TaxTMI 
TaxTMI 
2026 (4) TMI 427
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....K. Puram, New Delhi [the Additional Director General] that confirms the imposition of central excise duty upon him under section 11A(10) of the Central Excise Act, 1944 [he Central Excise Act] for the period from April, 2016 to January, 2017 with interest and penalty after invoking the extended period of limitation contemplated under section 11A(4) of the Central Excise Act. The order also confiscates the pan masala and gutkha that were seized under Panchnama dated 30.01.2017 under rule 25 of the Central Excise Rules 2002 [the 2002 Rules] read with rule 18 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 2008 [the 2008 Rules] The order, however, drops the demand of central excise duty for the period from April, 2015 to March, 2016. 2. Excise Appeal No. 50082 of 2025 has been filed by the department to assail that portion of the order dated 27.09.2024 passed by the Additional Director General that drops the demand of central excise duty raised against the appellant for the earlier period from April, 2015 to March, 2016. 3. The main issue that arises for consideration in the appeal filed by the appellant is whether the appellant is the "m....
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....hnama, raw materials, namely, cut supari, katha powder, perfume, menthol, glycerine and mixed compound were found in the said factory and finished goods in plastic bags as detailed in the Panchnama were also found. Packing material for the brands, Nazar, Vachan, Virat, Bajirao and Nagpuri were also found. The Panchnama also records that one Nitin Sabaghchandani, who was present in the factory, stated that his brother-in-law Rajkumar Menghani gave him instructions for day to day business of the factory and that the appellant was the actual beneficiary of the business of the said factory who gave telephonic instructions to Rajkumar Menghani. The Panchnama also records that samples from the finished goods were drawn under Test Memo dated 30.01.2017. A hand written pocket diary was also recovered during the search. Three mobile phones were also resumed during the search. 7. The ten FFS machines were sealed and placed under seizure. The other machines and goods were handed over to Seikh Imran, who was the owner of the land on which the said factory was located and is also claimed to be a worker in the factory under a Supurdnama dated 30.01.2017. 8. A second Panchnama was also draw....
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....27.08.2017. 25. Statement of Manoj Kumar Suarana of Surana Supari Centre, Nagpur, was recorded on 27.08.2017. 26. Statement of Rajendra Prasad Baid of Jain Brothers/Jain Supari Centre, was recorded on 23.05.2019. 27. Statement of Manjokumar Surana of Suarana Supari Centre was recorded on 23.05.2019. 28. Statements of Parichay Lalit Vigh, Partner of Dynasty Aromas, Mumbai were recorded on 29.09.2017, 13.10.2017 and 16.10.2017. 29. Statements of Dhananjay Singh, Senior Divisional Manager, Sales and Marketing of Montage Enterprises P. Ltd, were recorded on 30.11.2017 and 11.12.2018. 30. Statement of Manoj Dubey, Employee of Dixit Roadlines, Jagdalpur, Bastar, was recorded on 30.01.2017. 31. Statement of Santosh Kumar Dixit, Proprietor of Dixit Road Lines was recorded on 08.03.2017. 32. It is on the basis of the aforesaid statements and the private diaries recovered that the show cause notice dated 28.12.2020 was issued by the Principal Additional Director General alleging that the appellant was engaged in the manufacture of pan masala and gutkha through 9 pouch making machines found in factory premises situated at Khasra No.1340, Village Balenga, District Basta....
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....er period from April, 2015 to March, 2016. The order also directs for payment of interest on the said confirmed duty amount under section 11AA of the Central Excise Act and also imposes penalty on the appellant equal to the said duty amount under section 11AC of the Central Excise Act read with rules 17 (1) and 18 of the 2008 Rules. 36. In respect to non-compliance of the provisions of section 9D of the Central Excise Act, the Additional Director General observed: "In this regard, I find that there is settle law that the cross-examination can be allowed after considering the circumstantial evidence, but the adjudicating authority is not bound to allow cross-examination is a useful procedural mechanism to arrive at the fact, but at the same time, cross-examination before a quasi-judicial authority is fraught with the very real possibility of its misuse. It is reasonably expected that when cross examination takes place after a long passage of time, the chances are bright that the person concerned has been persuaded to change his mind and statement. The relevance of the cross-examination sought has to be carefully examined in context of the case and importantly in the back....
