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2015 (12) TMI 593 - DELHI HIGH COURT

2015 (12) TMI 593 - DELHI HIGH COURT - 2016 (332) E.L.T. 793 (Del.) - Clandestine removal of goods - Suppression of production - manufacture of gutka and pan masala under the brand name ‘Vimal’ - reliance primarily on ambiguous records maintained by transporters and the oral statement of the employees of the transporters - Held that:- noticees had sought the cross-examination of 20 persons whose statements had been recorded by the Department in the course of investigation. Some of these persons .....

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ress, “however, rule of prudence and practice does require that the Court seek corroboration of the retracted confession from other evidence.” It was further observed that “each case would, therefore, require to be examined in the light of the facts and circumstances in which the confession came to be made and whether or not it was voluntary and true.”

There was no ‘confession’ as such by any of the noticees as to their involvement in the activities alleged against them in both the SC .....

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pressure and control of the noticees. The other approach is to view this with some caution and ask what might be the case if the remaining witnesses were also produced for cross-examination? Importantly, what would be the prejudice caused to the noticees, in such circumstances, by their non-production for cross-examination? Thus a doubt is created in favour of the noticees when such witnesses do not turn up for cross-examination. It is the latter approach that has weighed with the CESTAT. That, .....

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rding the jute bags, the panchnama and seized bags from M/s. Shyam Jute Industries did not per se reveal any shortage of jute bags. These documents by themselves were insufficient to conclude that there was shortage of jute bags and menthol, thereby permitting an inference that they were used in the unaccounted manufacture of gutka cleared clandestinely. - mere fact that Mr. Dubey accompanied the goods to the transporters' offices did not mean that it was VCPL which was removing the goods for de .....

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transporters originated at the factory gate of VCPL or from the same source was not sufficient to establish that it was VCPL which was clandestinely clearing such consignments. The Court is not persuaded to hold that the CESTAT erred in the appreciation of evidence or failed to consider any material evidence in coming to the above conclusion - Some of the GRs show that bags of gutka were transported by M/s. Gupta Chemical Works to 'self' at Hubli on 3rd July 2003 and 4th July 2003. Mr. Rajiv Gup .....

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nly some private marks and numbers without any mention of the description of the goods. The Court has also been shown some of the copies of the loading challans/registers. They only describe the goods as pan masala. The persons who wrote the loading registers and the day book were not identified and their statements were not recorded. One employee of GG Carriers, Mr. Harjinder Singh, was examined. He mentioned the name of the booking clerks as Naresh Kumar and Vishnu but neither of them was exam .....

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no bar against an Assessee having more machines than what was declared as long as the machines that were operational tallied with the number declared. This aspect of the matter was overlooked by the CCE and the fact that there were 120 machines was taken to mean that they ought to have been used in manufacturing excess quantities of gutka which were clandestinely removed without payment of excise duty. - Department has been unable to show that the impugned order of the CESTAT suffers from illega .....

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Jain, Mr Ajay K. Jain and Mr Dushyant K. Mahant, Advocates ORDER Dr. S. Muralidhar, J.: CM APPL No. 11312/2014 (for delay) in CEAC 62/2014 CM APPL No. 16426/2014 (for delay) in CEAC 73/2014 CM APPL No. 16497/2014 (for delay) in CEAC 74/2014 CM APPL No. 16499/2014 (for delay) in CEAC 75/2014 CM APPL No. 16502/2014 (for delay) in CEAC 76/2014 CM APPL No. 16505/2014 (for delay) in CEAC 77/2014 CM APPL No. 16500/2014 (for delay) in CEAC 78/2014 CM APPL No. 16511/2014 (for delay) in CEAC 79/2014 CM .....

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9/2014 CM APPL No. 16550/2014 (for delay) in CEAC 90/2014 1. For the reasons stated therein, the delay in filing the present appeals are condoned. 2. The applications are disposed of. CEAC Nos. 62/2014, 73/2014, 74/2014, 75/2014, 76/2014, 77/2014, 78/2014, 79/2014, 80/2014, 81/2014, 82/2014, 83/2014, 84/2014, 85/2014, 86/2014, 87/2014, 88/2014, 89/2014 & 90/2014 3. These appeals under Section 35G of the Central Excise Act, 1944 ( Act ) are directed against the final order dated 21st October .....

