to be containing 2 cartons, each carton containing 48 Outers of 25 Packs of 10 cigarettes each. The summery tabulated below indicates the total quantification of demanded duty involved in Railway Receipts and that involved in alleged factory stock difference –

AnnexureDuty (INR)LOCATION OF INVESTIGATIONSBasis of Demand
A22188301Jaipur77 RR Received from Jaipur Railway ( 14 discarded being prior to factory existence) Demand on 63 RR x Bags x assumed qty
B367057Bhopal FactoryAlleged Stock difference on 05/8/2010 w.r.t. stock on 8/6/2010
C10265895Jaipur29 RR Received from Bhopal Railway ( other then 77 of Jaipur) . Not shown to Agents
D20793648Coimbatore52 RR received from Bhopal Railway Shown to CSM Altaf. Stated cigarettes come from North India.
E12135987Raipur38 RRs shown to railway agent Samay Lal Janghel. No further investigation.
 65750888TOTAL ( INR) 

17. Against the demand confirmed on the alleged stock variations in Bhopal Factory and imposition of penalties on Directors and Employees of LTCPL, Advocate Anil Mishra appearing for the appellants, contended that the reconciliation Charts exhibited to Shri R. B. Shukla (Director) on 4/4/2014 are erroneous to the extent that the Panchnama Dated 8/6/2010 mentions, that loose Cigarettes on Machine Line and Tray are not included in Annexure-B. Whereas in Annexure-B at Serial Number 4, 5, and 6, loose cigarettes kept in box & crates have been counted in stock and it is unclear as to why the stock panchnama dated 8/6/2010 was drawn before the security guards and why authorized officials of LTCPL were not asked to be present. He also contends that it was imperative for the visiting officers to act against any shortage or excess quantities on spot, and failing which, no liability can be impinged upon LTCPL through some reconciliatory calculations done after four years of the stock verification. He also pointed to the vague manner of reconciliation indicating that the reconciliation chart for Midland Non Filter indicates in panchnama Annexure B as 3,70,400 sticks and RG-1 Stock as 120000 (120 Thousand Units or 120 TUs) whereas the daily production records RG-1 indicates the stock to be 120 TU (Thousand units) packed and 144 TU Loose (Total 264 TU of 264000 Cigarettes). He contends that the Difference of 106400 between panchnama stock of 370400 and RG-1 Stock of 264000, calculated as 106400 Cigarettes includes loose cigarettes available in factory but not recorded in RG-1 Register as RG-1 Stage was not reached. That the Director of LTCPL Shri R.B. Shukla has contended during and after statements dated 4/4/2014 , recorded after 4 years of the search/inspection, that proceedings on 8/6/2010 were conducted in absence of any authorized representative of LTCPL and stock taken includes loose cigarettes which did not reach RG-1 Stage. Vide the impugned order the demand on entire quatities, including excesses and shortages, was confirmed. He further contended that a vague statement of Shri Shukla recorded in 2014 regarding unspecified removals of factory stock, after initiation of investigations without payment of duties, can not be made a sole basis of demand of duty, payable on excisable goods. It needs to be established to have manufactured alleged quantity out of raw materials, procurement and consumption of which is also needed to be established and that no further investigations have been made for corroboration of such vague and unspecified statement.

18. For the demands made on the basis of RR based calculations , private records, and third party statements, alleging that such quantities of cigarettes were manufactured by LTCPL and transported through railway, the appellant’s counsel contended that the same is derived under presumptions and assumption of quantities per RR basis ; that there is no evidence of nexus of LTCPL factory with such RRs and other evidences in the matters are in nature of encrypted private records and statements of third parties, and are insufficient to allege clandestine manufacture and removal, especially when the factory was operating under the ‘physical supervision’ of the department.

19. Learned counsel contended that no investigations have been made with any of the Bhopal Railway Authority or railway agent or person booking the parcels, who booked the consignments at Bhopal Railway, how the goods were transported from Mandideep Industrial Area to Bhopal Railway Station, and how the RRs with description of goods as poly bundles, PP, packaging materials were related with registered manufacturing unit of M/s LTCPL, operating under departmental supervision. He contended that there are no evidences for even the probability of such transportation from LTCPL factory to Bhopal Railway station. As without the transportation of the goods, it could not be held that there was any clandestine removal of the finished goods, especially when all the other evidences were seized from the third party and not from the premises of M/s. LTCPL. He contended that none of the third party records or seized private documents contains any preliminary evidence of transportation or sale of Cigarettes by LTCPL. When even Railway Parcel Agents have categorically stated to be dealing in numerous goods such as Rubber, Pumps, Gutkha etc., sorting of the expenses entries in such private records without having any reference to Railway Receipts of package description as Poly Bundles, PP Material, Packaging Materials etc., allegations and assumptions that such packages were containing cigarettes is without basis and can not sustain. He relied upon:

(i) COMMISSIONER-OF-CENTRAL-EXCISE-DELHI-II-Versus-BALAJEE-PERFUMES” COMMISSIONER OF CENTRAL EXCISE DELHI-II Versus BALAJEE PERFUMES – 2017 (4) TMI 1288 – DELHI HIGH COURT

(ii) MAHAVIR METALS INDUSTRIES Versus COMMR. OF C. EX. & CUS., DAMAN, VAPI – 2012 (2) TMI 469 – CESTAT AHMEDABAD

(iii) M/s Vishwa Traders Pvt. Ltd., & Others Versus CCE Vadodara – 2011 (10) TMI 94 – CESTAT, AHMEDABAD = 2011-TIOL-1890-CESTAT-AHM

