Shri Ashok Kumar Sahu, Director vs Cce, Delhi

[Arising out of the Order-in-Original No. 03/2008 dated 25/02/2008 passed by The Commissioner of Central Excise, New Delhi.]

For Approval and signature :

Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B. Ravichandran, Member (Technical)

1. Whether Press Reporters may be allowed to see :

the Order for publication as per Rule 27 of the

CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of :

the CESTAT (Procedure) Rules, 1982 for

publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair :

copy of the order?

4. Whether order is to be circulated to the :

Department Authorities?

M/s C.A. Chewing Fragrance Pvt. Ltd. ]

Shri Ashok Kumar Sahu, Director ] Appellants

Shri Anoop Kumar Sahu ]

Versus

CCE, Delhi Respondent

Appearance

Shri Rupesh Kumar, Advocate  for the appellant.

Shri R.K. Grover, Authorized Representative (DR)  for the Respondent.

CORAM: Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B. Ravichandran, Member (Technical)

Final Order No. 52492-52494/2015 Dated : 22/07/2015

Per. Ashok Jindal :-

The appellant M/s C.A. Chewing Fragrance Pvt. Ltd. (in short CACF) is in appeal against the impugned order demanding duty alongwith interest, equivalent amount of penalty and for confiscation of certain goods and the co-appellants for imposing penalties.

2. The facts in short are that M/s CACF is manufacturer of Madhu and Asha brand Gutkha and were not availing Cenvat credit. On intelligence, the factory premises of M/s CACF was searched and certain documents, unaccounted finished goods, raw materials alongwith cash of Rs. 4,03,000/- were found, the same were seized. On 28/11/2005, it was revealed that the production/ clearances registers were maintained upto 31st October, 2005. Certain statements were recorded of supplier of raw material and the buyers of the finished goods as well as the appellants. On the basis of the statements as well as of the balance sheet, it was found that the appellant is manufacturing Gutkha containing Tobacco and the data resumed reveals that the percentage of Tobacco in Gutkha ranges between 7 to 8% during the year 2000-2001 and 2001-2002. The representative samples of Madhu and Asha brand Gutkha were drawn and sent for analysis to Shriram Institute of Industrial Research, Delhi. On analyzing the Shriram Institute of Industrial Research, the report shows that Tobacco leafs are having 7.9% by mass in Madhu brand Gutkha and 7.8% by mass in Asha brand Gutkha, therefore, on an average 7.85% leafs contained in Gutkha. On said basis, it was calculated that the average percentage of Tobacco in Gutkha manufactured by CACF is 7.99% on that basis the quantity of tobacco consumed was calculated for the period 01/4/2002 to 28/11/2005 and it was alleged that the Gutkha manufactured is much more than the quantity shown in the statutory records. On that basis duty, was demanded from the appellant in the show cause notice. The show cause notice was adjudicated and the impugned order has been passed. Aggrieved from the said order, the appellants at before us.

2. Learned Counsel for the appellant submits that the Department case is based on the following grounds :

(a) consumption of tobacco as per balance sheet figures,

and

(b) statement of different persons.

He submits that to calculate the contents of tobacco in Gutkha manufactured by the CACF, samples were drawn and sent to Shriram Institute of Industrial Research which shows that there was 7.99%. The same is equivalent to the percentage of tobacco consumed during the period 2001-2002. As there is no change in composition of Gutkha, it is alleged that M/s CACF has manufactured Gutkha out of the tobacco purchased in excess of 7.99% during the impugned period and on that basis of demand is totally untenable as the test report dated 27/3/2006 clearly states that contents of raw tobacco being 7.9% is on dry basis which means the percentage did not take into consideration of the moisture contained in tobacco, therefore the test report cannot be relied to arrive at a decision of quantity of tobacco consumed in Gutkha and to demand duty on the said basis. As the content of tobacco in the manner in which same is purchased and sold in the market includes moisture. To support this contention, he relies on the decision of the Tribunal in the case of Mineral Enterprises Ltd. vs. CC, Mangalore reported in 2010 (253) E.L.T.

241 (Tri.  Bang.). He further submits that there is no dispute to the fact that tobacco contains moisture. To support this, he relied on the report dated 14th February 2007 of Harcourt Butter Technological Institute, Kanpur which confirms moisture contents as 15.38%. The said report was produced before the Adjudicating Authority but they hold that its an afterthought. The said report is having an evidential value if not proved contrary. He further submits that once the moisture content is taken into consideration, there would not be any excess consumption of tobacco as the test report is on dry basis of tobacco consumption. Therefore, if the moisture content is taken into consideration, the consumption of tobacco would be around 9.24%. He also submits that the show cause notice relies upon the balance sheet figures for consumption of tobacco, which is shown to 9.24% for total contents of Gutkha if the moisture content of 15.38% is reduced from this 9.24%, the consumption of tobacco would come on dry basis to 7.82% which corroborates the report of Shriram Institute which is relied upon by the authorities below.