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ture of gutka and pan masala under the brand name Vimal , falling under the Chapter Heading No. 21 and 24 of the Central Excise Tariff Act, 1985. It was registered with the Central Excise Department ( Department ) and was not availing CENVAT credit on any of the inputs or packing material or capital goods. 5. The Department received an intelligence that VCPL was indulging in large scale evasion of central excise duty, by suppressing the actual production of gutka and was also indulging in clande .....

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al which included supari and tobacco; (iii) suppressed its production figures, clandestinely removed the finished goods without payment of duty and transported such goods surreptitiously to the godowns of certain transporters for onward dispatch to their dealers outside Delhi; (iv) not maintained any account of several other inputs and the entire packing material. 6. Simultaneous searches were conducted on 5th July 2003 by the officers of Directorate General of Central Excise of Intelligence ( D .....

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f incriminating records or documents from such premises which was annexed to the respective panchnamas drawn on the spot by the search team. The documents recovered pertained to the period from 1st April 2002 to 5th July 2003. The officers of the DGCEI also seized finished goods/Vimal brand gutka at several places since valid documents showing the payment of duty were not available in respect of the finished goods. They also seized raw materials/inputs and packing materials from the factory of V .....

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ere seized. No stock of either jute bags, used for packing their products or menthol, one of the important ingredients, was found in the factory of VCPL. The goods after seizure were handed over to Mr. H. Sunder, Director of VCPL (who is also the Respondent in CEAC No. 80 of 2014). Searches were also carried out in the premises of M/s. Ashoka Tobacco, M/s. Lalwani Convertors, M/s. Pragati International (P) Ltd. from whose premises further seizures were made of unbranded loose chewing tobacco and .....

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ose premises flexible laminated film material used for packing was seized), Mohd. Kayum Khan (owner of a temp truck used to transport 40 bags from the factory of VCPL to Singhal Transport Co.), Paramjeet Singh Kakkar (Proprietor of M/s Singhal Transport Company and the owner of the truck HR 38D 4117, which was found parked near the godown of the transport company, from which 40 bags of gutka were seized), Santosh Tobacco of Chhindwara, Kamal Stores in Jaipur and Laxmi Prakash Gupta of Seoni (all .....

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the SCN) along with interest; central excise duty amounting to ₹ 6,93,000 in respect of 210 bags of Vimal brand gutka valued at ₹ 23,10,000 (MRP) seized from the premises of M/s. Singhal Transport Co.; central excise duty amounting to ₹ 39,141 in respect of quantities of Vimal brand gutka seized from the godowns of M/s. Harsh Transport Pvt. Ltd., the business premises of Lakshmi Prakash Gupta, Seoni and the common business premises of M/s. Kamal Store and M/s. Gobind Store, Jai .....

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aled that there was excess consumption of supari and menthol, the two essentials ingredients of gutka. 11. The SCN had noted that VCPL had voluntarily deposited a sum of ₹ 6,93,000 towards payment of duty on 210 bags of Vimal gutka seized on 9th July 2003 and total of ₹ 1.96 crore voluntarily deposited on 5th July 2003, 15th July 2003 and 4th August 2003 towards duty not paid on past clearances. It also proposed to appropriate the said deposits towards the duty demand of ₹ 12,9 .....

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as issued to VCPL, its Director H. Sunder, its Manager, Mr. R.K. Tripathi and three transporters, M/s. Gopi Roadlines, M/s. Singhal Transport Company and M/s. Laxmi Freight Carriers (P) Ltd. It noted that the statements of the respective employees of the abovementioned transport companies were recorded at the time of the search. The SCN also referred to the search of VCPL and the statements recorded of its Director, Mr. H. Sunder and Manager Mr. R.K. Tripathi. The second SCN further proposed to .....