(iv) POLYFILL SACKS Versus COMMISSIONER OF C. EX. & CUS., VADODARA-I – 2009 (5) TMI 666 – CESTAT, AHMEDABAD

(v) KOTHARI POUCHES LTD. Versus COMMISSIONER OF C. EX., NEW DELHI – 2000 (9) TMI 177 – CEGAT, NEW DELHI

19. Ld. Counsel further contended that none of the third party records or seized private documents contains any primary evidence of transportation or sale of Cigarettes by LTCPL. When even Railway Parcel Agents have categorically stated to be dealing in numerous goods and sorting and selecting the expenses entries in such private records, without having any reference to Railway Receipts or package description as Poly Bundles, PP Material, Packaging Materials, etc. allegations on assumptions that packages were containing cigarettes in such package, can not sustain.

20. He further contended that there is lack of cogent evidences to indicate any probability of manufacture of alleged huge quantities, as there are no evidences of purchase, transportation and consumption of huge quantities of raw materials required to produce such alleged quantities, as presumptively calculated for each RR. He contended that revenue has not undertaken any investigation to establish procurement of huge quantities of other raw materials required for manufacture of quantity of final products, which were alleged to have been manufactured and cleared clandestinely. He has further submitted that Central Excise Duty is on manufacture, which cannot take place without consumption of raw material such as tobacco, filters, etc. which are to be purchased, transported, stocked and consumed in the factory of manufacture. In absence of any evidence to establish procurement, transportation, storage or consumption of raw materials, manufacture of alleged quantity of final products is not established. Thus the demand of duty on such quantity of final product which were not proved to have come into existence through manufacture, is not sustainable. He has relied on ruling of Hon’ble Allahabad High Court in the case of M/s Continental Cement Company Vs Union of India reported at 2014 (309) ELT 411 (All) = 2014-TIOL-1527-HC-ALL-CX and contended that unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. He also placed reliance upon:

(i) Oudh Sugar Mills Ltd v Union of India, 1978 (2) ELT (J172) (SC) = 2002-TIOL-307-SC-CX-CB

(ii) FLEVEL INTERNATIONAL VERSUS COMMISSIONER OF CENTRAL EXCISE- 2016 (332) E.L.T. 416 (Del.) =2015-TIOL-2230-HC-DEL-CX

(iii) Arya Fibres Pvt. Ltd. v. CCE, Ahmedabad-II 2014 (311) ELT 529 (Tri.-Ahmd.) = 2014-TIOL-15-CESTAT-AHM

(iv) KUBER TOBACCO PRODUCTS LTD. VERSUS COMMISSIONER OF C. EX., DELHI 2013 (290) E.L.T. 545 (Tri. – Del.) confirmed by Apex Court 2015 (317) E.L.T. A159 (SC)

(v) T.G.L Poshak Corp. v CCE, 2002 (140) ELT 187

21. He further contended that the only basis of the demand is the alleged number of bundles contained in RRs, multiplied with assumed quantities. Even if the figures of bundles in the few seized documents tally, that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained by this Tribunal in a catena of decisions. The documents in question (RUD’s) have not been resumed from LTCPL premises.

22. He also contended that in notice itself there is an averment that out of 77 RRs of PP, Packaging Material, Poly Bundles, as received from Jaipur Railway, 14 RRs were discarded as same pertained to the dates prior to the commencement of operations of the LTCPL factory. He contended that this itself indicates to the arbitrary and unsubstantiated nature of the evidences. There is no cogent evidence of manufacture, sale purchase or even secondary evidences such as statement of railway authorities or booking agents at consignors end.

23. For the private records of railway parcel agents, he contended that in cases like the present, where the demand is based on alleged clandestine production, clearance and sale of excisable goods, mere entries in notebooks or diaries cannot establish the same. Proof of actual production, whether by direct evidence or corroborative evidence is a ‘must’, and the probative value of such evidence has to be established, especially when such a finding would lead to civil/penal consequences. He relied upon the decision of this Tribunal inASWANI & CO. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-I2015 (327) E.L.T. 81 (Tri. – Del.) along with following decisions:

(i) PHIL ISPAT PRIVATE LIMITED and others Vs C.C.E. & S.T. -RAIPUR reported 2018 (11) TMI 912 – CESTAT NEW DELHI.

(ii) CCE, Delhi-1 Vs. Vishnu & Co. Pvt. Ltd. – 2016 (332) ELT 793 (Del.) = 2015-TIOL-279 2 -HC-DEL-CX

(iii) Commissioner Vs. Motobhai Iron and Steel Industries – 2015 (316) ELT 374 (Guj) = 2014-TIOL-1617-HC-AHM-CX.

(iv) CCE Vs. Brims Products – 2011 (271) ELT 184 (Pat).

(v) Indo Green Textile Pvt. Ltd. Vs. CCE, Thane, Mumbai – 2007 (212) ELT 343 (Tri–Mum).

(vi) Kothari Pouches Ltd. Vs. CCE, New Delhi – 2001 (135) ELT 531 (Tri. – Del).

(vii) Rama Shyama Papers Ltd Vs. CCE, Lucknow – 2004 (168) ELT 494 (Tri. – Del).

(viii) Shree SidhbaliIspat Ltd Vs. CCE, Nagpur – 2017 (357) ELT 724 (Tri. – Mumbai).

