TaxTMI 
TaxTMI 
2026 (1) TMI 642
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.... and had cleared the goods on payment of appropriate GST and Compensation Cess and the details were duly disclosed in the monthly returns. 3. The appellant further claims that it had earlier decided to venture into manufacture of KC Brand Zafrani Zarda for which it started trial production but the application filed for registration of brand name "KC", was not registered. The appellant also arranged some old and dilapidated machinery for manufacture of Zarda on sample basis and also purchased raw tobacco and accounted for in its book of accounts but since the appellant did not get satisfactory results, it did not pursue manufacturing Zafrani Zarda. 4. Directorate General of Goods and Services Tax Intelligence [the DGGI], Ahmedabad Zonal Unit conducted search at the premises of the appellant and distributors, sub-distributors and two transporters on 09.11.2020 and 13.11.2020 on receiving intelligence that the appellant and its distributors clandestinely removed the manufactured goods (Pan Masala and Zafrani Zarda) without cover of invoice and without payment of appropriate amount of tax. The proceedings of the search were recorded in Panchnama dated 09.11.2022 (RUD-1) and 13.11....
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....ll Book 11. Search was also simultaneously conducted on 09.11.2020 at another office of the said transporter situated at B-24, Jatni Bagh near Juni Mandi Crossing, Agra. During search, certain documents were seized as per Panchnama drawn on 09.11.2020 (RUD-3). 12. Statements of Kailash Gupta, in-charge of Gwalior Branch of the Data Goods Carrier, Hari Singh who worked as an Assistant and Shri Manmohan Agrawal were recorded. 13. Search was also conducted at the premises of a Distributor called M/s. Harikesh Agencies [Harikesh Agencies] at Ahmedabad. The following documents were seized under a Panchnama dated 09.11.2020: Sr. No. Sr. No., as per GST INS-02 Documents description as per GST INS-02 Details contain in the documents 1. A-1 Made-up file-1 Details of Commission income, summary of clandestine supply of Karamchand tobacco and pan masala for the month of April, 2022 to June, 2020 (RUD-33) 2. A-3 Note Book (Youva the original) Details of clandestine supply of Karamchand tobacco and pan masala for the month of April, 2020 (RUD-34) 3. A-4 Note Book (Youva the original) Details of clandestine supply of Karamchand tobacco and ....
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....4, A-5, A-6 and A-7 as also the statements of Ratan Makhija recorded on 10.11.2020 and 11.11.2020, the statements of Balwant Pal, Santosh and Virender, working as Drivers in the firm of the appellant and recorded the following finding: "26.11 I find that on scrutiny of the registers at A4, A-5, A-6 and A-7, as discussed above, it was found that M/s. Ashish Enterprises, Gwalior has shown very small/Nil quantity of both the raw materials and finished goods during the period from 01.03.2020 to 09.11.2020. However, huge quantum of raw materials and finished goods i.e. Tobacco (Zafrani Zarda) was seized at Premises of M/s. Ashish Enterprises, Gwalior which indicates that the Noticee M/s Ashish Enterprises, Gwalior was engaged in clandestine supply of tobacco (Zafrani Zarda). Further, the same was also accepted by Shri Ratan Makhija and Shri Basant Makhija in their respective statements tendered on various dates. Furthermore, it is also noticed that Shri Basant Makhija and Shri Ratan Makhija both accepted and confirmed the facts deposed by each other. On going through the statements of the drivers, from the depositions made by them, I find that M/s. Ashish Enterprises, Gwalior w....
