Commissioner of Central Excise vs Sarin and Sarin

This appeal under Section 35G of the Central Excise Act, 1944 (the Act) by the Revenue arises from a decision of the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (the Tribunal) dated 13 March, 2014, 2014 (310) E.L.T. 404 (Tri-Del.)]. The Revenue has formulated the following questions of law:

"(i) Whether the Hon''ble CESTAT has erred in not confirming the demand of Central Excise duty along with interest and imposition of penalties (as determined in Order-in-Original No. 12/ADC/ADJ/2005, dated 7-11-2005) for the period in question when the party has made a confessional statement for clandestine removal of the excisable goods which was sole basis of conviction along with the corroborative evidences as held by the Hon''ble Supreme Court in the case of K.I. Pavunny Vs. Assistant Collector (HQ), Central Excise Collectorate, Cochin, that the voluntarily confessional statement of accused can form the sole basis for conviction as detailed in para-32 of the said judgment of the Hon''ble Supreme Court;

(ii) Whether the Hon''ble CESTAT has erred in not taking the cognizance of Hon''ble Supreme Court order in the case of Commissioner of Central Excise Vs. Kalvert Foods India Pvt. Ltd. and Others, wherein it has been held in para 18, 19, 20 & 25 that the statement given on their own volition and depositing the excise duty on their own volition has been taken into consideration as evidence for clandestine removal and in the instance case the Tribunal has ignored vital evidence of confessional statement and depositing the Central Excise duty on their own volition which is a strong corroborative evidence for clandestine removal;

(iii) Whether the Hon''ble CESTAT has erred in not taking the cognizance of Hon''ble Supreme Court''s order in the case of S.K. Electronics v. Collector [2001 (131) E.L.T. A255 (S.C.)] wherein party''s appeal has been dismissed by the Hon''ble Supreme Court on the matter "Whether demand on clandestine removal, proved from statement of assessee can be made or not"; and

(iv) Whether the Hon''ble CESTAT has erred in not taking the cognizance of Hon''ble Supreme Court''s order in the case of Commissioner v. Nutech Polymers Ltd. [2009 (240) E.L.T. A116 (S.C.)] wherein it held that demand for clandestine removal was upheld by it relying upon statement of work manager of appellants which was never retracted."

The essential facts are that the assessee was engaged in the manufacture of Pan Masala and Gutkha. The factory and the residential premises of the assessee, its partners and dealers were searched by the officers of the Department on 20 January 2003. The search was conducted in the presence of one of the partners of the assessee. During the search, unaccountable cash collectively amounting to Rs. 19,43,000/- was seized from the factory as well as residential premises of the partners of the assessee, namely, Sri Davi Sarin and Sri Anil Sarin. The search operation was also carried out at the premises of two dealers of the assessee, namely, M/s. Basudeo Prasad & Sons (Tobacconist) at Shyam Market, Johri Bazar, Agra and M/s. Jain General Stores, near Jama Masjid, Bharatpur (Rajasthan) on the same date. The search resulted in the recovery of several bags of Gold Mohar brand Zarda (Gutkha) and Pan Masala Sada at the premises of both the dealers.

The officers, during the physical stock taking of the raw material in the factory premises of the assessee, found shortage in the stock of cut supari, kattha, tobacco and laminated packaging material. On the basis of the material collected during the course of the search operation, two notices to show cause dated 16/17 July 2003 and 2 May 2005 were issued to the assessee and its dealers. The assessee and its dealers submitted their reply to the notices to show cause. Pertinently, it is admitted in their statement that there is a huge shortage of wastage of raw material and inconsistency and difference in their records, which they were unable to explain. No satisfactory reply was given in regard to the shortage of wastage in raw material. They have also admitted that the assessee had suppressed the production of Pan Masala and Gutkha. The assessee had also voluntarily deposited Rs. 25 lacs Central Excise duty on the quantity of Pan Masala and Gutkha, which they had not shown in their records.

