TaxTMI 
TaxTMI 
2019 (5) TMI 369
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commercial Manager and T.K. Ghosh Technical Head, both employees of LTCPL are in appeal against penalty of Rs. 20,00,000/- on each of them for alleged abatement. Shri Murlidhar Ojha, Supervisor and Rizwan Khan Factory In charge, both employees of LTCPL are in appeal against penalty of Rs. 5,00,000/- for alleged abatement. All the appeals are taken together for disposal as impugned order is arising from a common investigation and notice. 2. Facts of the case are that on an intelligence that LTCPL were clandestinely manufacturing and clearing Midland, Super match, Jet Brands of cigarettes without payment of Central Excise duty by suppressing the production, its factory at Bhopal was searched. 3. LTCPL Bhopal Factory was searched on 14/05/2010. It is alleged that an altercation took place between the visiting officers and the employees of LTCPL. An FIR was filed by the Officers against LTCPL employees and the Central Excise Officer posted in factory for physical supervision. It was alleged that the mob including employees of LTCPL and others were instigated to attack and rob visiting officers. Charges were of the unlawful assembly, assaulting and obstructing public servant, rio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot tenable. It is also disputed by appellants that the Chart for 'Midland Non Filter' indicates panchanama stock as ( Annexure-B) on 8/6/2010 as 3,70,400 sticks and RG-1 Stock as 120000 ( 120 TU). Whereas the RG-1 copy available on records indicates the stock to be 120 TU (Thousand units) packed and 144 TU Loose (Total 264 TU or 264000 Cigarettes). In his statements Shri R. B. Shukla, Director LTCPL contended, proceedings on 8/6/2010 were conducted in absence of any authorized representative of LTCPL and stock taken includes loose cigarettes which did not reach RG-1 Stage. He also disclosed the names and details about raw material suppliers M/s Orion Tobacco Pvt Ltd., Bhopal for supply of Tobacco, PCT and TOR etc. and packaging material printers as M/s Ayodhya Graphics, Bhopal. He also stated to have appointed M/s Crown Trading and M/s Globus Trading as Sole Selling Agents to whom cigarettes were sold from factory on payment of duty. M/s Ayodhya Graphics has been alleged to have supplied printed packaging material under Kuchha Slips. He also gave details of the purchase of rights to manufacture Midland, Jet and Super match brands, from Brand owners. 5. INVESTIGATIONS OF RAILWAY ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wn Trading and M/s Globus Trading, but denied to have any contact with anyone of LTCPL. He retracted his statement dated 22/7/2010. In his later statements he stated to have received Cigarettes from LTCPL and paid cash to persons authorized by Shri R. B. Shukla. Other investigations involve statements of distributors of Pan Masala, Bidi etc. who stated to have purchased cigarettes in cash from recipients of railway consignments. 9. A market Stock of around 18,500 Cigarettes was also seized in Jaipur during investigations for which separate proceedings have been initiated and same is not subject of present appeal. However it is observed that seized quantity is small as compared to the quantity declared as manufactured and cleared for payment of duties, and seized quantities are disputed as part of the quantities cleared on payment of duty. The proceedings initiated against such seizures are undertaken separately and therefore same are not part of present matters and not dealt herein. 10. RR-INVESTIGATIONS AT COIMBATORE: Similar railway receipts for despatches from Bhopal to Coimbatore by rail were investigated at Coimbatore. After seeing the shown RRs, Shri CSM Altaf , Railway....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Rajasthan, and South India, etc. For Mohammad Hashmi, M. D. Ojha and Rijwan Khan, he stated that after their arrest they are not in contact. He stated he was not attending factory regularly due to his ill health and had appointed three managers. He later came to know about few instances of clearances without duty payment by such managers. In his statement dated 30/04/2014 he contested the reconciliation chart, that the same involves loose quantities and the panchnama proceedings on 8/6/2010 as drawn in absence of LTCPL authorized persons. 13. Shri Bharat Patel another Director of LTCPL and a co-appellant, in his statements recorded under Section 14 of the Central Excise Act 1944 stated to be a technical person, who attended setting up of the factory and supervision of production and he was not promoter of LTCPL. 