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Judgment
M/s Hasmukh Tobacco Products, (referred to as the Assessee) is aggrieved by O-I-O No.AHM-EXCUS-002-COMMR-13-2019-20 issued on 27-
12-2019 by Learned Commissioner, CGST & Central Excise, Ahmedabad North. Out of duty demand of Rs.3,00,02,002/-, raised by SCN dated 19-
02-2015, demand of Rs.1,76,47,000/- with interest and 25 % penalty has been confirmed against which Assessee and its Authorized signatory have
filed Appeal Nos. E/10340/2020 and E/10341/2020 respectively. Rest of demand of duty for Rs.1,23,55,000/- has been dropped by said O-I-O, against
which revenue has filed Appeal No. E/10352/2020, through Commissioner, CGST & Central Excise, Ahmedabad-North and Assessee has filed cross
objections No. E/Cross/10288/2020. Thus, both sides have filed Appeals against the same O-I-O No. AHM-EXCUS-002-COMMR-13-2019-20 dated
27-12-2019. Both Appeal No. E/10340 & 10341/2020 by the Assessee and its authorized signatory as well as Appeal No. E/10352/2020-DB by
Revenue with CO No. E/Cross/10288/2020 therein have been taken up for hearing together on 02-12-2020 for final disposal of all these Appeals.
The brief facts of the case are that Assessee is engaged in manufacture of OM brand tobacco falling under CTH 24011090 of the Central Excise
Tariff Act 1985 and they were holding Central Excise Registration ECC No. ACSPP9687QM001. Assessee was paying Central Excise duty on 1
Pouch Packing Machine (PPM) every month, on declared Retail Sale Price (RSP) of Rs.3/- under Compounded Levy scheme under section 3A of
the Central Excise Act 1944 and in terms of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and
Collection of Duty) Rules, 2010. Based on some intelligence, officers from Central Excise (Preventive), Ahmedabad-II visited factory premises of the
Assessee on 03.09.2014. Shri Hasmukhbhai Patel, authorized signatory, who was present at the time of search informed officers that there were two
separate Premises i.e. one at 21, Meldi Estate and other at 300 Meldi Estate, attached without boundary wall; that Manufacturing of “Dhana Dalâ€
was going on in premises at 21 Meldi Estate, whereas at the other premises at 300, Meldi Estate “Hasmukh Tobacco Products†was operating
separately. Shri Hasmukhbhai further informed the officers that both the premises have separate electricity meteRs.During Panchnama on 03-09-
2014, it was found that manufacturing on 1 pouch packing of Rs 4 RSP pouch of OM brand tobacco was going on; that another undeclared Pouch
Packing Machine (PPM) having packing material roll on with RSP of Rs.4/- was found, which was seized on 03-09-2014. Shri Hasmukhbhai Patel, in
his first statement on 03-09-2014 stated that they had brought the aforesaid undeclared PPM on 01.08.2014; that machine was assembled by Shri
Rajubhai Panchal, Amraiwadi, Ahmedabad on their instructions; and that they have not paid duty u/s 3A in respect of undeclared PPM. It was pointed
out by officers to Assessee to pay duty and Assessee vide letter dt. 11.09.2014 addressed to Assistant Commissioner, Central Excise, Range-V,
Division-V, Ahmedabad-II intimated to have paid duty Rs.39,60,836/- and enclosed Form 1 & Form 2 for September-2014. Statement of Maheshbhai
Ugarchand Patel, Proprietor was recorded on 03.09.2014, wherein he corroborated the statement dated 03-09-2014 of shri Hasmukhbhai Patel. The
follow up raid was conducted at factory of M/S Vaibhav Packaging, Ahmedabad on 09.09.2014 in presence of Shri Harish Kanaria alias Rajubhai
Panchal, proprietor. They were engaged in manufacture and repairing of Pouch Packing Machines. Two diaries were withdrawn from the said
premises under Panchnama dated 09.09.2014 which contained details of repairing and selling of PPMs to customeRs.Statement of Shri Harish
Pravinbhai Kanaria @ Rajubhai Panchal, proprietor of M/s. Vaibhav Packaging was recorded on 09.09.2014 wherein he stated to have assembled
one PPM and delivered to M/s Hasmukh Tobacco Products, in last week of October, 2013; that said machine was delivered by tempo of Shri
Santhoshbhai; that after delivering machine, he visited to make PPM working. Statement of Santoshbhai Ishwarbhai Patel, owner-cum-driver of tempo
loading rickshaw No. GJ01BX9106 was recorded on 10.09.2014 wherein he corroborated statement of Shri Harish Pravinbhai Kanaria @ Rajubhai
Panchal, of M/S Vaibhav Packaging and stated that he delivered PPM in the last week of October, 2013 from M/s. Vaibhav Packaging to M/s.
Hasmukh Tobacco Products, in his tempo and that PPM was unloaded there with help of 3-4 labourers working in that factory.
2.1 Thereafter, another statement of Shri Hasmukhbhai Patel was recorded on 12.09.2014, wherein he accepted that seized PPM was delivered at
their factory during the last week of October 2013. Another Statement of Shri Hasmukhbhai Patel was recorded, perusing his statements dated 03-09-
2014 and 12-09-2014 he stated that seized PPM was brought in their factory on 01- 08-2014; that they have paid duty of Rs.39,60,836/- after 03-09-
2014. Statement of Shri Maheshbhai Ugarchand Patel, was recorded before arrest, wherein, perusing his statement recorded on 03-09-2014 and
statement of Hasmukhbhai Patel recorded on 12-09-2014, he has stated that seized PPM was brought in factory on 01-08-2014. Statements of Shri
Maheshbhai and Shri Hasmukhbhai were recorded on 02.01.2015 wherein they stated that pouch packing machine found undeclared was actually
purchased from M/s. Vaibhav Packaging, for Rs.90,000/- in the last week of October, 2013; that they kept this machine in separate place, when they
needed or when their declared machine was not working, they were utilizing second machine; that they never utilized both PPM together; that on
03.09.2014, there was only one machine working and functioning out of two machines; that they used to purchase raw tobacco, packing materials,
labourers and electricity consumption etc, required to operate 1 pouch packing machine. Thus, on completing investigation central excise duty evasion
was worked out on undeclared PPM by considering MRP as Rs.3/- from November-2013 to August-2014 and on MRP Rs.4/- for September 2014.
Demand was worked out to be Rs.300.02 Lakhs from November-2013 to September-2014. Central Excise Duty of Rs.36,82,000/- was paid on
declared PPM for September, 2014 through e-payment on 01.09.2014. Assessee had discharged duty on declared and undeclared PPM for
September, 2014 and have made clearances. Show Cause Notice No. V.24/15-15/OA/2015 dated 19-02-2015 was issued demanding duty totally of
Rs.300.02 Lakhs with Interest and Penalties on Assessee, its proprietor and authorized signatory for alleged manufacture and clearance of
unmanufactured branded chewing tobacco without lime tube from 01.11.2013 to 30.09.2014.
Assessee approached the Hon'ble Settlement Commission, Mumbai in August 2015 for settlement of their case, accepting duty liability for August
2014 and for September 2014. However, the said case was ordered for settlement vide the Commission’s Final Order No. 121/CEX/WDN/2016
dated 29.07.2016, on payment of the entire duty of Rs.300.02 Lakhs with applicable interest, penalty of Rs.25 Lakhs and Redemption Fine of Rs
10,000/- in lieu of confiscation of the seized PPM. The Hon'ble Commission granted immunity from prosecution subject to the payment of the
remaining duty & the penalty.
Being not satisfied with Order of Settlement Commission, Assessee filed SCA No. 16871 of 2016 in the Gujarat High Court against Order No.
121/FINAL ORDER/CEX/WDN/2016 dated 29.07.2016 wherein, the Hon'ble High Court vide interim Order dated 04.10.2016 directed Assessee to
deposit full duty amount. The Assessee paid entire duty of Rs.300.02 Lakhs [Rs.1,39,60,836/- deposited before SCN + Rs.1,60,39,166/- after SCN =
300.02 lakhs] and deposited amount of Redemption Fine of Rs.10,000/- vide Challan No. 80040 dated 11.10.2016. The Hon'ble Gujarat High Court
passed Order dated 12.10.2017 in SCA No. 16871 of 2016, wherein the matter was remanded to the Settlement Commission for decision on the
aspect of ‘operating machine’ and to ascertain that seized machine found undeclared in the factory on 03- 09-2014 is operative or not for the
purpose of charging duty in this case.
