Kuber Tobacco Products Ltd. v. Commissioner Of C. Ex., Delhi

[Order per : Justice R.M.S. Khandeparkar, President]. - I have the privilege of perusing the draft of the order prepared by my colleague. With utmost respect, I must say that I am unable to persuade myself to agree to the same. I, therefore, record my reasons separately.

2. Heard at length the learned Counsel for the appellants and Joint CDR and DR for the respondent. Also perused the written submissions filed on behalf of the appellants.

3. Suffice to summarize the case against the appellants as under :-

M/s. Kuber Tobacco Products (P) Ltd. were engaged in manufacture of Gutka/Pan Masala bearing brand name ‘KUBER, MOOLCHAND etc.’ classifiable under Tariff Heading 2106.00, and are hereinafter called as “KTPPL”. M/s. Kuber International (India), now known as M/s. Kuber Khaini Pvt. Ltd., were engaged in manufacture of Chewing Tobacco and ‘Jet’ brand Khaini classifiable under Tariff Heading No. 2404.00, and hereinafter called as “KI”. Pursuant to information received that the appellants were indulging in clandestine removal of goods and evasion of duty, the investigating agency of the Revenue Department conducted search on 9-10-1998 at six different places, namely, 30 & 31-K, Siraspur, Delhi, Office premises of the appellants, 4130, Gali Barna, Sadar Bazar, Delhi, 6041-42, 2nd Floor, Basti Harphool Singh, Delhi, 5987, Plot No. 83, South Nawab Road, Basti Harphool Singh, Delhi, and 463, Pocket-A (GF), Sarita Vihar, Delhi. The impugned orders also disclose that as a result of the said search, various materials were seized and the same included 57 Bags of Moolchand brand Gutka weighing 877.800 kgs. valued at Rs. 3,76,000/- being excess in stock of the balance recorded in statutory record at 31-K, Siraspur, Delhi; cash of Rs. 1.80 lakhs at 3909, Gali Barna, Sadar Bazar, Delhi; duplicate note books, Kacha challans, Hisaba book, photocopies of pass-books at 4103, Gali Barna, Sadar Bazar, Delhi; some kachcha documents and cash of Rs. 7.36 lakhs from Gangu Foods (P) Ltd., a sister concern of KTPPL at 6041-42, 2nd Floor, Basti Harphool Singh, Delhi; blank invoices/bill books of four firms namely, M/s. Rishi Trading Co., Gali Pahar, Sadar Bazar, Delhi-6, M/s. Swastik Trading Co., 1464, Kutub Road, Delhi-6, M/s. Shyam Tobacco Co., 6468-B, Basti Harphool Singh, Sadar Bazar, Delhi-6 and M/s. Shukla Enterprises, 2861, Bagichi Raghunath, Sadar Bazar, Delhi-6 and 5987, Plot No. 83, South Nawab Road, Basti Harphool Singh, Delhi. In the course of investigation, sum of the products were also seized. On 15-10-1998, 8 bags of Moolchand Super Gutka bearing batch No. 012 manufactured in September, 1998 valued at Rs. 52,000/- were seized along with some documents from Mahamaya Trade Agencies, C/o. Pawan Kumar, Narbadapara, Gudiari Road, Raipur, On 16-10-1998, 31 packets of Kuber brand Gutka bearing batch No. 013 manufactured in October, 1998 valued at Rs. 2,015/- along with certain records were seized from M/s. Dalip Traders at shop No. 23, Soot Market, Gandhi Bagh, Nagpur. On 27-10-1998, 30 bags of Moolchand Super Gutka bearing batch No. 012 manufactured in September, 1998 valued at Rs. 1,58,000/- along with certain records were seized from Bikaner Assam Roadlines, Gauhati. On 17-11-1998, 5200 pouches of Moolchand brand Gutka valued at Rs. 3380/- as well as 49230 pouches of Gutka brand Khaini valued at Rs. 52,184/- along with certain documents were seized from Mukambika Agencies, shop No. 14, Bandi Madhu, Avenue Cross Road, Bangalore.

4. The Commissioner in the impugned orders has answered the charge of clandestine removal of goods against the appellants on the basis of capacity of machines installed by the appellants in their factory, the electricity generated by gensets, number of labourers employed by the appellants in the factory and raw materials consumed during the relevant period. All the findings in these regards have been arrived at essentially on the basis of statements of the deponents read with contents of hisaba book, kachcha challans, loose sheets and GRs of the transporters stated to have been recovered in the course of investigation.

5. The findings arrived at by the Commissioner in the impugned orders can be preciously summarized as below. The total number of machines installed were 137 and as per the letter of Chairman of the Board each machine could manufacture 200 pouches per minute and therefore 137 machines could manufacture 27,74,25,000 pouches per month, and all the machines having utilized in three shifts for 25 days in a month, the total production would be 832275000 pouches per month. Therefore, as regards KTPPL is concerned, for the period of 14 months from 7-5-1997 to 30-6-1998, the total production ought to have been 1165 crores of pouches i.e. 882575 bags, whereas in fact, the accusation of clandestine removal has been restricted to 21413 bags for the said period. For the period of three months from 1st July 1998 to 5th August 1998 considering the capacity of production, it would be 525523 crores pouches i.e. 193356 bags while the accusation has been restricted to 69,551 bags. As regards the electricity consumed, the loose sheets disclose that for the period of twenty days from 11th June 1998 to 30th June 1998, the appellants had purchased 29600 ltrs. diesel. The D.G. set consumed 55 litres per hour. Therefore, there was sufficient diesel to manufacture the huge quantity of the goods by the appellants. Since at least two labourers were required to operate each machine, besides other labour would also be required for packing, crushing of supari, katha, mixing of compound and other ingredients, the appellants ought to have employed sufficient number of employees. The balance sheets of the appellants during the relevant years disclose employment of fifty to sixty labourers but the same could not be believed to be true as the number of employees must have been shown less to avoid provident fund liability and other connected complications and therefore, the records in that regard must have been manipulated. Though the suppliers have disputed the supply of raw materials to the appellants, the same stands established from the contents of the loose sheet. Esha Plastics have denied supply of bags as described in the loose sheet but in the absence of details of supply being submitted by them and as they were regular suppliers of bags to the appellants they must have supplied the required number of bags. Though Sh. Raghubir Gulati of M/s. Alliance Overseas has denied the supply of liquid paraffin sorbital and glycerin, but six invoices clearly disclosed sale of liquid paraffin which was admittedly arranged by him through a dealer for supply thereof to the appellants. As regards tobacco, the loose sheets refer to 37330 Kg. tobacco which was sufficient to manufacture lakhs of pouches of gutka. The entries in hisaba book, kachcha challans and loose sheets tally with other documents belonging to the appellants and hence the charge stands proved.

6. The Commissioner has placed heavy reliance upon the contents of the kachcha challans, hisaba book and loose papers stated to have been seized in the course of investigation to hold the charge of clandestine removal having been established against the appellants. All the contentions which were sought to be raised against the said documents including contention regarding illegality of the panchnama and seizure proceedings have been rejected by the Commissioner. While rejecting the said contentions, it has been observed by the Commissioner that it is not the job of the Department to prove that the panchas were respectable or not. It has also been stated that it is surprising that the tax evaders are challenging the responsibility of the common person who witnesses the search proceedings. Failure to record the time of commencement and conclusion of search has been held to be a technical lapse. Non-seizure of the key of the premises has been held to be not relevant for the decision in the matter. It has also been held that Shri Shubh Karan Bothra was present at the premises at the time of search. It has been held that the keys of the premises were brought by Shri Bothra and the documents were recovered in the presence of Shri Bothra and independent witnesses. It has also been observed that Shri Bothra had stated in the course of panchnama that the premises were used as the guest house by the appellants. The contention of the appellants that documents were fraudulently prepared by their dismissed employee Shri Umed Chandelia has been rejected on the ground that none of the persons have stated that the said documents were written by Shri Umed Chandelia.

7. It cannot be disputed that the charge of clandestine removal of goods is a serious charge and needs to be established with cogent evidence in support thereto. In that regard, certainly heavy burden lies upon the Department to prove the same by placing on record proper evidence in support of such charge. In Durga Trading Company v. CCE, Lucknow reported in it was held that it is well settled that the charge of clandestine manufacture of dutiable goods and removal thereof without discharging duty liability by the assessee cannot be established on assumption and presumption and such charge has to be based on concrete and tangible evidence. Reference in that regard was made to the decision of the Apex Court in the matter of Oudh Sugar Mills Ltd. v. UOI reported in 1978 (2) E.L.T. (J172) wherein the Apex Court had observed that the demand of duty cannot be raised on the strength of assumption and presumption.

8. At the same time, it cannot be forgotten that to establish a charge of clandestine removal, it is not always possible for the investigating agency to get 100% evidence in support of charge. The Apex Court in D. Bhoormulls case had clearly held that it cannot be disputed that in the proceedings for imposing penalty, the burden of proving the accusation against the assessee is always upon the Department but in appreciating its scope and the nature of the onus cast, we must pay due regard to the principle, not less than a fundamental one, that the Department is not required to prove the case with mathematical precision to the demonstrable degree and all that it is required to be done is that a prudent man may, on its basis, believe in the existence of the fact in issue. It is prudent man’s estimate as to the probabilities of the case. In adjudication proceedings, the charge of clandestine removal is definitely to be established on the basis of preponderance of probabilities. However, the conclusions to be arrived at are necessarily to be logical and must be borne out from the records and not pigments of imagination. It cannot be merely on the basis of presumptions and assumptions.

9. In Bute Cosmetics v. CCE, Trichy reported in , the Tribunal had observed that in modus operandi concerning suppressed production and clandestine clearances, the persons concerned may not keep any record of receipt of raw materials purchased normally through cash payments. Therefore, absence of any evidence alone on this point, ipso facto, cannot rule out clandestine removal. The Department, therefore, has to establish by preponderance of probability that the goods were clandestinely removed.

10. The challenge to the impugned orders essentially relates to absence of cogent evidence in support of the charge against the appellants relating to clandestine removal of the goods, failure on the part of the Department to adduce satisfactory evidence in support of such charge and the findings having been arrived at by the authority in the absence of evidence in support thereto. The main grievance is that the findings are not borne out from the records but are merely presumptions and assumptions sought to be drawn even in the absence of materials on record remotely suggesting such findings.

11. It can hardly be disputed that the case against the appellants is essentially based on the materials in the form of kachcha challans, loose sheets and Hisaba Book stated to have been recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi, read with the of seizure proceedings relating to those materials and the statements of Shri Mool Chand Maloo and Vikas Maloo. The conclusion regarding clandestine removal of the goods has been drawn on the basis of various entries in Hisaba Book and kachcha challans which are stated to be tallying with the entries in some of the invoices as well as the cheque amounts disclosed from bank passbook entries. Apart from these materials, other evidence on record is in form of statements by the parties recorded in the course of investigation.

12. The credibility of the documentary evidence which is relied upon to hold that the appellants were involved in clandestine removal of the products is sought to be disputed on various grounds. Firstly, the seizure proceedings are themselves contended to be illegal, secondly, the author of those documents has not been identified and has neither been examined nor produced for cross-examination, thirdly, the documents are merely duplicate copies, fourthly, the contents of those documents are not proved to be true and in any case, the said documents were not seized from the factory premises of the appellants, or from the premises in possession of the appellants.

13. It is well settled law that the seizure of documents from any premises in support of any serious charge must be established to have been done by following the procedure known to law, minor lapses being condonable. However, the mandatory rules of procedure to ensure the authenticity of such seizure and of the seized materials must be established to have been complied with. It requires to take proper care to ensure that the documents seized in the course of such proceedings are properly kept in an envelop or cover and duly sealed and due care is taken to protect the same from any third party interference. Panchnama should disclose the steps taken by the seizing authority to ensure the absence of any opportunity to any stranger to interfere with such documents. The panchnama should also disclose proper description of the documents. When such document is very vital in nature, it should refer to the important aspects of the documents so that there can be no room to doubt about the genuineness of the document or about the genuineness of the contents of such document, and of course, the seizure thereof.

14. In the matter in hand, the seizure of the documents was under panchnama dated 9-10-1998. The said panchnama and the annexure thereto read as under :-

We the above named Panchas on being called by the officers of Anti Evasion Branch, Central Excise Commissionerate Delhi-I, New Delhi presented ourselves at 4130, Gali Barua, Sadar Bazar Delhi to witness the Central Excise proceedings on 9-10-1998. The visiting officers called Sh. Shubh Karan Bothra, authorised signatory of M/s. Kuber Tobacco Products Pvt. Ltd. Siraspur, Delhi. Sh. Shubh Karan Bothra reached at the above said premises and informed the officers that they are using three rooms of the above said premises as their and opened the locks of the rooms in our presence. Suraj Prakash Inspector, Central Excise (A.E.) Delhi-I showed the search warrant dated 9-10-1998 issued by the Assistant Commissioner, Central Excise (A.E.), Delhi-I to us and Sh. Shubh Karan Bothra and we all put our dated signature on it in token of having seen the same. The Officers offered themselves for the search which was declined by Shri Shubh Karan Bothra and conducted the search proceeding. As a result thereof the officers found certain records in the said rooms details of which is given in the Annexure ‘A’ to this Panchnama. The officers resumed the records mentioned in Annexure-A to this Panchnama for further enquiry in the case. After completion of such proceedings the officers again offered themselves for their personal search which was declined by Sh. Shubh Karan Bothra.

