Clandestine manufacture of chewing tobacco upheld, but demand for a disputed period was remanded for fresh verification.

Search material, including pouch packing machines, raw materials and finished goods, together with corroborative statements, supported a finding of clandestine manufacture and removal of chewing tobacco without payment of duty and without use of the compounding scheme; the refusal to insist on cross-examination was sustained because the statements were limited and supported by surrounding evidence. A separate factual dispute for January 2013 to May 2013, concerning whether manufacturing activity existed and whether the machines were available during that period, required fresh verification before duty and penalty could be confirmed. The demand and penalty for that limited period were therefore remanded for verification and recomputation, while the remaining findings were maintained.

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Issues: (i) Whether the appellant was engaged in clandestine manufacture and removal of chewing tobacco without payment of duty; (ii) Whether the demand and penalty for the period January 2013 to May 2013 required fresh verification as to whether manufacturing activity existed during that period.

Issue (i): Whether the appellant was engaged in clandestine manufacture and removal of chewing tobacco without payment of duty.

Analysis: Search at the business premises led to recovery of pouch packing machines, raw material and finished goods. Statements of the persons concerned indicated that chewing tobacco was being manufactured, packed in small-value pouches and sold. The record supported the finding that the appellant was undertaking manufacture without payment of duty and without availing the compounding scheme. The request for cross-examination of the persons whose statements were relied upon was not treated as necessary where the statements were confined to aspects of ownership and the surrounding material corroborated the charge.

Conclusion: The finding of clandestine manufacture and removal was upheld against the appellant.

Issue (ii): Whether the demand and penalty for the period January 2013 to May 2013 required fresh verification as to whether manufacturing activity existed during that period.

Analysis: The appellant specifically disputed the availability of machines and the existence of manufacturing activity during January 2013 to May 2013. This limited factual controversy required verification before sustaining duty and penalty for that period.

Conclusion: The matter was remanded for limited verification of manufacturing activity for January 2013 to May 2013 and consequential recomputation, with opportunity to the appellant.

Final Conclusion: The impugned order was otherwise sustained, but the matter was sent back for limited reconsideration of the demand and penalty relating only to the disputed period.

Ratio Decidendi: Where search material and corroborative statements establish clandestine manufacture and removal, the duty demand may be sustained, while a distinct and specific factual dispute for a limited period may justify remand for verification and recomputation.

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