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2015 (12) TMI 592 - DELHI HIGH COURT

2015 (12) TMI 592 - DELHI HIGH COURT - 2016 (331) E.L.T. 321 (Del.) - Imposition of personal penalty on 3 persons for duty evasion by the manufacturer - Whether the Tribunal is right in imposing penalty of ₹ 5 crores on the Appellant under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944 - Held that:- Rule 209A of the CE Rules 1944 was more or less similarly worded. These are penal provisions that call for a strict interpretation. Therefore, in orde .....

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eve are liable to confiscation. - Considering that Mr. Gautamís statements implicating the Appellants were retracted, the CCE and the CESTAT should have produced other independent corroborative evidence. That clearly was not available in the present case. It is the statement of Mr. Gautam that has been relied upon to hold that there was 'maximum involvement' of Mr. Rakesh Kumar Garg in the clandestine activity although as already noticed hereinbefore the statement of Mr. Gautam was a weak eviden .....

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basis of the capacity of the packing machines for the period 1st April, 2000 to 31st August, 2002, whereas the Department after having conducted the search on 20th October, 2000 did not, in fact, apprehend a single consignment clandestinely removed after 20th October, 2000 up to 31st August, 2002. - prior to the amendment introducing Section 3A under the Finance Act 2008, empowering the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods ( .....

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ence regarding purchase and storing and transporting of the huge quantity of raw material of 6,200 MT, which would be required to manufacture the quantity stated to have been produced in excess by AJP. There appears to have been no investigation conducted on this aspect of the matter.

Court holds that the requisite evidence necessary for levy of penalty on each of the Appellants under Rule 26 of the CE Rules 2002 was not brought on record by the Department and, therefore, the levy of .....

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r, Senior Standing counsel JUDGMENT Dr. S. Muralidhar, J. 1. These three appeals are directed against the common order dated 6th August 2010 passed by the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) in E/266/2006-268/2006-EX/DB arising out of an order-in-original dated 28th October 2005 passed by the Commissioner of Central Excise, Delhi (CCE). 2. By the impugned order, CESTAT reduced the penalty levied on the Appellants herein by the CCE under Rule 209A of the Central Excise .....

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P ), a sole proprietary firm of which Ms. Mahesh Kumar Gautam was sole proprietor, was engaged in manufacturing pan masala and gutka of 'Rajdarbar' brand. Mr. Devi Das Garg (the Appellant in CEAC No. 3 of 2011), was one of the two partners of M/s. Sonal Food Products ( SFP ) which owns the Rajdarbar , Rahat , Rustam , and Raj Tilak brands used to manufacture gutka and pan masala by AJP. One of his sons Mr. Santosh Kumar Garg (the Appellant in CEAC No. 2 of 2011) is the other partner in S .....

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mises of AJP and the suppliers of raw materials of AJP. They recorded the statements of Mr. Vinod Kumar Bansal, an Accountant as well as authorized signatory of AJP. They also recorded the statements of Mr. Manoj Bansal, the Manager of M/s. Surya Traders ('ST'), Mr. Dinesh Kumar, a typist of AJP and Mr. Dev Kumar Sharma, Accountant of ST. The statements of Mr. Sunil Kumar Aggarwal and the three Appellants herein were also recorded. 6. It is stated that Mr. Mahesh Kumar Gautam was initial .....

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id not implicate any of the Appellants herein, and on 12th March 2004 which he subsequently retracted. The show cause notice 7. In the course of investigations, the officers of the Department continued recording statements of certain other persons and this continued well into 2004. Ultimately it was on 20th May 2004 that a show cause notice ( SCN ) was issued raising a duty demand of ₹ 33,20,03,239 with the breaking of ₹ 5,51,94,181 for the period 1st April 2000 to 20th October 2000 .....

