TaxTMI 
TaxTMI 
2015 (12) TMI 592
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....y of Rs. 5 crores on the Appellant under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944" Background facts 4. The brief facts leading to the present appeals are that M/s. Amar Jyoti Packers ('AJP'), a sole proprietary firm of which Ms. Mahesh Kumar Gautam was sole proprietor, was engaged in manufacturing pan masala and gutka of 'Rajdarbar' brand. Mr. Devi Das Garg (the Appellant in CEAC No. 3 of 2011), was one of the two partners of M/s. Sonal Food Products ('SFP') which owns the 'Rajdarbar', 'Rahat', 'Rustam', and 'Raj Tilak' brands used to manufacture gutka and pan masala by AJP. One of his sons Mr. Santosh Kumar Garg (the Appellant in CEAC No. 2 of 2011) is the other partner in SFP. Mr. Rakesh Kumar Garg (the Appellant in CEAC No. 1 of 2011) is the other son of Mr. Devi Das Garg. 5. It is stated that AJP was set up on 1st April 2000 for the manufacture of gutka and pan masala. On 13th April 2000, AJP entered into a franchisee agreement with SJP for using the aforementioned brand names. Six months thereafter, i.e., on 20th October 2000 the officers of the Central Excise Commissionerate (Preventive), Delhi (hereafter 'the De....
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....ty and thereby there was deliberate evasion of payment of excise duty. The statements of Mahesh Kumar Gautam 9. The SCN also mentioned that summons was issued to Mr. Mahesh Kumar Gautam, the Proprietor of M/s. AJP on seven dates and except for the summons dated 23rd April 2002 none of the other summons was responded to. Mr. Mahesh Kumar Gautam appeared on 26th April 2002 and gave a statement wherein besides submitting photocopies of the agreement for using the Rajdarbar brand and the rent agreement with the owner of the premises at Khasra No.223, Village Budhpur, Delhi, he admitted to the correctness of the panchnama drawn up on 20th October, 2000, which had been signed by Mr. Vinod Kumar Bansal. Mr. Gautam was stated to have produced a copy of the agreement dated 13th April, 2000 between SFP and AJP which was signed by Mr. Santosh Kumar Garg and Mr. Devi Das Garg, as Partners of SFP. He is stated to have admitted to working as a pujari in the temple in the house of Mr. Rakesh Kumar Garg and getting Rs. 2000-3000 per month. He stated that Mr. Rakesh Kumar Garg had got him to sign some papers for the purpose of procuring a ration card for him. Mr. Gautam is supposed to have stated....
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..../s. ST. 13. Mr. Bansal made a further statement on 17th July, 2003 where he is stated to have admitted to having worked with AJP from March 2000 till January, 2003. A third statement was tendered by him on 23rd February, 2004 wherein he is supposed to have reiterated his earlier statement tendered on 20th October, 2000. A fourth statement was tendered on 1st March, 2004 when he was confronted with bill books containing invoices. He was also shown the bill books of M/s. Krishna Packers but he could not say anything about the invoice books. In a statement made on 5th March, 2004 he agreed that there was a difference in the consumption of the raw materials as shown in the books of AJP to an extent of 8383 kgs but was unable to explain the reasons therefor. Other statements 14. Mr. Dinesh Kumar made a statement on 19th March, 2004 accepting his earlier statement made on 20th October, 2000. He worked in AJP as a typist and looked after the work of Central Excise in the absence of Mr. Bansal. He too was earlier working with Krishna Packers till 31st March 2000 and thereafter started working with AJP. According to him, Mr. Bansal looked after all the work related to the factory of M/s.....
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....rises. He was also a Proprietor of M/s. Surya Ornaments, which would purchase old jewellery and convert them into gold bars, which were further sold. He confirmed that gold jewellery worth Rs. 66,70,000 was purchased from the Garg family and that they sold the gold bars made therefrom for Rs. 80.00 lakh. Between April and September 1999, he admitted to having purchased Rs. 2 crore of jewellery from the Garg family which was then converted into gold bars and sold for Rs. 2,84,44,028/-. A further statement was made by him on 31st October, 2003. He conveyed lack of knowledge of the buyers of the gold bars. He made a further statement on 19th February, 2004 when he claimed to be unable to explain the presence of stock of mixture of kattha and chuna; stock of mixture of kattha, chuna and menthol (perfume) on 31st October, 2001 as per panchnama. 19. Mr. Manoj Bansal tendered his statement on 19th February, 2004 accepting the panchnama dated 20th October, 2000 in respect of the proceedings at the premises of M/s. ST. He confirmed the stock position in terms of Annexure B to the panchnama. 20. Mr. Dev Kumar Sharma gave his statement on 19th March, 2004 accepting the statement earlier giv....