Therefore, there is no excess consumption of tobacco during the material period. He submits that it is purely assumption that percentage of consumption of tobacco remains same throughout. As it is evident from the show cause notice itself that the consumption percentage of tobacco has come down to 9.24% in the year 2005-2006 compared to 11.49% in the year 2004-2005 and 10.27% in the year 2003-2004. He further submits that in any event the test report dated 20/03/2006 of the sample drawn on 19/01/2006 from the Gutkha seized on 28/11/2005 cannot be basis to the Gutkha manufactured during the period 2002-2005. To support the said contention, he relies on the decision of Hindustan Fibres Ltd. vs. CCE, Jaipur reported in 2009 (245) E.L.T. 337 (Tri.  Del.). He also submits that the allegation of clandestine manufacture and clearance are based only on assumption and presumption without any documentary evidence, as it is clear from the facts, that to manufacture Gutkha following raw materials are required

(a) Supari  70 to 80%

(b) Kattha  5 to 8%

(c) Tobacco  10 to 11%

(d) Lime  3 to 5%

(e) Menthol  0.5% to 1%

(f) Perfume  0.5% to 1%

(g) Lamination  17% to 19%

and in the show cause notice there is no allegation that M/s CACF has purchased any of said raw material except tobacco from the respective suppliers or any investigation was done from any of these raw materials suppliers about the supply of raw material to CACF in respect of the huge quantity of 108625.48 kg. of Gutkha alleged to be manufactured. There is no evidence at all about (a) manufactured of said extra quantity; (b) transportation of said extra quantity; (c) clearance or sale or disposal of the said extra quantity; (d) receipt of price for the said extra quantity; and (e) any buyer having received the said extra quantity. Therefore, the demand is merely on the basis of assumption and presumption without any supporting evidence and the same is not sustainable. To support this contention, he relies on the decision of Oudh Sugar Mills Ltd. vs. Union of India reported in 1978 (2) E.L.T. (J172) (S.C.), Durga Trading Co. vs. CCE, Lucknow reported in 2003 (162) E.L.T. 245 (Tri.  Del.) affirmed by Honble Apex Court reported in 2010 (260) E.L.T. A122 (S.C.). He also submits in absence of evidence relating to raw material or any other corroborative material in that regard, the change of clandestine clearances cannot be upheld. To support this contention, he relied on the decision of Har Singar Gutkha Pvt. Ltd. vs. CCE, Lucknow reported in 2005 (186) E.L.T. 369 (Tri.  Del.), CCE, Indore vs. G.M. Products reported in 2007 (207) E.L.T. 723 (Tri.  Del.), and Sanket Food Products Pvt. Ltd. vs. CCE, Aurangabad reported in 2005 (188) E.L.T. 107 (Tri.  Del.).

3. He further submits that during the investigation, the statement of some persons have been recorded and the same has been relied. In fact, the statement of Shri Rajesh Khushwani, Laminate supplier was recorded who stated that they have supplied laminates to the appellant without payment of duty, but no show cause notice was issued to the laminate supplier which proves that the statement was recorded under coercion. The statement of Shri Kusum Kumar Sethia, Tobacco supplier states that he supplies the goods on cash basis to the appellant without sale bill. If the said statement is relied, the Department has not raised demand on the said basis, as demand has been raised on the basis of purchases of tobacco shown in the books of accounts and if any cash purchases has been made and the same has not recorded in the books of accounts therefore the quantity purchased in cash is required to be taken into consideration but the quantity purchased in cash is not the basis of issuance of show cause notice. He also submits that the statement of Shri Purshottam Das, Dealer has been recorded who stated that he received Gutkha from the appellant without payment of duty, but he was not made party to the show cause notice, which clearly shows that the statement was taken under coercion.

Likewise, he submits that the statement of Shri Rajesh Shukla, and the co-appellants are not voluntarily statement and the same cannot be relied. He further submits that no cross-examination of the persons, whose statements have been relied was afforded to the appellant and therefore same is contrary to the settled principal laid down by the Honble Allahabad High Court in the case of CCE, Meerut  I vs. Parmarth Iron Pvt. Ltd. reported in 2010 (260) E.L.T. 514 (All.) as no cross-examination of the persons whose statement has been relied has been afforded despite several requests, therefore, the impugned order is also in violation of the principal of natural justice. He also submits that to allege clandestine removal, the electricity consumption was also considered but the same was not the basis for demand and also submits that the electricity consumption pattern has not been examined by the Adjudicating Authority. He also submits that confiscation of raw material is bad in law as the same is non-excisable. He also submits that confiscation of Indian currency is bad in law as nothing has been brought on record that the said Indian currency is the part of sale proceeds of clandestinely manufactured and sold Gutkha.

He also submits that demanding duty jointly and severally is unjustified. Therefore, he prayed that impugned order be set aside.