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machines were found working and these were found manufacturing 200 pouches per minute; that the records for consumption of raw materials in Form IV register and records for production and clearances of finished goods in RG-1 register showed that large quantities of gutka and pan masala had been manufactured and clandestinely cleared without payment of excise duty and thereby there was deliberate evasion of payment of excise duty. The statements of Mahesh Kumar Gautam 9. The SCN also mentioned t .....

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20th October, 2000, which had been signed by Mr. Vinod Kumar Bansal. Mr. Gautam was stated to have produced a copy of the agreement dated 13th April, 2000 between SFP and AJP which was signed by Mr. Santosh Kumar Garg and Mr. Devi Das Garg, as Partners of SFP. He is stated to have admitted to working as a pujari in the temple in the house of Mr. Rakesh Kumar Garg and getting ₹ 2000-3000 per month. He stated that Mr. Rakesh Kumar Garg had got him to sign some papers for the purpose of proc .....

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0 bags of finished goods were manufactured in a day. He is further stated to have admitted that about 12-14 bags would be loaded per trip on three wheeler tempos of make Vikram for transportation. 10. Mr. Gautam is supposed to have tendered a further statement on 4th November, 2003, on which date he again stated that raw materials were purchased from M/s. ST for which payments were made through cheques and that the brand Rajdarbar was owned by SFP; and that he knew nothing of the mixing of chemi .....

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g whether the raw material was received from M/s. ST with or without bills; whether the finished goods were removed without or without bill and as to who kept the account of the finished goods supplied from the factory. The statement of Mr. Bansal 12. The SCN also referred to the statement given on 29th April, 2002 by Mr. Bansal described as the Accountant and Authorised Signatory of AJP. Prior to being engaged by AJP he was working as a Manager to M/s. Krishna Packers. He confirmed that the pan .....

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statement on 17th July, 2003 where he is stated to have admitted to having worked with AJP from March 2000 till January, 2003. A third statement was tendered by him on 23rd February, 2004 wherein he is supposed to have reiterated his earlier statement tendered on 20th October, 2000. A fourth statement was tendered on 1st March, 2004 when he was confronted with bill books containing invoices. He was also shown the bill books of M/s. Krishna Packers but he could not say anything about the invoice .....

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hna Packers till 31st March 2000 and thereafter started working with AJP. According to him, Mr. Bansal looked after all the work related to the factory of M/s. Krishna Packers. He did not mention the role of any of the Appellants. 15. The next witness examined was Mr. Rajender Singh, who worked as a packer and gave his statement on 24th February, 2004. He too worked for AJP for 5-6 months from August, 2000 onwards. He was not present on 20th October, 2000 when the raid was conducted. According t .....

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clarified that at the relevant time his father was the owner of the house and a portion of the house was rented out to a company named Rajdarbar and that his father could have provided correct information about the tenancy. He stated that Mr. Babu Lal never visited the room after the raid on 17th November, 2000. 17. Mr. Sunil Kumar Aggarwal, the Proprietor of M/s. ST gave a statement on 22nd April, 2002. According to him, the premises 31/22, Bees Killa Road Jindpur, Village Alipur, Delhi was ow .....

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March, 2000. He furnished the ledger accounts showing the purchases of supari, kattha, chuna, illaichi, tobacco, perfume and packing materials. 18. Mr. Sunil Kumar Aggarwal who was also the Proprietor of M/s. Shree Ram Enterprises gave another statement on 14th July, 2003. The said concern was the predecessor to M/s. ST which was initially financed by M/s. Candy Properties, M/s. Narsi Hotels, etc. Mr. Aggarwal stated that he was introduced to Mr. Devi Das Garg by a relative, Mr. Vinod. He confi .....

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verted into gold bars and sold for ₹ 2,84,44,028/-. A further statement was made by him on 31st October, 2003. He conveyed lack of knowledge of the buyers of the gold bars. He made a further statement on 19th February, 2004 when he claimed to be unable to explain the presence of stock of mixture of kattha and chuna; stock of mixture of kattha, chuna and menthol (perfume) on 31st October, 2001 as per panchnama. 19. Mr. Manoj Bansal tendered his statement on 19th February, 2004 accepting the .....