24. Learned Advocate further contended that LTCPL was working under physical supervision of the department and it was not possible for the appellants to clear the cigarettes without payment of duty. The appellants refer and rely upon 2018 (7) TMI 1207 – CESTAT ALLAHABAD, M/S MUSK TOBACCO (INDIA) PVT. LTD. & Others VERSUS COMMISSIONER OF CENTRAL EXCISE, LUCKNOW.

25. Though the ld. DR for the Revenue did not challenge the decisions cited, he vehemently contended that such cases have to be decided on the principle of preponderance of probability. It was not necessary for the revenue, or possible, to establish the cases of clandestine manufacture and clearance with mathematical precision as has been observed by the Hon’ble Supreme Court in CC v D. Bhoormull, 1983 (13) ELT 1546 =2002-TIOL-253-SC-CUS . He also referred to the statement of Shri R. B. Shukla (Director), regarding the incidents of removals by his factory staff.

26. After summarizing the facts as stated by the Adjudicating authority, by way of what has been stated in the Show Cause Notice, the ld. AR submitted that, except for saying that investigations did not touch on purchase of raw materials and payments therefor, LTCPL did not come forward with any satisfactory explanation in respect of the facts stated in the Show Cause Notice, and the statements referred to therein and the categorical statement of Shri R. B. Shukla. In this view of the matter, he submits that the present demand has been confirmed by the Adjudicating Authority for valid reasons and cannot be faulted.

27. Having considering rival contentions, we record our findings as follows.

28. As regard to the alleged factory stock difference and its removal, we note that on 08/06/2010,the factory was visited by a team of as many as 12 officers, who also resumed a reconciliation register on same day, under the same panchnama, prepared in presence of security guards of LTCPL. We further note there are no adverse remarks regarding stocks contained in the said panchnama and the allegations of shortages and excess have arisen vide reconciliation chart as late as on 04/04/2014, when Shri RB Shukla, Director LTCPL was asked to explain the differences shown, upon comparison of panchnama stock inventory with RG-1 register. In absence of any action on shortage / excess stock and in absence of any adverse observation or action by visiting team, it is difficult to understand as to how revenue could score a point seeking an explanation on 4/4/2014 and for which LTCPL representatives could have been called on 08/06/2010 itself. Furthermore authenticity of the reconciliation is doubtful where there are contentions that loose goods (unfinished) were counted as finished goods in absence of LTCPL representatives and comparision of same with RG-1 Register (of finished goods) is untenable. We note that there is a mention in Panchnama dated 8/6/2010, about the paper seal dated 7/6/2010, signed by an officer (of Deptt), and pasted on the main gate, indicating that the factory was still under physical supervision. We find that on 8/6/2010 also, same officer is a part of the visiting team. In view of this we understand that allegations of unaccounted removals from factory, sealed and operating under departmental supervision cannot stand and an uncorroborated and vague statement of Shri R. B. Shukla does not come to help of revenue in this regard. We therefore hold that duty referred in Annexure –B to notice, cannot be demanded or confirmed in view of above noted facts.

29. As regard the demand of duty on the basis of Railway Receipts, it is necessary to examine the corroborative evidences from the stage of purchase and consumption of raw materials to manufacture of excisable goods, its transportation to consignee end, of railway booking, Statement of persons who booked the consignments and statement of railway authorities regarding their knowledge of the nature of consignments. We find that except for an allegation on the printer of packing materials for clandestine printing of packing material, there are no evidences for manufacture of huge quantities of Cigarettes, referred to and calculated on per RR Basis, indicated to be 231,60,000 Nos. in Annexure A, 113,52,000 Nos. in Annexure C, 226,32,000 nos in Annexure D, 132,48,000 Nos in Annexure E. Thus a total of 703,92,000 Cigarettes alleged to have been manufactured and cleared by LTCPL under such RRs. We find that though there are no quantification of raw materials required to manufacture such quantities, a sizable quantity of Cut Tobacco Cigarette Papers, PCT, Filter Rod, Aluminum Foil, BOPP Film, TOR, Shell, Slide, Gray wrapper, CFC, Masking Tape, Fevicol, etc would be required to be purchased and consumed.

30. We find that the Revenue’s allegations and findings are mainly based upon the statements recorded during the course of investigation, some of which are inculpatory, some neutral and some stand retracted. We note that most of the statements recorded by the department from the various persons are to the effect that, it was LTCPL who were getting their goods booked under the name of fictitious consignors along with a fictitious name of the consignee. Similarly, the investigations made from the Railway Agents led the Revenue to arrive at a finding of booking of the consignments by LTCPL under the fictitious names. It is well settled law that though the statements carry good persuasive value, but such untested statements of third parties cannot be made stand-alone basis for arriving at an adverse conclusion against the assessee. Though an admission or a statement is extremely important piece of evidence but the same has to bear the test of veracity through the tool of cross-examination and also the corroboration. Reference in this regard can be made to the Hon’ble Supreme Court ruling in the case of the Pullangoda Rubber Produce Company Ltd. v. State of Kerala, 1972 (4) SCC 683. Such statements are required to be corroborated by independent evidences. As such denial of the cross examination by the Commissioner, is in contravention of the provisions of Section 9(D), is not on sound principles and even otherwise the said statements are shaky and weak evidences for the purposes of placing stand alone reliance.

