2017 (3) TMI 57 - AT - Central Excise

Tribunal overturns excise duty order due to lack of evidence

The Tribunal set aside the order holding M/s. Goyal Tobacco Co. Pvt. Ltd. liable to pay central excise duty for unaccounted tobacco pouches produced using ... Clandestine removal - tobacco pouches - Chewing Tobacco and Unmanufactured Tobacco, Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010 - appellant claim that the whole demand is confirmed on the presumption that the mere availability of some machines is sufficient and it is not required for the Department to prove the working condition or usage of such machines. Held that: - the actual condition of the machine at the time of detention of the said machines has become crucial - wherever the packing machines were lying, in any premises, including the premises of the manufacturer or seller of such machines, then the duty can be demanded from them in terms of the Compounded Levy Scheme. Apparently no such situation is covered by the Scheme. Presumptive duty liability as envisaged in the Compounded Levy Scheme of 2010 Rules cannot be extended to a level that automatic duty liability will arise in all cases, where some packing machines are found in a premises. While the presence of machines is an admitted fact, the manufacture and clearance has not been evidenced with any corroborative evidence established during investigation. The statements were relied upon as corroborative evidences and the cross examination of witnesses who made such statements was denied without valid ground. There is no other corroboration evidencing operation of these machines even for a single day during the impugned period - These evidences, the admissibility of which itself is legally not sustainable, cannot be the basis for confirmation of duty on the goods allegedly manufactured and cleared by the appellant. The impugned order has fallen short in appreciating the factual position, evidence gathered and applicable legal provisions in arriving at the findings of non-payment of duty - appeal allowed - decided in favor of appellants. Issues Involved:1. Liability to pay central excise duty based on the presence of packing machines.2. Condition and functionality of the packing machines.3. Corroborative evidence of clandestine manufacture and clearance.4. Denial of cross-examination of witnesses.5. Legal validity of statements as evidence.Detailed Analysis:1. Liability to Pay Central Excise Duty Based on the Presence of Packing Machines:The main appellant, M/s. Goyal Tobacco Co. Pvt. Ltd., was alleged to have produced and cleared tobacco pouches without accounting and payment of duty using packing machines found in the premises of M/s. Rajesh Tobacco Co. The Original Authority concluded that under the Chewing Tobacco and Unmanufactured Tobacco, Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010, the appellant was liable to pay central excise duty of Rs. 3,17,14,935/- for the period March 2010 to January 2011. The duty was calculated based on the number of machines and their capacity. The Tribunal found that the demand was confirmed merely on the presumption of the presence of machines, without proving their working condition or usage.2. Condition and Functionality of the Packing Machines:The appellant contested that the three machines found in the rented godown were not in working condition at the time of verification. The Department did not conduct a technical inspection of the detained machines despite repeated requests from the appellant. The Tribunal noted that the actual condition of the machines at the time of detention was crucial. The Original Authority's inference that the machines could be made operational easily was found to be fallacious. The Tribunal emphasized that the non-functional, scrapped condition of the machines had been repeatedly asserted by the appellants, and no technical examination was carried out by the Department to establish the functional capability of the machines.3. Corroborative Evidence of Clandestine Manufacture and Clearance:The Tribunal observed that no corroborative evidence was collected or presented by the officers to confirm the demand. There was no examination of electricity consumption or other supporting evidence of clandestine manufacture or clearance of dutiable items. The Tribunal found that the mere presence of non-functional machines could not be the basis for confirming excise duty demand. The Original Authority's reliance on the statements of the appellant's accountant, laborer, and driver, without corroborative evidence of raw material procurement, packing material, or bank statements, was insufficient to establish the manufacture and clearance of dutiable items.4. Denial of Cross-Examination of Witnesses:The Tribunal noted that the cross-examination of witnesses, whose statements were relied upon by the Department, was denied without valid grounds. The Hon'ble High Court rulings emphasized that the Adjudicating Authority must follow the procedure prescribed under Section 9D of the Central Excise Act, 1944, and allow cross-examination if requested by the assessee. The denial of cross-examination put the impugned order in legal jeopardy.5. Legal Validity of Statements as Evidence:The Tribunal highlighted that the statements given under Section 14 of the Central Excise Act, 1944, must be examined in chief before the Adjudicating Authority, and cross-examination must be allowed if sought by the assessee. The reliance on these statements without following the prescribed procedure rendered the evidence legally unsustainable. The Tribunal found that the investigation was sketchy and did not support the findings in the impugned order.Conclusion:After careful consideration, the Tribunal found that the impugned order failed to appreciate the factual position, evidence gathered, and applicable legal provisions. The order was set aside, and the appeals were allowed. The Tribunal emphasized that presumptive duty liability under the Compounded Levy Scheme could not be extended to situations where non-functional machines were found in any premises. The order pronounced on 11/01/2017 concluded that the appeals were allowed, setting aside the impugned order.