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....Surana, Nagpur, Rajendra Prasad Baid, Partner of M/s Jain Brothers, Nagpur; the statement of Anil Pritwani, Proprietor of M/s. Mohit Traders, Raipur, buyers of furnished goods manufactured in the unregistered factory; and the statement of Rajkumar Menghani and of the appellant. All these statements were recorded under section 14 of the Central Excise Act. The following findings were then recorded by the Additional Director General: "A.2. At the time of search, 10 Fill Form Seal (FFS) Pouch Packing Machines were found installed in the said factory premises at Khasra No. 1340, Village Balenga, Distt.-Bastar, Chhattisgarh by the officers of DGGI. Out of said 10 FFS Pouch Packing Machines, 09 were found operative and engaged in packing/production of Pan Masala and Pan Masala containing tobacco (Gutkha). The officers found that 30 workers (approximately) were working in the said unregistered factory premises and engaged in packing of Pan Masala Pouches/Gutkha with aid of said FFS pouch packing machines of various brands, namely, Nazar, Vachan, Virat, Baji Rao, Nagpuri, etc. The officers found during search that a person, namely, Sh. Sabhagchandani is supervising the manufacturi....
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.... brands in coded form, quantity in bags, etc. ***** ***** A.11. From the statement dated 27.08.2017 of Sh. Natwar Lal Sharda, I find that he has accepted that he had purchased tobacco valued at Rs. 2.5 crores from Sh. Saurabh Patel in 2016 on cash payment. He has clearly accepted that Sh. Naveen Agrawal supplied Menthol from Delhi to Raipur on his direction and perfumery, tobacco were supplied by Sh. Mukesh Agrawal @ Dilip Agarwal up to Pandhurna and thereafter the same were sent from Pandhurna to Bastaron his directions. He admitted that he was controlling the unregistered factory located at villageBelenga, Distt.-Bastar through his employees, namely Sh. Mukesh Agrawal @ Dilip Agarwal and Sh. Mukesh Agrawal & Sh. Rajkumar Menghani. I find that Sh. Natwar Lal Sharda in his statement dated 10.01.2020 has agreed with the statement dated 26.08.2017 of Shri Saurabh Ravjibhai Patel (RUD-50), statements dated 19.09.2017 and 21.09.2017 of Shri Naveen Kumar Agrawal (RUD131 & 136 respectively), statements dated 23.09.2017 and 19.05.2019 of Shri Memood Gaur, statements dated 26.09.2017 and 11.03.2019 of Shri Surendra Kumar Gupta (RUD-157 & 210 respectively), statements date....
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....g pan masala/gutkha during the period prior to April, 2016. Demand of central excise duty, however, for the period from April, 2016 to January, 2017 was confirmed. 40. Shri J.C. Patel, learned counsel for the appellant assisted by Shri Nilesh Choudhary made the following submissions: (i) The Panchnamas dated 30.01.2017 and 24.01.2018 claimed to be drawn at Khasra No. 1340, Village Balenga, District Bastar, are ex-facie unreliable. In first instance, the Panchas are not inhabitants of the locality and secondly the Panch witnesses were not examined. In support of this contention, reliance has been placed on the following decisions: (a) Pradeep Narayan Madgaonkar & ors. vs. State of Maharashtra [Criminal Appeal No. 906 of 1994 decided on 12.05.1995 (SC)] ; (b) Commissioner of Central Excise, Kanpur vs. Bakul Poly Pack Pvt. Ltd. [2018 (363) ELT 376]; (c) Yeduru Sreenivasulu Reddy vs. State of Andhra Pradesh [Criminal Revision Case No. 558 of 1999 decided on 27.11.2001 (AP)]; (d) Meenu Paper Mills Pvt. Ltd. vs. C.C.E. & S.T.-Meerut-I [Excise Appeal No. 70392 of 2018 decided on 23.04.2019 (Tri.-Allahabad)]; (e) Arya Bhushan Bhandar....