14. In addition, statements of few persons in Bhopal were recorded, summary details of which follow. In his statement the proprietor of the Printer of Packaging Material for LTCPL M/s Ayodhya Graphics, Shri Niraj Bhargava stated to have been printing on the coated paper and board supplied by LTCPL in autos and returned after printing against the charges received in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R) 17. Against the demand confirmed on the alleged stock variations in Bhopal Factory and imposition of penalties on Directors and Employees of LTCPL, Advocate Anil Mishra appearing for the appellants, contended that the reconciliation Charts exhibited to Shri R. B. Shukla (Director) on 4/4/2014 are erroneous to the extent that the Panchnama Dated 8/6/2010 mentions, that loose Cigarettes on Machine Line and Tray are not included in Annexure-B. Whereas in Annexure-B at Serial Number 4, 5, and 6, loose cigarettes kept in box & crates have been counted in stock and it is unclear as to why the stock panchnama dated 8/6/2010 was drawn before the security guards and why authorized officials of LTCPL were not asked to be present. He also contends that it was imperative for the visiting officers to act against any shortage or excess quantities on spot, and failing which, no liability can be impinged upon LTCPL through some reconciliatory calculations done after four years of the stock verification. He also pointed to the vague manner of reconciliation indicating that the reconciliation chart for Midland Non Filter indicates in panchnama Annexure B as 3,70,400 sticks and RG-1 S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cription of goods as poly bundles, PP, packaging materials were related with registered manufacturing unit of M/s LTCPL, operating under departmental supervision. He contended that there are no evidences for even the probability of such transportation from LTCPL factory to Bhopal Railway station. As without the transportation of the goods, it could not be held that there was any clandestine removal of the finished goods, especially when all the other evidences were seized from the third party and not from the premises of M/s. LTCPL. He contended that none of the third party records or seized private documents contains any preliminary evidence of transportation or sale of Cigarettes by LTCPL. When even Railway Parcel Agents have categorically stated to be dealing in numerous goods such as Rubber, Pumps, Gutkha etc., sorting of the expenses entries in such private records without having any reference to Railway Receipts of package description as Poly Bundles, PP Material, Packaging Materials etc., allegations and assumptions that such packages were containing cigarettes is without basis and can not sustain. He relied upon: (i) COMMISSIONER-OF-CENTRAL-EXCISE-DELHI-II-Versus-B....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s Continental Cement Company Vs Union of India reported at 2014 (309) ELT 411 (All) and contended that unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. He also placed reliance upon: (i) Oudh Sugar Mills Ltd v Union of India, 1978 (2) ELT (J172) (SC) (ii) FLEVEL INTERNATIONAL VERSUS COMMISSIONER OF CENTRAL EXCISE- 2016 (332) E.L.T. 416 (Del.) (iii) Arya Fibres Pvt. Ltd. v. CCE, Ahmedabad-II 2014 (311) ELT 529 (Tri.-Ahmd.) (iv) KUBER TOBACCO PRODUCTS LTD. VERSUS COMMISSIONER OF C. EX., DELHI 2013 (290) E.L.T. 545 (Tri. - Del.) confirmed by Apex Court 2015 (317) E.L.T. A159 (SC) (v) T.G.L Poshak Corp. v CCE, 2002 (140) ELT 187 21. He further contended that the only basis of the demand is the alleged number of bundles contained in RRs, multiplied with assumed quantiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llants to clear the cigarettes without payment of duty. The appellants refer and rely upon 2018 (7) TMI 1207 - CESTAT ALLAHABAD, M/S MUSK TOBACCO (INDIA) PVT. LTD. & Others VERSUS COMMISSIONER OF CENTRAL EXCISE, LUCKNOW. 25. Though the ld. DR for the Revenue did not challenge the decisions cited, he vehemently contended that such cases have to be decided on the principle of preponderance of probability. It was not necessary for the revenue, or possible, to establish the cases of clandestine manufacture and clearance with mathematical precision as has been observed by the Hon'ble Supreme Court in CC v D. Bhoormull, 1983 (13) ELT 1546. He also referred to the statement of Shri R. B. Shukla (Director), regarding the incidents of removals by his factory staff. 26. After summarizing the facts as stated by the Adjudicating authority, by way of what has been stated in the Show Cause Notice, the ld. AR submitted that, except for saying that investigations did not touch on purchase of raw materials and payments therefor, LTCPL did not come forward with any satisfactory explanation in respect of the facts stated in the Show Cause Notice, and the statements referred to therein and the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansportation to consignee end, of railway booking, Statement of persons who booked the consignments and statement of railway authorities regarding their knowledge of the nature of consignments. We find that except for an allegation on the printer of packing materials for clandestine printing of packing material, there are no evidences for manufacture of huge quantities of Cigarettes, referred to and calculated on per RR Basis, indicated to be 231,60,000 Nos. in Annexure A, 113,52,000 Nos. in Annexure C, 226,32,000 nos in Annexure D, 132,48,000 Nos in Annexure E. Thus a total of 703,92,000 Cigarettes alleged to have been manufactured and cleared by LTCPL under such RRs. We find that though there are no quantification of raw materials required to manufacture such quantities, a sizable quantity of Cut Tobacco Cigarette Papers, PCT, Filter Rod, Aluminum Foil, BOPP Film, TOR, Shell, Slide, Gray wrapper, CFC, Masking Tape, Fevicol, etc would be required to be purchased and consumed. 