The Hon’ble Settlement Commission, Mumbai, then re-examined the matter and while passing the Final Order, observed that crucial question
that needs to be determined is when was the seized machine actually installed in factory; that there are flip flop in statements of Shri Hasmukh Patel;
that there are no documentary evidences available on record to show sale, purchase, transport, payment, installation etc. of additional PPM and that it
was held that since case necessarily involves proper appreciation of facts & circumstances and records available with applicant and Revenue, correct
interpretation of Tobacco Rules and Notification No. 16/2010-CE dated 27.02.2010 as amended, Bench was of the view that case should go through
rigor of adjudication proceedings before authority, for determination of disputed facts, and hence the case did not merit order for settlement in terms of
Section 32F of Central Excise Act, 1944. The Hon’ble Settlement Commission passed Final Order No. 31/CEX/KNA/2018 dated 25.07.2018 by
sending back application filed by assessee under Section 32-L of the said Act with directions to dispose of case in accordance with provisions of the
Act, as if no application under Section 32-E had been made.
Accordingly, Assessee participated in the adjudication process. The following persons were allowed to be cross-examined before the learned
Commissioner who has adjudicated this case :-
(i) Shri Patel Santoshbhai Ishwarbhai, [Driver of Tempo No. GJ-01-BX-9106
(ii) Shri Haresh Pravinbhai Kanadia, [Proprietor of M/s Vaibhav Packaging
(iii) Shri Hasmukhbhai U. Patel, Authorized signatory of M/s Hasmukh Tobacco Products
(iv) Shri Jayantibhai Manaji Khat, [Labourer of M/s Hasmukh Tobacco Products
(v) Shri Bhikhaji Poonaji Thakore, [Labourer of M/s Hasmukh Tobacco Products
(vi) Shri Shaileshbhai Manubhai Thakore, [Labourer of M/s Hasmukh Tobacco Products.
During cross examinations, all the above witnesses deposed before learned Commissioner that seized PPM was brought in factory on 01-08-2014.
Witnesses at Sr. No. (iii) to (vi) have deposed that said PPM was started in second week of September 2014.
The Assessee also filed their written submissions dated 24.06.19 and 15.11.2019 mainly stating that the additional machine [PPM] found in the
factory on 03-09-2014 was brought in the factory only on 01.08.2014. Assessee has also disputed their total excise duty liability. They submitted that
duty for September, 2014 on RSP Rs.4/- was paid by them in the month of September 2014. Assessee had also requested the adjudicating authority to
drop the demand and not to impose any penalty either on the firm or on the other two notices.
O-I-O No. AHM-EXCUS-002-COMMR-13-2019-20 dt. 27-12-2019 issued by Commissioner, Central GST & Central Excise, Ahmedabad North,
partially allowed request of Assessee and confirmed demand of Central Excise duty of Rs.1,76,47,000/- with interest & reduced penalty @ 25 % of
duty confirmed, which stand appropriated from deposit of Rs.300.02 lacs. O-I-O imposed a separate penalty of Rs.2,00,000/- on authorized signatory
shri Hasmukhbhai Patel under rule 26 of Central Excise Rules, 2002 and refrained from imposing any penalty on Shri Maheshbhai Patel, Proprietor of
M/s. Hasmukh Tobacco under rule 26 of Central Excise Rules, 2002. Hence, Assessee and its Authorized signatory filed Appeal Nos. E/10340/2020
and E/10341/2020 respectively against confirmation of duty and penalty imposed. Revenue also filed Appeal No. E/10352/2020, against dropping of
demand partly and Assessee filed cross objections No. E/Cross/10288/2020. These Appeals were taken up for hearing together on 02-12-2020 for
final disposal of all these Appeals.
Shri P.P. Jadeja, learned Counsel appearing on behalf of Assessee and its authorized signatory while reiterating all grounds of their Appeals and
submissions made in their cross objection to revenue appeal submits that OI-O dated 27-12-2019 is objected mainly on the grounds that O-I-O has
committed error in confirming duty against the Hon’ble Gujarat High Court’s order dated 12-10-2017 in SCA No. 16871 of 2016. There is no
finding on fact that PPM seized on 03-09-2014 was ‘Operating Machine’. He submits that seized PPM found in the factory on 03.09.2014 was
in fact brought in the factory only on 01.08.2014. This fact is established during “cross examination†of witnesses before Commissioner in the
adjudication. He submits that ld Commissioner has also erred on appreciation of facts and has ignored ingredients like considering actual production &
Clearance, consumption of electricity, receipt of inputs, packing materials etc required to prove the manufacture. He submits that duty is on
manufacture of goods, it is essential to prove manufacture by revenue first before demanding duty, whether it is to be recovered under section 3 or 3A
of the Central Excise Act 1944.
9.1 He further submits that O-I-O has not appreciated facts regarding presence and visit of officers in factory on 10.06.2014 during audit of unit from
June 2013 to May 2014 and FAR No. 45/2014-15 dated 11.8.2014. He pointed out that taking round in factory for verification of declarations was
mandatory for Audit team as per Para 11.5.1 of the EA-2000 Audit instructions Manual. Audit officers would have noticed said seized PPM in
factory on 10.06.2014, if machine was in factory during June 2014. He submits that duty demand prior to August, 2014 is on assumptions &
presumptions. O-I-O confirming the duty demand prior to August 2014 is not sustainable. He submits that for charging duty under Compounded levy
scheme, number of operating packing machines in factory during the month and RSP printed on pouches are very important. He submits that though
one extra machine was found, but there is no evidence that it was installed or whether it was “operating packing machine†which would be
attracting levy of duty from 01- 11-2013 or 01-04-2014, when seized PPM was brought into factory on 01.08.2014. He submits showing photographs
of seized PPM that PPM was not installed. He submits that O-I-O wrongly confirmed duty from 01.04.2014 when the machine in-question was
brought into factory only on 01.08.2014. Hence, no duty could have been confirmed before 01-08-2014. He submits with reference to the Rule 18(2)
of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 under which
duty is confirmed by O-I-O that duty may apply from 1st April of relevant year, unless evidence to the contrary is provided by unregistered unit.
However, in this case it is clearly established through evidences that the said seized PPM was brought in factory from 01-08-2014. It is crystal clear
that Additional PPM after cross-examination of witnesses including supplier of machine, transporter of machine, laborers who had unloaded machine
have stated to be received on 01.08.2014. When it was brought in factory on 01-08-2014, it can not be assumed installed in factory before 01-08-2014
as per Rule 18(2) ibid, attracting duty for unregistered unit. He submits that “prime contention†is excise duty liability, can not start before 01-08-
2014, in any case. He relied on decision in 2017 (348) E.L.T. 720 (Tri. - Del.) - GOYAL TOBACCO CO. PVT. LTD VS CCE, wherein it is held
that in terms of Compounded Levy Scheme, presumptive duty liability envisaged in Compounded Levy Scheme cannot be extended to a level that duty
liability arises automatically in all cases where packing machines found in premises. Manufacture of goods is a condition precedent for charging
Excise duty without which no levy can be made, as held by Rajasthan High Court in the case of Jupiter Industries - 2006 (206) E.L.T. 1195 (Raj.).
9.2 He submits that in proceedings before the Hon’ble Settlement Commission and Gujarat High Court, assessee had made “alternative
submission†to charge duty from 01-04-2014, but it cannot be sole basis to ignore prime contention raised. The alternative submission to charge duty
from 01-04-2014 was made to put end to proceedings by Assessee. It was akin to pleading for converting probable death penalty to life imprisonment.
O-I-O could not confirm the duty from 01-04-2014. He submits that evidences available on records shows actual date of receipt of said PPM after
crossexamination u/s 9D ibid of witnesses is 01.08.2014, duty liability can not be before that date. Confirming demand of central excise duty from
April 2014 to September 2014, is an order beyond SCN. Revenue cannot pass order beyond SCN in a case not made out in its SCN. The evidences in
statements recorded during investigation, relied upon by revenue cannot be considered evidence without allowing cross examination of witnesses u/s
9D of CEA 1944 to confirm duty demand. The evidences brought on record during crossexaminations of witnesses in adjudication support contentions
of Assessee that additional machine was brought into factory on 01-08-2014. Demand of duty before August 2014 is not justified. He also submits and
submitted that the followings are crystal clear evidences brought on record during investigation and cross-examination of witnesses that seized PPM
was brought in factory of Assessee from 01-08-2014. Followings are the evidences shown:-
(a) Statements dated 03-09-2014 and 21-04-2014 of Shri Mahesh Patel, Proprietor of M/s Hasmukh Tobacco Products
(b) Statements of Shri Hasmukhbhai Patel, Authorized Signatory and his deposition during cross examination on 21.10.2019 to support that Pouch
Packing machine seized on 03-09-2014 was in fact brought in the factory on 01.08.2014.