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....] and the judgment of the Allahabad High Court in Continental Cement Company vs. Union of India [2014 (309) E.L.T. 411 (All.)]; (v) The contention of the department that diesel generator set was found in the factory during search on 30.01.2017 is not correct as there is no mention of this set in the Panchnama. This apart, the statements made under section 14 of the Central Excise Act had been relied upon which cannot be considered as relevant as the procedure contemplated under section 138B of the Customs Act, 1962 [the Customs Act] was not followed; and (vi) In any event, the statements relied upon in the show cause notice do not establish that the appellant was the manufacturer of the pan masala and gutkha alleged to have been clandestinely manufactured in and cleared from an unregistered factory located at Khasra No. 1340, Village Balenga, District Bastar. 41. Shri P.R.V. Ramanan, learned special counsel appearing for the department made the following submissions: (i) The principal defence of the appellant that he is not the owner of the unregistered factory at Village Balenga cannot be accepted in view of the statements made by Rajkumar Menghani, N....
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....8 Rules it should be deemed that 10 FFS machines were operative from April, 2015; (viii) The goods/machines seized through Panchnama dated 30.01.2017 were not in the possession of the appellant at the time of seizure and he does not even now claim ownership of the said goods/machines. He, therefore, does not have a vested right or locus standi to claim that his right in terms of the provisions of section 100(4) of the Code of Criminal Procedure, 1973 [the Code of Criminal Procedure] has been infringed. As such, he has no right to claim, as a third party, that the Panchnama should be discarded; (ix) The non-availability of local witnesses does not render the search proceeding illegal as the provisions of section 100(4) of the Code of Criminal Procedure are directory and not mandatory. In this connection, reliance has been placed on the following judgments of the Supreme Court: (a) State of Punjab vs. Balbir Singh [1994 (70) E.L.T. 481 (SC)]; (b) Appabhai and anr. vs. Sate of Gujarat [1988 (2) TMI 468 - Supreme Court]; (c) Anwar Ali and ors. vs. The State of Himachal Pradesh [Criminal Appeal No. 1121 of 2016 decided on 25.09.2020 (SC)]; an....
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....inal Procedure had been infringed and in any view of the matter no prejudice has been caused to the appellant since the genuineness of the Panchnamas can be established from the corroborative evidence available on record. Learned special counsel also submitted that non-availability of local witnesses will not render the search proceedings illegal as the provisions of section 100(4) as the Code of Criminal Procedure are directory and not mandatory. 46. It would, therefore, be necessary to reproduce the relevant portion of the Panchnama dated 30.01.2017 which is as follow: "Panchnama dated 30.01.2017 drawn at Khasra No. 1340, Village BalinGA, District-Bastar, Chhattisgarh. Pancha 1 - Sh. Dilip Kumar S/o Sh. Gokul, Age - 29 years, R/o 2114/2, Mana Camp, Raipur, Chhattisgarh. Pancha 2 - Sheikh Shabbir Ali S/o Sheikh Subhani, Age - 50 years, R/o Flat No. 207, B - Block, Varshney Builders, Appanapalam, Vishakapattnam. We, the abovementioned panchas, came across a person near Hanuman Mandir, Village - Balinga, Raipur - Jagdalpur Highway at around 06:45 a.m. who introduced himself as Kuldeep Singh Ranga, Intelligence Officer, Directorate General of Central Exc....
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....Visakhapatnam which is more than 300 Kms away. These two Panchas are clearly not inhabitants of the locality in which the place to be searched is situated. Black's Law Dictionary defines "locality" as "a definite region of any part of space; geographical position. Place; vicinity; neighbourhood; community". Thus, locality would be a place in the vicinity of the site of search and, therefore, witnesses must be of that area only. In the instant case, the two Panchas produced by the department are of places situated more than 300 Kms. The Panchnama also does not record that inhabitants of the locality were not available or willing to be a witness to search, nor does it record why persons whose addresses were of places situated more than 300 kms were called upon as witnesses. 51. The search was, therefore, not carried out in accordance with the provisions of section 18 of the Central Excise Act and sub-section (4) of section 100 of the Code of Criminal Procedure. 52. In Pradeep Narayan, the Supreme Court, after noticing that the two witnesses did not belong to the locality where the search was conducted, observed that no serious attempt was made to associate two or more independe....