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e had joined as a Director of the said company and looked after its market, sales and purchases. He spoke of purchasing supari from M/s. Vasu International and that they were manufacturing sada pan masala of Narsi Gold brand and Jackpot brand. He denied having made any purchases of raw material from M/s. ST. A further statement was made by him on 7th April, 2003 when he stated that his company was established in 1993 with Mr. Rakesh Kumar and that they had sold supari and kattha. 22. Mr. Manoj H .....

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kesh Garg appeared on 23rd April, 2002 for tendering a statement. He was a Director, Partner and Owner of fifteen companies other than M/s. Narsi Foods Pvt. Ltd. He stated that he was not the owner of Rajdarbar but his younger brother Mr. Santosh Kumar Garg was the owner. He stated that he was a Director in Narsi Foods Pvt. Ltd. till 2001 when he had resigned as such. He claimed that Mr. Devi Das Garg was no more a Director of the said company. He stated that Mr. Devi Das is the owner of premise .....

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7; 39,33,705/- to Surya Ornaments during the year 1999-2000. Mr. Rakesh Garg is supposed to have stated that his father received ₹ 1,40,01,717.51 as profit from M/s. Radhika International during the year 1999-2000. He also gave details of the jewellery sold by his mother during the year 1998-99 and 1999-2000 and that she gifted ₹ 40,00,000/- to Mr. Santosh Garg during the year 2000-2001. 25. Mr. Santosh Garg gave a statement on 9th August, 2002 stating that he was a partner in M/s. S .....

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was tendered by Mr. Santosh Kumar Garg on 30th May, 2003 when he claimed to be the owner of Rajdarbar brand. 26. Mr. Mithilesh Kumar Tripathi gave his statement on 21st July, 2003 on behalf of his wife making claims regarding sale of jewellery. Likewise Mr. Subhash Mittal, proprietor of M/s. Shreeji Foods and Shreeji Jewellers gave his statement on 6th November, 2003. He stated that he had started M/s. Shreeji Foods during 1996-97 for trading in supari, kattha, chuna, etc. and that the premises .....

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nce: i. Availability of 423 bags of manufactured pan masala and gutka in the factory premises of AJP during the raid on 20th October 2000. ii. That 20 packing machines out of 26 were found working on the date of the raid with each machine manufacturing 200 pouches per minute. iii. Admissions made by Mr. Vinod Bansal on 20th October, 2000 regarding each packing machine packing 200 pouches per minute and that 30-35 workers were working at the time of the raid. iv. The statement on 24th February 20 .....

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egram on 27th April, 2002 retracting the statement made by him on 26th April, 2002. He also furnished a medical report of the Lok Nayak Hospital at 0030 hours. The stand of AJP 29. During the course of the adjudication proceedings, AJP by letters dated 30th July, 2007, submitted two affidavits of Mr. V.K. Malhotra and Mr. N.K. Arora in support of the technical reports submitted earlier on 18th August, 2004. AJP also enclosed 34 documents and photocopies of cheques bearing signatures of Mr. Mahes .....

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thereafter of the excess quantity for a period of 22 months. The RT-12 forms submitted for the period post raid, i.e. October 2000 to August, 2002 had been received by the Department and this showed that the production did take place during the aforementioned period. Accordingly, it was contended that the demand for the period after October 2000 was untenable in law. AJP also submitted a technical report about pouch producing capacity of the machines installed in AJP factories. According to the .....

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upon. Case of the Appellants 32. Particular to the three Appellants herein it was contended that the penalties imposed on them under Rules 209 and 209A of the CE Rules, 1944 and Rules 25 and 26 of the CE Rules, 2002 were not maintainable. It is pointed out that Rule 209/25 applied only to a manufacturer which in this case admittedly was AJP. As far as Rule 209A/26 was concerned, it applied to the individuals who had dealt with the excisable goods as manufacturer or in acquisition and transportat .....

