TaxTMI 
TaxTMI 
2026 (9) TMI 1112
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....eneral of GST Intelligence [DGGI] Ghaziabad, highlighted the taxpayer's alleged involvement in unrecorded purchases of laminate and clandestine supply of their manufactured goods leading to substantial GST & Excise duty evasion. Accordingly, a Show Cause Notice [SCN] No.114/2022-23 dated 27.04.2023 was issued against M/s AJSPL for the demand of Basic Excise duty of Rs.52,94,866/- and NCCD of Rs.26,47,43,316/-(Total of Rs.27,00,38,182/-). A separate SCN was also issued for evasion of GST. The impugned SCN No.114/2022-23 was adjudicated vide Order-in-Original No.80/ADC/LKO/GST/2024-25 dated 20.09.2024. The Department has reviewed the OIO and preferred appeal before Commissioner (Appeals) Customs, CGST & Central Excise, Lucknow who vide Order-in-Appeal No.72-CE/APPL/KNP/2025 dated 07.03.2025 rejected the departmental appeal and upheld the OIO dated 20.09.2024. Hence, this appeal. 2.1 Search was conducted at the residential premises of Shri Sujeet Kumar Singh, the owner of M/s Bharat Transport Company Pvt. Ltd . [M/s BTCPL], located at Noida on 25.06.2021. A file resumed at SI. No.17, was found containing the details of printed laminates transported by M/s BTCPL through the vehicles....
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....ash Modi in his another statement dated 10.08.2021 agreed with the statement dated 09.08.2021 of Shri Kamlesh Gupta, Proprietor of M/s Shree Maa Vaishno Devi Trading Co., Lucknow and the statement of Shri Md. Rukhsaad, Proprietor of M/s Jabbar Zarda Store, Kanpur and stated that these persons used to receive the unaccounted goods supplied from his manufacturing unit. He also admitted that his firm had purchased accounted as well as unaccounted 'Supari' and 'Kattha' from M/s JMD Metal Pvt. Ltd., Kanpur. He further stated that his firm used to procure accounted as well as unaccounted packaging material i.e. laminates from the Montage Group units in the garb of bills issued to dummy firms. The unaccounted laminates received from the Montage Group units had been stored by the transporter i.e. M/s BTCPL in a godown located at 63B, Dada Nagar, Kanpur from where it was supplied to his factory. The said godown is managed by a person namely, Shri Kaushal Kumar. He also agreed that laminates seized at the said godown was purchased by his firm for the unaccounted production of finished goods. He admitted that the unaccounted laminates received from M/s MSPL, Delhi had been used in the clandes....
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...., being the supplier of 'Kattha' & 'Betelnut'. Shri Pradeep Jain, Director of M/s JMD Metal Pvt. Ltd. in his statement dated 09.08.2021 stated that he sold 'Kattha' & 'Betelnut' both in cash & under B to B supply and discharged GST on both types of outward supply. He also stated that the goods sold in cash had been mostly supplied to Shri Naveen. Enquiry was conducted at M/s Aman Marketing, Kanpur, being the supplier of Tobacco, Kimam & perfumery compounds. Shri Deepak Kumar Malu, Manager of M/s Aman Marketing in his statement dated 22.12.2021 stated that his firm is engaged in the trading of Tobacco, Kimam & perfumery compounds both under B to B & B to C sales and taxes had been duly discharged under both categories of supplies. He also stated that major portion of B to C supply had been made to M/s AJSPL. 2.8 Investigation conducted at the end of Dealers and their statements were recorded wherein they stated that earlier they were purchasing 'SNK' brand Pan Masala & Tobacco from M/s AJSPL and presently, they were purchasing the said goods from M/s GEPL without bills but they could not explain the exact quantum of such recorded/unrecorded transactions. Shri Amit Bhardwaj, Propr....
