TaxTMI 
TaxTMI 
2026 (10) TMI 111
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....BED and Rs.8,07,40,439/- NCCD. The Department as well as the Noticee, both preferred appeal before Commissioner (Appeals), Lucknow who vide order dated 13.02.2025 rejected the departmental appeal and allowed the noticee's appeal. The departmental appeal has been filed by the Assistant Commissioner (Review), CGST & Central Excise, Lucknow (hereinafter referred to as "the Appellant Department") against the Order-in-Appeal No.33-CE/APPL/LKO/2025 dated 13.02.2025, issued by the Ld. Appellate Authority in respect of SCN No.112/2022-23 dated 04.05.2023, issued against M/s Wast Industries, Gorakhpur for demand of BED of Rs.24,86,275/- and NCCD of Rs.13,37,31,674/-. 2. Briefly stated, the facts of the case are that acting upon an intelligence that M/s KGPPPL, Gorakhpur, and M/s Wast Industries, manufacturer of Pan Masala and Scented Zarda Tobacco respectively, were indulged in clandestine production and supply of the same without payment of GST & other applicable taxes. They were also allegedly engaged in procuring raw materials and packing materials clandestinely, which were being used for manufacture and supply of alleged clandestinely removed Pan Masala and Chewing Tobacco, the offic....
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....alil Bhardwaj who reached the premises and opened the office and the search was conducted. During the search, some WhatsApp messages and images were retrieved from the mobile of Shri Salil Bhardwaj. On the basis of images retrieved, the Department calculated that BED Rs.5,952/- + NCCD Rs.6,61,163/- was not paid by M/s Wast, Gorakhpur on 1215 bags of S-Plus Chewing Tobacco. (iii) Search at the office premises situated at 397B, Dasrath Market, Mewa Lal Bagia Tiraha, Naini, Prayagraj:- a. It has been alleged in the SCN that on receipt of intelligence that one Prayagraj based C & F Agent of Sudh Plus Pan Masala & Chewing Tobacco, namely, Shri Prateek Bansal was managing the unaccounted sale of Sudh Plus & Panchmukhi Pan Masala / Tobacco in Prayagraj Region. Search conducted at office premises situated at 397B, Dasrath Market, Mewa Lal Bagia Tiraha, Naini Prayagraj however nothing incriminating found. b. The office premises at Naini Prayagraj was also searched simultaneously on 08.12.2021 in the presence of Shri Hemant Kumar, (owner of the premises) and Shri Satish Chand Srivastava, (Assistant of Shri Hemant Kumar). During the search, the officers examined the....
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....nts and agreed with the quantification of duty liability arising therefrom. Further, they contended that loose paper-sheets (30 pages) may not carry formal identifiers such as signatures, names of units, or product description, their contents directly match the figures confirmed by both Shri Pradeep Kumar Rungta and Shri Amar Tulsiyan. Moreover, the loose paper-sheets were seized from the godown situated at Varanasi, was a registered additional business premise of M/s KGPPPL and M/s Wast Industries. The resumption of loose paper-sheets from their business premise refutes the assertion that they are 'private' documents. The data available in the loose paper-sheets were aligned with the actual movement of goods and subsequent. 3.1 In the context of demand on WhatsApp massages, it has been contested that Commissioner (Appeals) has disregarded the messages solely on the basis that they lacked mention of concerned company, signatures, or direct naming of the manufacturing units. The WhatsApp messages and images were recovered from the personal mobile device of Shri Salil Bhardwaj, an employee of M/s KGPPPL. These messages include transporter names (JSK Transporter, Narang Tra....
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....cco from Shri Prateek Bansal, along with cash transactions. These were supported by entries in the electronic ledgers and explained during investigation. Moreover, the Commissioner (Appeals) has rejected the quantification solely on procedural grounds: (i) particularly that statements of Shri Prateek Bansal dated 29.06.2022 and 30.12.2022, which were mentioned in the SCN as RUD 24 & RUD-25 respectively but inadvertently statement dated 29.06.2022 of Shri Prateek Bansal was marked and annexed as RUD-24 as well as RUD-25, and (ii) for non-making of Panchnama dated 30.12.2022 as RUD. In this regard Department has submitted that inadvertent marking of the statement dated 29.06.2022 of Shri Prateek Bansal as RUD-24 as well as RUD-25, is a curable inadvertent defect and does not nullify the existence of evidentiary value of the data. Further, non-mention of Panchnama dated 30.12.2022 as RUD is also a curable procedural defect and does not nullify the existence or evidentiary value of the data. 3.4 For the demand on the basis of laminates, the Commissioner (Appeals), has incorrectly observed that file @ No.17 recovered from the residential premise of Shri Sujeet Ku....
