2018 (11) TMI 289 - AT - Central Excise

Clandestine manufacture and removal - Cigarettes - contravention of Rule 4 of the Central Excise Rules, 2002 - extended period of limitation - penalty - Held that - The unit was throughout under the physical control of Central Excise Officers who were posted in the factory of the appellant and they were supervising the manufacture and clearance of the goods and as provided under Rule 6 of Central Excise Rules, 2002, the Central Excise Officers were assessing duty payable before removal of the goods. Also, the investigation did not establish as to from where the raw material such as tobacco was obtained and to whom the goods were cleared and how the money was recovered out of alleged clandestine clearance of such goods - the Central Excise Duty is on manufacture and the clandestine manufacture of cigarette was not possible in view of the presence of Central Excise Officers within the factory. There are no grounds to establish that the quantity of cigarettes were manufactured by appellant on which demand of about ₹ 39 crores was raised - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegations of clandestine removal of goods without payment of duty.
2. Validity of evidence supporting the allegations.
3. Applicability of extended period of limitation for demand.
4. Imposition of penalties on directors.

Issue-wise Detailed Analysis:

1. Allegations of Clandestine Removal of Goods Without Payment of Duty:
The appellant, M/s Pelican Tobacco (India) Pvt. Ltd., was accused of clandestinely removing cigarettes without paying Central Excise duty, contravening multiple provisions of the Central Excise Rules, 2002. The investigation revealed unaccounted stocks of cigarettes and raw materials at various premises, undeclared godowns, and residences of relevant persons. The Revenue alleged suppression of production and clandestine removal of cigarettes, supported by evidence such as unaccounted stock, undeclared godowns, and statements from involved parties. The show cause notice demanded approximately ?39.97 crores in duty for the period from April 2008 to February 2011.

2. Validity of Evidence Supporting the Allegations:
The appellant contested the evidence, arguing that the factory operated under the strict supervision of Central Excise Officers, who sealed and unsealed the machines, making clandestine removal impossible. The appellant also challenged the reliance on vague and incomplete documents found at workers' residences, which lacked corroborative evidence. The Tribunal found that the unit was indeed under physical control of Central Excise Officers, as corroborated by cross-examinations and the provisions of Rule 6 of the Central Excise Rules, 2002. The Tribunal noted that the investigation failed to establish the procurement of raw materials and the sale and recovery of money from the alleged clandestine clearances.

3. Applicability of Extended Period of Limitation for Demand:
The appellant argued that the extended period of limitation was not applicable as the factory was under physical supervision of Central Excise Officers, negating any suppression of facts. The Tribunal agreed, noting that the presence of officers and their supervision of production and clearance activities invalidated the claim of suppression. Consequently, the extended period of limitation invoked by the Revenue was deemed unsustainable.

4. Imposition of Penalties on Directors:
Penalties were imposed on the directors under Rule 26 of the Central Excise Rules, 2002, for their alleged involvement in the clandestine removal of goods. However, given the Tribunal's findings that the unit was under physical control and the allegations of clandestine removal were not substantiated, the penalties on the directors were also set aside.

Conclusion:
The Tribunal concluded that the unit was under physical control of Central Excise Officers, making the allegations of clandestine removal unsustainable. The evidence presented by the Revenue was insufficient to substantiate the claims. Consequently, the demand of approximately ?39 crores and the penalties imposed on the directors were set aside. The appeals were allowed, and the appellant was entitled to consequential relief as per law.