30. We find that the Revenue's allegations and findings are mainly based upon the statements recorded during the course of investigation, some of which are inculpatory, some neutral and some stand retracte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the entries are relevant to the alleged transactions, nor is there any other evidence except the statements. For demand purposes quantification of cigarettes have been done on the basis of presumptive calculations. Except for these entries, there is no substantial material to show that such a huge quantity of Cigarettes has been transported. There is no evidence of transportation of Cigarettes from LTCPL Factory to Bhopal Station. Undoubtedly, huge quantities of raw material would be required for manufacturing such a huge quantity of cigarettes. No evidence has been brought either in the notice or in the Adjudication Order to show that raw materials have been purchased for manufacture of such a huge quantity of Cigarettes. There is no proof of any extra payment being made by LTCPL to raw material supplier, Orion Tobacco, Bhopal. In fact no investigations have been made with M/s Orion. In the absence of these evidences, it would be impossible to conclude that LTCPL had manufactured and/or cleared such huge quantities. Railway Parcel Agents statement, could not be given much credence for the reasons firstly that their notes books were for carting and handling expenses only, secondly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he nexus of the RRs and LTCPL Factory is apparently absent. 34. The only basis of the demand is the number of bundles contained in RRs multiplied with assumed quantities. Even if the figures of bundles in the few seized documents tally, that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained in following paragraphs. The documents in question have not been resumed from LTCPLS premises. 35. In cases like the present, where the demand is based on alleged clandestine production, clearance and sale of excisable goods, mere entries in notebooks or diaries cannot establish the same. Proof of actual production, whether by direct evidence or corroborative evidence is a 'must', and the probative value of such evidence has to be established, especially when such a finding would lead to penal consequences. 36. In our view, therefore, the present demand, which has been confirmed by the impugned order, is not based on evidence, which, as this Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance, would justify a finding against the appellant (LTCPL). Inferential or conjectural conclusions cannot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ods. It was therefore, contended by the appellants that duty was not demandable in the absence of any proof or records. It was submitted that clandestine manufacture and clandestine removal of the goods without payment of duty should have been proved properly, which was not done. It was further contended that the figures recorded in the diary maintained by the Foreman were not corroborated by any other evidence. Several decisions of this Tribunal were cited in support of the contentions of the appellant [CCE, Meerut v Moon Beverages Ltd., 2002 (150) ELT 976, Kabra Enterprises & others v CCE, 1999 (109) ELT 571, Kothari Products Ltd and others v CCE, Kanpur, 2003 (159) ELT 1187, CCE v Raman Ispat, 2000 (121) ELT 46]. This Tribunal cited and followed the earlier decision in the Moon Beverages Ltd case (supra) to the following effect: It is well settled that the charge of clandestine removal cannot be established on the basis of one single factor which in this case, is the figures of sales reflected in the computerized sheets recovered by the Department from M/s. PEL. Without obtaining evidence such as evidence of other inputs required for manufacture of finished product name....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ht in holding that there was no positive evidence of clandestine production and removal of goods was answered against the revenue and in favor of the assessee. (v) In T.G.L Poshak Corp. v CCE, 2002 (140) ELT 187, this Tribunal considered the issue as to whether the demands can be confirmed on the basis of recovery of exercise Note Books and certain balance sheets maintained by the assessee and in the absence of any corroborative evidence. In fact, in a tabulated form this Tribunal dealt with the judgments that were referred to, to support the plea that demands cannot be confirmed which contained the reason for this Tribunal coming to the conclusion that, in the absence of any corroborative evidence, of a tangible nature, clandestine removal cannot be established. This Tribunal relied on the tabulated list of citations furnished by the Counsel that unless there is clinching evidence on the nature of purchase of raw material, use of electricity, sale and mode of flow back of funds, demands cannot be confirmed solely on the basis of Note Books maintained by some workers. (vi) In Hilton Tobacco v CCE, 2005 (178) ELT 378, certain private documents maintained in the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tine clearances. The Managing Director of the company had even stated that they were making clandestine clearance of the finished products without recording the same in their books of account. The request for cross examination of some of the persons whose statements were relied upon was rejected by the Adjudicating Authority only on the ground