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ers were passed by the CCE, one on 9th June 2005 dealing with SCN dated 24th December 2003 and the second on 21st November 2005 dealing with the second SCN dated 1st March 2004. 15. As regards the first SCN dated 24th December 2003, the CCE by the order dated 9th June 2005 confirmed the demand of central excise duty amounting to ₹ 12,85,58,100 from VCPL and the penalty of the same amount apart from confiscation of several quantities of seized materials was ordered. The CCE also seized the .....

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vt. Ltd were imposed under Rule 26 of the CE Rules. Further, a penalty of ₹ 20 lakhs was imposed on M/s. Santosh Tobacco for receiving, storing and selling clandestinely removed 2267 bags of Vimal brand gutka. 16. However, the CCE dropped the proceedings related to the seizure of 9356 kgs of supari, 466 kgs of Tobacco, 1200 kgs of gutka mixture, printed packing laminates weighing 6355 kgs, 404000 pieces of poly pouches, 5450 cotton (canvas bags) and other materials from the factory of VCPL .....

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penalty of ₹ 1 crore against Mr. H. Sunder; ₹ 5 lakhs each on Mr. R.K. Tripathi and M/s Gopi Roadlines; a penalty of ₹ 10 lakhs on Paramjeet Singh Kakkar, proprietor of Singhal Transport Co.; a penalty of ₹ 15 lakhs on M/s Laxmi Freight Carrier Pvt. Ltd.; and ₹ 1 lakh on Gopal Krishan Parashar, Director of Laxmi Freight Carrier Pvt. Ltd. Impugned order of the CESTAT 18. Aggrieved by the aforementioned Orders-in-Original, the Respondent noticees herein filed two sets .....

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TAT disposed of the appeals as under: In respect of the appeals arising from the first SCN: (i) In the appeals filed by VCPL and its Director, Mr. H. Sunder, only duty demand of ₹ 6,93,285/- along with interest under Section 11AB and penalty of equal amount under Section 11AC was upheld. The remaining duty demand against VCPL including the duty demand on 9 bags of gutka seized from office of M/s. Harsh Transport Co. at Bhopal and 30518 pouches of Vimal gutka seized from Mr. Lakshmi Prakash .....

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kar were allowed. (iii) The confiscation of truck No.HR 38D 4117 of M/s. Singhal Transport Co. was set aside. (iv) The confiscation of the Tata 407 tempo DL-1LA 6232 of Mr. Kayum Khan and the penalty on him was set aside. His appeal was allowed. (v) The confiscation of 210 bags of Vimal gutka seized from the premises of M/s. Singhal Transport Company and 950 pouches of Vimal gutka seized from M/s. Gobind Stores, Jaipur and redemption fine in respect of them was upheld. (vi) The confiscation of 9 .....

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the goods and penalty on M/s. Pragati International was upheld. The appeal filed by M/s. Pragati International was dismissed. (ix) The imposition of penalty on M/s. Santosh Tobacco was set aside and the appeal filed by them was allowed. (x) The appeals filed by the Department were dismissed. In respect of the appeals arising from the second SCN, the CESTAT: (xi) set aside the duty demand of ₹ 2,75,15,400/- against VCPL, interest thereon under Section 11AB and penalty on them under Section .....

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nfiscation of 25 bags of sweet supari from the premises of M/s. Gopi Road Lines and redemption fine in respect of them was upheld. 20. The main findings of the CESTAT were as under: (i) The entire evidence of the Department was primarily ambiguous records maintained by transporters and the oral statement of the employees of the transporters. Such records maintained by transport companies nowhere showed that the goods being transported under the cover of GRs had been booked by VCPL and were in re .....

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hird party documents without there being any positive evidence on record to link the third party documents with VCPL. Though the factory of VCPL was searched by the officers of the Department, nothing incriminating was recovered except the allegations of the shortages of menthol and gunny bags. (iv) There was no justification in relying upon the report of SIIR since only a small quantity of 1.8 grams gutka was tested which possibly could not give correct results particularly in case of a volatil .....