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....tion 100(4) of the Code of Criminal Procedure was not followed and so the search and seizure stood vitiated. 55. The submission of the learned special counsel for the department that it is not open to the appellant to contend that the procedure contemplated under section 100(4) of the Code of Criminal Procedure was not followed since the appellant does not claim to be the owner of the factory where the Panchnamas were drawn or of the goods/machines cannot be accepted. The duty demand against the appellant is based on the two Panchnamas and, therefore, it cannot be said that the appellant cannot urge violation of the provisions of section 100(4) of the Code of Criminal Procedure. The appellant would have a right to question the Panchnamas. 56. Learned special counsel appearing for the department also relied upon certain decisions to contend that non-availability of local witnesses would not render the search proceedings illegal. 57. In the present case, as noticed above, the Panchnama does not record that local respectable inhabitants were either not available or had refused to join as witnesses. No reason has been given in the Panchnama as to why the two witnesses who resi....
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.... asked for, is not disputed. There has, therefore, in our view, clearly been a breach of natural justice. On this count alone, the order of the High Court must be set aside. We are unimpressed by the argument that no prejudice was caused to the appellants by reason of the non-production of the Panchas which, it would appear, was what the High Court seemed to think." (emphasis supplied) 61. In Kamlesh Gupta, the Allahabad High Court observed that crossexamination of a person who is a witnesses to the Panchnama is not for affirming the Panchnama but is for the purpose of establishing the genuiness of the document and that cross-examination is necessary. The relevant portion of the judgment of the Allahabad High Court is: "4.4 Further, the Commissioner has observed that the genuineness of the panch witness cannot be questioned as they are duly receiving the letter of the Department but due to his personal economical reasons they are unable to attend the proceeding of cross-examination and they have stated in their response that the confirm the genuineness of Punchnama. In my opinion such confirmation of the punchnama behind the back of the appellant, is not acceptable e....
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.... witness at the time of trial. Moreover, if I have to simply accept the statement recorded under Section 108 as gospel truth and without any corroboration, I ask myself another question, as to why should anyone then go through a trial. The moment the Customs authorities recorded the statement under Section 108, in which the accused has confessed about his involvement in carrying contraband gold, the accused could be straightaway sent to jail without the trial Court having recorded any evidence or conducting a trial." (emphasis supplied) 63. In the present case, the Panchas are of places situated more than 300 Kms away and the Panchnama also does not record as to why they were asked to be witnesses and whether any effort was made to have independent and respectable inhabitants of the locality as witnesses. 64. The foundation of the case set up by the department is the Panchnama dated 30.01.2017. It is on the basis of the said Panchanama that the department alleges that 9 pouch filling machines were being operated in the premises at Khasra No. 1340, Village Balenga, District Bastar for manufacture of Pan masala and Gutkha. The Panchnama records that raw materials, finished g....
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....he statement dated 31.01.2017 made by Nitin Sabhagchandani under section 14 of the Central Excise Act. Nitin Sabhagchandani is said to have stated that his brother-in-law, Rajkumar Menghani, provided him work and the plan to set up the factory at Bastar was made by Rajkumar Menghani on being told by the appellant. It is stated that he also stated that directions regarding manufacture were received by him from Rajkumar Menghani and that the appellant used to give instructions to Rajkumar Menghani. Statements of the appellant and various other persons recorded under section 14 of the Central Excise Act have also been considered by the Additional Director General for recording a finding that pan masala and gutkha were manufactured at the unregistered factory situated at Khasra No. 1340, Village Balenga, District Bastar by the appellant with the help of Rajkumar Menghani, Nitin Sabhagchandani and other persons/employees. 69. The issue that would arise for consideration is whether the statement made by the appellant under section 14 of the Central Excise Act and the statements made by other persons under section 14 of the Central Excise Act can be considered as relevant if the proced....