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....h diaries i.e. A-7 and A-2) by M/s Sarco Roadlines without any duty paying valid documents." 23. The Principal Commissioner also examined the searches carried out at the premises of another transporter called Data Goods Carrier; the statements of Kailash Raghunandan Gupta, Incharge of Gwalior Branch of Data Goods Carrier; Santosh Baghel, an employee of the appellant; and Hari Singh, an Assistant in Data Goods Carrier and recorded the following finding: "33.24 In view of the above, I find that the Registers/Notebooks listed at "A-29" and "A-30" of INS02 of Panchnama dated 09.11.2020 contain details of Karamchand brand Pan-Masala and Zafrani Zarda manufactured and supplied by M/s. Ashish Enterprises, Gwalior, clandestinely, without invoice and other legal documents and without payment of tax to M/s Data Goods Carrier, Gwalior for further transportation to Agra (H.O. of the said transporter). Further, Bill books A-1 to A-8 were prepared and the code words "CHHUARA/CHHUARI" for the said goods (Karamchand brand Pan-Masala and Zafrani Zarda manufactured and supplied by M/s. Ashish Enterprises, Gwalior) were given and thereafter, date-wise and vehicle wise bills were prepared ....
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....ies like the transporters (which Diaries do not belong to the appellant); and (b) Oral statements of various witnesses (which have been denied in cross-examination) recorded under section 14 of the Central Excise Act and the statements of the Proprietor and Basant Makhija which were subsequently retracted; (ii) The demand cannot be sustained merely on the basis of third party documents and statements in the absence of any tangible or corroborative evidence. It is well-settled that the following four essential ingredients are required to be established by the investigating authorities to prove clandestine removal of goods: (a) Procurement of raw materials; (b) Manufacture of final products; (c) Clandestine removal of goods; (d) Receipt of consideration against such removal; (iii) In the present case, although the Principal Commissioner purportedly examined the witnesses, such examination was conducted in a stereotyped and perfunctory manner, without posing any questions germane to the allegation of clandestine removal of goods or the issues arising from the investigation. Consequently, the so-called examination-in-chief ....
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....goods (Pan Masala and Zafrani Zarda) were seized at the premises of the appellant indicating illicit production and clearance; (iv) At the premises of transporters (Sarco Roadlines and Data Goods Carrier), larger quantities of Pan Masala and Zafrani Zarda were found without tax documents and were seized; (v) At M/s. Harikesh Enterprises and M/s. Shree Sales, goods were found without legitimate documents, with some stock shortages and excesses noted; (vi) Diaries seized from Sarco Roadlines and Data Goods Carrier contained details of clandestine supplies. These Diaries corroborated the illicit supply chain, showing dispatches from the appellant without invoices or tax payments; (vii) Rough registers at Data Goods Carrier recorded goods received from the appellant without bills, using code words like "Chhuara/Chhuari" in trip slips to conceal transactions; (viii) Ratan Makhija, Proprietor of the appellant, admitted to using unaccounted raw and packing material for illicit manufacture of Pan Masala and Zafrani Zarda without invoices. He confirmed that KC Brand Zafrani Zarda was supplied without GST payment and that transporters (Sarco Roadl....
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....ained as per the statutory records; (b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty; (c) discovery of such finished goods outside the factory; (d) instances of sale of such goods to identified parties; (e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him; (f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty; (g) statements of buyers with some details of illicit manufacture and clearance; (h) proof of actual transportation of goods, cleared without payment of duty; (i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one....
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....nclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all 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 this Tribunal." (emphasis supplied) 31. It is seen that the four essential ingredients that required to be established for establishing clandestine removal of goods are: (a) Procurement of raw materials; (b) Manufacture of final products; (c) Clandestine removal of goods; and (d) Receipt of consideration against such removal. 32. In the present case, findings have been recorded against the appellant on the basis of Diaries recovered from the premises of the third parties and the oral statements of the witnesses. The demand cannot be sustained merely on the basis of third-party documents and statements, in the absence of any tangible or corroborative evidence. 33. There is nothing on the record which may establish procurement of raw materials for the manufacture of goods in the factory of the appell....
