2025 (5) TMI 55 - AT - Central Excise

Clandestine manufacture and clearance of biris - unlabelled biris found during the search particularly those accounted for in the appellant s RG 12A stock register - failure to maintain Daily Stock Accounts (DSA) - demand on the basis of 9(nine) sale bills of tobacco ITRs three cash memos and the statements diary and loose sheets recovered during the course of investigation - HELD THAT - All the unlabelled and labelled biris were not seized from the factory. They were seized from the residence and the rooms adjacent to the factory. Further we observe that there is no duty on unlabeled biris upto a clearance of 20 lakh sticks. The appellant has accounted the 1, 67, 000 unlabelled biris in the RG 12A account. Thus we hold that the 1, 67, 000 unlabelled biris which were accounted for in RG 12A are not liable for seizure. We find that all the unlabelled biris found at the time of visit of the officers have been later labelled and cleared on payment of central excise duty. Similarly the labelled biris found not entered in the register were also accounted and cleared on payment of duty. Accordingly the demand of duty on the 1.67 lakhs unlabelled biris accounted in their books of account as well as the labelled biris accounted in the books and cleared on payment of duty cannot be confiscated and duty cannot be demanded again on the same goods. The appellant procures unlabelled biris from the contractor. In the impugned order on the basis of the statement recorded from the contractor it has been alleged that the appellant has procured 1, 00, 000 biris per day from January 2005. However it is observed that the investigation has not done verification and confirm the same from Shri Palash Biswas. It is seen that the contractor retracted his statement by filing an affidavit before the Executive Magistrate. Thus the retracted statement has no evidentiary value without any further corroboration. Wherever the appellant decides to manufacture labeled biris they label it and enter in the register. Thus having unlabelled biris in the factory or residence cannot give rise to the conclusion that they have been kept for clandestine clearance. As per rule 25(1)(b) of the said Rules if any producer manufacturer registered person of a warehouse or a registered dealer does not account for any excisable goods produced or manufactured or stored by him then all such goods shall be liable to confiscation. The unlabelled biris were not required to be entered in the register maintained under rule 10 of the said Rules. Under these circumstances the said goods are not liable to confiscation and accordingly the confiscation of unlabelled biris made in the impugned order set aside. The demand of central excise duty has been made mainly on the basis of the 9(nine) sale bills of tobacco ITRs three cash memos and the statements diary and loose sheets recovered during the course of investigation. We take note of the appellant s submission in this regard that they have categorically denied to have purchased the said 160 kgs of tobacco from M/s. Jay Hind Tobacco Store. Even if it is assumed that the purchase was genuine it is observed that no attempt has been made to ascertain quantity of probable manufacture at the time of investigation or at the time of adjudication by the Ld. Additional Commissioner. There is no evidence available on record to show that the appellant has manufacture labelled biris liable to duty by using those tobacco - The allegation in the impugned order is that the labelled biris manufactured by the appellant were subsequently cleared clandestinely without payment of duty. It is to be noted that clandestine removal is a serious charge which needs to be established with cogent and tangible evidence. There is no such evidence for clandestine removal brought on record in this case and hence the demands confirmed without any corroborative evidence is not sustainable. In the present case it is a fact on record that there is no evidence of manufacture of labelled biris and clandestine clearance of the finished goods without payment of duty. In this case the investigation has merely relied upon the statement of the contractor that he was supplying one lakh biris per day and arrived at the duty liability on that basis - No evidence on record regarding receipt of money in cash for the clandestinely cleared goods. In the absence of any corroborative evidence for manufacture and clandestine removal labelled biris manufactured out of the said 160 kgs of tobacco said to have been purchased from M/s. Jay Hind Tobacco Store the allegation of clandestine clearance is not sustainable. Further the Income Tax Returns (ITRs) filed by the appellant for the financial years from 2005-06 to 2008-09 have been relied upon - the income declared in the returns does not show whether it was received from the sale of labelled biris cleared clandestinely. Thus on the basis of the income declared in the ITRs it cannot be concluded that the appellant has clandestinely cleared labelled biris. The demand of central excise duty confirmed in the impugned order is not sustainable and hence we set aside the same. Since the demand of duty is not sustained the question of demanding interest and imposing penalty does not arise. Conclusion - i) Having unlabelled biris in the factory or residence cannot give rise to the conclusion that they have been kept for clandestine clearance. ii) In the absence of any corroborative evidence for manufacture and clandestine removal the allegation of clandestine clearance is not sustainable. iii) Since the demand of duty is not sustained the question of demanding interest and imposing penalty does not arise. Appeal allowed.

Issues Presented and Considered

The core legal questions considered in the judgment include:

(1) Whether the unlabelled biris found during the search, particularly those accounted for in the appellant's RG 12A stock register, are liable to confiscation and duty demand under the Central Excise Act and Rules.

(2) Whether the appellant's failure to maintain Daily Stock Accounts (DSA) and reliance on RG 12A register complies with the record-keeping requirements under Rule 10 of the Central Excise Rules, 2002.