The Panchnama was drawn on the spot and we and Sh. Shubh Karan Bothra were remain present during the whole Central Excise proceedings. All Central Excise proceedings were conducted in a peaceful manner. Nothing untoward happened during the proceedings and no harm was caused to any person or property. The Panchnama was read over to us in vernacular and we all put our signature on it in token of having been correctly drawn.

Annexure-A to the Panchnama dated 9-10-1998. Details of the record found at 4130, Gali Barua, Sadar Bazar, Delhi

15. The panchnama undoubtedly states that the locks of the premises were opened by Shri Shubh Karan Bothra. However, it discloses that many of the vital aspects were either ignored to be noticed or recorded for the reasons best known to the investigating officer, or were not disclosed intentionally or otherwise. The panchnama does not describe the premises or the location of the premises with reference to the neighbouring surroundings. The panchnama does not describe the interior of the premises nor it specifies the location of the three rooms viz-a-viz the entire building as well as that of the documents alleged to have been found in the premises. The panchnama does not disclose the number of accesses available to the premises and whether the premises were accessible or not from any of those accesses before unlocking the rooms. There is no description of the entire building in which the three rooms, which were allegedly used as the guest house, were situated. The description merely states “three rooms of the said premises”. In other words, the premises bearing No. 4130 are not only having three rooms but there are more rooms to the said premises. The panchnama has to be specific and clear about the location and the description of the premises irrespective of the fact whether it is in the course of criminal investigation or tax evasion investigation.

16. The panchnama also does not disclose as to who had found the documents in question and where exactly those documents were located in the said premises. It does not state that those documents were seized by concerned officers. It only speaks of an act of “resumption” of the documents. The exact word used is “resumed” for the records mentioned in Annexure ‘A’. Nothing about seizure of the documents has been stated in the panchnama. Even assuming that the expression “resumption of records” refers to the seizure of the documents, the panchnama does not disclose whether the officers seizing the documents had taken any care to ensure that the documents were properly enclosed in an envelop or some other packing material, so as to avoid the possibility of access to or interference with those documents by any stranger. The panchnama also does not disclose the time period during which it was conducted.

17. The panchnama also does not disclose as to from where the keys of the rooms were brought. Whether it was only one key or there were more keys. It does not disclose whether keys were brought by Shri Bothra or by any other person. The panchnama also does not disclose as to whether after the conclusion of the panchnama proceedings, the premises were closed or possessed by Shri Bothra. The panchnama does not mention whether there was any person or persons in the premises before entering the premises or after completion of the panchnama proceedings. It does not describe the number and names of the officers who had allegedly conducted the search in the premises. It does not describe whether the search was conducted in the presence of the panchas and/or Shri Bothra.

18. The panchnama does not disclose the nature of the use to which the premises were put to; whether it disclosed any sign of the premises having been used as guest house or not; whether the premises were used as residential premises or otherwise? Admittedly, the investigating agency could not lay their hands on any materials, apart from the alleged documents, which could establish the link between the said premises and the occupants thereof being the appellants. The panchnama also does not disclose as to whether the premises were at all being used for any purpose or not. It was absolutely necessary to find out and record all these aspects precisely which could have certainly helped to verify the truthfulness of the case put forth by the Department and the defence sought to be raised by the appellants.

19. The panchnama merely records that the officers on search found certain records. It does not give the description of the so-called records except saying that the same are described in Annexure ‘A’. All this information was absolutely necessary to give credibility to the panchnama, particularly when the entire proceedings in that regard are sought to be challenged and disputed.

20. Undoubtedly, there is a Annexure ‘A’ stated to be giving details of the record found. However, bare perusal of the said annexure would disclose that the same does not give any sort of details of the documents stated to have been found in the premises. One Saraswati duplicate book or attendance register cannot be said to disclose the details of the identity of the document. It does not disclose what sorts of the book it is. It does not disclose whose attendance register it was. The photocopies of bank passbook are stated to be 51 in numbers. However, whose account books were they, what was the account number, by which bank they were issued, for what period they related to? Nothing has been stated.

21. A panchnama is a record of the things visually perceived or actually experience by the panchas in the course of investigation. If it is a search panchnama, obviously, it should record everything that takes place in the course of search. Mere recording that the search officers offered for search of their person is not sufficient. In relation to the seizure of documents, it was necessary not only to record that the documents were recovered from the premises but was also necessary to record a brief description of the exact place where the documents were located in the premises and from where they were seized by the seizing officer. It was necessary to record as to what steps the seizing officer had taken so as to refrain himself and persons accompanying him from causing any damage to the documents as also to avoid any interpolation or inference in any manner with such documents and contents thereof. It was also necessary to record as to what steps were taken to safeguard the documents and to avoid possibility of any stranger’s interference with the seized materials. In other words, when any document is seized, it is necessary to enclose the same in a cover and to seal such cover so that no other person gets opportunity to interfere with such document. All these things can of course be recorded briefly, but precisely. This aspect gains more importance once there is objection regarding veracity of the panchnama and the contents of the documents stated to have been seized in the course of such panchnama.

22. As rightly pointed out by the learned Advocate for the appellants, a panchnama should disclose proper description of the premises and the things found in the premises. The information in this regard assumes more importance when there is serious dispute about the articles alleged to have been recovered and seized from such premises and such articles are sought to be linked with the activities of the concerned party. The panchnama and the proceedings in relation thereto should not leave any room to entertain any doubt as such and for the possibility of planting any article and/or document by third person or of the scope for interference by strangers with the documents or contents thereof. Obviously, therefore, any article or document seized from any premises is required to be properly sealed after being packed with necessary wrapper or envelop or covering, as the case may be, so as to avoid any possibility of third party interference with such article or document. In the absence of such steps being taken in the course of seizure of the articles or documents, certainly the credibility of not only of the seizure and recovery but of the material seized and recovered can also be doubted. It is also necessary to record not only the description of the premises but also the movement of the officers and the panchas searching the premises and every relevant action of every such person has to be precisely recorded in the panchnama to avoid any doubt about the seizure proceedings. None of such precautions were taken in the cases in hand.

23. In the above circumstances, it is the contention on behalf of the appellants that since the seizure itself was illegal, the recovery stands vitiated and, therefore, nothing recovered can be considered as relevant material to substantiate the charge against them. However, this contention to be canvassed cannot be accepted. It is well settled that the rules of evidence as they are in force in this country do not exclude relevant material on the ground that it was obtained by illegal search and seizure. The evidentiary value of such material is to be ascertained and assessed irrespective of illegality in the search and seizure. Inspite of search and seizure being illegal, if the recovery is of relevant material and the Department is able to establish the link between such material and the charge against the assessee, certainly such material cannot be discarded for having found in the course of illegal search and seizure. The decision on this aspect, if any required, one can safely rely upon the decision in the Apex Court in the matter of State Represented by Inspector of Police and Others v. N.M.T. Roy Imakulate reported in 2004 (5) SCC 729.

24. In M.P. Sharma v. Satish reported in AIR 1954 SC 300, it was held by the Apex Court that the test to be applied, both in civil and in criminal cases, for considering whether evidence is admissible, is whether it is relevant to the matter in issue. If it is admissible, then Court is not concerned about how it was obtained. So also in Pooranmal v. Director of Inspection reported in (1974) 1 SCC 345 it was ruled that “if the Evidence Act, 1872 points relevancy as the only test of admissibility of evidence and secondly that the act or any other similar law in force does not exclude relevant evidence on the ground that it was obtained under illegal search or seizure, it will be wrong to invoke the supposed spirit of our Constitution for excluding such evidence.”

25. In Khet Singh v. Union of India reported in , the Apex Court while reiterating its earlier view in Pooranmals case had held that Court has consistently refused to exclude relevant fact merely on the ground that it was obtained by illegal search or seizure. It was further ruled that even if there is any sort of procedural illegality in conducting the search and seizure, the evidence collected thereby would not become inadmissible and the Court would consider all the circumstances and find out whether any serious prejudice has been caused to the accused. If the search and seizure was in complete defiance of the law and procedure and there was any possibility of the evidence collected likely to have been tampered with or interpolated during the course of such search or seizure, then it could be said that the evidence is not liable to be admissible in evidence. But mere irregularity, and even illegality in the course of search and seizure cannot by itself render the documents seized in the course of such search or seizure to be inadmissible in evidence. Albeit, the relevancy thereof can be certainly questioned.

26. As already pointed out above, it should not be forgotten that the charge of clandestine removal of goods connotes accusation of serious nature and, therefore, requires to be established with cogent evidence. If proved, it can have drastic consequences. Besides, a fair proceeding, with no opportunity to the prosecuting agency to gain advantage of its own wrong or lapse, is the corner-stone of our justice system. At the same time, the other side of the coin is that the white colour offenders particularly those defrauding the public exchequer cannot be allowed to enjoy the booty collected by them by taking undue advantage of their own failure or perhaps mischief. It is, therefore, necessary to strike proper balance and that is why the Apex Court in State of Himachal Pradesh v. Priti Chand and Another reported in (1996) 2 SCC 37, Radha Kishan v. State of U.P. reported in AIR 1963 SC 823 and State of Maharashtra v. Natwar Lal Damodar Das Soni reported in (1980) 4 SCC 669, has ruled that the evidence obtained even by illegal search and seizure should not be discarded totally but should be scrutinized and examined carefully and what weight should be attached to such material should be decided depending upon the facts of each case.

27. The point therefore needs to be considered is what is the relevancy of the documents seized in the course of the panchnama in the case in hand. In that regard, it would be necessary to ascertain as to what were the documents those were seized by the investigation machinery, what is the relevancy of those documents to bring home the charge against the appellants and to what extent?

28. Before dealing with the aspect of documentary evidence, it is necessary to deal with one more important issue which is sought to be raised on the basis of statement said to have been made by Shri Bothra in the course of panchnama proceedings and admitted by Shri Moolchand Maloo. Reference is made to a statement recorded in the panchnama that Shri Bothra in the course of the panchnama had stated that three rooms in the premises at 4130, Gali Barna, Sadar Bazar, Delhi were being used as their guest house. Apart from the fact that it is not clear from the panchnama, as to whom the expression “their” belongs to. It is settled law that “any statement made in a panchnama cannot be used in evidence except for the purpose of contradicting witness whose statement is contained in the panchnama” as has been held by the Apex Court in Kanu Amba Vishu v. The State of Maharashtra reported in (1971) 1 SCC 503. It is well settled law that the panchnama is always a description of the premises or of the situation as noticed by the Panchas in the course of recording of panchnama. Naturally a panchnama does not include statements by third party and even if such statement forms part of the panchnama, the same cannot be relied upon by any party to the proceedings unless established by following the procedure known to law. Being so, the statement stated to have been made by Shri Bothra to the officer before opening of the lock and recorded in the panchnama, in the absence of corroboration thereof, cannot be of any help to the department. It is to be noted that Shri Bothra was not the assessee and according to other records he was incharge of the office at 3909, Gali Barna, Sadar Bazar, Delhi and he was called at the premises No. 4130 by the visiting officers. The identity of those visiting officers is not clear from the panchnama. In fact, the panchnama is totally silent in that regard. Besides, the statement does not clarify the expression “their”. In the circumstances the said statement by itself cannot be of any help to the Department to establish link between the appellants and the said premises. It is also contended that the premises 4130 belong to the appellants has been admitted by Shri Moolchand Maloo in his statement. About the alleged admission and the statement of Shri Moolchand Maloo is concerned, it would be dealt with separately herein below.

29. Reverting to the point relating to the documents stated to have been seized in the course of panchnama, admittedly, the author or authors thereof has/have not been identified, nor examined. Once it is not in dispute that the documents were recovered and seized from the premises other than the appellant’s factory premises, it was absolutely necessary for the Department to establish that the premises in question were in possession of the appellants at the relevant time. As pointed out above, undoubtedly, the panchnama discloses that the locks of the premises were opened by Shri Bothra, the employee of the appellants. However, it has not been established that the keys of the premises were in possession of Shri Bothra before unlocking the premises. In fact, it has not been established as to from where and who had brought the keys of the premises and how and when the keys came in possession of Shri Bothra to unlock the door. Admittedly, Shri Bothra was not present in or near the premises but he was required to be called to the premises. It is nowhere on record and even in the panchnama that Shri Bothra accompanied the officer and panchas inside the premises. The panchnama nowhere states that Shri Bothra had ever entered the premises along with the panchas and officer. As already stated above, the panchnama nowhere states that there was no other access available to the premises and there is nothing on record to show that any care was taken by the seizing officer to ensure that the seized documents were either enclosed in an envelop or in any sealed cover to avoid third party interference. In those circumstances, the appellants are justified in doubting the veracity of the seized documents.

30. The Commissioner has held that some of the entries in the recovered documents match with those in the statutory records of the appellants. Though, such efforts to match has been made while holding that the quantum of amount recorded in the statutory books was required to be reduced by two digits while referring to the entries in the recovered documents, however, the impugned order neither discloses any basis for the same nor any corroboration thereof by cogent materials on record for adopting such procedure for arriving at the conclusions arrived at.

