TMI Blog2012 (10) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 25(1) nor the seized supari is liable for confiscation under Rule 25(1) of the Central Excise Rules. Confiscation - just for non-accountal of supari, provisions of Rule 26, as the same stood during the period of dispute, would not be attracted. In view of this, penalty on Shri Dhirendra Shukla is not sustainable and the same set aside. Confiscation of cash - money laundering – charge against these persons is basically of money laundering, for which there are no provisions for penalty in the central excise rules and certainly not in Rule 26, which is attracted in respect of any person, who is concerned in acquiring the possession of or is concerned in dealing with any excisable goods, which he knew or had reason to believe were liable for confiscation - irrespective of whether the currency is liable for confiscation or not, no penalty under Rule 26 is imposable on M/s. SVOL, Shri Sanjiv Mishra and Shri Pratyoosh Mishra as Directors of M/s. SVOL and as such, the part of the impugned order imposing penalty on them under Rules 26 is set aside - E/1849-1851, 1846-1848/2007 - 769-774/2011-EX(PB) - Dated:- 12-8-2011 - Justice R.M.S. Khandeparkar, Shri Rakesh Kumar, JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g; and (e) premises of customer-dealers of M/s. ST - M/s. Shashi Traders, Lucknow; M/s. Shiv Kumar Jaiswal M/s. Chokhram Mahinder Kumar of Sitapur; Shri Pawan Grover of Shahjahanpur, M/s. Awasthi Zarda Store, Station Road, Hardoi and M/s. Shanker Traders, Lakhimpur, Kheri. 1.2.1 There was resistance by Shri Sanjiv Mishra and his family members to the search of the premises of M/s. ST, which was completed with the help of police. In course of search of the premises of M/s. ST, while from the residential portion, cash of Rs. 4,38,80,530/- was recovered for which Shri Sanjiv Mishra, at that time, could not give any explanation, in the factory premises, 85008 pouches of 2 gms. Shyam Bahar Gutka, not accounted in RG-1 register, 1020 kgs. of raw supari for which no account was being maintained, 1200 kg. excess stock of roasted supari (processed) and about 67 kgs. Excess stock of Elaichi was found. The cash as well as the unaccounted excess finished goods and raw materials were placed under seizure. In the premises of M/s. DG at F-12, Tal Katora, Lucknow, 15780 kgs. of kachchi supari, 2300 kgs. of cut supari (prepared), 720 kgs. of kharab supari (return) and 24160 kgs. of supari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s statement dated 2-1-2004 stated that Shri Raj Kumar Pahuja is an employee of M/s. ST and is getting his salary from M/s. ST and that, Kharab supari (720 kg.), Supari Burada and Chhilan (24160 Kgs.) is the waste accumulated over a period of time and that the waste of supari is about 4%. (e) While from the records of M/s. DG, it appeared that daily dispatch of processed supari to M/s. ST was 2000 to 3000 kgs., in the accounts of M/s. ST, receipt and consumption of only around 500 to 600 kgs. of prepared supari per day was being shown. (f) Assuming the waste of Burada (22000 Kgs.) and Chhilan (720 kgs.) to be of period since Dec. 2002, which is 4% of the total quantity of supari processed, the total quantity of supari processed by M/s. DG from Dec. 2002 to 20-10-2003 since May, 2003 would be around 46500 kgs. Thus from the actual consumption of supari, it appeared that the actual production of Gutka by M/s. ST was much more than what was being shown. 1.4 Samples were drawn from the gutka pouches seized from the factory premises of M/s. ST and from the premises of M/s. SKTC on 20-10-2003 and the same were sent for testing of its contents to Shri Ram Institute for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days except Holi, 15th August, 26th January, etc. holidays, and that whenever he visited the factory, he found the factory to be working, which would indicate working of the factory round the clock. If the factory works three shifts for 30 days in a month, the production capacity per month would be 19 X 60 x 60 X 24 x 2 X 30 i.e. 98496 kgs. The production of gutka being recorded by M/s. ST every month in their records was much less. 1.6 On inquiry with the transporters - M/s. SKTC, M/s. HTGC and M/s. NTFC, it was revealed by their employees/partners that all the consignments mentioned in their GR register as Zarda , Masala , Shyam Bahar , etc. are