2008 (9) TMI 603 - HC - Central Excise

Assessee Given Benefit of Doubt; Revenue Failed to Prove Clandestine Manufacture or Surreptitious Removal Beyond Reasonable Doubt

COMMISSIONER OF CENTRAL EXCISE Versus BRIMS PRODUCTS

HC held for the assessee, finding the Revenue failed to prove clandestine manufacture and surreptitious removal of finished product beyond reasonable ... Duty demand - Clandestine manufacture and surreptitious removal of finished final product - principle of preponderance of probabilities - doctrine of “proof beyond all reasonable doubt” - Held that:- The authorities with regard to the aforesaid two consignments have also extended benefit of doubt to the respondent. We are of the opinion that there could not have any reason for arriving at different conclusion with regard to the remaining two consignments. In our opinion, since the charge was for clandestine manufacture and surreptitious removal of finished final product, the same is required to be proved beyond doubt by the Revenue. One has to keep in mind that, though being the main ingredient, betel-nut is not the only raw material which is used in manufacture of Pan Masala. That apart, since the investigation has been carried only at the transporters end, no presumption could be drawn with regard to manufacture and removal of the final product. Presumptions and assumptions cannot take place of positive legal evidence, which are required for proving the charge. Even if, it is assumed that some raw materials were received at the factory of the respondent during the said period, the same cannot become conclusive proof of production and clandestine sale to different parties. Due to lack of positive evidence, benefit of doubt will always go in favour of the assessee. Accordingly, we answer the reference against the Revenue and in favour of the assessee and it is held that the receipt of one of the raw materials, does not conclusively prove clandestine manufacture and surreptitious removal of finished final product. Further, since the charge is regarding clandestine manufacturer and removal of finished product for evading excise duty, the same cannot be held to be proved on the basis of principle of preponderance of probabilities and the Revenue has to prove the same beyond doubt. The reference is answered accordingly. As a result, this reference case is dismissed. Issues involved:- Allegation of clandestine manufacture and removal of Pan Masala without duty payment- Evaluation of evidence collected during investigation- Application of legal principles in excise duty casesAnalysis:1. The case involved the respondent, a Pan Masala manufacturer, who was accused of clandestine manufacture and removal of Pan Masala without duty payment. Central Excise officers seized 4 bags of final product not entered in the register, leading to a show cause notice for duty demand and penalty imposition.2. The adjudicating authority cleared the respondent of two consignments but held them responsible for the remaining two, based on the receipt of betel nut, a raw material for Pan Masala. The appellate authority upheld this decision, leading to an appeal to the Tribunal.3. The Tribunal allowed the appeal, emphasizing that the Revenue failed to prove the charge of clandestine activities beyond doubt. The evidence collected during the investigation was deemed insufficient to establish the allegations conclusively.4. The Commissioner of Central Excise filed a reference to the High Court under Section 35H(1) of the Act, seeking clarification on legal questions arising from the Tribunal's decision.5. The High Court directed the Tribunal to refer specific questions for determination, including the standard of proof required for establishing clandestine activities in excise duty cases and the implications of lack of explanation by the manufacturer regarding raw material shortages.6. The Standing Counsel for the Central Government argued that evidence from the investigation supported the department's stance, indicating the consumption of betel nut for clandestine production and removal of Pan Masala without duty payment.7. Despite the respondent's representation through Vakalatnama, no appearance was made during the hearing, leaving the arguments in favor of the Revenue unchallenged.8. The High Court noted inconsistencies in the investigation and the benefit of doubt extended to the respondent regarding two consignments, leading to the conclusion that similar treatment should apply to all consignments.9. Emphasizing the need for proof beyond doubt in cases of clandestine activities, the Court highlighted the insufficiency of presumptions and assumptions in the absence of concrete legal evidence. Lack of conclusive proof favored the assessee.10. The Court ruled in favor of the assessee, stating that the mere receipt of raw materials does not conclusively prove clandestine activities. The burden of proving such charges beyond doubt lies with the Revenue, not based on probabilities.11. Consequently, the reference case was dismissed, with no costs imposed, affirming the need for concrete evidence and proof beyond doubt in excise duty cases to establish allegations of clandestine activities.