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....available, the details available in the file resumed at SI.No.17 pertaining to the supply of the laminates from Delhi to Kanpur secret godown have been taken into consideration, where the description of brand along weight is mentioned. The average weight was calculated on the basis of 09 sample entries. As such, total 13,19,555.42 Kg of laminates was found to be clandestinely procured by M/s AJSPL during the period from December'2020 to May'2021, which resulted into manufacturing of 233,95,70,268 nos. of 'Pan Masala' pouches. As per the prevailing selling practice of 'Pan Masala' in the market, 'Pan Masala' pouches are always being sold in the conjugation of similar numbers of tobacco pouches. One pouch of 'SNK' brand Pan Masala of MRP of Rs.1.5 is always being sold with one pouch of 'SNK' brand tobacco of MRP of Rs.1.00. Similarly, one pouch of 'SNK' brand Pan Masala of MRP of Rs.18.00 is always being sold with one pouch of 'SNK' brand tobacco of MRP of Rs.2.00. Therefore, M/s AJSPL had clandestinely supplied an equal number of pouches of tobacco of MRP Rs.1.00 as the clandestinely supplied number of pouches of 'Pan Masala' of MRP Rs.1.5 and similarly, clandestinely supplied an eq....
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....jeet Kumar Singh is the basis of entire case. The quantification has been made on the basis of statement of Shri Sujeet Kumar Singh who has clarified the details mentioned in the file @ No.17. It has been stated in the appeal that pages containing details of transportation of printed laminate from secret premises located in Kanpur to various Pan Masala manufacturer in Kanpur were duly mentioned and Chart 1-A was prepared on such details. 3.1 It has been alleged by the DGGI that the pages of file @ No.17 contain details of transportation of laminates from a secret premises situated in Kanpur to various Pan Masala manufacturers of the Kanpur region. The specific pages cited are Pages 25-26 (for December 2020), Pages 67-70 (for January 2021), Pages 105-108 (for March 2021), Pages 190-191 (for April 2021) and Pages 205-209 (for May 2021). 3.2 The Respondents have submitted that a careful scrutiny of the SCN and the relied upon documents (RUDs) annexed thereto, clearly show that no documentary evidence or corroborative material has been placed on record to substantiate the Department's averment that the said pages indeed contain "details of transportation of laminates" from any "s....
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....re the Directors of company on the condition that they will pay the installments of the vehicles. Since they did not pay the required amount and also did not pay the installments, he again took over the charge of company. There was no written agreement as they were known to each other. 3.5 The Respondent has argued that no investigation was made by DGGI in this regard. The fact of sale of M/s BTCPL was never verified through the company details available at MCA. Shri Sujeet Kumar Singh stated in his statement dated 25.06.2021 that M/s BTCPL was sold without any agreement. How a Private Limited Company was sold without agreement? Whether any transaction actually took place? The DGGI officers did not even bothered to check the statement that how a private limited company is sold? In the Pvt. Ltd. company sale means transfer of shares, it was never verified by the DGGI, when shares of the company were transferred in favour of Shri Madan Mohan Jena and Shri Keshav Chandra. It is a settled law, if shares has been transferred, Shri Sujeet Kumar Singh has no locus standi as far as M/s BTCPL is concerned and he has no role to play in M/s BTCPL. Accordingly, his statement has also got no....
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....similar numbers of Pan Masala and Tobacco pouches. Such statements, without independent corroboration, cannot form the basis of a duty demand. It is a settled position that clandestine manufacture or removal cannot be alleged on the basis of presumptions, general market practices, or unverified dealer statements, and must be supported by concrete evidence such as raw-material consumption, production records, transport documents, seizure, excess stock, confessional statements of responsible persons, or any tangible linkage to the assessee's unit. 3.10 In the present case, the Department has failed to show any evidence that the noticee ever manufactured or procured chewing tobacco, possessed machinery, purchased raw materials, or maintained any records for the same. No transporters, buyers, or suppliers related to tobacco have been examined or confronted. No parallel invoices, slips, challans, loading sheets, weighment details, seizure, or stock variation has been shown. The reliance on generalized dealer statements-unsupported by documents-is legally insufficient and contrary to established judicial principles that demand cannot be sustained on conjecture, presumption, or customa....