of Shyam Bahar Gutka, that the goods came from the factory of M/s. ST at Kundri, Rakabganj, Lucknow, that the payment for transport charges was being received in cash mostly from M/s. ST and sometimes from consignees and that sometimes, the gutka consignments were received for transport under invoices, sometimes without invoices and sometimes under old invoices. It was also found that the consignments of Gutka were booked through these transport companies showing buyers names as consignor as well as consignee and in a number of case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry, it was found that in some cases where the invoices had been issued, the quantity of the goods, on being checked by Commercial Tax Authorities was found to be 50% higher as while M/s. ST claimed that in one gunny bag (bora) 100 bundles of 60 to 66 two grams pouches are packed, the bags were found to be containing 150 bundles. On 20-10-2003, when the Shyam Bahar Gutka consignments were seized at the premises of transport companies or dealers and each bora was found to be containing 150 bundles of 60 to 66 pouches each. Shri Hari Prasad of M/s. SKTC, Lakhimpur Kheri; Shri Mithlesh Kumar of M/s. HTGC, Lucknow and Shri Abdulla Siddique, Proprietor, M/s. HTGC in their statements have stated that gross weight of one bora of Shyam Bahar Gutka was from 20 kgs. to 25 kgs. The gross weight of 20 kg. would correspondent to 150 bundles each of 60 to 66 two gms. Pounches of gutka (150 x 2 x 66 gms = 19.8 kgs.) The officers were, therefore, of the view that during 1-1-2001 to 19-10-2003, wherever the goods had been cleared by M/s. ST under invoices, duty had still been evaded by clearing 50% excess quantity. On this basis, it has been alleged that during 1-1-2001 to 19-10-2003 period, 240 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been dismissed. 1.12 On the basis of the above investigation, a show cause notice dated 14-10-2004 was issued to M/s. ST and other noticees for - (a) recovery from M/s. ST of duty amounting to Rs. 7,17,16,580/- on 478430.49 kgs. of Shyam bahar gutka in the 2 gms. pouches alleged to have been cleared during 1-1-2001 to 19-10-2003 period without payment of duty, under the proviso to Section 11A(1) of the Central Excise Act, 1944, alongwith interest on this duty under Section 11AB ibid and appropriation of an amount of Rs. 55,60,612/- already deposited towards the demand; (b) imposition of penalty on M/s. ST under Section 11AC ibid for alleged duty evasion of Rs. 7,17,16,580/-; (c) Confiscation of currency of Rs. 4,38,80,530/- seized from the factory cum residential premises of M/s. ST on 20-10-2003 under Section 121 of Customs Act, 1962 as made applicable to Central Excise cases by Notification No. 68/63-C.E., dated 4-5-1963 issued under Section 12 of the Central Excise Act, 1944; (d) Confiscation under Rule 25(1) of Central Excise Rules, 2002 of (i) 85008 pouches of Shyam bahar Gutka seized from the factory premises of M/s. ST and of 45 bags contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was imposed on M/s. ST. (e) 85008 pouches of Shyam bahar gutka seized from the premises of M/s. ST were ordered to be confiscated under Rule 25(1)(b) with option to be redeemed on fine of Rs. 21252/- and penalty of Rs. 25502/- was imposed on M/s. ST under Rule 25; (f) Shyam bahar gutka pouches seized from the premises of transport company and dealers were ordered to be confiscated under Rule 25 of the Central Excise Rule with option to be redeemed on payment of redemption fine; (g) Penalty under Rule 26 of Central Excise Rules were imposed on the transporters and dealers as under :- (i) M/s. SKTC Rs. 20 lakhs (ii) M/s. HTGC Rs. 2 lakhs (iii) M/s. NTFC Rs. 40000/- (iv) Shivkumar Jaiswal Rs. 10000/- (v) M/s. Shankar Traders Rs. 10000/- (vi) M/s. Shashi Traders Rs. 10000/-; (h) Penalties under Rule 26 of the Central Excise Rules were imposed on other noticees as under :- (i) M/s. Bakul Polypack Rs. 75 lakhs (ii) Shri Dhirender Shukla Proprietor, M/s. DG Rs. 50 lakhs (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra a few days before the date of search of the residential-cum-factory premises of M/s. ST and this money had been raised by M/s. SVOL from the investors, as certified by their Chartered Accountant, Shri V.K. Tulsiyan, that the name of M/s. S.T. does not figure anywhere in the challans and GRs issued by the transport companies or in