31. Undisputedly, the documents which are recovered from the said premises have been disowned by the appellants. As already pointed out above, neither the author of the documents has been identified nor examined. It is also not in dispute that the documents are carbon copies and not in the form of original documents. In any case, they being the private documents, unless the link being established between the said documents and the activities of the appellants in their factory, no credibility can be given to the said documents.

32. Undisputedly, the three types of documents which are relied upon to establish the charge are stated to have been seized from the premises No. 4130 under panchnama dated 9-10-1998. This is also confirmed by the DR to the specific query in that regard. Documents are described as the hisaba book, kachcha challan and loose sheet. Perusal of the Annexure ‘A’ to the said panchnama however discloses no reference to any hisaba book or kachcha challan. The said annexure does not enlist any hisaba book or kachcha challan therein. The description of the materials stated to have been seized from the said premises under the said panchnama and described in the Annexure ‘A’ to the said panchnama do not include any hisaba book or kachcha challan. Being so, one wonders whether these were the very documents which were seized from the said premises? If not, how and from where these documents were recovered? We have no clue either from the records before us or from the impugned order in that regard. In the absence of this vital information, we fail to understand as to how these documents can be of any help to establish the charge of clandestine removal of the goods by the appellants, and that too by applying the curious methodology of two digit reduction theory applied by the Department without disclosing any basis for such theory.

33. As regards the loose sheets, undoubtedly, the Annexure ‘A’ to the said panchnama makes reference to “one folder containing loose bahi papers” and “one loose paper file”. In the corresponding third column of the Annexure ‘A’, the entries thereunder read as “1 to 113” and “1 to 65” respectively. We presume the said entries mean that the folder or the file in the corresponding entry under Column 2 contained the 113 and 65 loose papers respectively. But it is pertinent to note that there is nothing in the panchnama or the annexure which could reveal that the said loose papers contained anything having been written thereon. The annexure makes specific reference to certain documents which contained writings thereon. In relation to such documents, there is specific entry in the bracket under third column stating “written pages”. Such recording is found to have been made with reference to six items but no such recording is made with reference to the loose papers. Obviously, it means that the loose papers were without any “written pages”. If those loose papers did not contain any writing thereon, wherefrom the Department produced loose sheets with various writings about production, supply etc. of various goods? We find no answer either from the records before us or from the impugned order. Annexure to the panchnama relating to the so-called documents stated to have been recovered from the premises do not disclose necessary description of the documents so as to ascertain whether the documents which were sought to be relied upon as having been recovered from the premises in question were really the same documents. Undisputedly, none of the documents stated to have been signed by the panchas and the authorized signatory of the appellants at the relevant time. The panchnama does not disclose the same.

34. In the above noted circumstances, can it be said that any credibility can be given to the so-called documentary evidence sought to be relied upon to support the charge of clandestine removal of the goods by the appellants? Neither the panchnama satisfies the minimum requirement of rules of procedure nor any credibility can be given to the materials allegedly seized in the course of such panchnama nor to the documents sought to be relied upon in the matter. The appellants are justified in making grievance of prejudice having been suffered by them on account of uncorroborative documentary evidence relied upon by the Department.

35. If however, defiance of law and procedure leaves scope for tempering with the material seized, then certainly such material cannot be of any relevancy. In the case in hand, on account of various legal and procedural infirmities in the panchnama proceedings noted above, it is apparent that the entire proceedings have lost their credibility and serious doubt arises even about the credibility of the materials stated to have been collected in the course of such proceedings.

36. It is, however, stated that documentary evidence stand corroborated by admission on the part of Moolchand and Vikas in their statements which were recorded on 17-11-1998. The impugned order further discloses that the said statements were sought to be retracted on 4-12-1998, however, the Commissioner has rejected the retraction on the ground of delay.

37. In Shiv Shakti Steel Tubes v. CCE reported in it was held by the Hon’ble Punjab & Haryana High Court that the statement to a Custom officer can be relied upon and can be used against the makers of the statement as long as it is not hit by any of the defects envisaged by Section 24 of Evidence Act, 1872. A statement containing self exculpatory matter cannot amount to a confession of any wrong doing because of an exculpatory material is of the same fact which if true then it would negative the wrong doing alleged against such person. Therefore, if the statement as inculpatory portion or admission of wrong doing which is corroborated by independent evidence, certainly such portion can be relied upon but not otherwise.

38. The decision of the Madras High Court in Deputy Director of Enforcement v. A.M. Ceaser reported in is based upon the law laid down by the Apex Court in K.I. Pavunny v. Asst. Collector, Central Excise Collectorate reported in and Bagwan Singh v. State of Punjab reported in AIR 1952 SC 214. The law laid down in those decisions on the subject was to the effect that if the Court is required to rely upon any statement of the party to the proceedings said to have admitted certain facts, and thereafter statement stated to have been retracted, the Court has to examine whether the statement was voluntary, whether it was not obtained by threat, duress or promise and on satisfaction in that regard from the evidence on record that it was voluntary then it is required to examine whether the statement is true. In case of disputed or retracted admission in the form of statement recorded by such authorities, therefore, it is invariably necessary to ascertain whether there was any threat, duress or promise in relation to such statement being made by the party and the same is to be ascertained on the basis of evidence on record and on satisfactory answer in that regard Court thereafter has to ascertain whether the statement is a true one or not. Obviously, for that purpose also the authority will have to analyse the evidence on record.

39. In the CCE, Madras v. Systems & Components Pvt. Ltd. reported in , the Apex Court had referred to the finding by the Tribunal that the details supplied by the assessee and their letter dated 30-11-1993 giving details of how the concerned parts were used in the Chilling Plant were sufficient to show that they were specifically designed for the purpose of assembling the Chilling Plant. In that respect it was observed that once it is admitted position by the party itself, that those parts were of a Chilling Plant and the concerned party did not even dispute that those parts have no independent use, there was no further need for the Department to prove the same. It was in that context it was ruled that what is admitted need not be proved.

40. In the case in hand, not only that the statements were sought to be retracted by the parties, as already observed above, the contents of such alleged admission do not relate to any of the documents stated to have been recovered under the panchnama. In the absence of link between the documents which are sought to be relied upon in support of the accusation of clandestine removal of goods and those documents which are stated to have been recovered in the course of panchnama, the accusation does not stand proved, equally so in relation to alleged admission in the said statements.

41. There is yet another peculiar aspect of the said statements. Perusal of the statements of Sh. Moolchand disclose that the same was stated to have been written by his son Sh. Vikas Maloo at the request of his father. In other words, it is in the handwriting of said Sh. Vikas Maloo. Prior to the signature of the party at the end of the statement, it has been recorded therein that the statement is given by deponent voluntarily without any duress, force or enducement and that the statement is that of the deponent and it is correct statement given by him. Similar is the recording at the end of the statement of Sh. Vikas Maloo. However, perusal of whole of the statements discloses recording of certain questions and answers. In other words, the statements partly are in the narration form and partly in the question and answer form. Certainly, questions cannot be stated to have been forming part of statement of the deponent. But the fact remains that the endorsement at the end of the statement is to the effect that the entire statement is by the deponent. Added to this, there was retraction specifying that the statements were obtained under duress and force. Certainly, it was necessary for the Commissioner therefore, to deal with the aspect regarding the genuineness of the statement and truthfulness of the contents thereof and not to discard the retraction simply because it was sent after about 17 days after recording the statement. The Commissioner not only failed to do so, but also did not comply with the law laid down in the above decisions in that regard.

42. As already stated above, the truthfulness of the contents of the statements in question certainly cannot be accepted without pinch of salt. As observed above, the recovery of the documents as per the panchnama did not include hisaba book or kachcha challan or loose sheets with written pages. The statement of Sh. Vikas Maloo refers to kachcha invoices, kachcha account stated to have been found at premises No. 4130. We do not find any such document having been described or identified in the annexure to the panchnama which enlists the documents stated to have been recovered from the said premises.

43. The statement of Shri Moolchand Maloo refers to note books having kachcha invoices (carbon copy) whereas no such reference to the documents mentioned in the Annexure ‘A’ to the said panchnama. Being so, the alleged admissions in the statements of Shri Moolchand Maloo and Sh. Vikas Maloo do not lend any support to the documentary evidence sought to be relied upon by the Department in support of charge against the appellants.

44. As regards the statement of Shri Bothra, the same does not lend any support to the Department’s case and rather creates further doubt in the entire case with reference to premises No. 4130 and the documents alleged to have been recovered therefrom. While the panchnama states that Shri Bothra opened the ‘locks’ of the premises, the statement by Shri Bothra speaks of opening of ‘a lock’ of the premises by him. The statement nowhere states that the key of the premises was with the deponent. On the contrary, the statements specifically states that the Custom officers were already present at the premises. It is pertinent to note that the statement was recorded on the very day on which the panchnama was conducted. The statement also does not disclose the description of such documents stated to have been recovered and/or seized by the Department from the said premises. The statement speaks of use of premises for residence of certain persons on the line of guest house but does not disclose the premises having been used by the appellants or their company as its guest house. Obviously, therefore, the statement of Shri Bothra also can not lend any support to the case of the Department.

45. Any statement before being accepted as admission of a fact has to be examined to ascertain what is its imports and then to determine what weight it should be attached to the same. The Apex Court in Nagubai Ammal and Others v. B. Shama Rao & Others reported in AIR 1956 SC 593 had ruled that “an admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which matters depend on the circumstances under which it is made”. It was further held that it must be shown that there is a clear and unambiguous statement such as will be conclusive, unless explained.

46. The charge of clandestine removal is also sought to be challenged while contending that there was no scope for allegation of clandestine removal of goods by the appellants even without establishing clandestine manufacture of the necessary quantity of goods and for that purpose procurement of raw materials in necessary quantity, and prior to that the capacity of the appellants to produce such voluminous quantity. The Department having not established any of those things, according to the appellants, the accusation of clandestine removal of the goods ought to have been rejected.

47. The Commissioner while rejecting the said contention has referred to three things. One D.O. letter dated 11-8-1997 by the Chairman of the Board to all Commissioners, secondly, panchnamas of production capacity drawn at the premises of M/s. Amarjyoti Packers and M/s. Raj Laxmi Products Private Limited, and thirdly the number of machines available in the premises of the appellants.

48. The D.O. letter dated 11-8-1997 by the Chairman of the Board was to the effect that the duty for pan masala of MRP upto Re. 1 per pouch was at 1 lakh during rainy season and 1,20,000/- per month in rainy season and 1,00,000 during other seasons whereas in respect of MRP less than 75 paise it was 50,000 per month during rainy season and 60,000 per month in other season per machine. Considering, the panchnamas regarding production capacity of M/s. Amarjyoti Packers and M/s. Raj Laxmi Products Private Limited, it has been held that each pouch machine is capable of manufacturing 200 pouches per minute. Since there is no evidence that the appellants were not working for more than one shift and assuming that they were working for three shifts, it has been held that appellants were capable of manufacturing 83,22,75,000 pouches per month.

49. As regards the contention regarding the raw material, it can hardly be disputed that there cannot be any clandestine removal of the goods unless the assessee manufactures the same clandestinely and for that purpose procures raw materials clandestinely or utilizes the raw materials without disclosing its utilization. Learned Commissioner has clearly observed in the impugned order that there is no evidence of purchase of major raw materials like supari, tobacco etc. even in the loose sheets. In other words, the Department could not bring any evidence about procurement of raw materials sufficient to manufacture the final product of the quantity which is alleged to have been clandestinely removed.

50. Similar is the case in relation to the sale of the clandestinely removed goods. Admittedly, there is no material on record which could establish sale of the clandestinely removed goods. Neither the transporters have supported any such claim nor the suppliers have established the said allegation.

51. Undisputedly, the working of the machines in the appellants factory was not tested or certified to ascertain the production capacity of the said machines. There is no panchnama drawn to ascertain how many machines in the factory of the appellants were in working condition or were actually working and what was the production capacity of each of those machines. No records were available to hold that the appellants were working in three shifts. It was for the Department to ascertain the same and to establish the same. The burden was not upon the appellants but burden in this regard was squarely upon the Department to prove the allegation with cogent materials on record. Indeed, considering the approach of the learned Commissioner in deciding the most relevant issue which was sought to be raised by the assessee, it is apparent that the finding in that regard has been arrived at not on the basis of the cogent materials on record but essentially on assumptions and without any basis. Certainly, panchnama regarding the production capacity of the machines at totally different factory of a stranger could not have been applied to decide the production capacity of the machines in the appellant’s factory. There is absolutely no explanation on record as to what prevented the Department from ascertaining the production capacity of the appellants’ machines by conducting necessary test in that regard. The letter of the Chairman about normal rule of production cannot be the proof of the actual production capacity of the machine in the appellants’ factory. Being so, as rightly contended on behalf of the appellants, the Commissioner totally erred in deciding the said issue in the manner it has been decided. Besides, in the absence of any evidence on record, the Commissioner could not have held that the factory was being operated in three shifts. The finding in this regard is totally perverse.

