TMI Blog2003 (12) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... 96. It is alleged that during the search operation various incriminating documents were seized. The statements of the key officials of the appellant No. 1 vis-a-vis dealers were recorded. The appellant No. 1 is selling its products viz. Star Gutkha presently in Maharashtra, Goa and Karnataka. The Star Gutkha is being marketed through various distributors. They have also set up a sales depot, in Belgaum to cater to the dealers/distributors in Karnataka State. The manufacturing process of the said product, using following raw materials, is as under :- (i) Betelnut (ii) Kattha (iii) Menthol (iv) Perfumes/Flavors (v) Kimam (vi) Lime (vii) Cardamom (viii) Tobacco (ix) Glyserene (x) Spices (xi) Magnesium Carbonate The CMD of appellant No. 1 in his statement dated 16-11-96 explained that all the above raw materials are mixed in a definite proportion to manufacture the Star Gutkha. He also stated that the raw material requirement to manufacture 2500 pouches (i.e. one carton bag in terms of which S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther stated that the proportion of the raw material consumption given above is inclusive of following losses occurred during manufacturing process, which is also subject to variations due to climatic conditions :- (i) Loss of weight during cutting and drawing process. (ii) Loss while grinding Kattha (iii) Filling/handling losses (iv) Loss of finished Gutkha He also stated that the above losses put together are in the range of 14% to 19% and do not include weight of laminated films, used for packing. He further explained that the laminated film requirement for packing of one carton bag i.e. 2500 pouches is in the range of 1 Kg to 1.125 Kgs depending upon gauge of the film used. The above consumption includes wastage of the film which is removed as scrap of laminated film. 3. Notice to show cause dated 11-8-1997 was issued. It was alleged that the appellant is accounting for only laminated film wastage and rest of the wastage is not at all accounted for, nor is there any supporting document to establish that such waste of raw materials is resulted in the manufacturing process of Star Gutk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78.20 2557 5. Flex Inds. Ltd. 200 89.10 2244 6. -do- 200 87.15 2294 7. Multiflex Lami Print 200 83.90 2383 8. -do- 200 82.25 2431 9. Sunrise Inds. 200 78.55 2546 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them under the proviso to sub-section (1) of Section 11A of the Act read with Rule 9(2) of the Central Excise Rules, 1944. (ii) Why the goods seized as detailed in Annexure D to the show cause notice should not be confiscated in terms of Rule 173Q (1). (iii) Why the bond and security ordered by the Commissioner, Central Excise and Customs, Pune under his File No. V (21)15-360/Adj.II/96, dt. 17-1-1997 7-2-1997 executed by the parties shown at Sr. Nos. 1, 6, 9 10 should not be adjusted and appropriated towards the demand. (iv) Penalty equivalent to the duty determined under Section 11A(2) of the said Act should not be recovered under the provisions of Sec. 11AB of the said Act. (v) Land, building, plant, machinery etc. used in connection with manufacture/production/storage/removal/disposal of the said goods or on such land or in such building or produced or manufactured with such plant, machinery, material or things should not be confiscated under the provisions of Rule 173Q (2) of the Rules. Further, the parties mentioned at Sr. No. 2 to 12 should not be imposed penalty under Rule 209A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adatiya farms) dealing with agricultural produce of Betelnut and Tobacco Farms, come in bulk quantities which are not amenable to systematic handling, storage, issue and other forms of physical material control. The industry is labour intensive rural industry. The stock measurement procedures and the systems of inventory control such as Bincard system, storage ledger control, perpetual inventory and continuous stock taking are not possible; therefore, the raw material consumed and in process losses of Supari, Tobacco and Kattha etc. are worked out by the rule-of-thumb method as explained by the CMD in his statement; that they have worked out consumption ratio or year to year which gives the gross consumption of different raw materials used in Gutkha production in the years ended 31-3-95, 31-3-96 and 31-3-97; the gross consumption includes the raw materials contained in the final gutkha as well as wastages that occur after receipt in the factory; the fact that the ratio of consumption of each type of raw material from year to year has remained stable and consistent indicates that the consumption of raw material worked out even by the normal rule-of-thumb method is indisputable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out is wrong and does not arise in their case at all. 6. The allegations that the appellant No. 1 manufactured and suppressed production of