(3) Whether the demand for central excise duty on the basis of alleged clandestine manufacture and clearance of biris, supported by statements, documents, and recovered materials, is sustainable in the absence of cogent and tangible evidence.

(4) The evidentiary value of statements retracted by the contractor and the reliability of third-party documents relied upon by the Revenue.

(5) Whether the penalty, interest, and redemption fine imposed under the Central Excise Act and Rules are justified in light of the findings on duty demand and confiscation.

Issue-wise Detailed Analysis

Issue 1: Liability of Unlabelled Biris Accounted in RG 12A to Confiscation and Duty Demand

The relevant legal framework includes Section 11A(2), 11AB, and 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2002. Rule 25(1)(b) provides for confiscation of excisable goods not accounted for by a producer or manufacturer.

The Court observed that the unlabelled biris up to 20 lakh sticks are not dutiable and that the appellant had accounted for 1,67,000 unlabelled biris in the RG 12A register. The seized goods included both labelled and unlabelled biris, some found at the factory premises and some at the residential premises.

The Court noted that the appellant had subsequently labelled and cleared the unlabelled biris on payment of duty, duly entering them in the RG 12A register and filing monthly returns. Therefore, the demand of duty and confiscation on these accounted biris was held to be unsustainable.

The Court distinguished between unaccounted excisable goods liable for confiscation and those properly recorded and duty-paid, emphasizing that unlabelled biris not required to be recorded under Rule 10 are not liable to confiscation. This interpretation aligns with the statutory scheme and the appellant's compliance with record-keeping.

Issue 2: Compliance with Record-Keeping Requirements under Rule 10

Rule 10 mandates maintenance of records containing particulars of goods produced, manufactured, removed, and duty paid. The appellant maintained RG 12A register, which though not mandatory, contained detailed particulars as required.

The appellant's explanation that the Munim responsible for entering accounts visits only once a week was accepted as a plausible reason for delay in recording certain purchases and manufacture of labelled biris. The Court found no violation of Rule 10 warranting adverse inference.

The Court held that the unlabelled biris, not dutiable up to 20 lakh sticks, need not be recorded in RG 12A or DSA, and thus non-entry of such biris does not attract confiscation under Rule 25(1)(b).

Issue 3: Sustainability of Duty Demand Based on Alleged Clandestine Manufacture and Clearance

The appellant challenged the demand of Rs. 24,07,445/- on the basis of alleged clandestine removal, relying on the absence of tangible evidence.

The Court referred extensively to precedents emphasizing that clandestine manufacture and clearance is a serious quasi-criminal charge requiring cogent and tangible evidence such as:

Raw materials in excess of statutory records;
Actual removal of unaccounted finished goods;
Discovery of such goods outside factory premises;
Sale to identified parties and receipt of sale proceeds;
Excessive use of electricity;
Statements of buyers and proof of transportation;
Documentary links to factory activities.

The Court found that the Revenue's case relied mainly on nine sale bills of tobacco, Income Tax Returns (ITRs), three cash memos, statements, diaries, and loose sheets. However, no attempt was made to establish the quantity of probable manufacture or identify buyers, transporters, or receipt of sale proceeds for the alleged clandestine removal.

The statement of the contractor, initially implicating the appellant, was retracted via affidavit, diminishing its evidentiary value without corroboration. The Court also noted the absence of evidence linking the tobacco purchases to clandestine manufacture of labelled biris.

The Court relied on authoritative decisions holding that suspicion or inference cannot replace proof and that mere discrepancies in production or records do not establish clandestine removal.

Issue 4: Evidentiary Value of Statements and Third-Party Documents

The Court scrutinized the statements of the contractor and others, noting contradictions and retractions. It emphasized that partial reliance on statements without considering them in entirety is improper.

The Court also held that third-party documents lacking confirmation of authorship and direct linkage to the appellant are not reliable evidence to establish clandestine supply or manufacture.

Precedents were cited to support the principle that retracted statements require independent corroboration to be admissible as evidence.

Issue 5: Justification for Penalty, Interest, and Redemption Fine

Since the Court set aside the demand of duty and confiscation, the consequential penalty under Section 11AC and interest under Section 11AB were also held to be unsustainable.

The redemption fine imposed under Rule 25 was set aside along with the confiscation order, as the confiscation itself was invalidated.

Significant Holdings

"We hold that the 1,67,000 unlabelled biris which were accounted for in RG 12A are not liable for seizure."

"Having unlabelled biris in the factory or residence cannot give rise to the conclusion that they have been kept for clandestine clearance."

"Clandestine removal is a serious charge which needs to be established with cogent and tangible evidence."

"The retracted statement has no evidentiary value without any further corroboration."

"In the absence of any corroborative evidence for manufacture and clandestine removal, the allegation of clandestine clearance is not sustainable."

"Since the demand of duty is not sustained, the question of demanding interest and imposing penalty does not arise."

The Court conclusively set aside the confiscation of goods, the demand of central excise duty, interest, and penalty, allowing the appeal with consequential relief.

← Previous Next →