31. The part of the demand which pertains to evidences collected at Jaipur and duty demand is mainly based on Railway Receipts and expenses diaries seized from the premises of Railway Parcel Agents. Other than these documents, the evidence is the statement of Shyam Sunder Chaudhary, Suresh Tibra’s and Tulsi Makhija’s in Jaipur and Statement of Shri CSM Altaf, Agent and Shri Mangalram Raj Purohit, Dealer in Coimbatore. In Raipur there is no document seized and only a statement of the railway agent is recorded by showing him the railway Receipts procured from Bhopal Railway. The documents seized at Jaipur and Coimbatore are admittedly the pocket note books maintained by Railway Parcel Agents of Jaipur and Coimbatore for recording their expenses. We note that in the said entries made by such Railway Agents, there is nothing to establish that such entries pertains to clandestine transactions in cigarettes. Such records do not even refer to the quantity of cigarettes. Such agents are handling multiple commodities and it is also difficult to ascertain that all the entries are relevant to the alleged transactions, nor is there any other evidence except the statements. For demand purposes quantification of cigarettes have been done on the basis of presumptive calculations. Except for these entries, there is no substantial material to show that such a huge quantity of Cigarettes has been transported. There is no evidence of transportation of Cigarettes from LTCPL Factory to Bhopal Station. Undoubtedly, huge quantities of raw material would be required for manufacturing such a huge quantity of cigarettes. No evidence has been brought either in the notice or in the Adjudication Order to show that raw materials have been purchased for manufacture of such a huge quantity of Cigarettes. There is no proof of any extra payment being made by LTCPL to raw material supplier, Orion Tobacco, Bhopal. In fact no investigations have been made with M/s Orion. In the absence of these evidences, it would be impossible to conclude that LTCPL had manufactured and/or cleared such huge quantities. Railway Parcel Agents statement, could not be given much credence for the reasons firstly that their notes books were for carting and handling expenses only, secondly such agents were not exclusively dealing in alleged consignments, but were also handling parcels of other commodities also. Further, the recipient dealers were also dealing in other goods also like Pan Masala, Gutkha,and Bidi etc. It would be difficult to conclude any one to one correlation and there are chances of alleged entries being mixed with entries of some other goods also. When the Directors of LTCPL were shown the records/ statements, they refuted such statements. Presumption of truth cannot be drawn against LTCPL from these documents or from the statements. No presumption could therefore be drawn against LTCPL. There has to be independent corroboration of the facts alleged in the Show Cause Notice, apart from documents.

32. Admittedly none of the documents was recovered from the premises of LTCPL. It is also not the case of the Revenue that parcel agents maintained these Note Books under the instructions of LTCPL. Further, these Note Books were not in the handwriting of any of the persons of LTCPL or its accountant or clerk or any employee. Thus the document upon which the Show Cause Notice has placed strong reliance has no probative value. Merely because the document have been produced during investigation, it does not establish its probative value. The Hon’ble Supreme Court in the case of Bareilly Electricity Supply v Workmen, 1971 (2) SCC 617 has held that mere production of document does not amount to proof. Further, in the case of Life Insurance Corporation of India & Anr v Rampal Singh Besin (2010) 4 SCC 491, the Hon’ble Supreme Court has held that ‘mere admission of a document in evidence does not amount to its proof’. Para 25 of the said decision reads thus:

“We are of the firm opinion that mere admission of a document in evidence does not amount to its proof. In other words, mere marking of exhibit on a document(s) does not dispense with its proof, which is required to be done in accordance with law.”

33. No primary evidence has been produced by the Revenue to show that LTCPL has effected sale of such huge quantities of Cigarettes. There is no tangible evidence of LTCPL having actually produced alleged quantities of cigarettes out of non-duty paid or unaccounted raw materials. No transporter’s documents have been seized or produced by the Department to show transport of cigarettes from factory to Bhopal Station, and thus the nexus of the RRs and LTCPL Factory is apparently absent.

34. The only basis of the demand is the number of bundles contained in RRs multiplied with assumed quantities. Even if the figures of bundles in the few seized documents tally, that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained in following paragraphs. The documents in question have not been resumed from LTCPLS premises.

35. In cases like the present, where the demand is based on alleged clandestine production, clearance and sale of excisable goods, mere entries in notebooks or diaries cannot establish the same. Proof of actual production, whether by direct evidence or corroborative evidence is a ‘must’, and the probative value of such evidence has to be established, especially when such a finding would lead to penal consequences.

36. In our view, therefore, the present demand, which has been confirmed by the impugned order, is not based on evidence, which, as this Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance, would justify a finding against the appellant (LTCPL). Inferential or conjectural conclusions cannot be arrived at in such cases, as has been done in the present demand, merely based on Railway Receipts and vague records. Unless there is conclusive evidence that LTCPL did actually manufacture such cigarettes and clandestinely cleared them without payment of duty, liability cannot be fastened on LTCPL on the basis of conjectures and surmises, as the Hon’ble Supreme Court emphatically held in In Oudh Sugar Mills Ltd v Union of India, 1978 (2) ELT (J172) (SC) = 2002-TIOL-307-SC-CX-CB .