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rely upon a small quantity of gutka 1.8 grams for testing. (v) To confirm such a huge demand of duty on the allegation of clandestine manufacture, the Department was expected to prove the procurement of a huge quantity of raw materials along with the packing materials and the capacity of the assessee to manufacture such a huge quantity. There was no evidence on record as regards procurement of such huge raw materials. The Department also failed to record the statements of the workers of VCPL wh .....

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accordance with law. The present appeals 21. In the present appeals by the Department the questions sought to be urged are as under: (i) Whether statements recorded under provisions of Section 14 of CE Act by the officers of the Department can be taken as proof of the statutory violations by the Respondents? (ii) Whether demand of duty based on the third-party documents supported by corroborative statements was not justified? (iii) Was the CESTAT justified in setting aside or reducing, as the c .....

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was perverse inasmuch as the material documents and evidence which forms part of the record was overlooked by the CESTAT. On 18th August 2015, she undertook to file a chart to show how the CESTAT had erred in coming to its conclusions with reference to the evidence on record. The case was adjourned to 28th October 2015 for that purpose. On 28th October 2015, the Court passed the following order: "1. While, the Appellant has not placed before the Court the chart of the precise findings of t .....

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ant states she will place before the Court by the next date, a chart showing in two columns the findings of the CESTAT and the relevant evidence in relation to such finding which would show that the finding is perverse. 4. List on 2nd December, 2015. 23. Pursuant to the above order, apart from filing more than 4000 pages of documents forming part of the record of the case, a chart has been filed by the Department to indicate the findings, in two columns, of the CCE as well as CESTAT and what, ac .....

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nts before the CESTAT when the appeals were argued there. Scope of judicial review in the present proceedings 25. Since the main plank of the Department's appeals against the order of the CESTAT is that of perversity, it is necessary to recapitulate the legal position in this regard. The appeal to the High Court under Section 35G of the CE Act, arising from the order of the CCE, is a second appeal, the first being to the CESTAT. Unless there are substantial questions of law that arise, an ap .....

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. CIT (1957) 31 ITR 28 it was observed that a finding of fact is open to attack when it is shown that "there is no evidence to support it or if it is perverse." The threshold for demonstrating perversity has always been high. 27. In Ratanchand Darbarilal v. Commissioner of Income-tax 1985 (22) ELT 653 (SC) it was held that if an order was passed by the Tribunal without taking into account the relevant factors or if the Tribunal had mis-directed itself by over-looking the salient featur .....

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terference on the ground of perversity in the background of the above legal position. 29. Broadly the evidence gathered by the Department in respect of both the SCNs can be categorized into primary evidence in the form of original documents collected from the entity i.e. VCPL, the transporters and other associate entities and secondary evidence in the form of report of SIIR, the retracted statements of some of the persons examined in the course of investigation and other material stated to be of .....

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ch was not analysed. A reference was also made to the explanation of Mr. Chib with reference to 1.90 gms, was in fact average weight of the 10 pouches and which constituted the set of the represented sample. The panchnama drawn at the time of drawing of the sample on 22nd July 2003 substantiated this fact. Mr. Chib had explained that menthol was used only in traces and did not undergo any process during manufacturing where it is exposed to severe heat conditions. Once the mixture was ready, it w .....

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the realm of impossible. It is urged that all of the above evidence was overlooked by the CESTAT. 31. The Court finds that the CESTAT has considered the report of the SIIR and has examined carefully the evidence of Mr. Chib. It noted that the percentage of the contents of the mixture as declared by VCPL was 86% supari, 2.2% lime, 6% tobacco, 5% kattha and 0.47% menthol, which added up to 99.67%. The other ingredients were perfumes and substances which were less than 1%. The total of the percent .....

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ngredients. That might then alter the inference to be drawn regarding the actual consumption of menthol. The missing contents that constituted the 9% cannot be a matter of surmises and conjectures. 33. The Court is, in the above circumstances, called upon to determine whether the CESTAT committed any gross error in appreciating the above evidence or whether its conclusion regarding the unreliability of the SIIR report was perverse. In the considered view of the Court, the answer to both question .....

