Tribhuvan Tobacco Products vs Commissioner of Central Excise, Delhi-I

This is an appeal under Section 35-G of the Central Excise Act, 1944 against the order dated 31st July, 2015 passed by the Customs, Excise & Service Tax Appellate Tribunal (''CESTAT'') in a stay application filed by the Appellant Assessee in an appeal against the order-in-original dated 28th February/3rd March 2014 confirming the demand of Central Excise duty amounting to Rs. 1,99,50,000/-, with an equal amount of penalty on the Assessee. The CESTAT has by the impugned order directed the Appellant to make a pre-deposit Rs. 15,00,000/- within a period of eight weeks.

The impugned order of the CESTAT does not appear to have examined the submissions of the parties on merits. The only reasons given in the impugned order are contained in two short paras as under:

"3. After careful consideration of the submission of both the sides, we find that the demand made as per rule 18 (2) of the said rules required to be rebutted by the applicant. The seizure of Machine, Packing material, Packing Machine of Products are to be explained with dear supporting evidence. This requires detailed appreciation of contention by both the sides.

On perusal of records and arguments we are Prima -Facie of the opinion that the applicant failed to make a case for full waiver of duty and penalties. Accordingly we order pre-deposit of Rs. 15,00,000/- (Rupees Fifteen lakhs only) within 8 (eight) weeks. On compliance of the same the recovery of the remaining duty and penalties shall be stayed till the disposal of the case."

This Court has heard the submissions of the learned counsel for the parties and perused in detail the order-in-original dated 28th February/3rd March, 2014 passed by the Commissioner, Central Excise, Delhi - I.

The case of the Department as set out in the show cause notice (SCN) issued to the both the Appellant Assessee (a proprietary concern) (as Noticee No. 1) and Mr. Kunal Indoria (Noticee No. 2) was that a search was conducted at the premises at Gali No. 10, Jagatpur Extension, Wazirabad Village, Delhi on 10th October, 2011. The officers of the Department found that one portion of the premises was used for manufacturing of khaini (chewing tobacco) and the other portion was used for storing raw materials, packing materials, etc. Both the portions had separate electricity connections. Two khaini single track pouch packing machines and one tobacco mixer machine were found installed in the premises. The SCN further stated that, on enquiry, one Mr. Kunal Indoria, the brother of Mr. Pawan Indoria, the Proprietor of the Appellant Assessee concern, stated that the said machines were second hand machines which he had purchased in cash, without bills. The officers then seized the machines on the reasonable belief that they were used in the unlawful manufacture of khaini without obtaining Central Excise registration and without paying the appropriate Central Excise duty. On physical stock taking, the officers found packing materials valued at Rs. 2,01,500/-, raw materials valued at Rs. 1,00,650/- and finished goods valued at Rs. 95,280 in the premises. As the goods were unable to be accounted for by Mr. Kunal Indoria they were also seized. Some loose papers found in the premises were also seized. Mr. Kunal Indoria stated that the Appellant concern was registered under the Act with an address at Bihari Colony, Delhi. However, the address of the searched premises was not registered with the Department. He further is said to have informed the officers that the premises were taken on rent from one Mr. Ravinder in the last week of August, 2010.

The order dated 28th February/3rd March 2014 of the Commissioner sets out the evidence gathered in detail. It appears that Mr. Kunal Indoria gave a statement to the Department on the date of the search i.e. 10th October 2010 but retracted it the very next day i.e. 11th October, 2010. During the course of investigation the Department recorded the statement of Mr. Tek Chand, landlord of the premises, on 1st November 2011. He, inter alia, stated that that he had given the premises having area of 300 square yards out of Khasra No. 1000 to Mr. Kunal Indoria S/o Mr. Mohan Lal Indoria who resided at 4/2261 Gali No. 3 Bihari Colony Shahdara, Delhi 32. He confirmed that the premises was rented to Shri Kunal Indoria through his son Mr. Ravinder Kumar on monthly rent of Rs. 8000/- and had submitted copy of rent agreement dated 23rd September 2011 duly attested by the notary in presence of witnesses. The Department also recorded the statement of Mr. Uma Shankar Sharma, Proprietor of M/s. Shakti Trading Company, who confirmed that he had sold two old pouch packing machines to Mr. Kunal Indoria for Rs. 30,975 under Invoice No. 132 dated 30.09.2011 and that he had received the payment in cash; that these pouch packing machines were of no use and could only be melted after dismantling the machines. The Department also recorded the statement of Mr. Ajay Kumar Singh of M/s. Krish Marketing of Chennai who stated that goods purchased from the Appellant concern had been returned to it as a result of problems with quality.