the records maintained by them, that in view of this, the duty demand of Rs. 6.79 crores based on the documents recovered from the three transport companies is without any basis, that the GRs and challans issued by the transport companies mentioned the goods as Zarda , Masala etc and not Shyam Bahar Gutka and hence, it cannot be presumed that the goods booked under those GRs/challans were Shyam Bahar Gutka manufactured by M/s. ST, that some GRs mention the goods as Shyam Bahar but this can not be assumed to be Shyam Bahar Gutka, as the brand name Shyam Bahar was also being used by M/s. Spatial Commercial Ltd., M/s. Satish Trading and M/s. SS Trading, as is clear from the copy of Civil Suit No. 28/03 filed by them against M/s. ST before District Judge, Kanpur in November 2003, that request of M/s. ST vide their letter dated 5-2-2006 for cross ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty could be imposed under Rule 26 for such activities, that there is no allegation that M/s. SVOL or its Directors, Shri Sanjiv Mishra and Shri Pratyoosh Mishra, during the period of dispute, were involved the acquiring possession of or being concerned in transportation, selling, purchasing or in any other manner dealing with any excisable goods, which they knew or had reason to believe were liable for confiscation under the provisions of Central Excise Rules, that in view of this, the penalty under Rule 26 on M/s. SVOL and its directors, Shri Sanjiv Mishra and Shri Pratyoosh Mishra is without any basis, that as regards penalty of Rs. 50 Lakhs on Shri Dhirender Shukla, proprietor of M/s. DG, the allegation against him is non-accountal of supari received from M/s. ST for processing, that neither there is any allegation that Shri Dhirendra Shukla dealt with any excisable goods in the manner mentioned in Rule 26 of the Central Excise Rules nor there is contravention of any provisions of Central Excise Rules in respect of seized supari and in view of this, the impugned order confiscating the supari seized from the premises of M/s. DG under Rule 25 and imposing penalty on Shri Dhirend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be 8,61,931.81 Kgs., Rs. 10,11,838.35 Kgs., 13,25,890.12 Kgs., and 7,62,878.25 Kgs. respectively, while the gutka production shown during these periods by M/s. ST is 1,27,944.37 Kgs., 1,39,383.72 Kgs., 1,81,334.75 Kgs. and 1,22,211.9 Kgs. respectively, which shows that the production has been suppressed to the tune of 600%, that on the basis of quantity of supari dust and waste found in the premises of M/s. DG, during the period December, 2002 to October, 2003, M/s. DG are estimated to have processed about 4,65,000 Kgs. supari for M/s. ST, which is approximately three times the quantity of supari shown to have been consumed by M/s. ST in their records during the same period, that the Gutka which could be packed in 14789.3 Kgs. of PP Outers received from M/s. Anukampa during October, 2001 to July, 2002 and which were consumed during the period upto November, 2002, is more than twice the quantity of Gutka production shown by M/s. ST in their records during that period, that from the actual consumption of supari, tobacco and PP outers, it is clear that M/s. ST were grossly under-reporting the production of gutka and unaccounted production of gutka was being cleared without payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transport companies have clearly stated that these consignments had come from the factory premises of M/s. ST in Thelas and the charges for transportation had been received from M/s. ST in cash, that in a number of cases, the names of fictitious persons were being mentioned as consignors and consignees and this fact has been admitted by some dealers also in their statements, that the estimated production of gutka on the basis of consumption of the tobacco and supari is much more than the quantity on which duty has been demanded on the basis of the records of the transport companies, that seizure of cash of Rs. 4,38,80,530/- from the residential premises of Shri Sanjiv Mishra, for which at the time of seizure, he could not give any explanation whatsoever, is a clear evidence of large scale evasion of duty by M/s. ST, that though Shri Sanjiv Mishra subsequently made a claim that this cash belonged to M/s. Shyam Vanaspati Oil Ltd. (SVOL), a company promoted by him for manufacture of vanaspati, and that this money