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....tinely manufactured goods, identification of the buyers, receipt of consideration from such clandestine sales and the corresponding financial flow-back. These circumstances are not independent or isolated factors but constitute interconnected links in the chain of evidence which must collectively establish clandestine manufacture and removal beyond mere suspicion. In the absence of such comprehensive and corroborative evidence, no demand alleging clandestine manufacture and removal can be legally sustained. It is equally well settled that clandestine removal, being a serious charge carrying civil as well as penal consequences, cannot be founded upon conjectures, surmises or mathematical assumptions. Suspicion, however grave or compelling, cannot substitute legal proof, and the allegation must necessarily be established through evidence that is clear, cogent, convincing and duly corroborated. 4.3 The facts of the case reveals that the entire case of the Revenue is founded upon File No.17, which was allegedly resumed during the course of search conducted at the residential premises of Shri Sujeet Kumar Singh, Director of M/s BTCPL. According to the Department, the said file contai....
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....records of M/s BTCPL, whether they were maintained contemporaneously in the ordinary course of business, or whether the Respondent had ever accepted, acknowledged or acted upon the correctness of such entries. Equally, the Department has failed to establish the authorship of the entries through any independent evidence or by examining the person who actually prepared or maintained the document. It is a settled principle of law that a private document recovered from a third party does not automatically become admissible evidence against an assessee merely because the assessee's name appears therein. Unless such document is independently proved, corroborated and linked with the assessee through legally admissible evidence, no civil or penal liability can be fastened upon the assessee merely on the basis of such third-party records. 4.5 The another crucial evidence is the sole statement of Shri Sujeet Kumar Singh recorded by the officers of DGGI on 25.06.2021. In the said statement, Shri Sujeet Kumar Singh himself categorically stated that he had sold M/s BTCPL along with approximately 140 trucks, to Shri Keshav Chandra Patra and Shri Madan Mohan Jeena for a consideration of Rs....
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....irectors of M/s BTCPL at the time of search. These glaring contradictions were never confronted to either Shri Madan Mohan Jeena or Shri Keshav Chandra Patra. No statement of either of them was recorded under Section 70 of the CGST Act, 2017, despite the fact that they were admittedly the Directors of the company and were the most competent persons to explain the management, custody of records and transportation activities of M/s BTCPL during the relevant period. Their complete non-examination leaves a substantial gap in the investigation and seriously undermines the credibility of the Revenue's case. 4.9 The investigation is equally silent regarding the manner in which Shri Sujeet Kumar Singh was functioning after the alleged sale of the company. If Shri Jeena and Shri Patra were continuing as Directors, they would naturally be responsible for the day-to-day affairs of the company and for maintaining its statutory and commercial records. In such circumstances, the Department has not explained under what authority Shri Sujeet Kumar Singh was allegedly in possession of confidential records pertaining to the Financial Year 2020-21, particularly when those records were allegedl....
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....lationship with M/s BTCPL remained unexplored. In the absence of a proper investigation establishing its authenticity and connecting it with the Respondent through reliable and legally admissible evidence, no adverse inference can be drawn against the Respondent on the basis of such a document alone. The very foundation upon which the Revenue has built its case is thus rendered legally unsustainable. 4.12 Even if, for the sake of argument, the transporter's record contained in File No.17 is accepted at its face value, the burden still lay squarely upon the Department to establish that the laminate allegedly referred to therein was in fact transported to, delivered at and received by the factory premises of the Respondent. Mere existence of an entry in a private record maintained by a third party does not ipso facto establish the actual movement or delivery of goods. The Department was required to substantiate the alleged delivery through independent and corroborative evidence such as unloading records, gate entry registers, weighbridge records, acknowledgements of receipt, warehouse records, inward registers, labour deployment records, inventory reconciliation, stock verific....
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....r Pan Masala manufacturer. Thus, the very premise on which the Department seeks to rely upon File No.17 remains unsupported by any objective or independent evidence. 6. The Department has primarily relied not only upon File No.17 but also upon the statement of Shri Sujeet Kumar Singh recorded on 25.06.2021, wherein he allegedly stated that pages 25-26 and certain other pages contained date-wise details of laminate transported to Pan Masala units situated in Kanpur. However, a critical examination of the said statement reveals that Shri Sujeet Kumar Singh has nowhere stated that the pages referred to in the SCN pertain to transportation of laminate in piecemeal from any secret premises situated in Kanpur to the Respondent, namely M/s AJSPL, manufacturing SNK brand Pan Masala. The statement has been selectively interpreted by the Department to attribute a meaning which is conspicuously absent from the actual deposition. The findings recorded in the SCN, therefore, are not based upon what Shri Sujeet Kumar Singh actually stated but upon an inference subsequently drawn by the investigating officers. Such selective reading and embellishment of the statement cannot constitute legally ....