In the order of adjudication dated 17 November 2005, the Additional Commissioner, Central Excise Commissionerate, Kanpur (the Adjudicating Officer) recorded the following findings:

"In view of the above, I find that the party have been accounting for the wastage in raw material in their Form-IV register which they term as wastage in first stage and in their statements Shri Deepak Mehra & Shri Davi Sarin have agreed that total quantity of Cut Supari shown as issued for manufacture of excisable goods is wholly converted into final finished foods i.e. Gutkha/Pan Masala. There will be no loss/wastage during packing also. They further accepted the difference in quantity of Pan Masala and Gutkha manufactured in the factory and shown in the records and could not explain the difference/shortage. They also admitted to suppression of production of Pan Masala and Gutkha. Further, they also deposited Rs. 25 Lacks voluntarily as pre-deposit of Central Excise involved on such quantity of Pan Masala/Gutkha which was not entered in their records. The Deptt. has also established the fact that the party had installed capacity to manufacture the goods as alleged. Since practically it is very difficult getting actual production figures in cases of clandestine removal it has to be estimated on the basis of raw material consumption, power consumption, installed capacity, admission of the party, composition formula etc. and such other relevant factors.

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Accordingly in the instant case the party have consumed cut supari as per their records and, therefore, in accordance with their own composition formula and their being no wastage after issuance of raw material and its wholly conversion into finished goods as per their own admission in the statements, the difference between actual production as per composition formula and the recorded production is not explained satisfactorily. Therefore, I hold that the differential quantity of Sada Pan Masala Qty. 1089.1315 Kgs. (or 311182 Pouches) value at Rs. 6,22,364/- and Gutkha 19728.478 Kgs. (10960262 pouches) valued at Rs. 54,80,131/- have been manufactured and removed by them clandestinely without payment of duty and, therefore, duty amounting to Rs. 1,71,149.00 and Rs. 32,88,080/- is demandable from them on such cleared goods."

Accordingly, the Adjudicating Officer ordered to : (i) confiscate the goods valued at Rs. 13,77,432/- recovered and seized from the premises of M/s. Basudeo Prasad & Sons, with an option to redeem the goods on payment of a redemption fine of Rs. 5 lacs; (ii) confiscate the cash amounting to Rs. 19,43,000/- under Section 121 of the Customs Act, 1962; (iii) confirm the demand of Rs. 1,81,006/- under Section 11A of the Act; (iv) confirm the demands of Rs. 1,71,149/- and Rs. 32,88,080/- under Section 11A of the Act; and (v) confirm the demand of Rs. 4,92,525/- as duty on goods seized at the premises of M/s. Basudeo Prasad & Sons.

Apart from the aforesaid confirmation of demands, the Adjudicating Officer imposed the following penalties:

"(7) I impose a penalty of Rs. 39,61,611/- (Rupees Thirty Nine Lakhs Sixty One Thousand Six Hundred Eleven only) on the party under Section 11AC of Central Excise Act, 1944 read with erstwhile Rule 173Q of Central Excise Rules, 1944, Rule 25 of Central Excise (No. 2) Rule, 2001 and Rule 25 of Central Excise Rules, 2002.

(9) I impose a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) on Sri Anil Sarin under Rule 25 and Rule 26 of Central Excise Rules, 2002.

(10) I also impose a penalties of Rs. 5,00,000/- (Rupees Five Lakhs only) On Sri Davi Sarin under erstwhile Rule 209A of Central Excise Rules, 1944, Rule 26 of C.E. (No. 2) Rule, 2001 and Rule 26 of Central Excise Rules, 2002.

(11) I impose a penalty of Rs. 1,00,000/- (Rupees One Lakh only) on M/s. Basudeo Prasad & Sons (Tobacconist), Agra.