(c) Statement of Shri Harish Kanadia, Prop. of M/s Vaibhav Packaging, machine supplier and his notarized affidavits produced during cross
examination on 09.10.2019 to support that the said machine was brought in the factory on 01.08.2014.
(d) Statement of Shri Santosh Patel, transporter-cum-driver of who during his cross examination on 09.10.2019 deposed that the said PPM was
brought in the factory on 01-08-2014 and to support his contention has also submitted an affidavit.
(e) Notarized affidavit produced by S/Shri JayantibhaiManaji Khat, BhikhajiPoonaji Thakore and Shaileshbhai Manubhai Thakore, who unloaded the
machine on 01.08.2014 in the factory during their cross examination to support that the said machine was brought in the factory on 01.08.2014.
(f) Records of Production and clearance for the period from 2012-13 to 2014-15.
(g) Electricity consumption Bills from May 2012 to November 2014 along with certificate issued by Torrent Power Ltd., Ahmedabad which clearly
shows that electricity consumption was high in September 2014 as compared to previous months, as two PPM operated in Sept. 2014.
(h) Records of raw materials consumption i.e. loose tobacco and packing materials (Plastic Bags) for the period from April 2012 to March 2015.
(i) Final Audit Report No. 45/204-15 dated 11.08.2014 issued from F.No.VI/1(b)/45/IA/AP-VII/2014-15/3292 for excise audit conducted on
10.06.2014 for the period from June 13 to May 2014 to support that the said machine was not in existence in the month of June 2014 and the
contention of the appellant that the said machine was brought in the factory on 01.08.2014 and not October, 2013.
(j) Intimation letter dated 11.09.2014 in Form 1 & 2 for month of September 2014 & payment of Rs.76,42,836/- for two machines to support that duty
for September 2014 was paid in normal course.
(k) ER 1 return for September, 2014 filed on 01.10.2014 under which duty for September 2014 was paid for two machines on RSP Rs.4/-
9.3 He submits that date of receipt of seized PPM on 01.08.2014 is supported by evidences brought on records during cross examination of witnesses
can be considered as valid evidences for fair determination of duty liability when Department have no contrary evidence to prove that machine in
question was operating machine w.e.f. 01-11-2013 or from 01.04.2014. Assessee claims that seized machine was installed in second week of
September 2014 based on the depositions in cross examination. He submits that seized PPM was brought on 01-08-2014; not used in August 2014
may be considered. Evidences on record show that production could not have been commenced before 01-08-2014. Hence, Duty cannot be confirmed
before month of August 2014. For duty liability for September 2014, he submits that Assessee had decided to increase Retail Sale Price from Rs.3/- to
Rs.4/- w.e.f. 01-09-2014 and instructed their accountant to do the needful. Accountant made payment for PPM online on 01-09-2014 on RSP Rs.4/-.
Due date for making payment for the September 2014 was 05-09-2014. But Central Excise Officers searched factory on 03-09-2014 and found one
extra PPM, which was placed under seizure. Officers during search directed Assessee to pay duty for two machines. Assessee deposited duty of
Rs.39,60,836/-, vide challan for Rs.36,82,000/- dated 01.09.2014, Rs.15,00,000/- dated 3.09.2014, Rs.21,00,000/- dated 08.09.2014 and Rs.3,60,836/-
dated 11.09.2014 and intimated with statutory Form-1 and Form-2. Thus, the duty for September 2014 was paid in the September 2014. O-I-O in its
para 77 has noted contention of Assessee. But, O-I-O has not reduced the duty paid for September, 2014 while confirming duty from April 2014 to
September 2014. Assessee has filed statutory return ER 1 reflecting this duty payment for two machines on RSP of Rs.4/- for September 2014. Fact
of payment of duty for September 2014 was not correctly considered in O-I-O. He submits that since Duty for September 2014 was deposited in
September 2014, second proviso to the Rule 9 ibid allows to recover “Interest†u/s 11AA ibid on the outstanding amount, for September 2014,
starting with first day after due date till date of actual payment of outstanding amount. Assessee submitted that confirmation of duty of Rs.36.82 lakhs
has increased undue consequential liability of interest and penalty. O-I-O confirming duty with interest & penalty for September 2014 which was
deposited in September 2014, is not justified in facts of case. Shri Jadeja submits that Assessee not being literate, administrative work of filing
intimations, Returns and payment of duty etc. was assigned to their accountant. However, inadvertently accountant paid duty on RSP of Rs.4/- for
PPM on 01-09-2014 for September 2014, but inadvertently, intimation for change of RSP and addition of PPM remained to be submitted to
department unintentionally. He submits that Assessee paid duty for September 2014 for two PPM on RSP of Rs.4/- and vide letter dt. 11.09.2014 they
filed Form 1 and Form 2 for September, 2014 as pointed out by officeRs.Such intimation has been acknowledged by department on 12.09.2014.
Similarly, for Appeal No. E/10341/2020 which has been filed against a separate penalty imposed on Shri Hasmukhbhai Patel who is authorized
signatory of Assessee. Shri Jadeja reiterated grounds of Appeal and submitted that authorized signatory has not acted to achieve personal benefits in
this case. When assessee is not liable to penalty, consequently, authorized signatory too is not liable to penalty. The consequential penalty imposed on
authorized signatory of assessee is not justified and deserves to be set aside.
As regards, department’s Appeal No. E/10352/2020-DB, shri P. P. Jadeja submitted that cross objection in that Appeal have been filed by the
Assessee which is assign No. E/Cross/10288/2020. He reiterated all submission made in CO No. E/Cross/10288/2020 and submits that
department’s Appeal is on the incorrect basis that extra PPM was operating Machine w.e.f. 01-11-2013 and duty as per SCN dated 19-02-2015
needs to be recovered from the Assessee. He submitted that O-I-O has given judicious, legal and proper findings considering evidences on record that
duty liability cannot be determined from November 2013. Findings in O-I-O Para 54 to 57 are logical, just & fair findings for coming to conclusion that
the seized PPM was not operating Machine w.e.f 01-11-2013. These findings does not require any interference. Appeal filed by department deserves
to be rejected. Revenue in their Appeal have stressed point that statements given by witnesses in investigation are retracted in cross examination. Shri
Jadeja submits that incorrect view is entertained by Revenue; that entire case of Revenue is based on statements without clinching, corroborative,
independent and positive evidences brought on the record; that Depositions given by concerned witnesses in cross-examination before ld
Commissioner under section 9D of Central Excise Act 1944 in adjudication proceedings are original evidences to clarify correctness of statement
given in investigation. Hence, deposition under section 9D ibid are original evidence and can never be considered as any retraction from statement
given in investigation. Decisions relied upon by Revenue in Appeal are objected/distinguished in detail by Assessee in the CO. These decisions are not
relevant or applicable in facts of this case. Revenue’s Appeal No. E/10352/2020-DB deserves to be rejected.
