2017 (3) TMI 1090 - AT - Central Excise

Tribunal overturns order in gutka manufacturing case due to lack of evidence and flawed assumptions.

The tribunal set aside the impugned order in a case involving allegations of clandestine manufacturing and removal of gutka by M/s. Tarachand Nareshchand. ... Clandestine removal - Gutkha - alleged increase in the speed of gutka making machines i.e. by making 80 number of pouches per minute instead of 60 pouches per minute - the Revenue’s case is entirely based on the statements of Shri Tarachand recorded, and the panchnama drawn on 19.3.2008, i.e. the date of visit of Central Excise officers - Held that: - there is no sufficient corroborative evidences available in the form of supplies and receipt of raw material and the dispatch / transportation of the extra production by the appellant and to whom the supplies of extra production were made, and which were the means of transport for supply and disposal of said extra production. Thus the Revenue’s case which is based mainly on the statement of the partner, Shri Tarachand cannot be sustained - independent panchnama witnesses retracted their statements though after a lapse of long period. It is on record that panch witnesses deposed before the Commissioner saying that they did not witness the testing of the speed of machines by the Central Excise officers and further the said witnesses had not been present during the recording of the statement of Shri Tara Chand and they did not send the annexures to the statement of Shri Tara Chand - demand set aside - appeal allowed - decided in favor of appellant-assessee. Issues Involved:1. Allegation of clandestine manufacturing and removal of gutka.2. Verification of machine speed and production volume.3. Credibility of statements and panchnama.4. Retraction of statements.5. Calculation of demand based on presumed production speed.6. Lack of corroborative evidence for clandestine activities.7. Imposition of penalties.Detailed Analysis:1. Allegation of Clandestine Manufacturing and Removal of Gutka:The department alleged that the appellant, M/s. Tarachand Nareshchand, was clandestinely manufacturing and removing gutka without paying the required duty by increasing the speed of gutka-making machines from 60 to 80 pouches per minute. The lower authorities confirmed the demand for the period from 14.11.07 to 19.3.08 based on this alleged increase in production speed.2. Verification of Machine Speed and Production Volume:The department based its case on the verification conducted on 19.3.2008, where it was claimed that the machines were operating at 80 pouches per minute. The appellants argued that such an increase in speed was not feasible due to potential wastage and non-uniformity in packaging. They also contended that the demand could not be based on a single day's production and that the stocktaking conducted by the department was flawed and rushed.3. Credibility of Statements and Panchnama:The appellant's partner, Shri Tarachand, initially gave a statement corroborating the department's findings, but later retracted it. The panchnama witnesses also retracted their statements, claiming they were not present during the verification process and were coerced into signing documents. The appellants argued that the entire case was fabricated, and the panchnama was not credible.4. Retraction of Statements:Shri Tarachand retracted his inculpatory statement in his bail application and subsequent communications. The department, however, maintained that the retraction did not negate the initial admission. The appellants highlighted that the retraction was made at the first available opportunity, questioning the voluntariness of the initial statement.5. Calculation of Demand Based on Presumed Production Speed:The department calculated the demand assuming that the machines operated at 80 pouches per minute from 14.11.07 to 19.3.08. The appellants argued that this assumption was baseless, especially since the machine speed was verified at 60 pouches per minute on 13.11.07. They contended that there was no evidence to support the claim of increased production speed throughout the entire period.6. Lack of Corroborative Evidence for Clandestine Activities:The tribunal noted the absence of corroborative evidence such as records of raw material supply, transportation details, and sales of the alleged extra production. The department's case relied heavily on the statement of Shri Tarachand without sufficient supporting evidence. The tribunal referenced the case of M/s. Continental Cement Company vs. Union of India, emphasizing the need for concrete evidence to sustain such allegations.7. Imposition of Penalties:The impugned order imposed penalties equivalent to the confirmed duty amounts and additional penalties under Rule 26 of the Central Excise Rules, 2002. However, given the lack of credible evidence and the flawed basis for the demand, the tribunal found no merit in the penalties imposed.Conclusion:The tribunal concluded that the department's case was primarily based on the retracted statement of Shri Tarachand and lacked sufficient corroborative evidence. The assumptions made regarding the production speed and the resultant demand were deemed unsustainable. Consequently, the impugned order was set aside, and the appeals filed by the appellants were allowed with consequential relief.