37. We note that a detailed examination of a catena of various decisions has been done by the Tribunal in M/S ARYA FIBRES PVT. LTD., M/S NOVA PETROCHEMICALS LTD. AND OTHERS VERSUS CCE AHMEDABAD-II 2014 (311) ELT 529 (Tri.-Ahmd.) = 2014-TIOL-15-CESTAT-AHM that –

(i) In Oudh Sugar Mills Ltd v Union of India, 1978 (2) ELT (J172) (SC) = 2002-TIOL-307-SC-CX-CB , the Hon’ble Supreme Court, after discussing the facts before them, held that the finding that the alleged quantity of Sugar had not been accounted for has been arrived at without any tangible evidence and was based only on inferences involving unwarranted assumptions and is vitiated by an error of law. The orders of the lower authorities were quashed.

(ii) In Deena Paints v CCE: 2001 (43) RLT 805, raw materials and finished products were found lying in the factory in excess of what was entered in the statutory records, at the time of search of the factory. The foreman of the factory deposed that he had been working in the factory for 26 years and was keeping daily account of production in his diary, which he had handed over to the officers. He was responsible for the manufacturing the finished product out of the raw material. The Manager of the factory, who had been working in the factory for 20 years and looking after the Central Excise work of the factory and the day-to-day production deposed that the Note Book recovered from the Foreman contained details of production, which were genuine and correct. It was argued by the appellants in that case that the department has not brought on record any evidence that the appellants had procured additional raw material and manufactured the goods. It was, also argued by the appellants that the department has not brought on record any evidence about clandestine removal of the goods without payment of duty. It was also submitted that there was no evidence placed on record to show that appellants received any amount of sale proceeds of the goods. It was therefore, contended by the appellants that duty was not demandable in the absence of any proof or records. It was submitted that clandestine manufacture and clandestine removal of the goods without payment of duty should have been proved properly, which was not done. It was further contended that the figures recorded in the diary maintained by the Foreman were not corroborated by any other evidence. Several decisions of this Tribunal were cited in support of the contentions of the appellant [CCE, Meerut v Moon Beverages Ltd., 2002 (150) ELT 976, Kabra Enterprises & others v CCE, 1999 (109) ELT 571, Kothari Products Ltd and others v CCE, Kanpur, 2003 (159) ELT 1187, CCE v Raman Ispat, 2000 (121) ELT 46]. This Tribunal cited and followed the earlier decision in the Moon Beverages Ltd case (supra) to the following effect:

It is well settled that the charge of clandestine removal cannot be established on the basis of one single factor which in this case, is the figures of sales reflected in the computerized sheets recovered by the Department from M/s. PEL. Without obtaining evidence such as evidence of other inputs required for manufacture of finished product namely Sugar, Carbon-di-Oxide being purchased and utilized in the manufacture of the final product during the period in dispute is required. There is no such evidence in the present case. There is also no evidence regarding higher electricity consumption. There is also no evidence of receipt of extra sale of goods clandestinely manufactured or removed.

(iii) In Brims Products v CCE: 2001 (130) ELT 719, this Tribunal was considering a case where four bags of Pan Masala containing 30 Kgs each were seized for non-accountal of the same in the RG-I Register. Some loose sheets of papers were found in the dustbin, containing entries of transactions relating to pan masala. The quantity of alleged clandestine clearance was calculated based on transport company’s records. This Tribunal held that clandestine manufacture and surreptitious removal is required to be proved beyond doubt by the Revenue. There was evidence only of receipt of some raw materials but not of others. Such evidence, according to this Tribunal, may create a doubt in favor of the revenue but cannot take the place of legal evidence. The order was set aside.

(iv) In CCE v Laxmi Engg. Works, 2001 (134) ELT 811 (Tri-Delhi), during the search of factory premises, slips showing sale of different types of electric fans were recovered and seized. There was nothing on record to show if on physical verification of stock any excess raw material or finished goods were fund lying in the factory premises. In the absence of any corroborative evidence, merely on the basis of the slips allegedly recovered from the factory premises which did not even contain names of the customers or any other details regarding receipt of raw material or manufacture and clearance of electric fans by the Respondent, this Tribunal held that duty liability as demanded could not be fastened. In the reference application filed by the Commissioner against the said order of this Tribunal, the Hon’ble High Court of Punjab & Haryana held that even if some record recovered during the raid and was corroborated by some supportable evidence holding that there was admission of clandestine production and removal of goods, it is necessary to have some positive evidence of clandestine production and removal of goods. The question of law preferred whether in the light of the private record discovered during the raid, the Tribunal was right in holding that there was no positive evidence of clandestine production and removal of goods was answered against the revenue and in favor of the assessee.

(v) In T.G.L Poshak Corp. v CCE, 2002 (140) ELT 187, this Tribunal considered the issue as to whether the demands can be confirmed on the basis of recovery of exercise Note Books and certain balance sheets maintained by the assessee and in the absence of any corroborative evidence. In fact, in a tabulated form this Tribunal dealt with the judgments that were referred to, to support the plea that demands cannot be confirmed which contained the reason for this Tribunal coming to the conclusion that, in the absence of any corroborative evidence, of a tangible nature, clandestine removal cannot be established. This Tribunal relied on the tabulated list of citations furnished by the Counsel that unless there is clinching evidence on the nature of purchase of raw material, use of electricity, sale and mode of flow back of funds, demands cannot be confirmed solely on the basis of Note Books maintained by some workers.