Shri Jadeja submitted that applying the ratio of the judgments in the present case, mere statement of the persons cannot be a conclusive evidence
for establishing clandestine removal. The Hon’ble Gujarat High Court in case of Sakeen Alloys Pvt. Ltd. [2013 (296) ELT-392(Tri - Ahmd)]
observed that confessional statement in absence of any cogent evidence cannot make the foundation for levying the excise duty on the ground of
evasion of tax. It is also well settled by the Hon’ble Tribunal and other higher forums that in cases of alleged clandestine manufacture and
clearances, certain fundamental criteria have to be established by Revenue which mainly are the following:
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained 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 sales of such goods to identified parties;
(e) Receipt of sale proceeds, whether by cheque of by cash, of such goods by the manufacturers or persons authorized by him ;
(f) Use of electricity for in excess of what is necessary for manufacture of goods otherwise manufactured and validity 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 document recovered during the search and activities being carried on in the factory of production etc.;
The above settled views of the CESTAT/High Court are also relied upon by the Hon’ble CESTAT, Ahmedabad in the case of M/s. Mahesh Silk
Mills Vs CCE reported at 2014 (304) ELT 703 (Tri- Ahmd). Assessee rely on decision by Hon’ble High Court of Gujarat reported in 2014 (308)
E.L.T. 655 (Guj.) in Tax Appeal Nos. 143 with 144-146 of 2014, decided on 6-3-2014, in case of CCE V/s Saakeen Alloys Pvt. Ltd, [2013 (296) ELT-
392(Tri - Ahmd)], wherein it is held that in case of clandestine removal of excisable goods, there needs to be positive evidence for establishing
evasion, and on facts, there was no material reflecting the purchase of excessive raw material, shortage of finished goods, excess consumption of
resources, etc. Considering the factual matrix wherein there was no cogent evidence to sustain the allegation of clandestine removal. In the present
case also there is n0o material reflecting the purchase of excessive raw material, excess consumption of resources like electricity, manpower,
infrastructure etc., and confessional statement recorded etc cannot form foundation for levy of duty. Thus, in the first place clandestine manufacture is
not proved in absence of evidences of such requirements, the subsequent question of clandestine clearance does not arise. Hence, when clandestine
manufacture is not proved, clandestine removal can not be proved. In support of submission, we would also like to rely on the decision in the case of
CCE, Ahmedabad-I Versus Gopi Synthetics Pvt. Ltd - 2014 (302) E.L.T. 435 (Tri. - Ahmd.), which was also upheld by the Hon’ble Gujrat High
Court in Tax Appeal as reported in 2014 (310) E.L.T. 299 (Guj.). The Hon’ble Tribunal held that charges of clandestine removal requires to be
proved by sufficient evidences and cannot be decided on the basis of some documents which is the only piece of evidence which may at the most
create a suspicion but not evidence and therefore the demand was dropped. Submissions on the quantification of demand of duty, confiscation and
penalties are attached separately with chronology of dates and events for reference. The submissions on behalf of Assessee and its authorized
signatory are summerised as under with the following prayers :
(a) The seized PPM was brought in the factory only on 01-08-2014
(b) The said PPM was brought for use as alternative PPM and it was not installed or used in August 2014. Hence there will be no liability for August
2014.
(c) For September 2014, both the PPM were used and duty for both the PPM were paid in September 2014 by 11-09-2014. Hence, there was no
further duty liability for September 2014.
(d) Set aside the O-I-O No. AHM-EXCUS-002-COMMR-13-2019-20 dated 27-12-2019 which has confirmed duty demand from April 2014 to
September 2014.
(e) Set aside confiscation and penalty imposed on Assessee and its authorized signatory.
(f) Reject Revenue Appeal No. E/10352/2020 and allow Cross Objection No.CO/10288/2020 filed by the Assessee.
(g) Allow all consequential benefits under this proceeding.
(h) Allow appeals filed by assessee and its authorized signatory by setting aside O-I-O dt. 27-12-2019 where it has confirmed the duty demand and
imposed penalty.
On the other hand, Shri H.K. Jain, Learned Assistant Commissioner (Authorized Representative) appearing on behalf of revenue reiterates
grounds of Revenue’s Appeal No. E/10352/2020 with a prayer to confirm duty from 01-11-2013 to 31-03-2014 and he also reiterated the finding
of impugned order which has confirmed duty from 01-04-2014 to 30-09-2014. He filed written submissions, wherein he submitted that undeclared
PPM, received was operating machine and assessee may be held liable to pay central excise duty for the said PPM from 01-11-2013 to 30-09-2014
along with interest and penalty. He submitted that appellant have raised many points and cited case laws in their grounds of appeal, but Adjudicating
Authority has given finding on points. He submits that Statement of Shri Maheshbhai Patel-proprietor was not retracted. He submits that during cross
examination how can they remember exact date 01-08-2015. It is simply impossible for human who is dealing in such goods to remember exact date.
He submits that from affidavits submitted, so many doubts arises i.e. date of purchase of stamp paper, all affidavits have been filed with Notary, date
of signature by deponent before notary and notarization date etc. which have been discussed in O-I-O at length. He submits that what interest those
persons may have in filing affidavit; that surely on direction of appellant they have done all these; that the same are not submitted to investigating
authorities and submitted during cross examination i.e. almost after 5 years, otherwise same could have been further investigated by the department.
In view of all discrepancies the same cannot be relied upon. He submits that Cross examination of three labourers, who stated that machine was
brought in factory on 01-08-2014 and submitted affidavits dated 11-07-2015; that Department has not recorded their statements and all 3 were
employees of appellant who wanted cross examination. So the result was most expected. How can they remember exact period of installation unless
they were told by appellant to do the same. He submits that it is settled that statement made by witness or party under section 14 is ex facie
admissible in evidence. He submits that in the present case all the statement have been given voluntarily and in few cases affidavits have been filed
late without giving reason for delay and any sort of evidence that they were also pressurized. He pointed out that Shri Hasmukhbhai and Maheshbhai
both were arrested on 21-10-2014. Their bail applications were initially rejected by Metropolitan Magistrate and by the Hon'ble Ahmedabad City
Session Judge. He submits that before the Hon'ble settlement Commission appellant had been making different claims on ""duty accepted"", initially they
accepted a duty of Rs 66.41 lakhs, which later on accepted from April, 2014 works out to Rs.176.47 Lakhs. He stated that u/s 3A of the said Act, if
the factory has an installed machine, it is deemed to be operational and deemed to have been used for manufacture of deemed qty of notified goods.
Adjudicating authority has given his findings in detail as to why plea of appellant that said machine was installed in August, 2014 cannot be accepted.
SDR stated that duty for September 2014 is liable to be paid, it is discussed in Para 77 of O-I-O. Regarding visit of Audit officers, it has been
discussed in Para 68 of O-I-O. Regarding consumption of electricity, which has increased during August and September 2014, he submits that the
same is also not a concrete evidence and there could be so many reasons for increase in units consumed and issue is dealt in detail at Para No.67 of
O-I-O. Further, use of both machines simultaneously is not required by law. If they use alternatively, even though duty on both machines are required
to be paid. He reiterated the grounds of their Appeal No. E/10352/2020 and stated that adjudicating authority presumed that statements are not
sacrosanct and cannot be considered to determine ""operating machine"". Adjudicating authority lost sight of fact that these retraction/affidavits, were
never filed with investigating authority and denying opportunity to investigating agency to re-investigate the case. Various case laws have been
mentioned and discussed on retraction. These persons made bland retraction that there was mistake in stating the date of delivery of said PPM to the
factory and the correct date was 01-08-2014.
We have heard both the sides at length and perused the records. The case of departments is that M/s Hasmukh Tobacco Products have
clandestinely used one extra Pouch Packing Machine for manufacture and clearance by evading excise duty to the tune of Rs.300.02 lakhs during the
period from 01- 11-2013 to 30-09-2014. The following relevant questions are to be examined and considered for confirming central Excise duty, if any.
(a) Interpretation of “Compounded Levy scheme†under section 3A of Central Excise Act 1944 and Chewing Tobacco and Unmanufactured
Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 [Referred to as Tobacco Rules 2010] and quantification of
Central Excise duty amount.
(b) Determining rate of duty and Quantification of duty under Notification No. 16/2010-CE dated 27.02.2010, for a month(s).
(c) Whether seized machine found excess on 03-09-2014 was actually ‘Operating Machine’ or not is to be ascertained as directed by the
Hon’ble Gujarat High Court in SCA No. 16871 of 2016 in this case.
(d) To ascertain from which date it was operative i.e. from 01-11-2013, as contended by Revenue or from 01-08-2014 as claimed by Assessee.
(e) Evidentiary value of statements in term of section 9D of Central Excise Act 1944 with & without examining witnesses u/s 9D ibid for confirming
the demand of Central Excise duty by revenue.
(f) Whether Confiscation of PPM is sustainable when it is not manufactured and removed by M/s Hasmukh Tobacco Products. Consequential
Redemption Fine imposed on M/s Hasmukh Tobacco Products is justified or not.
(g) In absence of seizure of goods manufactured or cleared by Assessee, whether Penalty imposed on Assessee and its authorized signatory under
section 11AC of the Central Excise Act would be justified or not.
14.1 We find that M/s Hasmukh Tobacco Products engaged in manufacture of OM brand unmanufactured tobacco falling under CTH 24011090 of
Central Excise Tariff Act 1985 with Registered Central Excise ECC No. ACSPP9687QM001. Assessee had filed their last declaration on 27-12-2012
and had declared RSP of Rs.3/- on pouch and they were paying duty for one PPM, under section 3A of Central Excise Act, 1944 and Chewing
Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010. Central Excise officers,
visited factory premises of Assessee on 03.09.2014 and found one undeclared Pouch Packing Machine [PPM] having packing material roll on with
printed RSP Rs.4/-, which was seized.