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....ka International during the year 1999-2000. He also gave details of the jewellery sold by his mother during the year 1998-99 and 1999-2000 and that she gifted Rs. 40,00,000/- to Mr. Santosh Garg during the year 2000-2001. 25. Mr. Santosh Garg gave a statement on 9th August, 2002 stating that he was a partner in M/s. SFP of which his father was the owner. The company was established for the business of pan masala and gutkha and brand names Rajdarbar, Rajtilak, Rabat, Rustam were registered. He claimed that the company closed around 1995-96 and thereafter the brand names were franchised to other companies on the basis of royalty. He claimed that the brands were franchised to AJP by a franchise agreement. He submitted a copy of the ledger; account of royalties for the last two years from AJP. Another statement was tendered by Mr. Santosh Kumar Garg on 30th May, 2003 when he claimed to be the owner of Rajdarbar brand. 26. Mr. Mithilesh Kumar Tripathi gave his statement on 21st July, 2003 on behalf of his wife making claims regarding sale of jewellery. Likewise Mr. Subhash Mittal, proprietor of M/s. Shreeji Foods and Shreeji Jewellers gave his statement on 6th November, 2003. He state....
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....ugust, 2002. 30. AJP raised a question as to how, after coming to know at the time of the raid on 20th October, 2000 that the machines were producing 200 pouches per minute, the Department could have allowed the clandestine removal thereafter of the excess quantity for a period of 22 months. The RT-12 forms submitted for the period post raid, i.e. October 2000 to August, 2002 had been received by the Department and this showed that the production did take place during the aforementioned period. Accordingly, it was contended that the demand for the period after October 2000 was untenable in law. AJP also submitted a technical report about pouch producing capacity of the machines installed in AJP factories. According to the said report it could never have been possible for them to produce 200 pouches per minute as alleged by the Department. 31. The noticee also sought the examination of the aforementioned persons whose statements have been recorded and relied upon in the SCN. However, despite listing the matter for the personal hearing on two occasions, i.e. 2nd August and 16th August, 2005, none of the witnesses appeared for cross-examination. It was accordingly contended that the....
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....attha, chuna and illaichi were mentioned on the invoices/challans issued and signed by Mr. D.K. Sharma. (iii) The CCE also referred to the statements of, Mr. Sunil Kumar, Proprietor of M/s. ST and Mr. Manoj Bansal and held that M/s. ST was a front firm for the family. (iv) As regards the statements made on various dates from October, 2000 to February, 2004 by Mr. D.K. Sharma, Mr. Manoj Bansal and Mr. Sunil Kumar it was not mentioned by them that the mixture seized was not capable for being used in Pan Masala/gutkha. This stand, therefore, was an afterthought. It was nevertheless acknowledged that Mr. Sharma was not available for cross-examination. (v) Since the technical report produced was of a later date, i.e. 21st July, 2004, wherein it was stated that the machines installed in the premises of M/s.ST could not produce Pan Masala or tobacco, the CCE rejected the report holding it to be a "dictated one and not reliable". The plea that the mixture made by M/s. ST could not be used for making Pan Masala was rejected. There were two machines installed and the mixing did not require any sophisticated physical or chemical reaction. Even an oven for making supari was not necessary. C....
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....am was working only as a pujari on monthly wages of Rs. 2,000 to Rs. 3,000 in the house of Mr. R.K. Garg and it was difficult to believe that overnight he became the manufacturer of a popular 'Rajdarbar' brand Gutka and Pan Masala. 39. According to the CESTAT notwithstanding the retraction of the statement by Mr. Gautam it had the 'ring of truth'. It was not known whether the police had taken any action on his complaint or any order of the court had been passed. The medical examination only showed his symptoms as loose motions, vomiting and abdominal pain with umbilical region tenderness and there was no remark or observation in the said report whether there were any signs of his being beaten up. Therefore, the CESTAT held that his retraction based on the complaint given by him to the police and the medical examination did not prove in any way that his statement dated 26th April 2002 had been recorded under duress or coercion. A reference was made to the decision of the Supreme Court in Vinod Solanki v. Union of India 2009 (233) ELT 157 (SC). 40. The CESTAT also referred to the fact that the further statements of Mr. Gautam were recorded on 4th November 2003 and 12th March 2004 w....