4. On the other hand, the learned AR supported the impugned order and submit that in this case on the basis of intelligence, the investigation was conducted and during the course of investigation certain records were seized wherein excess stock of raw material was found, some cash was also seized. The statutory records were not prepared in proper manner by the appellant and tobacco consumption has also been considered and on the basis of the same, the demand has been raised. Apart from the tobacco consumption, the other corroborative evidence by way of statements and other material documents, the demands have been confirmed by the Adjudicating Authority by applying principal of natural justice. Therefore, the impugned order is required to be confirmed.

5. Heard both the parties and considered the submission.

6. On perusal of the impugned order and considering the arguments advanced by both the sides, we find that in this case, the allegation against the appellant, CACF is that they have clandestinely manufactured the excess quantity of Gutkha on the basis of consumption of tobacco and the purchases shown as per balance sheet figures and statement of various persons.

7. In the impugned order, the Adjudicating Authority has quantified the clandestine manufacture of the Gutkha on the basis of consumption of tobacco @ 7.99%. The total Gutkha manufactured is quantified on the basis of quantity of tobacco purchased by the appellant and the consumption of tobacco has been taken as 7.99%. Whatever Gutkha clearances shows by the appellant in the statutory records which has been cleared on payment of duty was deducted and the rest of the quantity of Gutkha alleged to be clandestinely manufactured and cleared without payment of duty. The main contention of the appellant is that tobacco contains moisture. We also note that tobacco is an agriculture product and it contains moisture. This is not in dispute. When the raw tobacco purchased by the appellant contains moisture and this tobacco has been purchased by the appellant during the period 2002-2005 and the same has been used in the manufacture of Gutkha during the relevant time therefore the test conducted on the samples in March 2006 will definitely having less moisture content. We have seen the test report also which shows that the percentage of tobacco contained in Gutkha is on dry basis which shows that the tobacco contains in the pouch of manufactured Gutkha is having less moisture content. It is also a fact on record that no sample of raw tobacco was drawn during the course of investigation to ascertain the moisture content in tobacco. On the contrary, the appellant has produced a report dated 14th February 2007 of Harcourt Butter Technological Institute, Kanpur which confirms that moisture content is 15.38%. The said report produced by the appellant has been brushed aside by the Adjudicating Authority which is not proper. As it is an admitted fact that tobacco being an agriculture product having moisture content and no sample of raw tobacco has been drawn to ascertain the moisture content, the demand on the basis of consumption of tobacco in a particular period on which test is conducted later on is not sustainable.

8. Moreover, no sample of the other raw material were drawn to ascertain the truth. It is also a fact on record that there is no evidence to show the excess consumption of the other raw materials to be used in manufacture of Gutkha in the show cause notice. As without the usage of other raw materials which forms 92% quantity to manufacture Gutkha the demand is not sustainable.

9. In the impugned order, the Adjudicating Authority has recorded that he is not going by the balance sheet figure and test report only, but Department has adduced sufficient corroborative evidence but no such evidence has been discussed in the impugned order. Moreover, the statements relied upon by the Adjudicating Authority of various persons, the cross-examination has not been afforded to the appellant for fair trial. The allegation of clandestine manufactured and removal of goods is not a simple allegation, the allegation is to be supported by sufficient and required evidence as held by this Tribunal in the case of Arya Fibres Pvt. Ltd. vs. CCE, Ahmedabad  II reported in 2014 (311) E.L.T. 529 (Tri.  Ahmd.), wherein the following principals have been laid down to allege clandestine manufacture/removal :-

Certain fundamental criteria have to be established by Revenue which mainly are the following :

(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;

(ii) Evidence in support thereof should be of :

(a) raw materials, in excess of that contained as per the statutory records ;

(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;

(c) discovery of such finished goods outside the factory;

(d) instances of sale of such goods to identified parties;

(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty ;

(g) statements of buyers with some details of illicit manufacture and clearance;

(h) proof of actual transportation of goods, cleared without payment of duty;

(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc.

Without establishing the above evidences, the demand on account of clandestine manufacture/removal is not sustainable.

10. As in this case no opportunity of cross-examination of the persons whose statement has been relied by the Adjudicating Authority given to the appellant, the impugned order is in violation of principal of natural justice, therefore, impugned order is set aside. The matter is consigned to the Adjudicating Authority for denovo adjudication to adjudicate the matter afresh after affording the cross-examination of the persons whose statement has been relied in the adjudication to support their case on the basis of corroborative evidence. It is pertinent to mention here that the demand on account of balance sheet purchase figures and test report showing the consumption of tobacco is not sustainable. The Adjudicating Authority, if having sufficient corroborative evidence in support of the impugned demand, shall be at the liberty to adjudicate the matter in accordance with law after following the principal of natural justice.

11. In these terms, impugned order is set aside. Appeals are allowed by way of remand.

(Operative part of the order pronounced in the open court.)

(Ashok Jindal)

Member (Judicial)

(B. Ravichandran)

Member (Technical)

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