14.2 We find that issue regarding duty in respect of seized PPM, is required to be determined under section 3A ibid by considering existence and
admissibility of evidences in support of demand of duty under subject SCN as directed by both the Hon’ble Gujarat High Court and observations
of the Hon’ble Settlement Commission in their respective ordeRs.Compounded levy under section 3A is on “deemed production†and excise
duty is leviable as notified on number of packing machines in factory of manufacturer under Chewing Tobacco and Unmanufactured Tobacco
Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 read with section 3A(2) and (3) of the Central Excise Act, 1944. The
monthly deemed production per PPM is prescribed on the basis of average speed of machines and average working hours of factory. Central Excise
duty is at rates notified on the basis of Retail Sale Price (RSP) slabs on per machine, Notification No. 16/2010-CE dated 27.02.2010 refeRs.The
number of packing machines installed in factory has been notified to be factor relevant to production of notified goods under the above Rules 2010.
Duty is required to be determined on deemed production determined in accordance with the prescribed parameters, i.e. number of operating PPM in
factory during month and RSP on the pouches. Rule 5 of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity
Determination and Collection of Duty) Rules, 2010 specifies quantity of notified goods deemed to have been produced by use of one “operating
packing machine†per month and such deemed quantity varies on RSP shown by manufacturer per pouch. Rule 6(4) of Tobacco Rules 2010 provides
that ‘number of operating packing machines’ during any month shall be equal to ‘number of pouch packing machines installed in the
factory’ during that month. Rule 7 provides for the calculation of the Duty payable. Rule 8 specifies that in case of any addition or installation or
removal or un-installation of a packing machine in the factory during month, number of operating packing machines for month shall be taken as
maximum number of pouch packing machines installed on any day during month, provided that in case of nonworking of installed packing machine
during month, for any reason whatsoever, same shall be deemed to be an operating pouch packing machine for the month. Rule 9 ibid provides the
manner of payment of the duty and the interest.
14.3 In the present case, the SCN dated 19-02-2015 has demanded total duty of Rs.300.02 lakhs from November 2013 to September 2014, based on
statements. The O-I-O dated 27-12-2019 has confirmed duty of Rs.1,76,47,000/- from 01-04-2014 to 30-09-2014. Rest of demand of duty of totally
Rs.1,23,55,000/- has been dropped. O-I-O has given just and fair findings in O-I-O Para 54 to 57 for his conclusion that seized PPM was not operating
Machine w.e.f. 01-11-2013. We upheld the same as correct view.
14.4 We find that there is no dispute about detection and seizure of extra PPM from factory of Assessee on 03-09-2014. Both the side have agreed to
this fact. Therefore, it remains to be ascertained as to from which date it was brought in the factory and installed or not installed. Statements of 03-09-
2014, 21-10-2014 by Hasmukhbhai Patel, and Maheshbhai Patel, shows date of receipt of seized PPM as 01-08-2014. The entire case is based on
statements. Hence, critical analysis of statements would be very relevant. From cross examination of the following persons, it has also come on record
very useful information relevant for this purpose :-
(i) Shri Patel SantoshbhaiIshwarbhai, [Driver of Tempo No. GJ-01-BX-9106
(ii) Shri Haresh PravinbhaiKanadia, [Proprietor of M/s Vaibhav Packaging
(iii) Shri Hasmukhbhai U. Patel, Authorized signatory of M/s Hasmukh Tobacco Products
(i) It is seen from cross-examination dt 09-10-2019 that Shri Patel Santoshbhai was shown his statement dated 10.09.2014 and after reading, he has
stated that it was given as per directions from Shri Rajubhai; that the said statement dated 10.09.2014 was not correct; that he stated that said
machine was loaded in his tempo on 01.08.2014 and it was delivered by him at M/s Hasmukh Tobacco Products; that in token of these truthful facts,
he had filed an affidavit on 12.07.2015 which he submitted during his crossexamination.
(ii) It is seen from cross-examination dt 09-10-2019 of Shri Harish Pravinbhai Kanadia @ Rajubhai, that he had supplied tobacco pouch packing
machine to M/s Hasmukh Tobacco; that he had given statement before Central Excise officers in connection with two diaries recovered from factory
during their search and Panchnama proceedings conducted on 09.09.2014; that the said diaries contained details of his repairing and service of PPMs;
and that he was using diaries only as notebooks and was not maintaining the same as diaries for day-to-day events and dates printed on diary would
not match with details written by him on that pages. He stated that Shri Maheshbhai Patel had brought old not working PPM to his factory; that he
repaired it with new spare parts so as to make it in running condition; that repaired PPM was sent by him to M/s Hasmukh Tobacco Products on
01.08.2014 through the tempo owned by Shri Santosh; and that he had spent Rs.40,000/- on said PPM which included cost of spare parts amounting to
Rs.21,460/- details of which are written in diary. He explained contents on other pages of seized diaries, none of which pertained to assessee.
Perusing his statement recorded on 09.09.2014, Shri Harish Kanadia stated that he had wrongly stated earlier that he had supplied one PPM to M/s
Hasmukh Tobacco Products during October, 2013 and that his present statement is true and correct as the said PPM was actually supplied after
carrying out repair works for Rs.40,000/- and that it was delivered on 01.08.2014. He also submitted one affidavit dated 10.07.2015.
(iii) It is seen from cross-examination on 21-10-2019 of Shri Hasmukhbhai Patel, that the officers of Central Excise had conducted search at their
factory on 03.09.2014 and had recorded his statements on 03.09.2014,_12.09.2014, 21.10.2014 and 02.01.2015. He stated that only one PPM was
functional and another PPM was not functional; and that he had given his statement on 03.09.2014 that said non-functional PPM was purchased by
them for Rs.50,000/- and got the same repaired by Shri Rajubhai (Shri Harish Kanadia) on payment of Rs.40,000/- and it was brought to factory by
loading tempo on 01.08.2014. He stated that seized PPM was made operational from 2nd week of September, 2014; that they had already advised
their accountant to file necessary declarations in the department for starting the said additional PPM and for increasing their MRP from Rs.3 to Rs.4
per pouch, but he forgot to file the same; that he had reiterated these facts again on 21.10.2014; and that they had no intention to evade central excise
duty. He was shown his own statements dated 12.09.2014 and 02.01.2015, Panchnama dated 09.09.2014 recorded at M/s Vaibhav Packaging and
statement of Shri Harish Kanadia recorded on 09.09.2014 and a statement of Shri Santosh Patel, Tempo Driver recorded on 10.09.2014, and in this
regard, he stated that he was shown Statement of Shri Harish Kanadia dt. 09.09.2014 and not shown diaries seized from him; that Shri Harish
Kanadia had wrongly stated that he had supplied one PPM to our factory during month of October, 2013; that his own statement dated 12.09.2014
was recorded under threat of arrest and was not correct; that subsequent statements given by him and Shri Mahesh Patel on 21.10.2014 were correct
that the PPM was brought to their factory on 01.08.2014; that the statement of Shri Santosh Patel, Tempo Driver recorded on 10.09.2014 was also
not correct; that he was never shown diary seized from M/s Vaibhav Packaging wherein it was written on page 375 about 'repairing and servicing of
Sureshbhai's machine'; that on being shown the said details, he stated that he had purchased one old machine from one Sureshbhai for Rs.50,000/-
which was got repaired at factory of Shri Harishbhai Kanadia for Rs.40,000/- and thus he had paid Rs.90,000/- in this regard. He has gone through
statements of Shri Maheshbhai Patel, recorded on 03.09.2014, 21.10.2014 and 02.01.2015 and stated that additional PPM was brought in factory on
01-08-2014 and it was not operative on date of Panchnama dated 03.09.2014; that they had already made duty payment of Rs.39,60,836/- and had
declared details in Form-1 and Form-2. 14.5 Thus, we find that it is not a simple bald statement in their cross examination that seized PPM was
brought in factory on 01-08-2014. These depositions in cross examination seems to be their true statements. We also find from statements recorded
initially and depositions of relevant witnesses under section 9D of Central Excise Act 1944 before the learned Commissioner, it becomes amply clear
that the seized PPM was brought in the factory on 01- 08-2014. We have also perused relevant affidavits and relied upon pages of diaries seized from
the premises of supplier of PPM. The objective of cross examination was to ascertain actual date of receipt of seized PPM in the factory of assessee
and installation thereof. We have also considered all argument and submission made by Authorized Representative (AR) on behalf of the Revenue.