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....fy the person operating the said premises, failed to establish transportation from such premises to the Respondent's factory, and failed to produce any corroborative documentary evidence connecting the disputed entries with the Respondent. In these circumstances, the reliance placed upon File No.17 and the selectively interpreted statement of Shri Sujeet Kumar Singh to fasten excise liability upon the Respondent is wholly misplaced. The findings recorded in the SCN are founded entirely upon conjectures, assumptions and inferential reasoning rather than legally admissible evidence. Consequently, no adverse inference can be drawn against the Respondent merely on the basis of such unverified and internally inconsistent material, and the Department's allegations, being devoid of credible evidentiary support, are liable to be rejected in limine. 11. We find that the most fundamental infirmity in the Revenue's case is that the entire demand, involving duty and cess of approximately Rs. 27 crores, has been raised not on the basis of any direct evidence of clandestine manufacture or removal but solely upon a series of assumptions and presumptions originating from File No.17 ....
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....mand of approximately Rs. 27 Cr., on Scented Chewing Tobacco. Admittedly, there is not a single piece of evidence collected during investigation regarding clandestine manufacture or clearance of tobacco. No investigation has been conducted regarding procurement of raw tobacco, kimam, flavours, menthol, edible lime, catechu or any other raw material required for manufacture of chewing tobacco. No supplier of tobacco has been examined. No purchase records have been scrutinized. No evidence has been produced regarding clandestine procurement of tobacco raw materials. In fact, the investigation in relation to tobacco is completely non-existent. Instead of collecting evidence relating to tobacco, the Department has merely proceeded on the alleged "prevalent market practice" that every pouch of Pan Masala is invariably sold along with one pouch of chewing tobacco. Proceeding on this sweeping assumption, the Department has presumed that the number of tobacco pouches clandestinely manufactured and cleared must necessarily be equal to the number of Pan Masala pouches allegedly manufactured. This assumption alone has resulted in fastening an excise duty and NCCD liability of approximately Rs....
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....ements of employees have been relied upon. The investigation proceeds as if hundreds of crores of pouches could be manufactured without any human intervention. The Department has also failed to establish transportation of the alleged clandestinely manufactured finished goods. No transporter has admitted transportation of such finished products. No vehicle carrying clandestine goods has ever been intercepted. No lorry receipts, e-way bills, loading slips or destination records have been produced. No buyer has been identified. No dealer has confirmed receipt of clandestinely manufactured goods. No market survey has been conducted. No sale proceeds have been traced. No flow-back of funds has been established. No unaccounted cash or investments have been discovered. Thus, every essential ingredient which the law requires to prove clandestine manufacture and removal is completely absent. 17. A further serious infirmity is noticed in the methodology adopted by the Department for converting the alleged number of boxes appearing in File No.17 into the weight of laminate and thereafter using such derived weight for computation of alleged clandestine production. Since the pages attributed....
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....average to entirely different entries where no weight was recorded, and thereafter treat the resulting estimated quantity as the actual quantity of laminate received by the Respondent. 19. The defect assumes greater legal significance because this is not merely an ancillary calculation. The estimated weight arrived at through this averaging exercise constitutes an essential link in the chain by which the Department has travelled from an unidentified number of boxes in a third-party record to the alleged quantity of laminate, from laminate to the number of Pan Masala pouches allegedly manufactured, and thereafter, on the basis of the alleged "prevalent market practice", to an equal number of Scented Chewing Tobacco pouches and ultimately to a demand involving approximately Rs.27 crores. Thus, an inherently variable and unverified set of figures has been converted into a supposed mathematical certainty and used as the foundation for an enormous fiscal and penal liability. An estimate founded upon an unproved average cannot acquire the character of substantive evidence merely by subjecting it to further arithmetic calculations. Where the basic conversion factor itself is demonstrab....