2020 (1) TMI 533 - AT - Central Excise

Tribunal overturns penalties in Pan Masala case citing lack of evidence and procedural lapses.

M/s. Paras Pan Products Private Limited, M/s. Paras Surti Products Private Limited, Shri Manoj Kumar Khandelwal, Ex-Director of M/s. Paras Pan Products Private Limited, Shri Bhim Prosad, Director, M/s. Paras Surti Products Private Limited Versus Commissioner of CGST & CX, Kolkata North Commissionerate

M/s. Paras Pan Products Private Limited, M/s. Paras Surti Products Private Limited, Shri Manoj Kumar Khandelwal, Ex-Director of M/s. Paras Pan Products ... Issues Involved:1. Evidence of manufacture and removal of Pan Masala Containing Tobacco.2. Validity of test reports and sample collection procedures.3. Admissibility and reliability of witness statements.4. Applicability of Rule 6 and Rule 17(2) of the Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008.5. Allegations of clandestine removal and burden of proof.6. Imposition of penalties on the appellants.Detailed Analysis:1. Evidence of Manufacture and Removal of Pan Masala Containing Tobacco:The Tribunal found that the investigations did not substantiate the charge of clandestine manufacture and removal of Pan Masala containing Tobacco. The test reports only indicated the presence of tobacco but did not confirm the presence of betel nuts, an essential ingredient for classifying any product as 'Pan Masala containing Tobacco.' The Tribunal emphasized that no betel nuts were found in the factory, and there was no evidence of their purchase or use by the appellants. Therefore, the revenue failed to prove the manufacture and removal of the said product.2. Validity of Test Reports and Sample Collection Procedures:The appellants disputed the manner and method of sample collection and the resulting test reports. The Tribunal noted that the definition of 'Pan Masala containing Tobacco' requires the presence of betel nuts, which was not confirmed by the test reports. The Tribunal also highlighted the procedural lapses in sample collection, as the samples were not sealed or acknowledged by the appellants, and the test reports indicated insufficient sample quantity for quantitative estimation of nicotine.3. Admissibility and Reliability of Witness Statements:The appellants argued that the statements of witnesses were obtained under duress and without following the procedure prescribed in Section 9D(1) of the Central Excise Act, 1944. The Tribunal agreed, noting that the statements were retracted and obtained without cross-examination, rendering them inadmissible. The Tribunal cited various judicial precedents emphasizing the necessity of cross-examination to validate such statements.4. Applicability of Rule 6 and Rule 17(2) of the Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008:The Tribunal found that the appellants were not required to file declarations under Rule 6 as they were not manufacturing the notified goods during the relevant period. Additionally, Rule 17(2) precludes the application of these rules to unregistered units, further supporting the appellants' case.5. Allegations of Clandestine Removal and Burden of Proof:The Tribunal stressed that the charge of clandestine removal is serious and must be proven with tangible evidence. The revenue's case relied on uncorroborated third-party statements and assumptions without concrete evidence of raw material procurement, production, or transportation of finished goods. The Tribunal cited several judicial decisions underscoring the need for substantive proof in such cases.6. Imposition of Penalties on the Appellants:Given the lack of evidence supporting the allegations of clandestine manufacture and removal, the Tribunal found the imposition of penalties on the appellants unjustified. The Tribunal set aside the penalties, emphasizing that the revenue failed to meet the burden of proof required to sustain such charges.Conclusion:The Tribunal allowed the appeals filed by the appellants, setting aside the order of the Adjudicating Authority. The demands and penalties were deemed unsustainable due to the lack of concrete evidence and procedural lapses in the investigation. The Tribunal's decision was pronounced in the open court on 17/12/2019.