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....al, the written submissions made by the Respondent and the records relating to the searches conducted at Varanasi and Delhi. The principal issue requiring consideration is whether the allegation and quantification of alleged clandestine/unaccounted clearances attributed to M/s Wast Industries can legally be sustained on the basis of the loose handwritten sheets recovered during search at Varanasi, the printouts of WhatsApp messages/images, allegedly retrieved from the mobile phone of Shri Salil Bhardwaj during the search proceedings at Delhi, data retrieved from the laptop recovered at the premises at Allahabad and data recovered in the file from the vehicle at residential premises of Shri Sujeet Kumar Singh. Now, we proceed to discuss the issues one by one sequentially. 5. We first take up the demand in question which has been substantially quantified by treating the entries appearing in 30 loose handwritten sheets recovered during the search at Varanasi as representing receipts/loading/unloading of goods allegedly supplied by M/s Wast Industries. We have therefore examined the said documents as mentioned in the SCN as scanned image. 6. Ld. Commissioner (Appeals), on examina....
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....a does not identify with precision the particular location within the searched premises from which these 30 loose sheets were recovered. When unsigned and unidentified loose papers are sought to be made the principal foundation for a substantial demand against persons whose names do not appear thereon, the circumstances of their recovery, authorship and custody become material. The omission assumes greater significance when there is no independent evidence demonstrating that the documents belonged to or were maintained on behalf of M/s Wast Industries. 9. In the present matter, no satisfactory evidence has been brought on record demonstrating corresponding procurement of unaccounted raw material by M/s Wast Industries, additional consumption of electricity, utilisation of additional labour, excess manufacture, stock discrepancy commensurate with the alleged clearances, transportation of the particular goods from the factory to the alleged destination, identification of vehicles/drivers for individual alleged transactions, receipt of the goods by identified buyers or flow-back of unaccounted sale consideration. In such circumstances, the loose sheets can at best constitute materi....
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....ps; the process or software through which the material was extracted; whether the extraction was undertaken directly from the device or through another computer; whether any forensic image or clone of the device was prepared; whether any hash value or other integrity marker was generated; the place where printouts were taken; or how the retrieved electronic material and its printouts were thereafter preserved. The importance of these omissions becomes apparent from Section 36 B of Central Excise Act, 1944. In relation to electronic/computer-generated evidence, Section 36 contemplates statutory safeguards regarding identification of the document, the manner in which it was produced and particulars of the device involved in its production. The record and the reasoning contained in the impugned order do not satisfactorily establish observance of these safeguards in respect of the WhatsApp printouts relied upon for quantification. 13. Even independently of the technical requirements governing electronic evidence, the basic question of authorship and nexus remains unanswered. The printouts contain images of handwritten slips, but the persons who wrote those slips have not been identi....
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.... assumptions regarding the commodity, manufacturer, packing and quantity. The standard applicable in departmental adjudication is not identical to the standard governing a criminal prosecution. Nevertheless, where serious fiscal consequences and penalties are sought to be imposed on the allegation of deliberate suppression and clandestine clearance, the evidence must possess sufficient probative value to establish the allegation on a preponderance of probability based upon reliable material. A probability itself must arise from proved circumstances and not from a succession of conjectures. On an overall appreciation of the evidence, we find that the Department has failed to establish a dependable evidentiary bridge between the anonymous/unsigned loose sheets recovered at Varanasi, the handwritten images contained in the WhatsApp printouts allegedly retrieved at Delhi, and actual unaccounted manufacture and clearance of Chewing Tobacco by M/s Wast Industries. Consequently, the quantification made by converting the figures appearing in such loose sheets/WhatsApp images into quantities of Chewing Tobacco and attributing the same to the Respondent is based substantially upon inference ....