(vi) In Hilton Tobacco v CCE, 2005 (178) ELT 378, certain private documents maintained in the factory were seized under which it appeared that the appellant had not accounted for raw material procured by him. This Tribunal held that a inference cannot be based on certain private documents only when there is no corroborative evidence recorded. Investigation had not found out at least a few buyers who had received the goods cleared clandestinely. There was no evidence of excessive consumption of electricity. When the unit was visited there was no unaccounted stock of raw material. Charges were based purely on theoretical working out based on private document that are not statutory. Relying upon the earlier decision of the Tribunal, it was decided that clandestine removal cannot be sustained. The source of procurement of raw material had not been established, buyers of finished goods had not been contacted and receipt of sale proceed had not been proved. There was, therefore, no corroborative evidence in support of the revenue’s case.

(vii) In Vishwa Traders Pvt. Ltd v CCE, 2012 (278) ELT 362 = 2011-TIOL-1890-CESTAT-AHM , the appellant had submitted that the Adjudicating Authority has passed the order on conjectures and surmises. It was submitted that documents recovered from the premises of the employees and third parties are not official records. Their cross examination had also been denied by the Adjudicating Authority. Serious charge of clandestine removal cannot be sustained on the basis of documents recovered from outside the premises of the assessee. It was submitted that despite large-scale investigation including visits to the premises of raw material suppliers, there was nothing brought on record to show that the appellant had purchased raw materials without recording the same in their books of accounts. The submission of the appellant was that demand cannot be upheld on clandestine removal on the basis of documents along with statements unless there is tangible, independent, corroborative proof like financial flow back, actual manufacture and clearance, excess purchase of raw material, electricity consumption, statement of workers, actual transportation of the goods, and statement of purchasers. It was contended on behalf of the revenue that the case was based on parallel invoices recovered from the residential premises of the factory manager and accountant. Lorry receipts indicated that there was no movement and even if there was any movement they were not clandestine clearances. The Managing Director of the company had even stated that they were making clandestine clearance of the finished products without recording the same in their books of account. The request for cross examination of some of the persons whose statements were relied upon was rejected by the Adjudicating Authority only on the ground that the assessee had not given any reason and justification for their cross examination. This Tribunal held that this approach of the Adjudicating Authority is inconsistent with the law of evidence. On a careful perusal of the entire records of the case, the Tribunal found that there was nothing on record as to unrecorded purchases or consumption of other various raw materials in the manufacture of finished products. There was no statement of suppliers of raw material, except in respect of one of the raw materials. His cross-examination has also been rejected. In the absence of any other tangible evidence to show that other major raw materials had been procured without recording the same in books of accounts, this Tribunal did not accept the contention of the revenue that finished goods had been clandestinely manufactured and cleared. After referring to several earlier decisions of the Tribunal on the subject, the Tribunal held that the charge of clandestine manufacture was not established. This decision was taken by the Commissioner of Central Excise in appeal before the Hon’ble High Court of Gujarat, which was dismissed by the Hon’ble High Court [2013 (287) ELT 243 (Guj.)] = 2012-TIOL-1087-HC-AHM-CX. The Hon’ble High Court quoted with approval paragraph Nos 12, 13 & 16 of the order of the Tribunal which were extracted, stating that from findings of the Tribunal, it is clear that the appellant had not made any clandestine manufacture which he had removed clandestinely and on which duty was payable.

(viii) In CCE v Dhariwal Industries Ltd, 2012 (283) ELT 113 2010-TIOL-1498-CESTAT-BANG, the department had alleged that the appellant had made clearance of Gutkha without cover of invoice and without payment of duty and the transit documents were brought back and sent along with subsequent consignments. Unaccounted quantities of packing material had been procured. It was contended on behalf of Revenue that the appellant had devised a clever modus operandi to clear the goods without payment of duty by multiple use of the same document which had been confirmed by the managers of the transport company who booked the consignments. Purchase of some raw materials had also been alleged. After going through the exhaustive evidence which was produced in that case, this Tribunal held that demand cannot be confirmed entirely on the basis of documents of the transporters. There should be independent corroborative evidence to support the finding of clandestine clearance. The Tribunal observed that for the quantity of finished goods allegedly removed clandestinely it would have required approx. 700 trips for transporting the same. No evidence had been adduced by the revenue to establish this. Procurement of essential raw material without accounting had also not been established. The Tribunal noticed that an identical issue of clandestine manufacture and clearance came up before a coordinate Bench of the Tribunal in the case of Durga Trading Company v CCE wherein the Tribunal held as under:

It is well settled that the charge of clandestine manufacture of the dutiable goods and removal thereof without discharging the duty liable by an assessee, cannot be established on assumptions and presumptions. Such a charge has to be based on concrete and tangible evidence. In this context, reference may be made to Oudh Sugar Mills Ltd. v. Union of India – 1978 (2) E.L.T. (J 172) (S.C.) = 2002-TIOL-307-SC-CX-CB , wherein the Apex Court has observed that demand of duty cannot be raised on the strength of assumptions and presumptions. There should be sufficient evidence of the removal of the goods alleged to have been manufactured and cleared without payment of duty. The charge of clandestine removal must be based on tangible evidence and not on inferences involving unwarranted assumptions.

33. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:

a. There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;

b. Evidence in support thereof should be of:

i. Raw materials, in excess of that contained as per the statutory records;

ii. Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;

iii. Discovery of such finished goods outside the factory;

iv. Instances of sale of such goods to identified parties;

v. Receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

vi. Use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;

vii. Statements of buyers with some details of illicit manufacture and clearance;

viii. Proof of actual transportation of goods, cleared without payment of duty;

ix. Links between the documents recovered during the search and activities being carried on in the factory of production; etc.