had been received as share application money from some investors the main investors being, M/s. Betsy Growth Finance, Ltd., M/s. Sunshine Capital and M/s. Stellar Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 2002? (d) Whether penalty on M/s. SKTC is imposable under Rule 26 of the Central Excise Rules, 2002? (e) Whether 2300 kgs of processed supari and 15720 kgs. of kachcha supari seized from the premises of M/s. DG at F-12, Talkatora, Lucknow, is liable for confiscation under Rule 25 of the Central Excise Rules, 2002 for non accountal and whether penalty for this imposable on M/s. ST under Rule 25 and on Sh. Dhirender Shukla Prop. M/s. DG under Rule 26 of Central Excise Rules, 2002? (f) Whether penalty under Rule 26 is imposable on M/s. SVOL and Shri Sanjiv Mishra and Shri Pratyoosh Mishra, Directors of M/s. SVOL? 3.1 While the questions (a), (b), (c) (d) are inter-linked and the decision in respect of them depends upon whether the allegation of large scale duty evasion against M/s. ST is sustainable, the question (e) regarding confiscation of Supari seized from the premises of M/s. DG under Rule 25 (1) of Central Excise Rules, 2002 and imposition of penalty on M/s. ST under Rule 25 of the Central Excise Rules, 2002 and on Shri Dhirndra Shukla, Proprietor, M/s. DG under Rule 26 of the Central Excise Rules for non-accountal of Supari and the question (f) regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of raw materials. Rule 9(5) of Cenvat Credit Rules, 2002/2004 provides for maintenance of account in respect of cenvat credit availed inputs and capital goods, but there is no provision for maintaining account of non-cenvatable inputs. The inputs - supari in this case is a non-cenvatable input. In view of this, we hold that no provisions of the Central Excise Rules, 2002 have been contravened in respect of the raw supari and processed supari seized from the premises of M/s. DG and hence neither M/s. DG nor M/s. ST are liable for penalty under Rule 25(1) nor the seized supari is liable for confiscation under Rule 25(1) of the Central Excise Rules. 4.2 In the impugned order, penalty of Rs. 50 Lakhs has been imposed on Shri Dhirendra Shuka, Proprietor of M/s. DG under Rule 26 of the Central Excise Rules. Rule 26 of the Central Excise Rules, as it stood during the period of dispute, provided for imposition of penalty on any person, who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner dealing with, any excisable goods, which he knows or has reason to believe, are liable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Pratyoosh Mishra as Directors of M/s. SVOL and as such, the part of the impugned order imposing penalty on them under Rules 26 is liable to be set aside. 6. The duty demand of Rs. 7,17,16,580/- against M/s. ST comprises of three components. The first component of duty demand - Rs. 1,46,185/- is on loose gutka pouches and gutka pouches in gunny bags seized from the premises of transport companies and dealers on 20-10-2003 12-11-2003, which are alleged to have been cleared without payment of duty. The second component of duty demand is of Rs. 35,80,500/- on the basis of allegation that during the period from 1-1-2001 to 19-10-2003, M/s. ST, even in respect of clearances of gutka pouches under invoices, had packed 50% extra quantity in the gunny bags on which no duty had been paid and for which payment in cash over and above the invoice price had been received from the buyers. In this regard, the department s allegation is that M/s. ST always packed 150 bundles of gutka pouches (each bundle containing 60 to 66 pouches) in one gunny bag, while the invoices were issued on the basis that 100 bundles are packed in one gunny bag. The third component of duty demand of Rs. 6,79,89,89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere receiving Shyam Bahar brand gutka from M/s. ST, Lucknow described in the GRs/Lorry challans as Zarda , Masala , etc., that M/s. ST were charging Rs. 7800/- per bora supposed to be of 100 bundles of 60 to 66 two gram pouches of gutka each, as against invoice price of Rs. 5,554/- per bora of 100 bundles, but the quantity actually packed in each bora used to be 150 bundles, that the Shyam Bahar brand gutka consignments were being sent by M/s. ST to them through the transport companies by booking the same in different names and that the payments for gutka were being made by them to M/s. ST in