52. Even assuming that the documents disclosed certain entries that by itself is not sufficient to contend that the same necessarily relate to the clandestine removal of the goods. As rightly pointed out by the Senior Advocate for the appellants that Hisaba Book makes reference to various firms and persons as the buyers of the quantity mentioned therein. However, there was no attempt to record any statement of any such person at all. Contention was sought to be raised that the names were fictitious and attempt to locate did not yield fruitful result. In fact, there is no material to support this contention. Besides, the statement recorded of the appellants’ Director discloses the disclosure of the names of their suppliers and buyers and yet there is no recording of statement of those persons. It is pertinent to note that the statement on behalf of the appellants not only disclose the names but even that telephone numbers. It was, therefore, necessary to collect proper evidence to establish the said fact by collecting cogent evidence regarding the actual production in the appellants’ factory.

53. The appellants are also justified in making grievance about the failure on the part of the respondent to collect any evidence in relation to either procurement of raw materials by the appellants or sale of final goods so as to justify the allegation against the appellants about clandestine removal of huge quantity of the final product within a short span of time. Admittedly, there was no verification of the capacity of the machines to produce the total quantity per day. Calculation in that regard has been arrived at merely on the basis of some assumption and not on actual verification of the machines. Inspite of repeated contention sought to be raised by the Advocate for the appellants in that regard, the respondent could not point out anything from the records which could convince us to reject the said contention on behalf of the appellants.

54. As regards the entries made regarding raw materials in the loose sheets, it has been stated that the complete addresses of raw material suppliers were not given, however, the names thereof were given and the addressees were sought to be verified and ascertained from the records and enquiries were caused by the officers of the Department. However, none of the so-called officers were ever examined in the matter, nor there is any statement of any such suppliers. On the contrary, statement of Shri Rajiv Gulati discloses specific statement to the fact that the goods were sold on invoices to the appellants. The same statement was reiterated by him on 30-5-2000. He has also stated that the payments were received only through cheques and never in cash. Similar is the statement regarding payments under cheques of Shri Krishna Gopal recorded on 8-5-2000. Likewise is the statement of Shri S.K. Jain dated 15-5-2000 to the effect that the goods were never supplied to Kuber Tobacco Product but they were supplied to Kuber International and the payments were received by cheques only and no cash payment was ever received. It was also stated that they were not having any business since April, 1999 and that they had never supplied the goods without invoice. Similar is the statement of Shri Chetan recorded on 1-6-2000.

55. The Commissioner however, solely on the basis of the entries in the loose sheets has held that the appellants had purchased huge quantity of raw materials and did not enter the same in the statutory records with intention to clandestine manufacture of gutka. It is pertinent to note that Shri C.S. Vaid, factory in-charge had given the names of the suppliers and in particular of supari and tobacco and raw materials yet neither the impugned order nor the records disclose any inquiry having been made with those suppliers. The records also do not disclose the reasons for absence of such investigation. As regards the hisaba book, kachcha challan and loose sheets, it is contended that the said documents were of carbon copies, there was interpolation and striking of some writing. The Department did not make any efforts to lay their hands on the originals of those documents. In such circumstances, no evidentiary value could be given to those documents.

56. Undisputedly, there has been no attempt on the part of the investigating agency to ascertain whether entries in the loose papers, hisaba book and kachcha challans were in the hand-writing of the authorized signatory of the appellants or any of the employees or the officers of the appellants. Neither there was hand-writing examination done nor the necessary evidence to establish the link between the said hand writing and that of any of the employees of the appellants has been placed on record.

57. As rightly pointed out by the Advocate for the appellants, any kachcha records to be made a part of the evidence, the same need to be corroborated by cogent evidence and in the absence thereof, the private records by themselves do not transform into reliable evidence. There is absolutely no corroboration in any manner of the entries in hisaba book or loose sheets or kachcha challans.

58. The efforts on the part of the Commissioner to link the said entries to the production of clearance of the goods from the appellants’ factory as rightly submitted are based on purely presumptions and assumptions without any tangible evidence to support the conclusions sought to be arrived at in that regard.

59. There is no evidence collected as regards the number of shifts the machine might have been used in the factory of the appellants. The conclusion in that regard has been sought to be made merely on assumption. It was to the knowledge of the Commissioner that it was dealing on serious charge of clandestine removal of the goods against the appellants. It was in such case the heavy burden lies upon the Department to establish the charge and the same cannot be established merely on the basis of assumption and presumption.

60. As rightly pointed by the Advocate for the appellants that there is absolutely no evidence of additional employees having been employed to enhance the production nor there is any evidence of excess wages having been paid to the existing employees. Added to this, there was no discrepancy found in the raw materials stock in comparison with the statutory records in respect thereof. As already pointed out above, there was no evidence of additional clandestine purchase of raw materials and particularly like supari, tobacco etc. Even the loose sheets in that regard do not lend any support to the contrary findings arrived at by the authorities below.

61. The findings regarding the supply of raw materials are purely on imagination of the Adjudicating authority as rightly submitted by the Advocate for the appellants. In fact, the findings in respect thereof have been arrived at solely on the basis that the regular suppliers must have supplied the required quantity. The supply of raw material is not a matter of presumption and that too without any supporting material. It has to be established on the basis of proof and cogent evidence being placed on record.

62. Advocate for the appellants has further contended that the finding based on alleged consumption of diesel by the appellants is also totally incorrect. It is submitted that the respondent has alleged that the appellants purchased 29,600 Ltrs of diesel valued at Rs. 2,92,152/- during the period from 11th June to 30th June, 1998 i.e. during the period for 99 days and the same is revealed from the loose sheets. Apart from the fact that loose sheets are thoroughly unreliable even assuming the said documents can be relied upon it is the contention on behalf of the appellants that the appellants could not have used such a huge quantity of diesel within short span of 20 days. The records nowhere disclose that the appellants’ factory was running for more than one shift. Considering the same and taking into consideration the generator set of 380 KVA and that 200 KVA was installed in the premises, the Department has failed to establish that for one shift, the generator could have consumed such a large quantity of diesel within 20 days. In relation to 380 KVA for normal shift of 8 hours a day, the consumption of diesel would be 280L. Considering the same for 20 days, it cannot exceed 5,600 L. As regards 200 KVA for normal shift of 8 hours, it would consume 180 L and accordingly for 20 days it cannot exceed the consumption of 3,200 L. Being so, by no stretch of imagination, the appellants could have consumed 29,600 L of diesel within 20 days. The contention of the appellants in this regard is certainly well founded in the facts and circumstances of the case.

63. If however, defiance of law and procedure leaves scope for tempering with the material seized, then certainly such material cannot be of any relevancy. In the case in hand, on account of various legal and procedural infirmities in the panchnama proceedings noted above, it is apparent that the entire proceedings have lost their credibility and serious doubt arises about the credibility of the materials stated to have been collected in the course of such proceedings.

64. In Ganga Rubber Industries v. CCE reported in , it was held that it is for the Department to establish that the entries in books recovered in the course of investigation were genuine and the fact that such verification was done has to be established by the Department. In the absence of proof about entries in the books to be representing actual clandestine removal, it cannot be said that the Revenue has discharged its burden.

65. In Emmtex Synthetics Ltd. v. CCE, New Delhi reported in , it was held that in the course of tangible evidence, no presumption on the basis of uncorroborated, uncross-examined testimony of the witnesses or entries in private diaries or loose sheets or charts can be drawn to support the charge of clandestine removal of the goods.

66. If we scan through the decisions which are sought to be relied upon on behalf of the Department, the same are clearly distinguishable on facts and the circumstances in which the same were delivered. On the contrary, the decision relied upon on behalf of the assessees clearly lend support to the view that can be taken in the matter.

67. In P.K. Ravindran v. CCE, Cochin reported in , it was held by the Madras High Court that the clandestine consumption of electricity by the industries could go unmetered either on account of the misuse of the facility by the consumer, or on account of the clandestine activity of such consumer in collusion with the officials of the concerned Electricity Boards. But these things are to be alleged and established by the Department. Undisputedly, that is not the case in the matter in hand.

68. In Columbia Electronics Ltd. v. CCE, Indore reported in , the Tribunal held that in case when the clandestine removal of goods is established from the existence of double sets of invoices, which were not denied by the assessees, mere non-examination of the officer who made entries in a diary relied upon by the Department would not vitiate the proceedings. In the facts and circumstances of the case, the charge of clandestine removal of goods was clearly established, and thereupon absence of cross-examination of any of the officers was not fatal to the case of revenue.

69. In M.R. Tobacco P. Ltd. v. CCE, Delhi reported in (sic), the Hon’ble Delhi High Court held that author of loose sheets was not identified is of no consequence in view of admission made by Director of firm. It was recorded that the Director had clearly admitted that loose sheets reflected removal of goods from the factory in a clandestine manner. As a matter of fact, there were three godowns of the assessee which were identified during search of the premises and it was found that several machines manufacturing gutka and pouches were actually not in use.

70. In CCE, Hyderabad v. Vanifab Engineers Pvt. Ltd. reported in , the Tribunal held that in the absence of any statement from any person from the factory to prove that there has been excess production and clearance of the goods without payment of duty and in the absence of any other evidence, the proceedings on charge of clandestine removal of the goods are liable to be quashed.

71. In Laxmi Engg. Works v. CCE, Delhi & Anr. reported in 2001 (98) E.C.R. 273 = (Tri.), it was held that in the absence of cross-examination of witnesses and the recovery of slip pads, loose papers and register from the factory premises having not proved by the independent witnesses, the charge of clandestine removal was not established.

72. In CCE, Bangalore v. Jindal Aluminium Ltd. reported in 1998 (29) RLT 183 (CEGAT) it was held that the allegation of clandestine removal based on transporter’s challans without any corroborative evidence was not sustainable.

73. In Kothari Pouches Ltd. & Anr. v. CCE, New Delhi reported in 2000 (41) RLT 209 (CEGAT) = (Tri.), the Tribunal disbelieved the charge of clandestine removal which was sought to be established on the basis of transporter’s records showing booking of the goods allegedly removed clandestinely without any other evidence.

74. In CCE, Mumbai-III v. Mira Silk Mills reported in 1999 (32) RLT 871 (CEGAT) = (Tri.), the Tribunal refused to rely upon the entries in the private note book in the absence of corroboration of such entries to sustain the charge of clandestine removal.

75. In Winners Rubber Private Limited v. CCE, Kanpur reported in 1998 (25) RLT 507 (CEGAT) = (Tri.) in view of the failure on the part of the Department to collect proper evidence and the finding based merely on application of formula given in the draft project report, it was held that the Department failed to discharge the burden and proving clandestine removal.

76. In A.S. Periasamy, Proprietor, M/s. Glass Beedi Factory v. Collector of Central Excise, Madras reported in (Tribunal) in the course of checking the records by the Department one account-book containing details of actual quantity of biris supplied to M/s. Glass Beedi Factory was recovered on 31-12-1985. On the very day, the officers visited the Glass Beedi Factory and verified the stock and accounts and noted shortage of 36,000 lebelled biris. Perusal of two private accounts books and out workers passbook of Sivalingam and his sons Saravanan disclosed difference of 1,50,38,920 biris, when compared with the appellant’s accounts-book. On one hand, there was statement of Sivalingam supported by documentary evidence besides, there was statement of the assessee himself supported by documentary evidence. In those circumstances the confessional statements were held as reliable. That is not the case in the matter in hand. We have no documentary evidence supporting any of the statements.

77. In S.B. Steel Industries Limited v. Commissioner of Central Excise reported in (Tribunal) the case of the Department was sought to be established on the basis of entries made in the private note book by the labour contractor regarding the quantity bundled and loaded during the relevant period. It was held to have been established as the entries in the book were corroborated by the statement of the labour contractor and his partner as also considering the volume of power consumption. On facts, the case is clearly distinguishable.

78. In Sharma Chemicals v. Commissioner of C. Ex., Calcutta-II reported in (Tri.-Kolkata) the note book entries of production and removal of products recovered from a person whose name was appearing in the list of the workers in statutory records cannot be of any relevancy to establish the charge of clandestine manufacture and removal. Such a charge cannot be sustained on presumption that the persons entrusted with such job are not usually shown as employees. The entries in private note book of record of production at the most may raise a doubt but can not be a proof of the charge in the absence of other corroborative evidence like installed capacity of factory, raw materials utilization, labour employed, power consumed, goods actually manufactured and packed etc.

79. In T.M. Industries v. Collector of Central Excise reported in (Tribunal) it was held that in cases where charge of clandestine removal is to be established on private records genuineness thereof is disputed and authenticity of such record is not established by the Department cannot be said to have been proved against the assessee.

80. In M.T.K. Gurusamy v. Commissioner of Central Excise, Madurai reported in (Tri.-Chennai) it was held that private note book maintained by part time employee containing unauthenticated entries and over-writings cannot be relied upon for establishing clandestine removal in the absence of any corroboration from the seizure of the goods or invoice or purchase of raw materials etc.

81. In Ambika Chemicals v. Commissioner of Central Excise, Chennai reported in (Tri.-Chennai) it was held that the note books maintained by chemist of the assessee with regard to production of various leather chemicals cannot be relied upon to establish clandestine removal in the absence of supporting evidence with regard to purchase of inputs, production, source of funds, sale and receipt of consideration.

82. In Rama Shyama Papers Ltd. v. Commissioner of C. Ex., Lucknow reported in (Tri.-Del.) it was held that in the absence of any evidence to show that the movement of the goods from the premises of the assessee to other party and no enquiry having been made as to who had ultimately received the goods, mere fact that the assessee had not denied business relationship with such third party, it would not mean that they were liable for each and every entry made by that party in its books of accounts. It was also held that when only one transporter out of five stated to have been responsible for two out of 19 consignments was produced for cross-examination and none of the labourers working in the factory whose statements were recorded were produced for cross-examination, it was held that there was no corroborative piece of evidence and hence the charge was not established.