38. Needless to say, a precise enumeration of all situations in which one could hold with certainty that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case law on the subject in Centurian Laboratories v CCE, Vadodara, 2013 (293) ELT 689. The crux of the decision is that reliance on private records maintained by private persons for their own use cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements.

39. In yet another decision of a co-ordinate Bench of the Tribunal (Pan Parag India v CCE, 2013 (291) ELT 81), it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of alleged final products, the assessee requires matching quantity of the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by the Tribunal.

40. As for the arguments of Ld. DR on preponderance of probability, that it was not necessary for the revenue, nor possible, to establish the cases of clandestine manufacture and clearance with mathematical precision as has been observed by the Hon’ble Supreme Court in CC v D. Bhoormull, 1983 (13) ELT 1546 =2002-TIOL-253-SC-CUS and the probability in the matter is established. In our view, this submission may be of help only in cases where, in the matter of clandestine manufacture and clearance, there is some tangible and corroborative evidence of such manufacture and clearance by LTCPL. This Tribunal has laid down several criteria that could go to establish the cases of clandestine manufacture and clearance. Where such ingredients exist, a contention that a case need not be proved with mathematical precision may become relevant. The decision in D. Bhoormull would not, therefore, be of help to the revenue in cases where there is no evidence at all satisfying the tests laid down by this Tribunal in the long line of cases referred to earlier.

41. It is further seen that the learned Adjudicating Authority has dropped proposed penalties on the controlling officer-Inspector Ram Swaroop Harlal, citing absence of evidences. We are of the view that indicated absence of evidence , as it applies for departmental officer, also applies in matters of the appellant company and individuals in the same matters.

42. We also note that in absence of any linkage of the factory of appellants, with the alleged Railway Receipts or third party private records or with third party statements, there are no grounds to presume any manufacture and clandestine removal of such huge quantities of cigarettes, especially when appellants operated under physical control of the department. The impugned order is liable to be set-aside on this ground alone.

43. We further find that the demanded duty has been quantified by considering each Bag/ package/ bundle mentioned under an RR to be containing 2 cartons, each carton containing 48 Outers of 25 Packs of 10 cigarettes each. The duty which is levied on the concept of manufacture cannot be demanded on any presumptions and assumptions. It is on record that certain RRs, otherwise similar, were discarded as the same pertained to a period prior to commencement of production in LTCPL. This indicates to a vague criteria adopted for selection of evidences on the basis of which whole case is constructed.

44. Entire demand of Rs. 6,57,50,888/- has been confirmed by the Adjudicating Authority imposing equal penalty on LTCPL and Penalties on other appellants on the basis of unconnected and unspecific Railway receipts , third party statements, encrypted expense records of railway agents and few other documents seized from third parties. The seized pocket diaries containing records of expenses cannot be the sole basis for demanding duty. Reliance has been placed on inculpatory statements of Suresh Kumar Tibra and Samay Singh Janghel who retracted their versions during the proceedings. In their reply LTCPL has interaila, requested for cross-examination of witnesses which was rejected and reliance was placed upon such unverified statements. Heavy reliance has been placed on the statements dated 4/4/2014 of Shri R. B. Shukla regarding his references to certain unspecific instances brought to his knowledge regarding removal of cigarettes by employees. There is no reference to any specific date or timings, quantities, manner of clearances etc. There is no subsequent corroboration about the transactions, persons involved or the duty involved. The department has heavily relied on the statement of Shri Tulsi Makhija of Jaipur, who stated that he was making payments to the persons of Shri R. B. Shukla with regard to sale and purchase of the impugned goods. However there is no name, address or whereabouts of the person who was receiving such payments. Therefore, the statement of Shri Makhija cannot be relied upon for any purposes. Statement of Shri Tulsi Makhija and railway agents making bald claims cannot be relied upon in the absence of any corroborative evidence by independent evidences. This case has been made on the basis of diaries seized from the premises of co-noticees and their oral evidence but no corroborative evidence was brought on record to prove clandestine removal of goods. While going through the extracts of the diary recovered from the railway parcel agents, it can be seen that such diaries are not containing the name of LTCPL or any of its employee. There is no co-relation of the entries made in the diary with the RRs and allegedly manufactured quantities of Cigarettes. The RRs received from railways (LTCPL is not the consignor) was made the main basis to demand duty. The contents of consignments mentioned in RRs are PVC Bundles, Packaging Material, etc. It is alleged to be incorrect but the actual contents of the said parcel were not proved to be cigarettes through any direct evidence of seizure of parcels. Therefore, the Railway receipts cannot be the basis to make the case of clandestine removal of goods. Therefore, the said evidence is not admissible.