We do not agree with contentions of AR that statement in cross examination without any documentary evidences cannot be accepted as evidence that
Such depositions in cross examination are retractions and after thoughts only without having any basis to give date of receipt of PPM on 01- 08-2014.
We approve Assessee’s contention that depositions under section 9D ibid before learned Commissioner are original evidences and they can not be
considered as any type of retractions or after thought. We agree with contentions made on behalf of Assessee on this point. We hold that it is settled
law that in cases of such clandestine manufacture and clearance, heavy burden is on the Revenue to prove charges with reliable, clinching, positive
evidences and independent corroborative evidences. Revenue has reiterated allegations in SCN, but not produced independent corroborative evidence
to prove their case that seized PPM was an operative machine w.e.f. 01-11-2013. Deposition of witness u/s 9D ibid, can not be brushed aside on
assumptions and presumptions. Section 9D of Central Excise Act reads as under:-
“SECTION 9D. Relevancy of statements under certain circumstances. â€" (1) A statement made and signed by a person before any
Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of
proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, -
(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the
adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the
Court considers unreasonable; or
(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having
regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding
before a Court, as they apply in relation to a proceeding before a Court.â€
The language used in section 9D ibid is such that a statement made and signed by a person before any Central Excise Officer of gazetted rank during
any inquiry/investigation or proceedings under this Act shall be relevant, when person who made statement is examined & cross examined as a
witness. In case of 2010 (260) E.L.T. 514 (All.) - CCE vs PARMARTH IRON PVT. LT, Dthe Hon’ble Allahabad High Court has held as under
in para 14
“14. All these judgments in the matter of cross-examination are at the stage of adjudication. The law, therefore, at that stage, need not be
elaborated, as it is the right of an assessee in the event the Revenue seeks to rely on the statements of witnesses recorded by it and whose
statements are sought to be relied upon at the stage of adjudication to make available the said witnesses for cross-examination so that it
could be established whether the statements recorded from the said witnesses have been voluntarily given and/or are relevant for the issue
or based on personal knowledge or hearsay and the like. The object, being that a Tribunal or Court conducting a proceeding either before
the Court or quasi judicial tribunal in adjudication, must have the true evidence and shift the evidence to weed out the chaff from the grain.
Another reason being to satisfy itself that the person whose statement was recorded had made it voluntarily and based on his personal
knowledge or legal records which can come out in cross-examination. This is to ensure the Court or Tribunal or the authority conducting
the proceeding arrives at the correct conclusion based on tested evidence before it. The issue also is no longer res integra in view of the
large number of judgements of the Supreme Court.â€
In case of 2016 (340) E.L.T. 67 (P & H) - JINDAL DRUGS PVT. LTD vs UOI, the Hon’ble P & H High Court has held as under in para 19
“19.Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise
Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure
prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps
referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any
adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise
Officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement
as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of
Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication
proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests
of justice.â€
In case of 2016 (339) E.L.T. 209 (P & H) - G-TECH INDUSTRIES vs UOI, the Hon’ble P & H High Court has held as under in para 14 & 15
“14. 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.
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 admitting such a statement in evidence, clause (b) of Section 9D(1) mandates
that the evidence of the witness has to be recorded before the adjudicating authority, as, in such an atmosphere, there would be no
occasion for any trepidation on the part of the witness concerned.â€
In case of 2013 (294) E.L.T. 353 (Del.) - BASUDEV GARG vs CC, the Hon’ble Delhi High Court has held as under in para 10 & 14
“10. Insofar as the general propositions are concerned, there can be no denying that when any statement is used against the assessee,
an opportunity of cross-examining the persons who made those statements ought to be given to the assessee. This is clear from the
observations contained in Swadeshi Polytex Ltd. (supra) and Laxman Exports Limited (supra). Apart from this, the decision of this court in
J&K Cigarettes Ltd. (supra) clinches the issue in favour of the appellant. In that case, the validity of Section 9D of the Central Excise Act,
1944 was in question.
The Division Bench also observed that though it cannot be denied that the right of cross-examination in any quasi judicial proceeding is
a valuable right given to the accused/Noticee, as these proceedings may have adverse consequences to the accused, at the same time, under
certain circumstances, this right of cross-examination can be taken away. The court also observed that such circumstances have to be
exceptional and that those circumstances have been stipulated in Section 9D of the Central Excise Act, 1944. The circumstances referred to
in Section 9D, as also in Section 138B, included circumstances where the person who had given a statement is dead or cannot be found, or
is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of
delay and expense which, under the circumstances of the case, the Court considers unreasonable. It is clear that unless such circumstances
exist, the Noticee would have a right to cross-examine the persons whose statements are being relied upon even in quasi judicial
proceedingsâ€
In case of 2015 (324) E.L.T. 641 (S.C.) - ANDAMAN TIMBER INDUSTRIES vs CCE, KOLKAT, Ath-eI IHon’ble Supreme Court has set
aside duty demand holding that the appellant in that case had contested the truthfulness of the statements of two witnesses and wanted to avail of
cross-examination, which was denied and Hon’ble Apex Court discredited these two witnesses.
14.6 Thus, in view of the above decisions, statement of any person recorded and signed by person by Central Excise Officer in deposition in cross
examination make statement relevant evidence also for the quasiâ€"judicial proceedings. Evidence or deposition made in cross examination may be
discarded with such other equally valuable contra evidence produced on the record. However, depositions made in the cross examination before
learned Commissioner can not be discarded on simply pointing out infirmities in depositions or pointing out illogical theories to ignore depositions in
cross examinations. The focus of cross examination was to ascertain date of receipt of seized PPM in factory and its valuation or other aspects as
pointed out by Revenue are even otherwise irrelevant to decide the date of receipt of PPM in factory. Learned AR has also contended that
statements of Shri Maheshbhai Patel, proprietor have not been retracted. However, when shri Maheshbhai Patel has not been examined/cross
examined in terms of section 9D ibid, his statements even otherwise do not support the revenue’s case, when in his statements dated 03-09-2014
and 21-10-2014 he has stated that seized PPM was brought in their factory on 01-08-2014. Thus, instead of adducing any such reliable, clinching
evidence, Revenue has contended to ignore or discard evidences brought on record during the cross examination of all the above witnesses, without
there being any contra evidences produced. We are of the view that a rational, logical and fair interpretation of procedure clearly spells out that before
the statement is treated relevant and admissible under law in terms of section 9D ibid, Adjudicating Authority is obliged under law to examine person
and allow cross examination to admit evidence in interest of justice. Therefore, we are of the view that recording of statement in inquiry is not enough
but it has to be with fully conscious application of mind by adjudicating authority that statement is required to be admitted allowing opportunity of cross
examination of witness. This provision could not be done away with by the adjudicating authority, if he is inclined to take into consideration the
statement recorded earlier during investigation by Investigation officeRs.
14.7 Without examination and cross examination of person as required under Section 9D for cross examination as mandated under CEA 1944,
statement recorded by Investigation Officer would not constitute relevant and admissible evidence and has to be ignored when procedure u/s 9D ibid
is not followed by adjudicating authority. We hold that adjudicating authority in this case committed gross error in not placing reliance upon depositions
of witnesses recorded during their cross examination which was before him in proceedings in this Show Cause Notice. We are of the view that
depositions made by concerned witness before learned Commissioner in cross examination are original evidences adduced on record during the
adjudication proceedings. When depositions were made by concerned witness in cross examination, learned Commissioner or revenue had not raised
objection during their deposition. Therefore, such depositions before Commissioner during cross examination of witnesses have become the original
evidence, which can not be objected merely on assumptions and presumptions or pointing out the unsustainable infirmities related to such depositions.