83. In Raza Textiles Limited v. Collector of C. Ex. reported in (Tribunal) it was held that the clandestine removal of goods cannot be established merely on the basis of rough note book of employee when the entries of production in such note book were less than the entries of the production in RG-I on the relevant dates.

84. In Ruby Chlorates (P) Ltd. v. Collector of C. Ex., Trichy reported in (Tri.-Chennai) held that it is settled legal position that when several raw materials are involved, when a case of clandestine production and clearance is built on clandestine use of raw materials the same should be proven with reference to unaccounted use of such major raw materials. In a case of clandestine removal the Department should produce positive evidence to establish the same. In the absence of corroborative evidence, a finding cannot be based on the contents of loose sheets of uncertain authorship. Failure on the part of the Department to produce evidence of use of inputs to prove that there was manufacture of unaccounted finished product, absence of statements disclosing the source of procurement of the raw materials, absence of evidence regarding use of electricity or receipt of sale consideration by the assessee would establish failure on the part of Department to bring home the charge of clandestine removal by the manufacturer.

85. In Opel Alloys (P) Ltd. v. Commissioner of Central Excise, Ghaziabad reported in (Tri.-Del.) the Department had not identified the person or persons who had maintained the records seized by the Department, there was no statement of any employee in support of any of the allegations against the assessee, statements recorded of the assessee were retracted and there was no corroboration of the retracted statements and in those circumstances it was held that the charge of clandestine removal was not established.

86. Only evidence on record which can be said to be reliable is the evidence regarding seizure of 57 bags weighing 87.8 kgs. valued at Rs. 376200/- (MRP) from the premises of KTPPL during the visit of the officers to the factory premises and which was in excess of recorded balance in the RG register. However, as rightly submitted by the learned Advocate for the appellants it was during the working hours of the days and the same could have been recorded in the course of day and before their clearance. Even assuming that the said submission is to be discarded, the fact remains that from the seizure of 57 bags by itself cannot be a substitute for the proof of clandestine removal of the goods.

87. In Sai Chemicals Pvt. Ltd. v. CCE, Raipur reported in (Tri.-Delhi) there was no dispute about the entries in the private record maintained by the assessee. That is not the case in the matter in hand. Hence, the basic fact not being established in the case in hand, whereas in Sai Chemicals the basic facts were clearly established.

88. There can hardly be any dispute that to prove the charge of clandestine removal, it is not the quantity, but the qualitative evidence that is necessary. For the reasons stated hereinabove I do not find qualitative evidence in the matter in hand to support of the said charge. Seizure of some quantity of goods pursuant to non-recording thereof in the statutory records immediately after the manufactured thereof by itself does not establish the allegation of clandestine removal; more so particularly in the circumstances described elaborately hereinabove and, therefore, are not sufficient to establish the allegations against the appellants.

89. The entire evidence sought to be relied upon in support of the allegations against the appellants, being unreliable and uncorroborated, and unsustainable to establish the charge of clandestine removal of goods, it is not necessary to deal with other grounds of challenge in the matter. Suffice to observe that in the absence of cogent evidence on record, the charge of clandestine removal against the appellants cannot be said to have been proved and hence the appeals are liable to be allowed.

90. In the result, the appeals are bound to succeed. The impugned orders are liable to be set aside with consequential relief. Accordingly, I allow the appeals and set aside the impugned orders.

91. [Order per : Rakesh Kumar, Member (T)]. - Since common questions of law and facts arise in all these appeals, the same were heard together and are being disposed of by a common order. The facts leading to filing of these appeals are, in brief, as under :-

91.1 M/s. Kuber Tobacco Products Pvt. Ltd. (hereinafter referred to as “KTPPL”) having its registered office at 3909, Gali Barna, Sadar Bazar, Delhi, is a Private Limited Company, whose Directors are Shri Mool Chand Malu and his son, Shri Vikas Malu. M/s. Kuber International Ltd. (hereinafter referred to as “KI” and now called as Kuber International Pvt. Ltd.) having its registered office at 3909, Gali Barna, Sadar Bazar, Delhi is also a Private Limited Company, whose Directors are Shri Moolchand Malu and his son, Vikash Malu. While KTPPL have manufacturing units at 31K, Siraspur, Delhi (Unit I), 34 K, Siraspur, Delhi (now closed) and 173, 174K Siraspur (Unit-II), Delhi, where Gutka/Pan of Moolchand brand is manufactured, KI have manufacturing unit at 32K, Siraspur, Delhi where branded chewing tobacco i.e. Khaini of Kuber and Jet Brand is manufactured. While Gutka was chargeable to Central Excise duty under sub-heading No. 2106.00 of Central Excise Tariff, Branded chewing tobacco was chargeable to duty under sub-heading No. 2404.00 of the Central Excise Tariff. On 9-10-1998, the officers of Central Excise Commissionerate, Delhi-I, on receipt of specific intelligence that KI and KTPPL have been indulging in duty evasion by clandestine removal of the goods and had acquired undisclosed premises where the records regarding undeclared production are kept, searched the following premises :-

(1)     30 & 31-K, Siraspur, Delhi.

(2)     3909, Gali Barna, Sadar Bazar, Delhi.

(3)     4130, Gali Barna, Sadar Bazar, Delhi.

(4)     6041-42, 2nd Floor, Basti Harphool Singh, Delhi.

(5)     5987, Plot No. 83, South Nawab Road, Basti Harphool Singh, Delhi.

(6)     463, Pocket A (GF), Sarita Vihar, New Delhi.

91.2 In course of search of factory premises of KTPPL at 31-K, Siraspur, Delhi, 57 bags of Mool Chand brand Gutka, weighing 877.800 Kgs. valued at Rs. 3,76,200 (MRP) were found to be in excess of the balance recorded in RG-I Register and the same were placed under seizure. In the course of search of the office at 3909, Gali Barna, Sadar Bazar, Delhi, which is common office of KI and KTPPL and some other firms/companies owned by Shri Mool Chand Malu and his family members, some documents related to Kuber Group of Companies, relevant to the inquiry, were found and the same were resumed under Panchnama dated 9-10-1998 and besides this, an amount of Rs. 1.8 Lakh were recovered which was seized on reasonable belief that the same was sale proceeds of goods cleared without payment of duty.

91.3 From the search of 4130, Gali Barna, Sadar Bazar, Delhi, which was conducted in presence of Shri Shubh Karna Bothra, an employee of Shri Mool Chand Malu, a number of documents were recovered, which are listed in Annexure-A to the search Panchnama.

91.4 The premises at 6041-42, 2nd Floor was found to be used by M/s. Gangaur Foods Pvt. Ltd., (GFPL), a sister concern of KI and KTPPL of which Shri Bajrang Lal Malu was one of the Directors and the company was found to be engaged in the manufacture of “Dandia” brand Gutka. The search of the premises resulted in the recovery of katcha documents pertaining to M/s. GFPL, cash of Rs. 7.36 Lakhs which were placed under seizure.

91.5 As regards search of premises at 5987, Plot No. 83, South Nawab Road, Basti Harphool Singh, Delhi, blank invoice/bill books of four companies were recovered :-

(1)     M/s. Rishi Trading Co., Gali Pahad Wali, Sadar Bazar, Delhi-6.

(2)     M/s. Swastik Trading Co., 1464, Qutab Road, Sadar Bazar, Delhi-6.

(3)     M/s. Shyam Tobacco Co., 6468-B, Basti Harphool Singh, Sadar Bazar, Delhi-6.

(4)     M/s. Shukla Enterprises, 2861, Bagichi Raghunath, Sadar Bazar, Delhi-6.

At these premises, one Shri Ravi Kumar Duggar, Accountant of KTC was present.

91.6 From 463, G.F. Pocket-A, Sarita Vihar, New Delhi, no incriminating documents were recovered.

91.7 Shri Subh Karan Bothra of M/s. KTPPL was present at the time of search of the premises of KTPPL at 3909, Gali Barna, Sadar Bazar, Delhi. Subsequently, when the officers’ team reached at the premises at 4130, Gali Barna, Sadar Bazar, Delhi for search of the premises, it was found locked and Shri Subh Karan Bothra was called at this premises. He came to this premises and in presence of two panch witnesses, he opened the lock and was present throughout the search of the premises. At that time, he stated that this premises is used as their guest house. After completion of the search of the premises at 4130, Gali Barna, Sadar Bazar, Delhi, statement of Shri Subh Karan Bothra was recorded on 9-10-1998 under Section 14 of the Central Excise Act, 1944, wherein he stated that he is the authorised signatory of the KTPPL for the last 3 years, that the search and seizure proceedings at the registered office of KTPPL at 3909, Gali Barna, Sadar Bazar, Delhi had been conducted in his presence and after completion of the search proceedings, he had proceeded to the premises at 4130, Gali Barna, Sadar Bazar, Delhi and he was present throughout the search of this premises, that the premises at 4130, Gali Barna, Sadar Bazar, Delhi was being used as guest house of the company, that the documents/records recovered at the time of search of the premises pertain to KTPPL and KI and they are kachcha records and that these records had been kept in that premises due to paucity of space. Shri Bothra in his further statement recorded on 9-2-1999 stated that he had been continuously working with M/s. Kusum Trading Co. (KTC) since 1993, that M/s. KTC is a proprietary concern of Shri Mool Chand Malu, that he knew Shri Mool Chand Malu because both of them belong to the same city, that the KTC has its office at 3909, Gali Barna, Sadar Bazar, Delhi also, that he was incharge of the office at 3909, Gali Barna, Delhi and that for his work and duties, he reported directly to Shri Mool Chand Malu. However, Shri Subh Karan Bothra in his subsequent statement dated 24-4-2000 retracted his earlier statement stating that he was not in charge of the office at 3909, Gali Barna, Sadar Bazar, Delhi and was an employee of the KTC only. However, when he was shown page no. 11 of the attendance register at S. No. 3 of Panchnama dated 9-10-2008 drawn of the search of office at 3909, Gali Barna, Sadar Bazar, Delhi in which “GM Sadar Office” was written against his name, he stated that he did not understand as to what had been written.

91.8 Summons were served on Shri Mool Chand Malu and Shri Vikas Maloo, Directors of KTPPL and of KI and they appeared before the investigating officers on 17-11-1998. Shri Mool Chand Malu in his statement dated 17-11-1998 recorded under Section 14 of the Central Excise Act, 1944 stated that he was the Director of KTPPL, that he was also the proprietor of M/s. Kusum Trading Company (KTC), M/s. Kuber Aqua Minerals Ltd., M/s. Kuber Grains & Spices Pvt. Ltd., M/s. Green Valley Resorts Ltd., M/s. Blooming Dale Pvt. Ltd., and M/s. Kuber Globals Pvt. Ltd., that M/s. KTPPL were having their factories for manufacture of Gutka and chewing tobacco of Mool Chand brand and Kuber brand, that Shri C.S. Baid was of his employee, who was in charge of purchase of raw materials and manufacture of finished goods and their dispatch; that the payments for the purchase of the raw materials were being made by him or Shri Vikas Malu, that Shri C.S. Baid reported directly to the Directors i.e. himself or in his absence to his son, that for the purpose of marketing of the finished goods, Shri Mukesh Kapoor was the incharge, who received the purchase orders from the buyers and conveyed them to Shri C.S. Baid for dispatching the finished goods, that Shri Baid reported directly to Shri Mool Chand Malu and his son, that in the absence of Shri Mukesh Kapoor, the purchase orders were also received by Shri C.S. Baid, that Shri R.P. Sharma assists Shri Baid and Central Excise invoices are prepared and signed by Shri Sharma, that Shri Sharma was also responsible for depositing the duty on the goods cleared, that Shri Subh Karan Bothra was incharge of Sadar Office at 3909, Gali Barna and he looked after the general administration and coordination work of the factory, for which he directly reported to him or his son, Vikas Malu, that in respect of the consignments going out of Delhi, the transporters for each destination were fixed e.g. RKRT Transport Company for dispatches to Mumbai, M/s. Diamond Transport for Ahmedabad, Nagpur Golden Transport Company for dispatches to Nagpur, etc. that the goods meant for local sales were sent directly from the factory to M/s. Delhi Marketing Company (DMC) and M/s. New Delhi Marketing Company (NDMC) that for sales to Punjab & Haryana and U.P., the goods were sold through M/s. Ganpati Trading Company (GTC) and that he had areawise distributors, the details of which are as under :-

(a)     M/s. Astha Marketing Co., M/s. Karnavati Trade Links and M/s. New Kraj Sales Corpn./Kraj Distributors for Ahmedabad.

(b)     M/s. Indian Trade Agencies and M/s. Coral Mktg. Corpn. for Mumbai.

(c)     M/s. Mahamaya Trade Agencies for Nagpur region.

(d)    M/s. Kraj Distributors for Patna regions;

(e)     M/s. Kothari Agencies for Jaipur area;

(f)      M/s. Dehati Ghee Bhandar for Banswara region;

(g)     M/s. Mahamaya Trading Company for the Raipur region;

(h)    M/s. S.R. Marketing and Vellam Enterprises for Chennai region;

(i)      M/s. Bhagwati General Mills for Jammu region;

(j)      M/s. Maruti Enterprises for Bangalore region, etc.