45. We note from the records that before and even after the commencement of investigations, LTCPL was working under physical supervision of the department and it was not possible for the appellants to clear the cigarettes without payment of duty. A reference in this matter may be made to 2018 (7) TMI 1207 – (CESTAT ALLAHABAD) M/S MUSK TOBACCO (INDIA) PVT. LTD., & OTHERS VERSUS COMMISSIONER OF CENTRAL EXCISE, LUCKNOW, and also on 2018 (11) TMI 289 – (CESTAT ALLAHABAD), M/S PELICAN TOBACCO (INDIA) PVT. LTD.,& OTHERS VERSUS COMMISSIONER OF CUSTOMS, C.E. & S.T., AGRA = 2019-TIOL-43-CESTAT-ALL holding that

10. Having considered the rival contentions and on perusal of record we find that though the Original Authority has not accepted that the unit was under physical control however the provisions of Rule 6 of Central Excise Rules, 2002 and Para 2.2 of Chapter IV of CBEC’s instructions and cross examination of the officers who were posted in the factory and acceptance of the fact by Commissioner that manufacture used to take place only after de-sealing of the machines till such machines were re-sealed, we are satisfied and convinced that the unit was under physical control. Further during recording of his finding at Para 35 of the Order-in-Original the Original Authority has referred the contents at Para 2.2 of Chapter IV of CBEC’s supplementary instructions stating that the checks exercised by the officers are as per the instructions contained in commodity manual for cigarette. He has not referred to cigarette manual to know the details about various supervisions the officers posted in the manufacturing unit of cigarette factory are supposed to undertake and without examining such detailed instructions Original Authority has come to the conclusion that unit was not under physical control. We do not find such finding of the Original Authority to be sustainable. From the facts on records we have come to a conclusion that the unit was throughout under the physical control of Central Excise Officers who were posted in the factory of the appellant and they were supervising the manufacture and clearance of the goods and as provided under Rule 6 of Central Excise Rules, 2002, the Central Excise Officers were assessing duty payable before removal of the goods. We also note that the investigation did not establish as to from where the raw material such as tobacco was obtained and to whom the goods were cleared and how the money was recovered out of alleged clandestine clearance of such goods. We note that the Central Excise Duty is on manufacture and the clandestine manufacture of cigarette was not possible in view of the presence of Central Excise Officers within the factory. We, therefore, hold that there are no grounds to establish that the quantity of cigarettes were manufactured by appellant on which demand of about Rs 39 crores was raised.

46. Regarding the alleged confession of Co- Appellant Shri R. B. Shukla, dated 04/04/2014, we note that the statement is general in nature and is a vague admission of few unspecified clearances without duty payment. We need to examine the corroboration of the said statement with corroborative evidences and its relation with the subject. Though the legal position is now well settled that for placing reliance on statement of an individual, its admissibility as an evidence is to be established through compliance of the mandatory procedure prescribed in Section 9D of the Act. We note that failing the mandatory requirement would vitiate the admissibility of such statement and such statements are to be discarded for any reliance as held in a plethora of decisions of higher forums. Secondly, We note that an unspecific and general statement does not shift the burden to proof of the essential and corroborative facts of purchase of raw materials, manufacture of excisable goods and its nexus with the goods under allegation. However it would be necessary to examine the judicial pronouncements in this regard. We note that while examining the nature of general confessional statements , the Hon’ble Apex Court in MOHTESHAM MOHD. ISMAIL VERSUS SPL. DIRECTOR, ENFORCEMENT DIRECTORATE 2007 (220) E.L.T. 3 (SC) = 2007-TIOL-174-SC-FEMA has held that

15. Apart therefrom the High Court was bound to take into consideration the factum of retraction of the confession by the appellant. It is now a well-settled principle of law that a confession of a co-accused person cannot be treated as substantive evidence and can be pressed into service only when the court is inclined to accept other evidence and feels the necessity of seeking for an assurance in support of the conclusion deducible therefrom.

16. We may, however, notice that recently in Francis Stanly @ Stalin v. Intelligence Officer, Narcotic Control Bureau, Thiruvanthapuram [2006 (13) SCALE 386], this Court has emphasized that confession only if found to be voluntary and free from pressure, can be accepted. A confession purported to have been made before an authority would require a closure scrutiny. It is furthermore now well settled that the court must seek corroboration of the purported confession from independent sources.

17. In The Assistant Collector of Central Excise, Rajamundry v. Duncan Agro Industries Ltd. – JT 2000 (8) SC 530], this Court held:

“…….The inculpatory statement made by any person under Section 108 is to non-police personnel and hence it has no tinge of inadmissibility in evidence if it was made when the person concerned was not then in police custody. Nonetheless the caution contained in law is that such a statement should be scrutinized by the court in the same manner as confession made by an accused person to any non-police personnel. The court has to be satisfied in such cases, that any inculpatory statement made by an accused person to a gazetted officer must also pass the tests prescribed in Section 24 of the Evidence Act. If such a statement is impaired by any of the vitiating premises enumerated in Section 24 that statement becomes useless in any criminal proceedings.”

47. We therefore note that apart from lack of specific instances, dates, and quantifications, etc. the said statement(s) referring the managers of the factory is not corroborated with other cognate and admissible evidences. We note that there is a lack of investigation for tracing the managers of the factory -Shri Mohammed Hashmi or Shri Rijwan Khan for recording of their evidences though they have been made a noticee in the matter. There is no evidence to corroborate purchase or consumption of raw materials and there are no investigations of the other factory staff to corroborate the facts of alleged manufacture of goods and clearance. In view of above such statement cannot be made a sole basis to confirm charge of clandestine manufacture and clearance of alleged huge quantities of cigarettes, calculated on a presumptive basis.

48. We, therefore, hold that the there is no evidence to establish manufacture and clandestine removal of alleged quantities by LTCPL on the basis of which demand of Rs. 657,50,888/- could sustain. Impugned order is therefore set aside. Consequently the penalties imposed upon the LTCPL and other appellants are also set aside.

49. Thus, all appeals are allowed with consequential benefits.

(Pronounced on 03.05.2019)

(Paras are numbered as per the original text: Editor)

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