The defence of the Appellant Assessee as noted in the order-in-original of the Commissioner that there was no electricity connection and there were no motors for operating the packing machines. The further defence was that the stock of tobacco found in the premises was that which had been returned to the Appellant as defective goods. There were documents to show that these were duty clear goods that were returned. The further specific defence of the Appellant as Noticee No. 1 was that (a) Noticee No. 1 was not owner of the goods seized except the khaini which was out of duty paid stock and which was not in violation of law and (b) Noticee No. 2 in whose possession the seized goods were found was the concerned person to show cause as to why the goods should not be confiscated and (c) except in respect of the khaini of which it was the owner, Noticee No. 1 is not concerned with the confiscation of those goods or the payment of any redemption fine.

It is urged by Ms. Anjali Manish, learned counsel for the Appellant, that the Commissioner in the order-in-original failed to deal with many of the above defences and that there was no detailed analysis of the extensive evidence gathered which bore out the case of the Appellant. It was pointed out that the premises themselves were rented only on 23rd September 2010 and the machines purchased on 30th September 2010. Therefore it was unlikely that those machines would have been operational and that too without motors as of the date of the search i.e. 10th October 2010 or used, as claimed by the Department for clandestinely manufacturing or packing chewing tobacco in pouches. The duty of excise although not demandable could at the most be for one month i.e. October, 2011. The deeming provisions of Rule 18(2) of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 (''Rules'') cannot be made applicable simply on the ground that noticee''s attitude was non co-operative. She drew attention to the manner in which the point regarding the absence of motors at the time of search has been dealt with by the Commissioner on the basis of surmises and conjectures. He observed in para 114 of the order:

"114. In view of the above said admission and this being a case of clandestine manufacture, the possibility of noticee bringing in motors for the purpose of manufacturing and thereafter removing the same after completing manufacturing activity cannot be ruled out. The motors may well have been removed on day of search for repairs, replacements etc."

In reply, Mr. Rahul Kaushik, learned Senior Standing counsel for the Respondent, referred to Section 35 F of the Act and submitted that the Appellant had to satisfy the CESTAT, which it failed to do, that it would be subject to "undue hardship" on account of the order of the Commissioner. He repeatedly urged that in relation to the demand of nearly Rs. 4 crore towards duty, penalty and interest, as confirmed by the order-in-original, a direction to the Appellant to make a pre-deposit of Rs. 15 lakhs cannot be said to be causing undue hardship. He too referred extensively to the discussion of the evidence in the order of the Commissioner and the conclusions reached.

The short question that the Court is called upon to address is whether the CESTAT was correct in coming to the prima facie conclusion that the Appellant "failed to make a case for full waiver of duty and penalties." To recall, the specific defence of the Appellant is that there is no evidence to show that the machines found in the premises belonged to the Appellant or that they were actually utilized in the manufacture of chewing tobacco. A foundational fact that would have to be shown to exist by the Department for attracting the deeming fiction under Rule 18 (2) of the Rules is that the goods were found to have been "manufactured in or cleared from" the premises searched. The CESTAT, when it hears the appeals on merits, will have to address itself to the central issue of whether the evidence on record demonstrates that the Appellant as Noticee No. 1 could be said to have been party to the clandestine manufacture and removal of chewing tobacco using the machines found at the premises. This would also have to be examined in the context of the fact that a separate SCN has been issued to Mr. Kunal Indoria arising from the same search. The effect of the retraction of the statement made by Mr. Kunal Indoria and the requirement that there must be sufficient other evidence to corroborate the said retracted statement would also have to be examined in detailed by the CESTAT.

Both learned counsel relied upon the decision of the Supreme Court in Benara Valves Ltd. and Others Vs. Commissioner of Central Excise and Another, . In the said decision, while explaining the true purport of the expression "undue hardship" occurring in the first proviso to Section 35-F of the Act, the Supreme Court observed in para 8 as under:

"8. It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand on, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens'' faith in the impartiality of public administration, interim relief can be given."

The Court would not like to express any opinion on the merits of the above contentions given the limited scope of the present appeal, and particularly since the CESTAT will have to deal with the appeal before it on merits. Having examined the order of the Commissioner in light of the submissions of learned counsel for the parties, as noted hereinbefore, the Court is satisfied that the Appellant has made out a prima facie case for waiver of the deposit of the duty, penalty and interest. The CESTAT has not given any reasons for coming to the conclusion to the contrary in the impugned order. None of the above contentions of the Appellant have merited consideration by the CESTAT even for the limited purpose of deciding whether a case for waiver of pre-deposit was made out.

The impugned order dated 31st July, 2015 of the CESTAT is accordingly modified by directing that the Appellant''s appeal shall be heard by the CESTAT by waiving the requirement of the Appellant having to make a predeposit of any part of the duty, penalty and interest as confirmed by the order-in-original of the Commissioner which is the subject matter of the appeal.

The appeal is disposed of in the above terms. Order dasti.