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of them. In any event Mr. Rakesh Kumar Garg was not involved in the brand used by AJP. The loans given by Mr. Rakesh Kumar Garg and his brother and father of the companies of which they were Directors gave interest bearing loans to AJP without any security. However, the entire loan amounts stood repaid with interest well before September, 2001. Adjudication order 34. In the adjudication order dated 28th October, 2005, the CCE held as follows: (i) Scrutiny of the panchnama drawn on 20th October, .....

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Dev Kumar Sharma, the Accountant at M/s. ST it was clear that the entire mixture was being packed in gunny bags and supplied to Narsi Foods Pvt. Ltd in cash payment. The goods were dispatched through local tempos and approximately 60 workers were employed on daily wage basis against cash payment. Only kattha and supari instead of cut/grinded/mixed supari, kattha, chuna and illaichi were mentioned on the invoices/challans issued and signed by Mr. D.K. Sharma. (iii) The CCE also referred to the st .....

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s-examination. (v) Since the technical report produced was of a later date, i.e. 21st July, 2004, wherein it was stated that the machines installed in the premises of M/s.ST could not produce Pan Masala or tobacco, the CCE rejected the report holding it to be a dictated one and not reliable . The plea that the mixture made by M/s. ST could not be used for making Pan Masala was rejected. There were two machines installed and the mixing did not require any sophisticated physical or chemical reacti .....

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ise duty liabilities. The statements recorded during investigation and the panchnama prepared fully proved the case of the Department. (vii) The CCE also found that the technical report submitted by the AJP was not reliable and, therefore, was not acceptable. Apart from the technical report of Mr. D.K. Malhotra, other technical reports prepared by Mr. Deepak Anand and Mr. N.K. Arora were also rejected since they were not on the basis of any detailed analysis of the production capacity of the mac .....

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the High Court on 7th July, 2006 while extending the period for making the pre-deposit by two months. The Supreme Court affirmed the order on 4th September, 2006. Impugned order of CESTAT 37. By the impugned order, the CESTAT has affirmed the order of the CCE in original to the extent of holding that the Appellants are liable for penalty. However, the amount of penalty levied on each of the Appellants was reduced from ₹ 25crore, ₹ 21crore and ₹ 21 crore on Mr. D.D. Garg, Mr. R .....

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n monthly wages of ₹ 2,000 to ₹ 3,000 in the house of Mr. R.K. Garg and it was difficult to believe that overnight he became the manufacturer of a popular Rajdarbar brand Gutka and Pan Masala. 39. According to the CESTAT notwithstanding the retraction of the statement by Mr. Gautam it had the ring of truth . It was not known whether the police had taken any action on his complaint or any order of the court had been passed. The medical examination only showed his symptoms as loose mot .....

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India 2009 (233) ELT 157 (SC). 40. The CESTAT also referred to the fact that the further statements of Mr. Gautam were recorded on 4th November 2003 and 12th March 2004 where he confirmed the earlier statement dated 26th April 2002 as true and correct. In the said statements also, he had stated that the machines installed in AJP had been taken from M/s. Krishna Packers on credit and that both M/s. Krishna Packers and M/s. ST were related to the Garg family. In that view of the matter, all three .....

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ns of the Gargs. 42. The CESTAT recorded that the statement of Mr. Dev Kumar Sharma was corroborated by receipt of certain consignments of raw materials by M/s. ST from M/s. Sai Fragrance and Flavours with the address at Jindpur, Alipur, Delhi whereas the invoice address mentioned was the Model Town office premises of Gargs. This also corroborated the statement that the said premises i.e. D-1/2, Model Town-III, Delhi was the headquarters of AJP. Further although Mr. Vinod Bansal was the Manager .....