Shri Mool Chand Malu further stated that some consignments of Kuber and Jet Brand Khaini and Mool Chand Brand and Kuber Brand Gutka were cleared without payment of duty and this was being done due to increasing competition, that about 50% of the quantities manufactured were being cleared without payment of duty, that in order to maintain and keep the accounting of the goods cleared without payment of duty, entries were first made on loose sheets on daily basis, that subsequently on the basis of entries in loose daily sheets, kachcha challans were prepared in duplicate in the name of the respective distributors, the original copy of which was sent to distributors by courier, that on the basis of kachcha challan, kachcha accounts containing party-wise details of sales and receipt of payments were prepared and that payments for non-duty paid were received in cash or through bearer demand drafts. Shri Mool Chand Malu was shown the documents recovered from the premises at “4130, Gali Barna, Sadar Bazar, Delhi” and stating that the same pertained to KTPPL and KI, he further stated that the books at Sl. Nos. 8, 9, 10, 12, 16, 17, 18, 19 and 20 were the carbon copies of the kachcha challans in respect of the goods sold to various distributors, that these kachcha challans have been mainly prepared/written by his employee Shri Kishan Sharma, that the books against Sl. No. 11, 13, 14 and 15 were the kachcha accounts and at Sl. Nos. 14 and 15 (Hisaba books) contain party-wise accounts of sales and receipt of the payments, that these books had also mostly been written by Shri Kishan Sharma, and in some cases by Shri Umed that most of the consignments covered under kachcha challans and mentioned in the hisaba books had been cleared without payment of duty, and that he was ready to make the payment of duty on the goods, which were cleared without payment of duty. Shri Vikas Malu in his statement dated 17-11-1998 recorded under Section 14 of the Act, accepting that the documents recovered from premises at 4130, Gali Barna, Sadar Bazar, Delhi pertained to KTPPL and KI corroborated the statement of Shri Mool Chand Malu. Shri Vikas Malu in his statement also accepted that about 50% of the consignments were cleared without payment of duty. However, subsequently, both Shri Mool Chand Malu and Shri Vikas Malu retracted their statement dated 17-11-1998 and for this purpose, sent letters which were received by the investigating officers on 4-12-1998.

91.9 Statement of Shri C.S. Baid was recorded on 1-12-1998 under Section 14 of the Central Excise Act, 1944, wherein he stated that he had started working with Shri Mool Chand Malu as factory supervisor in the factory premises in KTPPL, that he directly reported to him or his son, Shri Vikas Malu, who were Directors of the company, that he had complete control from the stage of purchase of raw materials to the manufacture and dispatch of the goods and occasionally, was also looking after marketing; and that he was performing these functions in respect of KTPPL and KI. His further statements were recorded on 13-4-2000, 17-4-2000 and 18-4-2000, wherein he gave explanation in respect of questions asked from him regarding certain kachcha challans.

91.10 Inquiry was made with Shri R.P. Sharma, Authorized Signatory of KTPPL and his statement recorded on 17-4-2000 wherein he stated that he was looking after all the excise work of KTPPL as well as KI, that he was authorized signatory of the company, that though he was looking after the excise work, the production figures in the RG-I Register were entered as per the information given to him by Shri C.S. Baid, and that he had never checked as to whether the production or sales figures to be entered in the RG-I Register, as informed by Shri C.S. Baid, were correct or not.

91.11 Statement of Shri Umed Chandalia, an employee of KTPPL, was recorded on 8-2-1999, wherein he stated that since November, 1998, he was working with KTPPL, that he was doing the job of dispatching the letters, handling bank transactions and various other work of KTPPL and KI and other firms of Mool Chand Malu, Vikas Malu and their family members, that the entire work relating to production of Gutka and Khaini and the work of marketing of the finished goods and purchase of raw materials was being looked after Shri C.S. Baid, that for local sales within Delhi, Shri Mukesh Kapoor and Shri Gowri Shankar Khattar were responsible, that Shri Gowri Shankar Khattar and his wife were the owner of two firms, M/s. DMC and M/s. NDMC, that Shri Mukesh Kapoor and his wife Mrs. Saroj Kapoor were owning two firms M/s. Ganpati Agencies (GA) and M/s. Ganpati Marketing Co. (GMC), and that Shri Subh Karan Bothra was looking general administration of the office at 3909, Gali Barna, Sadar Bazar, Delhi and he was also looking after the receipt of payments from the buyers.

91.12 The statements of Shri Mukesh Kapoor, his wife, Smt. Saroj Kapoor, and Shri Gowri Shankar Khattar were also recorded wherein they accepted that they were marketing the Gutka and Khaini manufactured by KTPPL and KI.

91.13 On study of kachcha challans, it was found that each kachcha challan contained the details like the name of the buyer (Distributor), the total quantity sold, quantity sold under the invoice, value, mode of the transport and the name of the transport company, if the transportation by road and along with GR/RR nos. All the sales in respect of which kachcha challans had been issued were found reflected in kachcha accounts called Hisaba books (Book Nos. 14 and 15 of the Annexure to the Panchnama of the search of the premises at 4130, Gali Barna, Sadar Bazar, Delhi).

91.14 Inquiries were made with the transport companies mentioned in the kachcha challans and it was found that the consignments bearing GR nos. mentioned in the challans had indeed been booked mentioning their contents as “tobacco”. However, the consignors’ name mentioned on those GRs were found to be fictitious. Similarly in respect of the consignment sent by rail, inquiry was made with the railways and the copies of the RRs, mentioned in the kachcha challan were obtained which showed that the consignments under the RRs as mentioned in the kachcha challans had, indeed, been booked, but there also the consignor’s name and address were found to be fictitious. In respect of the consignees, as mentioned in the kachcha challans, inquiry was through the Central Excise authorities of the respective comissionerates and it was found that those persons were, indeed, purchasing the Gutka and Khaini from KTPPL and KI without payment of duty.

91.15 It, therefore, appeared that kachcha challan books mentioned at Sl. Nos. 8, 9, 10, 12, 16, 17, 18, 19 & 20 of the Annexure to the Panchnama dated 9-10-1998 of the search of premises at 4130, Gali Barna, Sadar Bazar, Delhi, contained the kachcha challans under which the consignments of Gutka and tobacco had been dispatched to various distributors of KTPPL and KI and the account books called hisaba books at S. Nos. 14 and 15 of the Panchnama contained party-wise accounts of the sales made to various distributors and payments received from them. On comparison of the kachcha challans with the Central Excise invoices issued, it was found that in respect of a number of kachcha challans there were no invoices and in some cases, where the invoices had been issued, the value of the goods as mentioned in the central excise invoices were much lower than the value mentioned in the kachcha challans. The loose sheets in the folder mentioned at S. No. 2 of the Annexure to Panchnama dated 9-10-1998 of the search of premises at “4130, Gali Barna, Sadar Bazar, Delhi” consisted of daily sheets containing details of clearances of Gutka and Khaini, and records of purchase of raw materials/inputs like plastic lamination, tobacco, and diesel for running of generators. It, therefore, appeared that M/s. KTPPL and KI were clearing Gutka and Khaini without payment of duty in clandestine manner and even in the cases where the Central Excise invoices had been issued and the duty had been paid, the duty had been evaded by undeclaring the value. Looking to the number of machines and capacity of the machines, it appeared that KTPPL and KI had capacity to manufacture the quantity of the Gutka and Khaini which had been sold under the kachcha challans. It is on this basis that the following two show cause notices were issued to KTPPL and KI and other noticees.

91.15.1 A show cause notice dated 31-7-2000 was issued to KTPPL and others for -

(a) recovery of allegedly short paid Central Excise duty amounting to Rs. 11,99,33,571/- from M/s. KTPPL chargeable on the goods valued at Rs. 29,95,79,744/- cleared clandestinely without payment of duty during the period from 1-8-1995 to 28-2-1997 under Rule 9(2) of the Central Excise Rules read with proviso to Section 11A(1) of the Central Excise Act, 1944 along with interest on this duty at the applicable rate as per the provisions of Section 11AB ibid and for appropriation of an amount of Rs. 2 Crore already paid by them voluntarily;

(b) revision and enhancement of the assessable value of the goods cleared during the period from 1-8-1995 to 5-10-1998, as detailed in the show cause notice and recovery of differential duty amounting to Rs. 45,45,084/- in respect of these clearances under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Section 11A(1) of Central Excise Act, 1944 along with interest on the duty at the applicable rate under Section 11AB ibid;

(c) confiscation of land and building, plant and machinery of M/s. KTPPL used in connection with manufacture of branded goods under Rule 173Q(2) of the Central Excise Rules, 1944;

(d) imposition of penalty on M/s. KTPPL under Rules 9(2), 52A, 173Q, 226 of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944;

(e) imposition of penalty under Rule 209A of the Central Excise Rules, 1944 on Shri Mool Chand Malu, Shri Vikas Malu, C.S. Baid, Shri Subh Karan Bothra, Shri Mukesh Kapoor of M/s. Ganpati Agencies and M/s. Ganpati Mktg., Shri Gowri Shankar Khattar of M/s. Delhi Marketing Co. & M/s. New Delhi Mkgt. Co., Shri Jarnail Singh of M/s. RKRT Goods Carrier, Shri Harmit Singh of M/s. RKRT Goods Carrier, Shri Harpal Singh of M/s. RKRT Goods Carrier, Shri Devji Bhai of M/s. Diamond Transport Company, Shri Pawan Kumar Karnani of M/s. Mahamaya Trade Agencies, Shri Dilip Ram Vallabh Sarda of M/s. Dilip Traders, Shri Bhim Karan Jain of M/s. Snow View Exports Pvt. Ltd., Shri Akhay Chand Kothari of M/s. Kothari Agencies and Shri Ashok Chaudhary of M/s. Chaudhary Sales Corporation.

91.15.2 Show cause notice dated 23-11-2000 was issued to KI and others for -

(a)     recovery of Central Excise duty allegedly short paid Central Excise duty amounting to Rs. 3,47,22,118/- from M/s. KI in respect of the clearances of branded Khaini valued at Rs. 6,94,44,235/- during the period 11-12-1995 to 5-10-1998 under Rule 9(2) of the Central Excise Rules read with proviso to Section 11A(1) of the Central Excise Act, 1944 along with interest on this duty at the applicable rate under Section 11A ibid;

(b)     recovery of differential duty amounting to Rs. 1,06,61,306/- in respect of the consignments of branded Khaini cleared during 1-12-1996 to 31-3-1999 period, which was allegedly short paid under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Section 11A(1) of the Central Excise Act, 1944 along with interest on it at the applicable rate under Section 11AB ibid;

(c)     Confiscation of land and building and plant and machinery of M/s. KI used in the manufacture of goods under Rule 173Q(2) of the Central Excise Rules;

(d)    Imposition of penalty on M/s. KI under Rule 9(2) read with Section 11AC and Rule 173Q of Rules, 1944 and also under Rule 226 of the Central Excise Rules read with Section 11AC of the Central Excise Act, 1944; and

(e)     Imposition of penalty under Rule 209A of the Central Excise Rules, 1944 on Shri Vikas Malu, Mool Chand Malu, Shri C.S. Baid, Shri Subh Karan Bothra,.Shri Mukesh Kapoor of M/s. Ganparti Agencies and M/s. Ganpati Mktg. Co., Shri Gowri Shankar Khattar of Delhi Mktg. Co. and M/s. New Delhi Mktg. Co., Shri P. Vishwanath of M/s. Mookambica Agencies, Shri Akhay Chand Kothari of M/s. Kothari Agencies and Shri Jarnail Singh, Shri Harmit Singh, Shri Harpal Singh of M/s. RKRT Goods Carriers.

91.16 Show cause notice dated 31-7-2000 issued to M/s. KTPPL was adjudicated by the Commissioner of Central Excise, Delhi vide Order-in-Original No. 59/2005, dated 30-12-2005 by which -

(a)     total duty demand of Rs. 12,05,40,439/- on account of clandestine removal and undervaluation was confirmed against M/s. KTPPL under proviso to Section 11A(1) of the Central Excise Act, along with interest on this duty at the applicable rate under Section 11AB ibid, and an amount of Rs. 2 Crores already paid during investigation was appropriated towards this demand;

(b)     penalty of Rs. 12,05,40,439/- was imposed on KTPPL under Section 11AC ibid;

(c)     plant and machinery used by KTPPL, whose book value was Rs. 86,07,501/-, was ordered to be confiscated under Rule 173Q(2) to Central Excise Rules, 1944 with option to be redeemed on payment of redemption fine of Rs. 10 Lakh; and

(d)    penalty under Rule 209A of Central Excise Rules, 1944 was imposed on various noticees as under :-

Against this order of the Commissioner, Appeals Nos. E/560-574/2006 and E/902/2006 have been filed.