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....corded under section 14 of the Central Excise Act, but he retracted the said statement on an affidavit filed immediately on the next day explaining the circumstance and the mental state under which the statement was taken. He was, however, not called to record his voluntary statement. Learned counsel also pointed out that as the initial statement made under section 14 of the Central Excise Act was denied in cross-examination, the initial statement cannot be relied upon in the absence of any independent corroborative evidence. 37. The involuntary statements of Ratan Makhija, Proprietor of the appellant, have been recorded under section 14D of the Central Excise Act. According to him these statements were recorded under duress and coercion and immediately retracted on an Affidavit dated 12.11.2020 explaining the circumstances and the mental state under which the statements were taken. However, despite his willingness to cooperate in the investigation and record his statement, the department never called him for recording his statement. 38. It would be pertinent to state that the appellant cross-examined persons whose statements were recorded under section 14D of the Central Exc....
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....Proprietor of Data Goods Carrier 43. In cross-examination, Kailash Gupta stated that he had not maintained any Diaries and was, therefore, unaware of their contents. He further clarified that description of goods was never altered and was always mentioned in the bilties strictly on the basis of invoices received from the parties. He also deposed that his earlier statement was recorded under coercion and that his signature was obtained without being allowed to read its contents. 44. In cross-examination, Hari Singh stated in response to Question No. 3 that the Diaries contained details of goods received for transportation from various parties during the day and the entries were not confined to any one particular party. In response to Question No. 5, he clarified that invoices were always received along with the goods supplied by the appellant. He further deposed that his earlier statement was recorded under duress and coercion, and that his signatures were obtained without being given an opportunity to read the contents. 45. In cross-examination, Manmohan Agrawal stated in response to Question No. 14 that he had never transported Zafrani Zarda and had only transported Pan M....
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....transporters. The name of the appellant or that of any of the alleged buyers/dealers does not appear in any of the entries of the Diaries recovered from the premises of the transporters, which form the sole basis of the impugned demand. Parallel invoices, vouchers, or challans for purchase of raw materials were not found, nor has the department explained the alleged source of procurement of raw materials necessary for such voluminous production. 50. There is, therefore, substance in the submission advanced by the learned counsel for the appellant that the allegations levelled in the show cause notice and the findings recorded in the impugned order are factually incorrect. 51. The impugned order does not also correlate the electricity consumption records with the alleged large-scale clandestine manufacture, which is a critical parameter. 52. The demand has been confirmed on the basis that the appellant supplied total 17,346 green jhal of Zafrani Zarda and 61,234 white jhal of Pan Masala during the period from September, 2019 to November, 2020. The average of the above comes to around 200 jhals per day during the disputed period. If stock of at least 4-5 days is to be kept, ....
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.... numbers had been provided in the Register but such persons were not called to ascertain the correct facts of the case; (d) No effort was made to ascertain whether the said truck moved to the particular place as mentioned in Lorry Receipt; (e) It was not ascertained whether the handwriting mentioned in the Diary was that of Abdul Wazid Khan or some other person; (f) If the Diaries were written by Abdul Wazid Khan, as has been noted, the same cannot be relied without his statement being recorded; (g) None of the alleged tempo drivers were shown the Diaries to corroborate whether the entries in the said Diaries pertained to the appellant; (h) Details of Diaries were neither shown to the appellant nor his signature was taken on any page of the Diary; (i) Various truck numbers have been mentioned in the Diary but the investigating authority did not make any attempt to find out whether these trucks had travelled to that particular city; (j) Details for receipt of freight for the transportation of the material were not found from the premises of Sarco Roadlines; and (k) Statement of Firoz Khan was recorded wherein he....