cash. The duty demand of Rs. 1,46,185/- in respect of the goods seized from the premises of M/s. SKTC some dealers is also based on the statements of employees of M/s. SKTC and the dealers that except for the old invoices, there were no other valid invoice in respect of those goods. The evidence of excess consumption of raw materials like Supari, Tobacco, Menthol and PP Outers not commensurate with the production of gutka recorded in their records and on which duty was paid and the instances of use of one invoice more than once and clearing consignments of gutka under old invoices, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered for cross examination, provided the relied upon statements had been made available to the assessee and assessee has been given fair opportunity to explain the same. 7.3 The learned Departmental Representative has cited the judgments of Hon ble Supreme Court in cases of Hazari Singh v. U.O.I. (supra) and K.I. Pavunni v. Assistant Collector (supra) in support of his plea that the statements of Proprietors/Partners employees of transport companies - M/s. SKTC, M/s. HTGC and M/s. NTFC and of dealers, which have not been retracted or if the same have been retracted, the retractions being bald retractions without any evidence of coercion, threat or inducements having been used in recording of statements, are mere afterthoughts, have to be treated as admissible evidence in support of allegation of duty evasion against M/s. ST and hence there was no need for permitting their cross examination. We do not agree with this plea of the learned DR. The statement of a person being his voluntary statement, truly given to the best of his knowledge and that statement being correct statement reflecting the actual state of affairs are two different things. The judgments cited by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanker Traders, Lakhimpur and Shri Shiv Kumar Jaiswal of M/s. Jaiswal Stores, Sitapur. However, perusal of the impugned order does not indicate that their cross examination has been allowed. The request for cross examination has been rejected on the ground that the person sought to be cross examined are co-noticees who can not be compelled to appear for cross examination, which is incorrect as partners and employees of M/s. SKTC, employees of M/s. HTGC, and Chemical Examiner of SIIR whose cross examination had been sought along with others, are not co-noticees. The cross examination of the proprietors/partners and employees of the transport companies is necessary to ascertain as to on what basis they have stated that all the consignments where the description of goods in the GRs/Lorry challans was mentioned as Zarda , Masala , or Shyam Bahar were of Shyam bahar gutka manufactured by M/s. ST and received directly from the factory of M/s. ST. Cross examination of Shri Dhirendra Shukla of M/s. DG is necessary for ascertaining as to on what basis he had stated that waste in form of Burada/dust and chhilan generated in processing of supari is 4%, as the quantity of supari processed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he witnesses whose statements have been recorded under Section 14 of the Central Excise Act, 1944 by a Gazetted Officer and the same are relied upon by the Department, and due to the circumstances enumerated in Section 9D(l)(a), their cross-examination is not possible, in terms of the provisions of Section 9D(i) read with Section 9D(2), the same can be admitted as evidence provided the procedure and the principles laid down in this regard by Hon ble Delhi High Court in its judgment dated 18-8-2009 in case of M/s. J K Cigarettes Ltd., 2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.T.R. 225 (Del.) M/s. GTC Industries Ltd. Others v. C.C.E. [2009 (242) E.L.T. 189 (Del.)] are followed. 8. As discussed above, the question of confiscation of currency of Rs. 4,38,80,530/- seized from the residential-cum-factory premises of M/s. ST under Section 121 of the Customs Act, 1962 read with notification No. 68/03-C.E., dated 4-5-1963 issued under Section 12 of the Central Excise Act, 1944, the question of confiscation of 85008 pouches of Gutka seized from the factory of M/s. ST for non-accountal and penalty on M/s. ST on this count and the question of imposition of penalty on the transporter, M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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