These evidences are also given by the concerned witness after perusing their own earlier statements and in support of depositions they have given
their affidavits. These evidences are original depositions by witness and they are reliable evidences in these proceedings to proceed further in decision
making process in the interest of natural justice. Statement recorded during investigation at the back of Assessee can be used against assessee after
allowing cross examination of witnesses to assessee. Statement recorded during investigation has to pass through test of mandatory procedure u/s 9D
ibid when opportunity of cross examination is allowed to assessee. It is Settled that quantification of alleged clandestine clearance on theoretical
estimation of the production cannot be sustained. Depositions made in cross examination would become original and valid evidence and adjudicating
authority had to rely it without any reservations. Accordingly, we find from depositions made during cross examination of witnesses that seized PPM
was brought in the factory on 01-08-2014 and it was not operative Machine from 01-11-2013 as alleged by revenue in SCN dated 19-02-2015 or
deemed to be from 01-04-2014 as held in this O-I-O. On visit of Audit officers on 10-06-2014, view in Para 68 of O-I-O is not correct view
considering Instructions contained in the Audit Manual produced by Assessee. The evidences pointed out by Assessee which are brought on record
during investigation and cross-examination of witnesses that seized PPM was brought in factory of Assessee from 01-08- 2014 are acceptable
evidences, which are already reflected in Para 9 supra and hence the same are not reproduced here again.
14.8 Similarly, we have also critically examined validity of duty demand from 01-04-2014, as confirmed by this O-I-O dated 27-12-2019, in terms of
the Rule 18(2) of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010.
Both the sides have objected and not agreed for this type of theory for confirmation of the duty demand. Therefore, it is very relevant to refer to the
said provision of Rule 18(2) and it would be necessary to go through the said Rule 18(2) ibid which is reproduced as under :-
“18. Penalty for contraventions, etc. - (1) Subject to the provisions of rule 16 and section 11AC of the Act, if any manufacturer produces
or removes notified goods in contravention of any provision of these rules, then, all such goods shall be liable to confiscation, and the
manufacturer shall be liable to a penalty not exceeding the duty leviable on the notified goods in respect of which aforesaid contravention
has been committed.
(2) If it is found that goods have been manufactured in or cleared from a unit which is not registered with the jurisdictional Central Excise
Office, then, the duty liability of such unit shall be determined on the basis of number of packing machines found available in the premises
of the unit and the retail sale price of the pouches manufactured with the aid of such packing machines and unless evidence to the contrary
is provided to the satisfaction of the Central Excise Officer, such machines shall be deemed to have been in operation, in case of financial
year 2009-10, since the 8th March, 2010, and for subsequent financial years, since the 1st day of April of respective financial year, and
shall be construed as operating packing machines for the purposes of rule 7 and dealt with accordingly.â€
The above Rule 18(2) shows that it would apply to the unit which is not registered with Central Excise authorities. It provides that unless evidence to
contrary is provided to satisfaction of Central Excise Officer, such machines shall be deemed to have been in operation, since 1st day of April of
respective financial year. However, we hold that since assessee is already a registered unit with Central Excise Authorities, their obligations as a
manufacturer are under Rule 6 and their duty liabilities for respective months can be calculated and determined in terms of Rule 7 ibid and the manner
of payments of duty interest etc. in terms of Rule 9 ibid. We are of the view that duty liabilities of a registered unit can not be determined U/R 18(2)
ibid as held by learned Commissioner. Further, it has also established from evidences on records during investigation, cross examination etc that the
said PPM was brought in the factory on 01-08-2014. As per condition under Rule 18(2) ibid “unless evidence to the contrary is provided†is
satisfied in this case. There is no evidence brought on record by revenue that seized PPM was in the factory and it was operative machine from 01-
04-2014. Thus, charging duty from 01-04- 2014 is without any basis and it is not sustainable. Therefore, demand of duty from 01-04-2014 deserves to
be set aside and we do so.
14.9 Now, when the facts are crystal clear that the seized PPM was brought in the factory on 01-08-2014, what will be the duty liability of assessee
from 01-08-2014 also requires to examined and considered.
14.10 Regarding, duty liabilities for August 2014, Assessee has contended with reference to the screenshots [Photographs] of seized PPM submitted
with the synopsis that it was found lying. The contention of Assessee that PPM seized on 03-09-2014 was not operating machine per se, can not be
accepted just like that without going into its other factual details. Assessee states that in investigation and cross examination of witnesses, seized PPM
was brought in the factory of Assessee from 01-08-2014 for its alternative use, in case main PPM fails working and that seized PPM was not used in
August 2014 and that both PPM were also not used together. Assessee’s contentions are not acceptable that seized PPM was not in working
condition and officers have not conducted any technical inspection of machine to establish its exact condition as “operating Machine†can not be
acceptable as Assessee has not produced evidence to prove their contention. Assessee’s contention that seizure Panchnama and photographs
from videography shows that the said PPM had no power connection attached to it or it was having other attachments required for productions and
that it was merely dumped in heap of bags of raw materials and surrounded by such bags and merely having packing material roll on with printed RSP
of Rs.4/-would not make it “Operating Machine†attracting duty etc are not acceptable being devoid of any merit. These type of submissions
about the PPM can not be acceptable without considering facts and relevant circumstances of the case. The contention by Assessee that seized PPM
was not used by the assessee in August 2014 and started in second week of September 2014 is based on the depositions in the cross examination by
(1) Jayantibhai Manaji Khat, (2) Bhikhaji Poonaji Thakore, (3) Shaileshbhai Manubhai Thakore, all 3 are the Labourer of M/s Hasmukh Tobacco
Products. However, we find that the above three witnesses were allowed for cross examination by ld Commissioner and in their cross examination, all
of them have deposed that said PPM was used in second week of September 2014. We have considered this but noted that Department had not
recorded statements of these three labourers during investigation. They were not required to be cross examined by Commissioner. We do not consider
these depositions of 3 labourers u/s 9D ibid as evidences to prove that seized PPM started working in second week of September 2014. Therefore,
Assessee’s claim that since seized PPM was not used in August 2014, there is no duty liability can not be accepted without considering other
facts, circumstances and evidences available on record as mentioned hereunder :-
(a) The first basic evidence is the seizure Panchnama dated 03-09-2014, which shows that on being asked, shri Hasmukhbhai Patel, authorized
signatory, in presence of Panchas inform Central Excise Officers that they are using the said another pouch packing machine regularly; that they have
not declared the said machine to department and not paid central excise duty on the said machine. This evidence is valid and not objected as on today
even by the Assessee.
(b) The seized PPM is not so heavy that it is required to be attached to the floor with nuts & bolts for its installation.
(c) Seized PPM is movable machine which can be smoothly rolled on stand with wheels on floor from one place to another and it can be easily
connected to electric plug with a wire cord. Electricity connection Board/plugs are also found there.
(d) While seeking their bail before Hon’ble Courts in Ahmedabad, Assessee had accepted their duty liability from August 2014.
(e) When Assessee had approached Hon’ble Settlement Commission and the Hon’ble Gujarat High Court, they had accepted their duty
liability from August 2014.
(f) During adjudication, during cross examination and EA-3 Appeal submissions, synopsis etc Assessee has vehemently submits that duty can not be
fasten on them before August 2014. But, they have not seriously objected duty liability for August 2014, which is even otherwise payable in
Compounded levy u/s 3A and Tobacco Rules and Notification No. 16/2010-CE dated 27.02.2010 as amended.
14.11 In view of the above, we find that since the Assessee confirm the receipt of seized PPM in factory on 01-08-2014, contention of Assessee that
duty is not payable for August 2014 is not sustainable. Therefore, we hold that duty of Rs.29,56,000/- for August 2014 is required to be recovered
under Section 11A(10) of Central Excise Act, 1944 read with Rule 7 of Chewing Tobacco and Unmanufactured Tobacco Packing Machines
(Capacity Determination and Collection of Duty) Rules, 2010 towards duty leviable on one undeclared packing machine which was found in their
factory on 03.09.2014. When any specific date of its installation is not ascertainable, it can not be said that it was in operation from 01-08-2014.
However, when the said PPM was brought in factory on 01-08-2014, but since there is no clear evidence as to when it was installed & used in August
2014, this becomes a case of addition or installation of a packing machine in the said factory in August 2014, in terms of Rule 8, and third proviso to
Rule 9 ibid would be applicable in this case providing for manner of payment of duty which has stipulated that in case of increase in the number of
operating packing machines in the factory during the month on account of addition or installation of packing machines, differential duty amount, if any,
shall be paid by 5th day of the following month. Duty for month of August, 2014 becomes payable by 05-09-2014 and interest liability on duty amount
of Rs.29,56,000/- may be calculated by Central Excise Officers as per proviso two to said Rule 9 ibid.
14.12 The duty liability for the month of September 2014 is not disputed for 2 PPM by the Assessee. We hold that duty of one PPM for RSP of Rs.4/-
, for September 2014, comes to Rs.36,82,000/-. Duty was deposited online by challan on 01-09-2014 for regular PPM by Assessee on RSP of Rs.4/-.