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ons pertained to 1998-99 and 1999-2000 period, whereas the period of duty evasion was from 1st April 2000 to 31st August 2002. Further the Gargs themselves have adduced no evidence to show that they had no connection with ST and AJP other than the agreement of NFPL with AJP regarding the use of Rajdarbar brand. A reference was made to the decision of the Supreme Court in Naresh J. Sukhawani v. Union of India 1996 (83) ELT 258 (SC) and it was held that the statement of Mr. Gautam was in the natur .....

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ed on the Appellants under Rule 26 of the CE Rules 2002 as there was no allegation in the SCN or any conclusion drawn in the order in original by the CCE or by the CESTAT itself to the effect that any of these Appellants ever received or purchased any goods from AJP or sold any goods manufactured by AJP. There was no evidence also that any of the Appellants supervised the dispatch or the removals made by AJP or provided any distribution network assistance to it or transported stored any goods or .....

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companies in which Mr. D.D. Garg was Director gave interest free loan to AJP without security, the CESTAT failed to notice that the entire loan amount was repaid by AJP even prior to the date of search. 46. As regards the retraction by Mr. Gautam of his statement, it is urged by Mr. Kant that the CESTAT overlooked the legal position explained in K. I. Pavunny v. Assistant Collector of Central Excise, 1997 (90) ELT 201(SC), Ravindran @ John v. Superintendent of Customs 2007 (80) RLT 427 and Mahi .....

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According to him the CCE had undertaken a detailed analysis of the evidence on record and in particular the evidence of Mr. Mahesh Kumar Gautam. He submitted that the involvement of the three Appellants in the affairs of AJP was convincingly established. He submitted that with the dismissal of AJP s appeal by the CESTAT, the order-in-original of the CCE, as far as the liability of AJP was concerned, became final. It is no longer open, therefore, even for the Appellants to assail that part of th .....

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as reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or rupees ten thousand, whichever is greater. 49. Rule 209A of the CE Rules 1944 was more or less similarly worded. These are penal provisions that call for a strict interpretation. Therefore, in order that penalty may be levied, it will have to be satisfactorily proved that the ingredients of Rule 26 of the CE Rules 2002 are existent qua the person prop .....

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who played the leading role in extensive smuggling operations on his own admission did create a serious suspicion but according to the system of jurisprudence which we follow, conviction cannot be based on suspicion nor on the conscience of the Court being morally satisfied about the complicity of an accused person. 51. The SCN which proposed the penalty would have to make out a case for how Rule 26 is attracted. In the present case, apart from merely stating that the three Appellants were in c .....

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being dismissed in default by the CESTAT, does not preclude the Appellants from showing that the penalty against them is not justified in law. The evidence of Mahesh Kumar Gautam 53. The main evidence relied upon by the Department in support of its case against the Appellants herein is that of Mr. Mahesh Kumar Gautam. As already noticed there were three statements made by him. The first one was on 26th April, 2002 where he is supposed to have made several incriminating statements to the effect .....

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ls. Neither the CCE nor the CESTAT could have taken upon themselves to determine what the true purport of the medical certificate was. Given the proximity of the lodging of the FIR accompanied by the medical certificate it rendered probable the version of Mr. Gautam that he was subjected to third degree torture when he made the statement on 26th April, 2002. The CCE and the CESTAT should have been cautious in proceeding to rely on such statement without seeking independent corroboration. 55. The .....

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07-TIOL-89-SC-CUS, the Supreme Court cautioned that a confession cannot form the sole basis of a conviction under the Customs Act. Two other decisions that are relevant in this context are V. Ananthraman v. Union of India 2003 (151) ELT 278 (Bom.) and Nicco Corporation Ltd. V. Commissioner of Service Tax 2014 (307) ELT 228 (Cal.). 57. As pointed out by the learned counsel for the Appellants certain other crucial factors which do not appear to have been considered either by the CCE or the CESTAT .....