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he report by bringing out its inherent weaknesses during the cross-examination of the person who has prepared it. Alternatively, the Assessee might choose to produce another expert report which contradicts report of the expert of the Department. In the present case the Assessee has chosen the former course and has been able to persuade the CESTAT to hold the SIIR report to be unreliable. The Court is unable to find any error having been committed by the CESTAT in coming to the above conclusion. .....

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ollector (HQ)1997 (90) ELT 241 (SC). She further submitted that the Department was not required to prove beyond doubt each and every piece of evidence gathered. It was sufficient for the Department to adduce only so much evidence, circumstantial or direct, as is sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved. 36. It must be observed that the decision in Collector of Customs, Madras v. D. Bhoormull (supra) was specific to the provisio .....

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of excisable goods. Section 14 of the CE Act provides for a detailed enquiry involving the gathering of evidence through documents and recording of statements. It does not dispense with the principles of natural justice or the general principles of fairness that govern all departmental inquiries. In the decision of the Bombay High Court in Patel Engineering Ltd. v. Union of India 2014 (307) ELT 862 (Bom.) an expert panel was formed by the Department in response to the challenge by the noticees .....

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ought the cross-examination of 20 persons whose statements had been recorded by the Department in the course of investigation. Some of these persons had retracted their initial statements through affidavits tendered subsequently or resiled from the statements when cross-examined. In urging that even the retracted statements could be relied upon, Ms. Sharma referred to the decision in K.I. Pavunny v. Assistant Collector (HQ) (supra). That decision was rendered in the context of Customs Act, 1962. .....

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making such allegation. It was observed that if the confession was voluntary, there was no legal bar on the Court relying on it to order a conviction. However, where it was retracted, and even if the person retracting was unable to show that it was obtained under duress, however, rule of prudence and practice does require that the Court seek corroboration of the retracted confession from other evidence. It was further observed that each case would, therefore, require to be examined in the light .....

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mes necessary for the Department to produce other evidence which is of an independent nature which corroborates the retracted statements. 39. The CCE has in the Orders-in-Original proceeded to rely on the retracted statements or on statements of persons not offered for cross-examination by either disbelieving that they were obtained under coercion or by holding the persons who have retracted or resiled from the earlier statements as having done so under the influence of the noticees themselves. .....

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nded methods of the investigating officers. If the noticees were really interest in cross-examining them they themselves could have made them available, particularly when they were so cooperative that they provided sworn affidavits. 40. In fact Ms. Sharma too insisted upon reading from such retracted statements in order to persuade the Court to hold that the impugned order of the CESTAT is perverse. According to her the retraction made more than 20 months after the making of the initial statemen .....

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uch as to admissibility of such statement as much as it is about its 'reliability'. It is the latter requirement that warrants a judicial authority to seek, as a rule of prudence, some corroboration of such retracted statement by some other reliable independent material. This is the approach adopted by the CESTAT and the Court finds it to be in consonance with the settled legal position in this regard. 42. The contention that it is the responsibility of the noticees to produce the witnes .....

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dence that none of the witnesses who were cross-examined stood by their earlier statements. It is one thing to overlook this feature on the premise that all of them were under the pressure and control of the noticees. The other approach is to view this with some caution and ask what might be the case if the remaining witnesses were also produced for cross-examination? Importantly, what would be the prejudice caused to the noticees, in such circumstances, by their non-production for cross-examina .....

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ndra (India) Ltd. (RLRC), the case of the Department is that during the period from April 2002 to 4th July 2003, VCPL had received only 105000 canvass bags from RLRC. The allegation of excess receipt to the tune of about 510650 canvass bags was based on the entries in the gate register. However, as noted by the CESTAT, the delivery challans did not indicate that canvas bags, covered by the delivery challans had in fact been delivered to VCPL. The delivery challans mentioned the registration numb .....

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ufficient to conclude that there was shortage of jute bags and menthol, thereby permitting an inference that they were used in the unaccounted manufacture of gutka cleared clandestinely. Cash sales at the gate 45. The defence of VCPL, which was unable to be effectively countered by the Department, was that there were cash sales of gutka at the factory gate and the buyers at the gate engaged the transporters for despatch of the purchased gutka to various destinations. It was urged before the CEST .....