The Officers during search on 03-09-2014, on noticing extra PPM, had orally directed Assessee to pay duty for extra PPM. Assessee had also paid
duty of Rs.39,60,836/-. Assessee by letter dated 11.09.2014 addressed to the Assistant Commissioner, Central Excise, Range-V, Division-V,
Ahmedabad-II intimated to have filled Form 1 & Form 2 for September-2014 and submitted copies of challan for Rs.36,82,000/- dated 01.09.2014,
Rs.15,00,000/- dated 03.09.2014, Rs.21,00,000/- dated 08.09.2014 and Rs.3,60,836/- dated 11.09.2014 showing payment of duty. Thus, we also find
that duty for September 2014 in respect of both the PPM stand deposited on RSP of Rs.4/- in September 2014 itself by 11-09-2014. Assessee has
filed periodical statutory Return ER 1 reflecting duty payment for two machines on RSP of Rs.4/- for September 2014. Thus, the accepted dues of
duty liability for September 2014 having discharged with some additional amount of Rs.2,78,836/- deposited, which needs to be appropriated towards
their interest liability, if any. There is no duty liability outstanding except interest liability for a few days to be calculated by the Central Excise Officers
for September 2014. We hold that there can not be any penalty for September 2014. However, we also make it clear that at the same time the
Assessee would also not be eligible to claim any consequential benefit for amount of Rs.36,82,000/- deposited towards duty for September 2014,
which is even otherwise their duty liability and it has also to be appropriated.
14.13 As regards, imposition of Redemption Fine, we agree with the contention of the Assessee that Rule 25 of Central Excise Rules, 2002 is not
applicable, when a specific provision has been made under Rule 18(1) of Chewing Tobacco and Unmanufactured Tobacco Packing Machines
(Capacity Determination and Collection of Duty) Rules, 2010 for confiscation and penalty. The Rule 18(1) ibid provides that notified goods produced
or removed shall only be liable to confiscation. We agree with the contention of the Assessee that the seized PPM is brought in their factory and it has
not been manufactured by Assessee or removed from factory by Assessee. Therefore, we find that seized PPM is not at all liable to confiscation
under Rule 18(1) ibid. The confiscation of PPM and fine of Rs.10,000/- deserves to be vacated and set aside. We vacate confiscation of seized PPM
and set aside Redemption fine of Rs.10,000/- imposed by the impugned order.
14.14 As regards, imposition & quantification of Penalty, Assessee has submitted that mens rea is required u/s 11AC of Central Excise Act 1944 and
that they had no intention to evade duty and they had no intention to operate two PPM at a time without paying duty or following Chewing Tobacco
Rules of 2010. The seized PPM was brought in factory on 01-08-2014 for its use alternatively, in case main PPM fails working, it was not used and
that PPMs were not used together. Judgment in the case of UOI v/s Rajasthan Spinning and Weaving Mills â€" 2009 (238) ELT-3 (SC )is relied upon
for not imposing penalty u/s 11AC, being case of either no penalty or lenient penalty u/s 11AC, pleading to allow benefits of reduced penalty u/s 11AC
ibid as are available to Assessee.
14.15 We have considered submissions and we are of the view that Penalty is imposed if violation is intentional. The provisions in Central Excise Act
1944 provides that even if short payment or non-payment of excise duty detected by self or pointed out by officers, voluntary duty compliance of duty
is encouraged to reduce litigation. In this case, entire duty determined and interest stand deposited. Appellant deserves leniency on penalty. Assessee
on payment of duty with interest is eligible to reduced penalty @ 10 % u/s 11AC(1)(a) ibid. Assessee is eligible for closure of proceedings only on
payment of duty and interest for September 2014. But, for August 2014, the penalty u/s 11AC(1)(a) shall be ten per cent of duty. Thus, for August
2014, duty of Rs.29,56,000/- is payable with interest and penalty @ 10 %.
14.16 Similarly, we have also not found any other evidence that Shri Hasmukhbhai Patel had availed any other personal benefits except looking after
affairs of firm as authorized signatory. Since duty with interest & penalty is imposed on Assessee for August 2014, separate penalty U/R 26 of CER
2002 on Shri Hasmukhbhai Patel, who is authorized signatory of firm is not warranted and deserves to be set aside. We allow Appeal filed by Shri
Hasmukhbhai Patel and set aside the penalty imposed on him.
14.17 We have perused the grounds of Appeal No. E/10352/2020 filed by Revenue and cross objections filed therein by Assessee. However, we have
already held that O-I-O has given clear judicious, legal and proper findings to show that considering evidences on record, the duty liability cannot be
determined from November 2013. Findings in O-I-O Para 54 to 57 for coming to conclusion that PPM was not operating Machine w.e.f. 01-11-2013
have already been upheld by us. We have held that duty demand from 01-04-2014 is also not sustainable. Assessee’s Appeal has been partially
allowed holding their duty liability for August 2014, Appeal No. E/10352/2020-DB filed by Revenue deserves to be rejected. Department in their
Appeal No. E/10352/2020-DB have stressed on point that statements given by witnesses in investigation have been retracted in cross examination.
We have already held that incorrect view is entertained by Revenue. We have noted that this entire case is based on statements without clinching,
corroborative independent positive evidences on record produced by the Revenue officeRs.Depositions by witnesses in cross-examination before
Commissioner u/s 9D ibid in adjudication proceedings are original evidences and have passed test of correctness of statement given in investigation.
Therefore, depositions u/s 9D ibid are original evidence and can never be considered as a retraction from statement given in investigation. We have
given detailed finding on the above points in foregoing paragraphs and we do not wish to repeat them. We have also perused decisions relied upon by
the revenue in their Appeal and submissions filed at the time of hearing. Most of decisions relied upon in Revenue’s Appeal are objected by
Assessee as not applicable in this case. Assessee have given their due comments against almost all such decisions. We find that the said decisions are
not related to the facts of this case and hence they are not applicable in this case. Accordingly, we hold that Revenue’s Appeal deserves to be
rejected and we do so.
14.18 Accordingly, the impugned order where it has confirmed duty demand is set aside and it is modified to the following extent.
(a) We confirm demand of Central Excise duty of Rs.29,56,000/- [Rupees Twenty Nine Lakhs and fifty six Thousands only] against M/s. Hasmukh
Tobacco Products, towards duty leviable for the month of August, 2014;
(b) M/s. Hasmukh Tobacco Products, Ahmedabad shall pay interest under Section 11AA of Central Excise Act, 1944 on the above confirmed
demand of Rs.29,56,000/-.
(c) We vacate confiscation of seized PPM under Rule 18(1) of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity
Determination and Collection of Duty) Rules, 2010 and set aside Redemption fine of Rs.10,000/- imposed.
(d) We impose penalty @ 10 % of Rs.29,56,000/- on M/s Hasmukh Tobacco Products, u/s 11AC(1)(a) of Central Excise Act, 1944, which will come
to Rs.2,95,600/-.
(e) We set aside penalty on Shri Hasmukhbhai Ugarchand Patel, Authorized Signatory of M/s Hasmukh Tobacco Products, Ahmedabad U/R 26 of
Central Excise Rules, 2002.
(f) We order appropriation of duty amount of Rs.36,82,000/- with interest u/s 11AA as deposited in the month of September for September 2014 and
also order appropriation of confirmed demand of Central Excise duty of Rs.29,56,000/- with interest as per Section 11AA of CEA; 10% of Penalty on
Rs.29,56,000/- imposed on M/s. Hasmukh Tobacco Products[which comes to Rs.2,95,600/-] in terms of Section 11AC(1)(e) of the said Act from the
amounts which the said assessee has deposited during pendency of proceedings. Jurisdictional Deputy Commissioner is directed to calculate actual
interest and communicate the same to assessee within fifteen (15) days as part of appropriating such payments.
(g) The remaining demand of duty and corresponding penalty and interest over and above mentioned at (a) & (b) above are set aside.
In view of the above we pass the following final orders :-
(i) Appeal No. E/10340/2020 filed by M/s Hasmukh Tobacco Products is partially allowed in above terms with all consequential benefits.
(ii) The appeal No. E/10341/2020 filed by shri Hasmukhbhai Patel is allowed with all the consequential benefits.
(iii) The appeal No. E/10352/2020 filed by Revenue is dismissed and the Cross Objection No. E/cross/10288/2020 filed by the Assessee stand
disposed of accordingly.
(Pronounced in the open court on 11.01.2021 )