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....as substantive evidence against Mr. Gautam. Further the statement was corroborated by the statements of Mr. Dev Kumar Sharma and Mr. V.K. Bansal. Submission of counsel 44. This Court has heard the submissions of Mr. Krishna Kant, learned counsel for the Appellant and Mr. Satish Kumar, learned counsel for the Respondents. 45. It is submitted by Mr. Kant that the CESTAT erred in failing to notice that no penalty could have been imposed on the Appellants under Rule 26 of the CE Rules 2002 as there was no allegation in the SCN or any conclusion drawn in the order in original by the CCE or by the CESTAT itself to the effect that any of these Appellants ever received or purchased any goods from AJP or sold any goods manufactured by AJP. There was no evidence also that any of the Appellants supervised the dispatch or the removals made by AJP or provided any distribution network assistance to it or transported stored any goods or provided any premises for production or storage of any goods. There was no evidence that any of the Appellants appointed any supervising staff in AJP. In other words, none of the ingredients of Rule 26 stood satisfied. There was no evidence that any of these Ap....
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....en thousand, whichever is greater." 49. Rule 209A of the CE Rules 1944 was more or less similarly worded. These are penal provisions that call for a strict interpretation. Therefore, in order that penalty may be levied, it will have to be satisfactorily proved that the ingredients of Rule 26 of the CE Rules 2002 are existent qua the person proposed to be subject to the penalty. In other words, for the purposes of levy of penalty the Department would have to show the actual involvement of the person sought to be penalised in the actions of possessing, transporting, removing, keeping, concealing, selling or purchasing, etc. of the excisable goods, which he knows or has reason to believe are liable to confiscation. 50. In Gian Mahtani v. The State of Maharashtra AIR 1971 SC 1898 it was observed by the Supreme Court that the main accused, who played the leading role "in extensive smuggling operations on his own admission" did create a serious suspicion but "according to the system of jurisprudence which we follow, conviction cannot be based on suspicion nor on the conscience of the Court being morally satisfied about the complicity of an accused person." 51. The SCN which proposed t....
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....t that an FIR was registered by Mr. Gautam against the excise officials immediately after the statement was given is a strong indication of the lack of voluntariness in making the statement. 56. In Ravindran and Peter John v. The Superintendent of Customs 2007-TIOL-89-SC-CUS, the Supreme Court cautioned that a confession cannot form the sole basis of a conviction under the Customs Act. Two other decisions that are relevant in this context are V. Ananthraman v. Union of India 2003 (151) ELT 278 (Bom.) and Nicco Corporation Ltd. V. Commissioner of Service Tax 2014 (307) ELT 228 (Cal.). 57. As pointed out by the learned counsel for the Appellants certain other crucial factors which do not appear to have been considered either by the CCE or the CESTAT are that Mr. Gautam continued filing documents on behalf of AJP even after the conclusion of the search proceedings. The agreement signed by him on 22nd March 2000 with Mr.D.N. Rana for hiring the premises for the factory was not shown to be a false document. The application for obtaining the central excise registration of AJP and the declaration under Rule 173-B were signed by him. He had sent a letter to the Department authorizing Mr.....
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....ading of the above statement dated 4th November, 2003, as has been done by the CCE and the CESTAT, that Mr. Gautam reaffirmed the statement made on 26th April, 2002. 60. On 12th March 2004, Mr. Gautam was again shown his earlier statement dated 26th April, 2002 and asked to reaffirm it. This time again when asked who used to do the mixing of the scent and zarda etc., he named Mr. V.K. Bansal. He also stated that he had seen his statement of 4th November 2003 and read it and he was fully satisfied with it. A reading of the statement dated 12th March 2004 shows that according to Mr. Gautam, it was essentially Mr. V.K. Bansal who was looking after the work of AJP. When asked: "Who used to look after the factory and its office and account works in Amar Jyoti Packers", Mr. Gautam answered: "The accounts relating to Amar Jyoti Packers and other office work were looked after by Shri Vinod Bansal. Besides him there was no other person." It is also significant that this statement was also retracted by Mr. Gautam, a fact which is not taken note of by either the CCE or the CESTAT. 61. Consequently the Court is unable to concur with the CCE or the CESTAT that the evidence of Mr. Gautam clinc....
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.... quashing of the demands by the CESTAT. This was because no material was brought on record to indicate to whom the imported goods were sold and how the goods were clandestinely removed from the factory. It was observed that excise duty cannot be levied "merely on the basis of assumption or presumption." Reliance in that case was placed on the statement of the proprietor of the Respondent and it was held that since there was no admission in the said statement that the seized product was manufactured by the Respondent or cleared from its factory premises, the said statement was not sufficient to initiate action against the Respondent. 66. As already noticed there is no question of application of Rule 25 since that applies only to the actual manufacturer of the excisable commodity whereas that is not even the case of the Department vis-a-vis the three Appellants. 67. Another important point that was overlooked by the CCE and the CESTAT is that the entire duty was raised on the basis of the capacity of the packing machines for the period 1st April, 2000 to 31st August, 2002, whereas the Department after having conducted the search on 20th October, 2000 did not, in fact, apprehend a s....