approximately 3443 carton bags during 1993-94, 21073 carton bags during 1994-95, 16853 carton bags during 1995-96 and 9396 bags during 96-97 (upto 15-11-96) cannot be upheld on account of absence of evidence and also because they had discharged their duties of accounting and payment of duty on all the Gutkha manufactured and cleared by them during the relevant period. The so-called unaccounted production is alleged only on the basis of presumptions; show cause notice has ignored physical realities of manufacture of Gutkha and the wastage of the various materials and in particular of PLR that arise in substantial quantities during the process of manufacture of Gutkha. It is factually incorrect that no records have been maintained in respect of wastages and that wastages have not been declared at any stage; in this regard the appellants relied on the following documents:- 1. Letter to Supdt. C.Ex. Jaysingpur dt. 18-1-94 2. Letter of Supdt. C.Ex., Jaysingpur dt. 18-1-94 3. Central Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultant Shri. Z.B. Nagarkar appearing on behalf of the appellants contended that there is no evidence supporting the case of the department that an excess quantity of Star Gutkha were removed clandestinely without payment of Central Excise duty. He contended that the case of the department is based totally on presumption. The department has totally gone by the theoretical calculation of PLR and on that basis the department has presumed clandestine removal. Main contention of the department is that out of 1 kg of PLR so much number of pouches would have been produced. The department has roughly taken the physical 2400 pouches out of 1 kg PLR and has multiplied the same by the total number of Kgs PLR to arrive at the estimated figure of pouches. As already mentioned, the theoretical calculation arrived at by the department is mentioned in Annexure B-V to the show cause notice. His contention is that the raw material used in the preparation of Star Gutkha i.e. Supari, Tobacco, Kattha and the wastage and scrap in manufacturing the said star gutkha have not been taken into account by the department to arrive at the actual figure. Had the department gone by the actual raw material used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted properly. As regards R.K. Transport, the main transporter, who admitted in his statement that they delivered 4/5 gunny bags per consignment free of cost said to have been containing advertisement material received from the Appellant No. 1 which were not recorded in the lorry Receipt and no charges were recovered for the said 4/5 gunny bags as a matter of goodwill from the appellant No. 1. However when he was confronted as to whether they ever checked such gunny bags to confirm the contents that they were advertisement material only and not Star Gutkha, Shri. V.M. Ranjane, Manager of the R.K. Transport said that they never checked the contents therein. Other transporters also never checked the contents and few extra gunny bags which were definitely containing star gutkha. Advertisement was required to be given to the distributor of the retailers. He also contended that the loss of raw material during cutting, cleaning, sieving, drying and mixing process as also during grinding Kattha and filling and handling of finished products were not taken into account which accounted to over 22% as claimed by Shri Sanjay Ghodavat in his statement. He also contended that the input/output re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand can be raised on assumed sale value of the PLR as the same is totally not supported by any corroborative evidence or any tangible evidence at all. In support of his contention he relied on the following decisions :- (1) M/s. Jagan Nath Dalip Singh - 1990 (47) E.L.T. 369 (T) - No clandestine removal unless borne by any tangible evidence. (2) CCE. V. Pawar Trading Co. 1988 (37) E.L.T. 603 (T) - Contravention. Burden of establishing clandestine removal is on the department. (3) K. Harinath Gupta - 1994 (71) E.L.T. 980 (T) - Contravention. Burden of establishing clandestine removal is on the department. (4) (5) Hindustan Lever Ltd. V. - 1990 (49) E.L.T. 408 (T) - (This case has been affirmed by the Hon'ble Supreme Court in 1996 (84) E.L.T. (A-162) (S.C.). Suspicion, howsoever grave cannot take place of the proof, (6) Bajaj Auto Ltd. - 1995 (75) E.L.T. 382 (T) - (Affirmed by the Supreme Court in 1996 (83) E.L.T. A41 (S.C.). (7) Prabhavati Sahakari Soot Girni Ltd. - 1990 (48) E.L.T. 522 (T) - It has been held in this case, admittedly no corrobora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n done of the raw materials used by the respondents in the past. No evidence has been produced for the supply of blank cassettes and other raw materials of the record. For this background charge of clandestine removal is not established. (15) T.M. Industries - 1993 (68) E.L.T. 807 (T) - It is held that the charge of evasion of Central Excise duty has to be based on the (tangible