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Issues: (i) Whether statements recorded during investigation could be relied upon without compliance with the procedure under Section 9D of the Central Excise Act, 1944; (ii) Whether the evidence established that four packing machines found in the unregistered premises were in working condition and used for manufacture of chewing tobacco; (iii) Whether Rule 18(2) of the Chewing Tobacco and Unmanufactured Tobacco Capacity Determination and Collection of Duty) Rules, 2010 could be invoked to demand duty on a deemed basis for the period in question; (iv) Whether penalty under Rule 18(1) of the said Rules read with Section 11AC of the Central Excise Act, 1944 was sustainable.
Issue (i): Whether statements recorded during investigation could be relied upon without compliance with the procedure under Section 9D of the Central Excise Act, 1944
Analysis: The statements relied upon by the department had been retracted, and the adjudicating authority did not follow the statutory procedure for admitting such statements in evidence. The makers of the statements were not properly examined in adjudication, and the request for cross-examination was not allowed with adequate reasons. In the absence of compliance with Section 9D, retracted statements could not be treated as reliable evidence to sustain the demand.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Issue (ii): Whether the evidence established that four packing machines found in the unregistered premises were in working condition and used for manufacture of chewing tobacco
Analysis: Apart from the disputed statements, there was no independent corroboration such as procurement of raw material, excess power consumption, buyers, transporters, or other evidence of actual manufacture and clearance. The record did not establish that all four machines were operational or that they were used for clandestine manufacture. Mere presence of machines and photographs were held insufficient on these facts.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Issue (iii): Whether Rule 18(2) of the Chewing Tobacco and Unmanufactured Tobacco Capacity Determination and Collection of Duty) Rules, 2010 could be invoked to demand duty on a deemed basis for the period in question
Analysis: The deeming fiction under Rule 18(2) applies only where the material on record supports its invocation. Since the evidence did not establish that the machines were in working condition or used for manufacture, and the department did not produce independent corroboration, the rule could not be applied to fasten duty on the presumed basis for the relevant period.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Issue (iv): Whether penalty under Rule 18(1) of the said Rules read with Section 11AC of the Central Excise Act, 1944 was sustainable
Analysis: Penalty depended on proof of manufacture and clandestine removal. Once the demand itself failed for want of admissible evidence and corroboration, the foundation for penalty also disappeared.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Final Conclusion: The demand of duty, interest, and penalty could not be sustained, and the appeal succeeded with consequential relief.
Ratio Decidendi: Retracted statements recorded during investigation cannot be relied upon in adjudication unless the statutory procedure for their admission is followed and the evidence is independently corroborated; in the absence of such proof, a deeming duty provision based on alleged machine use cannot be invoked.
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