91.17 Show cause notice dated 23-11-2000 was adjudicated by the Commissioner of Central Excise, Delhi vide Order-in-Original No. 30/2006, dated 30-1-2006 by which -

(a)     total Central Excise duty demand of Rs. 4,18,29,655/- (Rs. 3,47,22,118 + Rs. 71,07,737/-) on account of clandestine removal and undervaluation of goods was confirmed against KI under proviso to Section 11A(1) of the Central Excise Act, 1944 along with interest on this duty at the applicable rate as per the provisions of Rule 11AB ibid;

(b)     land, building and plant and machinery, etc. of the KI was ordered to be confiscated under Rule 173Q(2) of the Rules, 1944 with option to be redeemed on payment of redemption fine in lieu of confiscation of Rs. 3 Lakh;

(c)     Penalty of Rs. 4,18,29,655/- was imposed on KI under Rule 173Q read with Section 11AC; and

(d)    Penalty under Rule 209A of Central Excise Rules, 1944 was imposed on various noticees as under :-

Against the above order of the Commissioner, the Appeal nos. E/2039 to 2050/2006 have been filed.

92. Heard both the sides.

92.1 Shri A. Hidayatullah, Advocate, ld. Senior Counsel appearing for the appellants, pleaded that the Adjudicating authority has not complied with the basic principles of natural justice inasmuch as the cross-examination of the persons, whose statements were recorded and relied upon was denied, that the decision in the matter against the appellants inspite of failure on the part of the Department to discharge the burden of proof has clearly rendered the orders bad in law, that conjectures and surmises cannot take the place of the proof, that both the orders under challenge are based on assumptions and presumptions without ascertaining as to whether the Department has discharged its burden to prove the case against the appellants, that the findings regarding alleged undeclared production and clandestine clearance of the goods have been arrived at without any facts regarding the annual capacity of the machines relating to production, number of persons employed, quantity of raw materials like Supari, Tobacco, etc. purchased; that neither the statements of the dealers were recorded nor the statements of those dealers who had disclosed the truth have been considered, that the entire case of the Department is based on the loose sheets, kachcha challan books and hisaba book recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi, that the duty demands have been raised against KTPPL and KI on the basis of kachcha challan books read with hisaba books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi, that recovery of these records is totally unbelievable and carries no weight as the mandatory requirements of procedure while seizing and/or recovery of offending materials have not been complied with, that the panchnama of seizure of the documents in respect of the premises at 4130, Gali Barna, Sadar Bazar, Delhi does not mention the time when the search was started and the time when the same was completed, that it does not mention as to who brought the keys to the premises, that neither the exact description of the premises is there in the Panchnama nor does it mention as to from which room these documents have been recovered, that there was enough scope for tampering of the documents and in fact, there are interpolations in the documents alleged to have been seized by the Department, that there is no proof that hisaba books and kachcha challans pertain to the factories of the KTPPL and KI, that it was not permissible to the adjudicating authority to place reliance on such private records in absence of corroboration by cogent evidence on records, that even the entries of the hisaba books do not disclose that the same relate to the production of goods in the factories of the appellants, that no attempt has been made to locate the writer of the documents and kachcha challan books and hisaba books without which no reliance can be placed on the same, that neither the machines installed in the factory premises of KTPPL and KI were capable of manufacturing of Gutka and Khaini which are alleged to have been sold nor the generators installed in the factories were capable of running the machines for the period which the Department alleges, that Shri Mool Chand Malu and Shri Vikas Malu had retracted their statements and hence their statements are of no evidentiary value, that as stated by Shri Subh Karan Bothra at the time of cross-examination, he was not present at the time of search of the premises at 4130, Gali Barna, Sadar Bazar, Delhi, that in view of these circumstances, without any corroborative evidence on record, merely on the basis of kachcha challans, loose sheets and hisaba books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi, the duty demands against the appellants and penalty on KTPPL and KI and other firms and persons is not sustainable, that in this regard, reliance is placed on the judgment of the Tribunal in the case of CCE, Hyderabad-V v. Vanifab. Engg. reported in , that the Tribunal in the case of Durga Trading Company v. CCE, Lucknow reported in has held that charge of clandestine removal and manufacture of dutiable goods and removal thereof without discharging duty liability can not be established on assumptions and presumptions and such charge has to be based on concrete and tangible evidence on record and that the same view has been expressed by the Apex Court in case of Oudh Sugar Mills v. Union of India reported in 1978 (2) E.L.T. (J172). The senior ld. Counsel citing the judgments of the Tribunal in the cases of Jagatpal Prem Chand Ltd. v. CCE, Delhi-I reported in , Ganga Rubber Industries v. CCE reported in , Emmtex Synthetics Ltd. v. CCE, New Delhi reported in , again emphasized that the adjudicating authority can not dispose of some proceedings without following basic principles of natural justice and that the cross-examination of the persons whose statements have been relied upon amounts to denial of principles of natural justice and would vitiate the proceedings.

92.2 Shri B.K. Singh, ld. Jt. CDR, on the other hand, pleaded that the documents recovered in the course of investigation, movement of goods as revealed from the transporters’ statements, seizure of unaccounted materials at different places and admission made by Shri Mool Chand Malu and Shri Vikas Malu, Directors of KTPPL and KI, clearly establish the case of clandestine removal of the goods, that the admissions made by Shri Mool Chand Malu and Shri Vikas Malu were never retracted in accordance with law, that even if one of the three aspects of the manufacturing — procurement of raw materials, unaccounted production, or removal of goods on completion of manufacturing process, is established, it is sufficient to prove the case of clandestine removal and it is not necessary to prove all the three aspects, as many a times, it is impossible to get the evidence of all the three aspects, that the evidence on record stands corroborated by the statements of deponents, which includes the parties to the proceedings and no value can be attached to the retraction of statement by Shri Mool Chand Malu and Shri Vikas Malu, as the same was done as late as 17 days after recording the statement, that the findings have been arrived at by the adjudicating authority on analysis of the materials on record which includes the documents as well as the statements including the statements of transporters, that the contents of the documents — loose sheets, kachcha challan books and hisaba books had admittedly been written by the persons of the appellants Shri Kishan Sharma and Shri Umed Jain, that as regards cash flow is concerned, there is clear admission in this regard by the appellants, that there is no materials brought on record to show that any part of the seized documents were tampered with or there was any interpolations, that the admitted facts need not be proved and in this regard, reliance is placed on the decisions in the matters of P.K. Ravindran reported in (Madras High Court), Khet Singh v. Union of India reported in (S.C.), CCE, Madras v. Systems & Communications Pvt. Ltd. reported in , Bute Cosmetics v. CCE, Trichy reported in , Columbia Electronics v. CCE, Trichy reported in , Dy. Director of Enforcement v. AM Ceaser reported in , Shiv Shakti Steel Tubes v. CCE reported in , M.R. Tobacco Pvt. Ltd. v. CC, Delhi reported in (sic) and Radhe Shyam Kanoria v. CC, Thane-II reported in (Tri.-Mum.), that Order-in-Original No. 159/2005, dated 30-12-2005 and Order-in-Original No. 3/2006, dated 30-1-2006 describe detail of the modus operandi adopted by KTPPL and KI for evasion of duty and the same is clearly confirmed from the perusal of the loose sheets, kachcha challans and hisaba books seized from the premises of the appellants at 4130, Gali Barna, Sadar Bazar, Delhi, that not only Shri Subh Karan Bothra but also Shri Mool Chand Malu and Shri Vikas Malu have accepted that the premises at 4130, Gali Barna, Sadar Bazar, Delhi were being used as their guest house and it is from this premises, a number of records pertaining to KTPPL and KI which included loose sheets, kachcha challans and hisaba books have been recovered, that looking to the capacity of the production of the machines installed and the number of shifts in which the same were worked and also the capacity of generators and records of purchase of diesel for running those generators, it is clear that these machines were capable of production of the quantity of Gutka and Khaini pouches which are alleged to have been manufactured and cleared during the period of dispute, that it is settled law that while seizure of the documents from any premises in support of any serious charges must be established, minor lapses are condonable, that when the locks of the premises had been opened by Shri S.K. Bothra in the presence of the panch witnesses and not only Shri Bothra but also Shri M.C. Malu and Shri Vikas Malu have admitted that the premises at 4130, Gali Barna, Sadar Bazar, Delhi was being used as their guest house, the minor lapses like as to who brought the keys, non-mention of time of starting of the search and time of completion of the search, etc. do not vitiate the search itself, that as mentioned by the adjudicating authority in para 56.6 to 56.18 of the Order-in-Original No. 159/2005, dated 30-12-2005 and para 51.7 to 51.14 of Order-in-Original No. 3/2006, dated 30-1-2006 retraction of the statement of Shri Mool Chand Malu and Vikas Malu is purely an afterthought and not genuine retraction, that authenticity of the loose sheets, kachcha challan books and hisaba books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi stands established by the evidence unearthed on the inquiry with the transport companies and railways and also with the consignees and that FIR by Shri Vikas Malu on 19-8-2000 against Shri Umesh Chandalia regarding misappropriation of the money from the company does not help the appellant in any manner as this had been done only to discredit the evidence of Shri Umesh Chandalia and that at the time of search of the appellant’s premises, the appellant had no grievances against Shri Umesh Chandalia. Summarising his arguments, Shri B.K. Singh, ld. Departmental Representative pleaded that (a) the plea that the Department’s case is based on assumptions and presumptions is not tenable, as the entire case is based on documentary evidence in form of loose sheets, kachcha challan books and party-wise kachcha accounts (Hisaba books) recovered from the appellant’s premises at 4130, Gali Barna, Sadar Bazar, Delhi and also the documents recovered from the transport companies; and inquiry with the consignees, (b) Besides this, the seizure of the huge unaccounted stock of Mool Chand brand Gutka at the premises of KTPPL on 9-10-1998 is a clear evidence of unaccounted production and clandestine clearance by the appellant; (c) all the documents recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi pertain to KTPPL and KI and these documents are a clear evidence of large scale duty evasion by KTPPL and KI and these documents cannot be discarded even if the search of the premises is held to be illegal and in this regard, reliance is placed on Hon’ble Supreme Court’s judgment in the case of Khet Singh v. Union of India reported in (S.C.), wherein the Hon’ble Supreme Court held that the documents recovered in course of search of the premises can be considered even if the search is not legal, unless there is evidence that the documents themselves have been tampered with, (d) though the appellant’s plea that there are interpolations in the kachcha challan books mentioned above, the documents are carbon copies and the cuttings/corrections are only in the challan number and that too only in a few cases and as such there are no cuttings/interpolations/corrections in number of packages, value or description of the goods; (e) Electricity consumption and diesel consumption for running generator is not relevant as the Department’s case is based on the kachcha challan books, loose sheets and Hisaba books whose authenticity is clear from the documents recovered from the railways and transport companies and the inquiry from the buyers/distributors mentioned in the kachcha challans; (f) the fact that the premises at 4130 Gali Barna, Sadar Bazar, Delhi was under the control of Shri Mool Chand Malu and Shri Vikash Malu and the loose sheets, kachcha challan books and hisaba books along with other documents recovered from these premises pertained to the KTPPL and KI, has been admitted by Shri Mool Chand Malu and Shri Vikash Malu and just because these statements had been retracted, the same cannot be disregarded as the retractions of these statements by Shri Mool Chand Malu and Shri Vikas Malu are belated retractions made after 17 days and as held by the Tribunal in the case of Colmbia Electronics reported in (para 6), belated retractions have no meaning; (g) Hon’ble Madras High Court in the case of Dy. Director Enforcement v. A.M. Ceaser reported in (para-9) and Hon’ble Punjab & Haryana High Court in the case of Shiv Shakti Steel Tubes v. CCE reported in (P&H) have held that statements recorded under Section 14 of the Act, 1944 are of the nature of admission and are admissible as evidence unless the same are hit by Section 24 of the Evidence Act and in this case, no evidence has been produced by the appellant that the Department has used any threat, coercion or inducement in course of recording of the statements of Shri Mool Chand Malu and Shri Vikas Malu. Shri B.K. Singh, ld. DR, therefore, pleaded that there is no infirmity in the impugned order.

92.3 Shri H. Hidayattullah, the ld. Sr. Counsel in rejoinder pleaded that to prove clandestine removal, receipt/purchase of the raw materials, unaccounted manufacture of finished goods and clandestine removal is required to be proved and if one of these links is missing, the charge of clandestine removal would not be sustainable, that in this case, no inquiry has been made with the workers of the factory regarding the actual production, that the Tribunal in the case of Radheshyam Kanoria v. CCE Para 17 reported in (T) has held that for proving the clandestine removal, unaccounted production must be established and that in this case, there is no evidence of purchase of raw materials or production of unaccounted gutka and khaini. He once again emphasised that the search of the premises at 4130, Gali Barna, Sadar Bazar, Delhi is illegal, that the Annexures to the Panchnama have not been signed by Shri Bothra and that there are interpolations and corrections in the kachcha challans which shows that the same are not genuine documents and hence not reliable.

92.4 Shri B.K. Singh, ld. DR replying to the plea of the learned Sr. Advocate with regard to corrections and interpolations in the kachcha challans pleaded that this aspect has been dealt with in detail in para 57.17 of the Order-in-Original No. 159/2005, dated 30-12-2005 and paras 52.16 & 52.17 of Order-in-Original No. 3/2006, dated 30-1-2006 and as is clear from the Commissioner’s findings, the plea of kachcha challans having a number of corrections or interpolations by some other person is totally incorrect.