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hisee agreement with SFP was signed by him; the Central Excise Bond in Form B-1was executed by him on 7th September 2000; he applied for sales tax registration both under the Delhi Sales Tax Act as well as the Central Sales Tax Act. In April 2000, he gave a statement to the Sales Tax Department that he was the proprietor of AJP. Even after the raid, he continued to file income tax returns as well as sales tax returns and complied with other statutory requirements. He filed his own income tax ret .....

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AJP was Mr. V.K. Bansal. When he was asked: Those persons who had given you to use your own Branch, what kind of control was there regarding the quality etc. of the goods manufactured by Amar Jyoti Packers and in what manner? he answered Sometimes Sonal Food Products may come and check. When asked Who used to look after the work of compounding mixing and who used to do? he answered Shri Vinod Bansal, who was the Accountant in Amar Jyoti Packers... When specifically asked whether there was any ki .....

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uja archana and I am also doing the same work because I am free/unemployed. When asked about purchase of plant and machinery of AJP, he stated that had purchased some machines from the market. No question was asked about the Gargs being the real owners of the business. Consequently the Court fails to appreciate on the reading of the above statement dated 4th November, 2003, as has been done by the CCE and the CESTAT, that Mr. Gautam reaffirmed the statement made on 26th April, 2002. 60. On 12th .....

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ed: Who used to look after the factory and its office and account works in Amar Jyoti Packers , Mr. Gautam answered: The accounts relating to Amar Jyoti Packers and other office work were looked after by Shri Vinod Bansal. Besides him there was no other person. It is also significant that this statement was also retracted by Mr. Gautam, a fact which is not taken note of by either the CCE or the CESTAT. 61. Consequently the Court is unable to concur with the CCE or the CESTAT that the evidence of .....

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s 'maximum involvement' of Mr. Rakesh Kumar Garg in the clandestine activity although as already noticed hereinbefore the statement of Mr. Gautam was a weak evidence. Even in the statement of Mr. Santosh Garg, there was no admission about his being involved in the management or control of AJP. No cross-examination was offered of any of the witnesses whose statements were relied upon in the order of the CCE. 63. Significantly the case made out by the Department was also that M/s. ST was a .....

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₹ 33,20,02,329/- was, in fact, levied on AJP under Section 11AC of the CE Act apart from levying penalty of ₹ 21 crores on Mr. Devi Das Garg under Rules 209 and 209A of the CE Rules 1944 as well as Rules 25 and 26 of the CE Rules, 2002. 65. In Commissioner of Central Excise, Meerut-I v. R.A. Castings Pvt. Ltd. 2011 (269) ELT 337 (All.) allegations were made against the Assessees therein about using fictitious firms to avoid the liability arising from share trading. It was inter alia .....

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record to indicate to whom the imported goods were sold and how the goods were clandestinely removed from the factory. It was observed that excise duty cannot be levied merely on the basis of assumption or presumption. Reliance in that case was placed on the statement of the proprietor of the Respondent and it was held that since there was no admission in the said statement that the seized product was manufactured by the Respondent or cleared from its factory premises, the said statement was no .....

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2, whereas the Department after having conducted the search on 20th October, 2000 did not, in fact, apprehend a single consignment clandestinely removed after 20th October, 2000 up to 31st August, 2002. 68. Secondly, prior to the amendment introducing Section 3A under the Finance Act 2008, empowering the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods (the provision was made effective from 10th May, 2008), there was no provision to lev .....

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y of raw material of 6,200 MT, which would be required to manufacture the quantity stated to have been produced in excess by AJP. There appears to have been no investigation conducted on this aspect of the matter. The case qua each Appellant 70. As regards Mr. Rakesh Kumar Garg, his connection with SFP or AJP was not established. It was only Mr. Gautam who alleged that Mr. Rakesh Kumar Garg got some papers signed from him. However, the fact that there was a rent agreement executed on 22nd March, .....

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