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....venue upon the statement dated 08.12.2021 of Shri Prateek Bansal. According to the Revenue, Shri Bansal admitted that Shri Amar Tulsiyan was his maternal uncle, Shri Deepak Khemka was his relative and that he was looking after marketing of Suddh Plus and Panchmukhi brands in the Prayagraj region. He also allegedly stated that he coordinated delivery of goods to dealers and, in certain cases, collection of payments. 19. Even if the aforesaid statement is taken at its face value for the present purpose, it may establish that Shri Prateek Bansal had some connection with marketing or distribution of the brands. It does not automatically establish that he was managing a parallel clandestine supply chain involving unaccounted clearances of the magnitude quantified in the SCN. A lawful marketing or distribution relationship and participation in clandestine removals are two entirely different propositions. The latter requires independent evidence. 20. We find no appointment letter, agency agreement, remuneration record, commission payment, correspondence, email, WhatsApp communication from the Respondent manufacturers, bank record, stock transfer record, delivery instruction or other....
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....d FORM GST INS-02 dated 08.12.2021, including the difference in the serial number/identification particulars of the laptop. It has also been noticed that there is no satisfactory record regarding sealing of the laptop and its subsequent custody. 25. These are not insignificant procedural irregularities in the facts of the present case. Where tax and duties running into several hundred crores of rupees are proposed to be determined principally from data contained in one electronic device, correct identification of the device from which such data originated and preservation of its integrity throughout the period of custody are fundamental. Section 36 of the Central Excise Act specifically deals with admissibility of computer printouts and electronically stored information. Section 36 contemplates a certificate identifying the document containing the statement, describing the manner in which it was produced and giving appropriate particulars of the device involved in production of the document. 26. In the present case, the objections regarding the identity of the laptop, the discrepancy in serial numbers, absence of satisfactory evidence regarding ownership and operation of the ....
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....vastava would not prove that entries therein were made upon instructions of M/s Wast Industries. Ownership of the device, authorship of the entries and truth of the transactions reflected therein are separate evidentiary stages. 30. We further find considerable force in the observation of the lower authorities that no primary documents were recovered showing the source from which the alleged sale and purchase figures were fed into the Tally software. No corresponding order sheets, invoices, delivery slips, goods receipt notes, transport receipts, cash books or payment sheets constituting the source documents for the entries were recovered. Revenue's explanation is that the information was communicated primarily through telephone calls. If that was indeed the Department's case, it was open to the investigating agency to correlate at least representative entries with call detail records, messages, transport instructions, statements of drivers, receipt of goods by dealers or the corresponding payment trail. No such meaningful correlation has been demonstrated. 31. A computer entry is only a representation of information entered into a system. Unless the source and meanin....
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.... more than a year after the original seizure, the procedure followed during such exercise cannot be treated as irrelevant. 35. Revenue has laid considerable emphasis upon the fact that Shri Satish Chandra Srivastava and Shri Prateek Bansal did not retract their statements. We agree that absence of retraction is a circumstance which may be taken into account while assessing the evidentiary value of a statement. However, non-retraction does not elevate a third-party statement into conclusive proof of clandestine manufacture and removal by another person. Even an un-retracted statement has to be appreciated in the context of the entire evidence. More importantly, it cannot cure a defective electronic record, establish unidentified source documents, explain discrepancies in the identification of the laptop or substitute evidence of production, transportation and receipt of consideration. 36. In the present case, statements relied upon by Revenue can at best establish a marketing/distribution connection between certain persons and the brands manufactured by the Respondent. To translate such connection into a finding that Pan Masala valued at approximately Rs.191.90 crores and Toba....