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....nied that they were called by these names; (e) The receipt book only provides date and numerical numbers without given any further details; (f) Statement of Abdul Wazid Khan, who is said to have maintained these receipt books, has not been recorded; and (g) Incriminating documents were not found from the premises of the appellant which can corroborate details mentioned in receipt book A8. 63. The entire basis of attributing the Diaries of Sarco Roadlines is the statement of Firoz Khan. His statement should not have been relied as he was not the author of the Diaries. The author of the Diaries is said to be Abdul Wazid Khan, whose statement was not recorded. 64. The Delhi High Court in Commissioner of Central Excise vs. Vishnu and Co. Pvt. Ltd. [2016 (332) E.L.T. 793], upheld the view of the Tribunal in Kuber Tobacco that if the statement of persons who wrote the loading Registers and daybook were not recorded, then those evidences could not be relied upon. It was also held that it was for the department to explain why the entries in the documents were not further investigated by them and it was for the department to establish the link between such e....
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....r has heavily relied upon Diary A29 and A30 and has held that details contained in the Diaries show clandestine supply of goods without payment of tax. The order records that the entries pertaining to period from 03.02.2020 to 08.11.2020 are mentioned in Diary A29 and entries pertaining to period from 25.10.2019 to 02.02.2020 are mentioned in Diary A30. 73. The name mentioned on the bottom of page no. 1 of Diary A29 and at the starting of page no. 1 of Diary A30 reads as "Ashish/Arish". Merely because "Ashish" is written, the records mentioned therein cannot be connected to the appellant for the following reasons: (a) It is not clear whether the name written is "Arish" or "Ashish"; (b) There are various names written such as "Raju Vakil", "Shri Sita Ram Ji", "Raja Chemicals" and the name "Ashish/Arish" is written only at the bottom of the page and at very obscure place (in Diary A29); (c) "Ashish Enterprises" is not specifically mentioned to link it to the appellant; (d) The address of the appellant is also not mentioned; and (e) There can be many firms with the name "Ashish" in Gwalior. Thus, merely because "Arish/Ashish" is written,....
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.... M/s. JBCPL and M/s. MBSC and shortage of finished goods during the stock taking at the factory premises by the DGCEI officer, including those of taking irregular Cenvat credit on the basis of four supplier of the scrap without accompanying of the goods. We find that demand of Rs. 40,76,894/- has been confirmed on the basis of certain loose slips/pages relied upon by the Revenue which were resumed from Shri Raman Bhatia, Director of M/s. JBCPL, who was the consignment agent. We find that no reliance can be placed on these loose sheets as the name of the appellant is not mentioned in the said loose sheets. Reliance cannot be placed on the statements of Shri Raman Bhatia without cross-examination. Placing reliance in the following decisions : (i) 2018-TIOL-1917-HC-KOL in case of Modern Agency & Ors. v. Commissioner of Customs and Ors. (ii) 2016 (338) E.L.T. 113 (Tri.-Del.) - Commissioner of CESTAT, Delhi-I v. Kuber Tobacco India Limited; (iii) 2016 (340) E.L.T. 67 (P&H) - Jindal Drugs v. Union of India; (iv) G. Tech Industries v. Union of India - 2016 (339) E.L.T. 209 (P&H). 14. We also find that M/s. JBCPL was selling the identical goods ....
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....Only vehicle numbers, name of consignee and bilties numbers are mentioned. In the absence of any corroborative evidence, it cannot be said that these Diaries pertain to the appellant for transporting of Pan Masala/Zarda in the guise of "Chhuara/Chhuari". In fact, in Diary A35, Pan Masala is specifically written when it was transported. Kailash Gupta also in his cross-examination stated that he never mentioned the goods received from the appellant as "Chhuara/Chhuari" and that he always mentioned the correct description of the goods. It cannot, therefore, be held that the entries in the Diaries relate to the appellant. Bilties/Lorry Receipts or invoices or parallel records were not recovered from the premises of the appellant. Kailash Gupta and Hari Singh in their cross-examination stated that the Diaries that were recovered by the department were used to maintain the details of all goods received during the day for further transportation. The statements made during the cross-examination cannot be brushed aside by merely stating that it was an afterthought. The drivers Santosh, Balwant Pal and Virender also stated that they were not working for the appellant but working on a daily w....