evidence) as observed by the Hon'ble Supreme Court in the case of Oudh Sugar Mills Ltd. V. Union of India, 1978 (2) E.L.T. (J-172). The Hon'ble Apex Court has held that the findings based only on inferences inviting unwarranted assumptions were vitiated by an error of law. The Apex Court further added that it would not be right to base calculations on the surmises. Keeping all the above considerations, the Hon'ble Apex Court set aside the impugned order and allowed the appeal with consequential relief, if any, due to the appellants. (16) Icy Cold Commercial Enterprises - 1994 (69) E.L.T. 337 (T) - The clandestine removal is based merely on the conjectures and presumption. Further supported by the Supreme Court as per AIR 1971 SC 746, the Hon'ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est lead to the inference, but no substantial proof is available on records. In the facts and circumstances of the case, the department is not justified in arriving at the conclusion that the appellants have clandestinely removed the goods in question based upon assumptions/presumptions and conjectures. The demand for differential duty is not justified and the impugned order is liable to be set aside. 12. The ld. DR appearing on behalf of the Revenue at the outset fairly conceded that there is no direct, positive or corroborative evidence available in the case. The whole case of the department is based on circumstantial evidence, statements and conduct of the appellant. The ld. DR contended that the statement of CMD, raw material suppliers and buyers' statement (wastage claim of 14.69% as already allowed) clearly establishes the clandestine removal on the part of the appellants. He further submitted that no record of wastage has been maintained by the appellant and the balance sheet shows that the sizes of pouches are reducing every year. Machine not working, whereas party claiming machine is working during the period. He further contended that Hon'ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the records and the case laws relied on by both the sides, we find that the demand of the department is based only on theoretical calculation of PLR which is not the main input of the appellants. The main product of appellant is Star Gutkha and as mentioned in the preceding paragraphs for preparation of Gutkha the main raw materials such as Supari, Katha, Tobacco, Menthol, Cardamom, lime etc. are needed. As contended by the ld. Consultant of the appellant, the wastage was claimed around 22% as against 14.69% allowed by the department. Though there is no statutory permissible limit fixed under the law, however, the ld. Consultant has contended that as per the trade practice the wastage of 22% is easily allowed in the manufacture of Pan Masala which is neither unreasonable nor illogical. The practice itself has assumed the force of law by its usage in the trade for a long time and as such we do not find any justification on the part of the department not to have allowed wastage of 22%. Besides, we find that when the department has based his case on the statement of certain parties and when the statements were retracted in writing by them, it was imperative on the departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Evasion of duty must be based on solid and acceptable evidence (v) D.S. Screen Pvt. Ltd. - 1990 (50) E.L.T. 475 (Tri.) In the absence of any corroborative of circumstantial evidence fraudulent removal not inferable. (vi) V.K. Thampy - 1994 (69) E.L.T. 300 Investigation not done to ascertain whether the parameters like electricity consumed - Raw materials used. (vii) K. Harinath Gupta - 1994 (71) E.L.T. 980 Clandestine removal burden on dept - Sources of raw materials not contacted buyers not contacted - Receipt of sale proceeds not established. (viii) Icy Cold - 1994 (69) E.L.T. 337 Clandestine removal a positive act not provable on mere assumptions and presumptions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) 1999 (114) E.L.T. 537 (T) = RLT 35 p. 162 (T) - Arti Steels Ltd. V. CCE Chandigarh No cogent reasons given for figures of production - Co-relation between various other documents - Gap in power consumption - No sufficient materials for establishing clandestine removal. (xvii) 2000 (117) E.L.T. 659 (T) -RLT 35 p. 654 (T) Pepsico India Holding V. CCE Meerut All other parameters as laid down in Rule 173E should also have been taken into consideration. The legal position as brought out in the cases mentioned above leaves no doubt that the demand cannot be sustained on the ground of presumption. 15. From the replies to the show cause notice dated 9-10-97, 6-1-97, 2-2-97, 17-2-97 on pages 120 to 211, it is crystal clear that the appellants have submitted specific replies to the points raised by the department and as such it was incumbent on the department to prove their case beyond reasonable doubt. In the absence of any strict, tang ..... X X X X Extracts X X X X X X X X Extracts X X X X
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