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re fact that Mr. Dubey accompanied the goods to the transporters' offices did not mean that it was VCPL which was removing the goods for despatch. The Department was unable to produce any tangible evidence to link VCPL with the despatches made through the transporters. 46. The attempt at linking VCPL with the despatches through the letter 'V' appearing on some of the gunny bags also failed when it was shown to the satisfaction of the CESTAT that since Vimal was a popular brand, other .....

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source was not sufficient to establish that it was VCPL which was clandestinely clearing such consignments. The Court is not persuaded to hold that the CESTAT erred in the appreciation of evidence or failed to consider any material evidence in coming to the above conclusion. Goods seized from Singhal Transport 47. Relevant to the seizures effected from Singhal Transport Co., were the statements of Mr. Yogesh Sharma, Godown Incharge, Mr. Sita Ram and Mr. Mohd. Ilyas, drivers of trucks allegedly .....

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icees was that the statement made by him on 5th July 2003 was dictated by the officers of the Department and he was forced to sign certain documents. It is stated that he was forced to deposit ₹ 66 lakhs although only 210 bags of gutka were recovered from M/s. Singhal Transport Co. One witness who was offered for cross-examination was Mr. Paramjeet Singh Kakkar, Proprietor of M/s. Singhal Transport Co. He initially gave a statement that they transported only Vimal brand gutka and the names .....

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t Hubli on 3rd July 2003 and 4th July 2003. Mr. Rajiv Gupta, partner of Gupta Chemical Works was not questioned about the said GRs. One general observation in this regard is that the Department does not appear to have carried the investigations to their logical end. The CESTAT examined 17 truck guidance notes and the Court has also been shown a sample of one of them which shows that the consignment was to be sent to Gujarat. It does not show who the consignor is and whether it had anything to do .....

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, GOB , Kaku , , and KK . Even the loose sheets only mentioned 'pan masala'. The loading register also showed only some private marks and numbers without any mention of the description of the goods. The Court has also been shown some of the copies of the loading challans/registers. They only describe the goods as pan masala. The persons who wrote the loading registers and the day book were not identified and their statements were not recorded. One employee of GG Carriers, Mr. Harjinder .....

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rely on the above evidence, then certainly its approach could not be faulted. The production capacity 51. On the question of production capacity, what has come on record is that at the time of inspection 65 machines were found installed and 20 were found working beyond 5 pm. Although there were 120 machines in all, 65 were found to be operational. At the relevant time, what was declared to the Department by VCPL was 65 machines. As rightly pointed out by learned counsel for the noticees, and as .....

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he seizures from two dealers in Jaipur, three persons were examined. One was Leela Ram Makhija, Proprietor of M/s. Leela Ram Gobind Ram, Kota who gave a statement that they purchased directly from VCPL and that the goods always came from Jaipur Golden Transport. Mr. Leela Ram stated that the abbreviation GR did not belong to him. There was a proprietor of M/s Prem Supari Bhandar, Gobind Ram, brother of Leela Ram Makhija. He was, however, not asked whether the initials 'GRK' belonged to h .....

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k Register entries like 'V/40/OK' pertained to Vimal gutka and that 'V' means Vimal and 40 means 40 bags. However, he was not made available for cross-examination. He tendered an affidavit that the 'bilities' were made in the name of the parties who had purchased the goods from VCPL. He now explained that 'V/40' did not represent cargo pertaining to gutka and that V could stand for Victory, Vinod, Vishal and could contain any other goods. This is to be seen in the .....

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seizure of 5971 bags of Vimal brand gutka supposed to have been cleared clandestinely by VCPL through M/s Gopi Road Lines. As rightly pointed out by CESTAT, the statement of Mr. Sushil Kumar, one of its commission agents, was recorded but he retracted the said statement. He was not produced for cross-examination. Other than this statement, there was no evidence to link the challans seized with VCPL. CESTAT has rightly held that the duty demand of ₹ 1,97,04,300 based on the records of Gopi .....

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