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....s which are referred to in section 9D of the Central Excise Act. A bare perusal of sub-section (1) of section 9D makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in the interests of justice, except where the person who tendered the statement is dead or cannot be found. In view of the provisions of subsection (2) of section 9D of the Central Excise Act, the provisions of subsection (1) of section 9D shall apply to any proceedings under the Central Excise Act as they apply in relation to proceedings before a Court. What, therefore, follows is that a person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether, having regard to the circumstances of the case, the statement s....
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.... sections. It has been observed that the statements recorded during inquiry/investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence." 77. In Ambika International vs. Union of India [2018 (361) E.L.T. 90 (P&H)] decided on 17.06.2016, the Punjab and Haryana High Court examined the provisions of section 9D of the Central Excise Act. The show cause notices that had been issued primarily relied upon statements made under section 14 of the Central Excise Act. It was sought to be contended by the Writ Petitioners that the demand had been confirmed in flagrant violation of the mandatory provisions of section 9D of the Central Excise Act. The High Court held that if none of the circumstances contemplated by clause (a) of section 9D(1) exist, then clause (b) of section 9D(1) comes into operation and this provides for two steps to be followed. The first is that the person who made the statement has to be examined as a witness before the adjudicating authority. In th....
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...., having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. 23. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word "shall" in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory. 24. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. The statement, recorded during inquiry/ investigation, by the gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitt....
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....ue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof." (emphasis supplied) 78. In Hi Tech Abrasives Ltd. vs. Commissioner of C. Ex. & Cus., Raipur [2018 (362) E.L.T. 961 (Chhattisgarh)] decided on 04.07.2018, the Chhattisgarh High Court also examined the provisions of section 9D of the Central Excise Act. The allegation against the appellants was regarding clandestine removal of goods without payment of duty and for this purpose reliance was placed on the statement of the Director of the Company who is said to have admitted clandestine removal of goods. The contention of the appellants before the High Court was that the statement of the Director could be admitted in evidence only in accordance with the provisions of section 9D of the Central Excise Act. After examining the provisions of sub-sections (1) and (2) of section 9D of the Central Excise Act, and after placing reliance on the judgment of the Punjab and Haryana High Court in Ambika International, the Chhattis....
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....ication of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. In taking this view, we find support from the decision in the case of Ambica International v. UOI rendered ....
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....xcise Act. Section 9D of the Central Excise Act deals with all persons whose statements have been recorded under section 14 of the Central Excise Act and, therefore, it is also not possible to accept the contention of the learned special counsel appearing for the department that the appellant was not required to be examined by the Additional Director General under section 9D of the Central Excise Act. 81. The Additional Director General was, therefore, not justified in holding that there was no requirement in law for compliance of the provisions of section 9D of the Central Excise Act. The Additional General even went to the extent of observing that "cross-examination before a quasi-judicial authority is fraught with the very rare possibility of its misuse. It is reasonably expected that when cross-examination takes place after long passage of time, the chances are bright that the person concerned has been persuaded to change his mind and statement." This observation not only goes against the settled principles of law but even otherwise cross-examination cannot be denied merely because a person may change his view. The purpose of cross-examination is to test the authenticity of ....
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....ant knows Nitin Sabaghchandani nor has the appellant ever sent any machines to Bastar. The appellant further stated that the appellant has no business of manufacturing pan masala and gutkha in Bastar. 86. However, the show cause notice, while summarizing statement dated 30.01.2017 of the appellant, omitted the aforesaid portion of the said statement of the appellant in which he categorically stated that he does not know Nitin Sabaghchandani nor had he ever sent any machines to Bastar and that the he had no business of manufacturing pan masala and gutkha in Bastar. 87. The statement dated 27.08.2017 of the appellant was retracted by the appellant by a letter addressed to the Chief Metropolitan Magistrate, Patiala, New Delhi. It is the case of the department that in view of the said retraction, further statement dated 15.09.2017 of the appellant was recorded and, therefore, the retraction is not of any significance. This conclusion is incorrect as would be evident from the statement dated 15.09.2017. This statement has been misconstrued as being a statement wherein the appellant agreed with the entire statement dated 27.08.2017 that on being asked whether his identification and....