(13) I impose a penalty of Rs. 10,000/- (Rupees Ten Thousand only) on Sri Deepak Mehra, authorised signatory of the party, under erstwhile Rule 209A of Central Excise Rules, 1944, Rule 26 of Central Excise (No. 2) Rules, 2001 and Rule 26 of Central Excise Rules, 2002."

The Commissioner (Appeals), Customs & Central Excise, Kanpur [the Commissioner (Appeals)] on appeal upheld the order of the Adjudicating Officer only with the modification that the separate penalties imposed upon the partners namely Sri Anil Sarin and Sri Davi Sarin were set aside. On the issue of penalties the Commissioner (Appeals) in an order 14 September 2006 held as under:

"From the discussions & findings so far, it is clear that the appellant No. 1 were engaged in manufacturing and removing the goods in a clandestine manner and thus they have rendered themselves liable for penal action under Section 11AC. Regarding penalties imposed upon the partners namely, the appellants have contended in their grounds of appeal that no separate penalty should have been imposed upon the partners when the partnership firm was being penalized for the same offence. In this regard, I tend to agree with this argument as the issue is by now settled by catena of pronouncements delivered by Higher Courts that no separate penalties are imposable for same offence on partnership firm as well as partners. Accordingly, I set aside the penalties imposed upon Shri Anil Sarin and Shri Davi Sarin. Regarding penalty imposed upon Shri Deepak Mehra, Authorized signatory, I observe that the Adjudicating Authority has already taken a lenient view and has imposed a nominal penalty of Rs. 10,000/- upon him, which is liable to be upheld."

In appeal, the Tribunal by its order dated 13 March 2014 set aside all the confirmations of demand on duty of final product recovered from the dealers'' premises, confiscation of currency of Rs. 19,43,000/-, and confiscation of balance amount of Rs. 15.97 lacs. The Tribunal also found that there was no justification for imposition of penalties on all the appellants as the demand of duty and confiscation of seized goods and seized cash have been set aside. The Revenue is in appeal.

The submission, which has been urged by the learned Standing Counsel appearing on behalf of the Revenue, is that the assessee has made a confessional statement in regard to clandestine removal of excisable goods. The Tribunal has failed to appreciate that the statement given by the partner and authorised signatory of the assessee was on their volition and the assessee had voluntarily deposited the Excise duty on the materials which were clandestinely removed. It was lastly urged that no reason has been recorded by the Tribunal while setting aside the penalties imposed the Adjudicating Officer.

The Adjudicating Officer has considered the statement of the assessee and, in our view, the Adjudicating Officer has appreciated the material evidence correctly. The statements made by Sri Dipak Mehra and Sri Davi Sarin have a material bearing on the issue. For the sake of convenience, the relevant part of the statements is extracted herein below:

"A. I have seen this raw material register & signed in the same on today date it is the same register which is resumed from my factory on 20-1-03, yet there is a difference in Qty. of Sada Pan Masala & Gutkha actually mfd. in the factory & shown in our records but I cannot explain the difference & I have no reply for this shortage.

Q.9. Are you excepting that you have suppressed the production of Pan Masala & Gutkha as described in Q. No. 8?

A. Yes, there is a suppression but I cannot explain the same.

Q.11. Are you prepared to deposit Central Excise duty on the Qty. of Sada Pan Masala & Gutkha not accounted for in your statutory records as discussed above?

A. We have already pre-deposited Rs. Twenty five lacs only as Central Excise Duty on the Qty. of Gutkha & Pan masala not entered in our records which is voluntarily."

In our view, the Tribunal has erred in ignoring material evidence and has not recorded any finding for setting aside the penalty imposed by the Adjudicating Officer. No reason has been recorded for setting aside the penalties.

After careful consideration of the matter, we are of the view that the finding of the Tribunal, setting aside the penalties imposed by the Adjudicating Officer needs to be interfered with. Accordingly, it is set aside. [The matter is remitted to the Tribunal to reconsider the matter on the question of penalties and duties afresh. The appeal is, accordingly, disposed of. There shall be no order as to costs.