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....ledgements linking the alleged entries with actual removal of goods from the Respondents' factories. Equally, there is no satisfactory evidence of the flow-back of the enormous consideration allegedly generated from the unaccounted clearances to either M/s Wast Industries or their responsible officers. No parallel cash book belonging to the Respondents, unexplained bank deposits, cash recoveries or other financial evidence corresponding to the alleged clandestine turnover has been identified. 41. It is significant that the demand against M/s Wast Industries is based upon alleged clandestine clearance of Tobacco with consequential duties/taxes/cess exceeding Rs.13 crores approx. The magnitude of a demand does not alter the applicable standard of proof; however, where hundreds of crores of rupees of liability is extrapolated from electronic records maintained at a third-party premises, it becomes all the more necessary for the investigation to test and corroborate the data through representative transactions. We find no satisfactory exercise whereby selected ledger entries have been traced from factory production to loading, transportation, receipt by the dealer and ultimate f....
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....ts business. It is an undisputed fact that the said file was allegedly resumed during the search conducted at the residential premises of Shri Sujeet Kumar Singh, who claimed to be the owner of M/s BTCPL. The Department has sought to fasten liability upon the Respondent solely on the basis of the entries contained in the said third-party document without first establishing its authenticity, authorship and evidentiary value. Significantly, no evidence whatsoever has been brought on record to establish as to who prepared the entries contained in File No.17, when such entries were made, under whose instructions they were recorded, whether they formed part of the regular books or 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 a....
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....oduce its internal records. Conversely, if no such transfer of shares had taken place, his assertion regarding sale of the company itself stood falsified. Astonishingly, the Department made no efforts to verify either of these possibilities. Such a fundamental issue, going to the very root of ownership and custody of the records, remained completely uninvestigated. 48. Equally significant is the fact that although Shri Sujeet Kumar Singh alleged that Shri Madan Mohan Jeena and Shri Keshav Chandra Patra had defaulted in payment and that he had taken over the company again, the Department never examined why, despite such alleged default, Shri Jeena and Shri Patra continued to remain Directors 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 ....
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....ens the suspicion regarding the origin and authenticity of the document. A document of unknown authorship and uncertain provenance cannot acquire evidentiary sanctity merely because the Department chooses to describe it as a confidential record. Such an explanation, unsupported by any investigation or independent corroboration, is wholly insufficient to confer evidentiary value upon File No.17 or to sustain a demand involving serious civil and penal consequences. 51. Viewed from any angle, therefore, File No.17 remains an unverified third-party private document of doubtful origin and authorship, unsupported by any independent corroboration and recovered from a person whose own legal status, authority and relationship 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. 52. We find that the very foundation of the Revenue's case suffers from a ....
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....f laminate to M/s Wast Industries. Significantly, there is no independent evidence demonstrating that the said quantity was actually supplied to, received by, or consumed in the factory of the Respondent. The attribution itself is, therefore, founded not upon proof of actual receipt or consumption but upon an assumed ratio derived from selected periods. 54. Having first presumed the quantity of laminate allegedly attributable to the Respondent on the basis of the aforesaid 13:7 ratio, the Department thereafter proceeded to make a further assumption that the entire quantity so attributed was necessarily utilised for manufacture of tobacco pouches, and on that basis calculated the number of pouches allegedly manufactured and clandestinely cleared. Thus, the quantification of the alleged clandestine production is not based upon any actual production record, seizure of unaccounted finished goods, evidence of receipt of raw materials, statements of buyers, transport documents relating to finished goods, or financial trail. It is, in substance, an extrapolation built upon an earlier extrapolation. Such a methodology converts an unverified assumption regarding allocation of laminate in....
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....third presumption is that it was received by the Respondent. The fourth presumption is that it was entirely consumed in manufacture. The fifth presumption is that the resulting goods were clandestinely removed. It is well settled that a presumption cannot be founded upon another presumption. Where the foundational fact itself remains unproved, every consequential inference necessarily collapses. 58. The Hon'ble Supreme Court and various High Courts have consistently held that allegations of clandestine manufacture and removal cannot be sustained on probabilities, assumptions, market perceptions or mathematical calculations. They must rest upon positive, cogent and independent evidence establishing every constituent element of the alleged clandestine activity. The present case falls woefully short of this settled legal standard. The Department has, in effect, sought to levy approximately Rs.13 crores of duty by replacing legal proof with assumptions based on alleged market practice. Such an approach is fundamentally inconsistent with the scheme of the Central Excise Act, violates the settled principles governing burden of proof and cannot be countenanced in law. 59. Accord....