that the assessee had not given any reason and justification for their cross examination. This Tribunal held that this approach of the Adjudicating Authority is inconsistent with the law of evidence. On a careful perusal of the entire records of the case, the Tribunal found that there was nothing on record as to unrecorded purchases or consumption of other various raw materials in the manufacture of finished products. There was no statement of suppliers of raw material, except in respect of one of the raw materials. His cross-examination has also been rejected. In the absence of any other tangible evidence to show that other major raw materials had been procured without recording the same in books of accounts, this Tribunal did not accept the contention of the revenue that finished goods had been clandestinely manufactured and cleared. After ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le evidence. In this context, reference may be made to Oudh Sugar Mills Ltd. v. Union of India - 1978 (2) E.L.T. (J 172) (S.C.), wherein the Apex Court has observed that demand of duty cannot be raised on the strength of assumptions and presumptions. There should be sufficient evidence of the removal of the goods alleged to have been manufactured and cleared without payment of duty. The charge of clandestine removal must be based on tangible evidence and not on inferences involving unwarranted assumptions. 33. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following: a. There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions; b. Evidence in support thereof should be of: i. Raw materials, in excess of that contained as per the statutory records; ii. Instances of actual removal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses of weak evidences of a doubtful nature. Where to manufacture huge quantities of alleged final products, the assessee requires matching quantity of the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by the Tribunal. 40. As for the arguments of Ld. DR on preponderance of probability, that it was not necessary for the revenue, nor possible, to establish the cases of clandestine manufacture and clearance with mathematical precision as has been observed by the Hon'ble Supreme Court in CC v D. Bhoormull, 1983 (13) ELT 1546 and the probability in the matter is established. In our view, this submission may be of help only in cases where, in the matter of clandestine manufacture and clearance, there is some tangible and corroborative evidence of such manufacture and clearance by LTCPL. This Tribunal has laid down several criteria that could go to establish the cases of clandestine manufacture and clearance. Where such ingredients exist, a contention that a case need not be proved with mathematical precision may become relevant. The decision in D. Bhoormull would not, therefore, be of help to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces to certain unspecific instances brought to his knowledge regarding removal of cigarettes by employees. There is no reference to any specific date or timings, quantities, manner of clearances etc. There is no subsequent corroboration about the transactions, persons involved or the duty involved. The department has heavily relied on the statement of Shri Tulsi Makhija of Jaipur, who stated that he was making payments to the persons of Shri R. B. Shukla with regard to sale and purchase of the impugned goods. However there is no name, address or whereabouts of the person who was receiving such payments. Therefore, the statement of Shri Makhija cannot be relied upon for any purposes. Statement of Shri Tulsi Makhija and railway agents making bald claims cannot be relied upon in the absence of any corroborative evidence by independent evidences. This case has been made on the basis of diaries seized from the premises of co-noticees and their oral evidence but no corroborative evidence was brought on record to prove clandestine removal of goods. While going through the extracts of the diary recovered from the railway parcel agents, it can be seen that such diaries are not containing th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the conclusion that unit was not under physical control. We do not find such finding of the Original Authority to be sustainable. From the facts on records we have come to a conclusion that the unit was throughout under the physical control of Central Excise Officers who were posted in the factory of the appellant and they were supervising the manufacture and clearance of the goods and as provided under Rule 6 of Central Excise Rules, 2002, the Central Excise Officers were assessing duty payable before removal of the goods. We also note that the investigation did not establish as to from where the raw material such as tobacco was obtained and to whom the goods were cleared and how the money was recovered out of alleged clandestine clearance of such goods. We note that the Central Excise Duty is on manufacture and the clandestine manufacture of cigarette was not possible in view of the presence of Central Excise Officers within the factory. We, therefore, hold that there are no grounds to establish that the quantity of cigarettes were manufactured by appellant on which demand of about Rs. 39 crores was raised. 46. Regarding the alleged confession of Co- Appellant Shri R. B. Shukl....