93. We have carefully considered the submissions from both the sides and perused the records. Undisputedly, the case of duty evasion against the KTPPL and KT is based on the documents — loose sheets, kachcha challans and hisaba books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi in the course of search of this premises on 9-10-1998 coupled with the documents obtained from railways and the transport companies. From the premises at 4130, Gali Barna, Sadar Bazar, Delhi, in all, 20 folders, account books, note books and folders containing photocopies of bank pass books, etc. had been recovered, which are listed in the Annexure A to the search Panchnama dated 9-10-1998. The Panchnama, besides listing the documents also mentions the numbers of pages and first and the last page of the document has been signed by Shri S.K. Bothra, who as per the panchnama was present throughout the duration of search. The documents mentioned at Sl. No. 1 are photocopies of the bank pass books, which are pass books of various companies of Shri Mool Chand Malu and Shri Vikas Malu and their other family members. The main documents on which the Department’s case is based are - (a) documents at Sl. No. 2 - a folder containing 113 loose papers; (b) documents listed against Sl. Nos. 8, 9, 10, 12, 16, 17, 18, 19 & 20 in the Annexures to Panchnama, which are kachcha challan books, also called “Chalani” by the appellant; and (c) the documents listed at Sl. Nos. 11, 13, 14 & 15 which are kachcha accounts and the documents at S. Nos. 14 & 15, called Hisaba books contain party-wise accounts of the sale of gutka and khaini by KTPPL and KI during the period from 1-8-1995 to 5-10-1998. The kachcha challan books contain the carbon copies of the challans regarding sale of branded gutka and khaini and contain the details of the clearances and sales of the gutka and pan masala - consignee’s name and address, the quantity and value of the goods, mode of transport, RR nos. in case of dispatch by railways and GR nos. in case of dispatch by road, transport company’s name etc. On the basis of kachcha challans, the party-wise accounts in the hisaba books had been prepared, as all the sales in kachcha challans are reflected in hisaba books. The loose papers in folder at S. No. 2 contain daily sheets regarding clearance of finished goods by KTPPL and KI, on the basis of which kachcha challans are prepared, and papers containing purchase of raw material like tobacco, plastic lamination and diesel for running generator during certain period. The main contention of the appellants is that these documents are invalid and cannot be considered as evidence, as the search of these premises is illegal inasmuch as - (a) the Panchnama does not mention the time when the search was started and when the search was completed, (b) it does not mention as to who brought the keys to the premises, (c) Panchnama does not mention the exact description of the premises, and exact place in the premises from where the documents were recovered, (d) the panchnama was written in English, and as per the panchnama, the same had been only read over and explained in vernacular to the panchas, which casts doubts about its authenticity; and (e) there are corrections and interpolations in the kachcha challans which cast doubt about their authenticity. It was also pleaded that this premises was under the control of Shri Umesh Chandaliya against whom the FIR for having committed fraud had been lodged by the appellant and that it is, Shri Chandalia, who have planted these documents.

94. On going through the records, we find that there is no dispute about the fact that premises had been searched in the presence of Shri Shubh Karan Bothra, who was also present at the time of search of registered office of the appellant-company at 4909, Gali Barna, Sadar Bazar, Delhi. From the records, it is seen that first the premises at 4909 at Gali Barna had been searched and after completion of the search of that premises, Shri Subh Karan Bothra had been called to the premises at 4130 Gali Barna, Sadar Bazar, Delhi, which was locked and it is Shri Bothra, who had opened the lock of the premises in presence of panchas. There is nothing in the panchnama to show that at the time of search of the premises, Shri Bothra protested that the premises does not belong to KTPPL or KI. In fact, panchnama mentions that Shri Subh Karan Bothra on reaching the premises informed the officers and panchas that they are using three rooms of this premises as their guest house and thereafter he opened the locks in their presence. When the fact that the locks of the premises were opened by Shri Bothra is not in dispute and at that time, there was no protest from Shri S.K. Bothra that the premies does not belong to them, it is clear that keys of the premises had been brought by Shri Bothra only. Shri Bothra, as per the statement of Shri Mool Chand Malu and Shri Vikas Malu was the person in charge of General Administration and Coordination work of their office at 4909, Gali Barna, Sadar Bazar, Delhi and therefore it is expected that it is Shri Bothra who would have keys to the premises at ‘4130, Gali Barna, Sadar Bazar, Delhi’ which was being used as the appellant-company’s guest house. Therefore, just because panchnama does not mention as to who brought the keys of the premises at 4130 Gali Barna, it cannot be concluded that the keys were in the possession of someone other than Shri Bothra. For the same reason, just because panchnama does not mention the time of search and completion of the search, it would not make the search invalid. Moreover, we also find that Shri Shubh Karan Bothra in his statement dated 9-10-1998 had clearly admitted that the premises at 4130, Gali Barna, Sadar Bazar, Delhi is being used as guest house of the company and the documents recovered from these premises pertained to KTPPL and KI. Besides this, Shri Mool Chand Maloo and Shri Vikas Maloo in their statement dated 17-11-1998 have not only clearly admitted that the premises at 4130, Gali Barna, Sadar Bazar, Delhi was being used as guest house and records recovered from these documents pertained to KTPPL and KI, they also explained about the nature of documents and also named the person who had prepared kachcha challans and Hisaba books. Though Shri Bothra subsequently retracted his statement dated 9-10-1998 claiming that he was working for M/s. KTC only and had no concern with KTPPL or KI and at the time of his cross-examination during adjudication proceeding, he claimed that he was not even present at the time of search of the premises at 4130, Gali Barna, Sadar Bazar, Delhi, his retraction, being bald and belated retraction, without any supporting evidence is of no value and has to be rejected as after-thought. The adjudicating authority in both the impugned orders has discussed the retraction of statement by Shri Bothra and has rightly rejected the same as after-thought.

94.1 The kachcha challan book contains the kachcha challans which, as mentioned above, contain all the details of the consignments of gutka and khaini sold to various distributors, number of packages, consignees’ name, value, mode of transport, RR No. in case of transport by railways and GR No. in case of transport by road, the name of the transport company etc. The inquiry with the consignees mentioned in the kachcha challans revealed that those persons were indeed purchasing gutka and khaini from the appellants, KTPPL and KI, the bulk of which was without payment of duty. Not only this, most of the GR nos. and RR nos. mentioned in the kachcha challans were also obtained from the transport companies and railways respectively, which shows that the GR nos. and RR nos. written on the kachcha challans were genuine, though consignor’s names as mentioned in GRs and RRs were found to be fictitious, as during transit, the consignments were covered by invoices issued by fictitious persons. Besides this, in a number of cases, where the consignments mentioned in the kachcha challans had been cleared on payment of duty, the particulars of those consignments, as mentioned in the kachcha challans, tally with those mentioned in the invoices, though in some cases, in the invoices much lower value has been mentioned. Paras 53.1 and 53.2 of the Order-in-Original No. 3/2006, dated 30-1-2006 and paras 58.1, 58.2 and 58.3 of the Order-in-Original No. 59/2005, dated 30-12-2005 give the details of such kachcha challans. In some cases invoices had been issued only for a part of the quantity mentioned in kachcha challans and in such cases, the kachcha challans themselves mention the break-up of total quantity into the quantity cleared under invoices and the quantity cleared without invoices. This is a clinching evidence that daily sheets, kachcha challan books and Hisaba books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi pertained to KTPPL and KI only. The photocopies of bank pass books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi are of the accounts of various companies of Shri Mool Chand Malu and Shri Vikas Malu and their family members and their presence at this premises clearly indicates that this premises was under their control. As mentioned above, Shri Mool Chand Malu and Shri Vikas Malu in their statement dated 17-11-2000 recorded under Section 14 of the Central Excise Act, 1944 have stated that the premises at 4130, Gali Barna, Sadar Bazar, Delhi was being used as their guest house and the records recovered from this premises pertain to KTPPL and KI. Though the statement dated 17-11-1998 of Shri Mool Chand Maloo and Vikas Maloo have been retracted by them, we find that these retractions carry no weight at all for the reasons given below :-

(1) These retractions had been sent by post and had been received by the investigating officers after about 17 days and are mere bland retractions, without any evidence, in support of their claim, that the statement had been given by them under threat, coercion or inducement. As held by the Tribunal in the case of Columbia Electronics (supra) belated retractions have no meanings.

(2) The Hon’ble Supreme Court in the case of K.T.M.S. Mohd. v. Union of India reported in (1992) 3 SCC 178 (para 31) has held that if the officers of the Enforcement intend to take the action against the deponent of a statement on the basis of his inculpatory statement which has subsequently been repudiated, the officer concerned must take both the statements together, give a finding about the nature of the repudiation and then act upon the earlier inculpatory one. If on the other hand, the officer concerned bisects the two statements and makes use of the inculpatory statement alone conveniently bypassing the other, such a stand cannot be legally permissible, because admissibility, reliability and the evidentiary value of the inculpatory statement depends on the bench-mark of the provisions of the Evidence Act and the general law. In this judgment, the Apex Court further observed that the core of all the decisions of the Apex Court is to the effect that voluntary nature of any statement made either before the Customs Authorities or the officers of Enforcement under the relevant provisions of the respective Acts is a sine qua non to act on it for any purpose and if the statement appears to have been obtained by any inducement, threat, coercion or by any improper means, that statement must be rejected and that at the same time, it is to be noted that merely because a statement is retracted, it cannot be regarded as involuntary or unlawfully obtained. It is only for the maker of the statement who alleges inducement, threat, promise, etc. to establish that such improper means have been adopted. The Hon’ble Apex Court further observed that if the maker of the statement fails to establish his allegations of inducement, threat, etc. against the officer who recorded the statement, the authority while acting on the inculpatory statement of the maker is not completely relieved of his obligations in at least subjectively applying its mind to the subsequent retraction to hold that the inculpatory statement was not extorted and it thus boils down that the authority or any Court intending to act upon the inculpatory statement as a voluntary one, should apply its mind to the retraction and reject the same in writing. The Hon’ble Supreme Court in the case of State (NCT) of Delhi v. Navjot Sandhu reported in (2005) 11 SCC 600 has held that for invoking Section 24 of the Evidence Act, the allegation that a confessional statement was made under any inducement, threat or coercion provision need not be proved to the hilt, that if it appears to the Court that the making of the confession was caused by any inducement, threat or promise proceeding from a person in authenticity, the confession is liable to be excluded from evidence, that the expression ‘appears’ in Section 24 of the Evidence Act connotes that the Court need not go to the extent of holding that the threat etc. has to be proved beyond doubt and that if the facts and circumstances emerging from the evidence adduced make it reasonably probable that the confession could be the result of threat, inducement or pressure, the Court will refrain from acting on such confession, even if it be a confession made to a Magistrate or a person other than police officer. Relying upon the two judgments, the Hon’ble Court in a recent judgment in the case of Vinod Solanki v. Union of India reported in (S.C.) = (S.C.) held that since the allegation of detention of the appellant for two days and two nights has not been denied by the Department, the retraction by the appellant cannot be said to be a bald retraction and hence the statement of the appellant would not be admissible as evidence. Examining this case in the light of the above judgment of the Apex Court, we find that -

(a) the retractions of Shri Mool Chand Malu and Shri Vikas Malu are not only belated retractions made after 17 days but are also just bald retractions without any evidence from which, it can be inferred that there was any threat, coercion or inducement used in recording of their statement and (b) in both the impugned orders, the adjudicating authority has considered their retractions applying its mind and has rejected the same. As discussed above, the same thing applies to the retraction of his statement by Shri S.K. Bothra.

94.2 In view of the above, we hold that the statements dated 17-11-2009 of Shri Mool Chand Malu and Shri Vikas Malu and the statement dated 9-10-1998 of Shri S.K. Bothra are their true, correct and voluntary statements, supported by other independent evidence and the documents recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi pertain to KTPPL and KI. Therefore, even if the panchnama of the search of the premises at 4130, Gali Barna, Sadar Bazar, Delhi does not mention the time when the search was started and when the same was completed or also does not mention as to who was brought the keys to the premises or that the same is written in English, the documents recovered from this premises have to be held as pertaining to KTPPL and KI and admissible evidence against them. The Hon’ble Supreme Court in the case of Khet Singh v. Union of India (supra) has held that the documents recovered during the search, even if the search was illegal, are to be considered as admissible evidence unless there is allegation that the same have to be tampered with. Though in this case it has been pleaded by the appellant’s counsel that some of the kachcha challans have corrections and interpolations on close examination, we find that as observed by the Commissioner in para 57.17 of the Order-in-Original No. 59/2005, dated 30-12-2005 and paras 52.16 & 52.17 of the Order-in-Original No. 3/2006, dated 30-1-2006 the cutting and corrections are only in a few challans and that too in challan numbers and there are no correction or interpolations in quantity, value or description of the goods. Such corrections of challan nos. not make the documents unreliable.

94.2.1 It has been pleaded that the author of the seized kachcha challan books and hisaba books have not been identified and hence these documents cannot be relied upon. We do not agree with this plea, as both Shri Mool Chand Malu and Vikas Malu had stated that these documents had been mostly written by Shri Kishan Sharma and Shri Umed Jain. Though the investigating officer summoned both these persons, they have not appeared before the officers, may be under the pressure of the appellants. Therefore, just because the statements of Shri Kishan Sharma and Shri Umed Jain could not be recorded, the authenticity of the loose sheets, kachcha challan books and the hisaba books cannot be doubted.

94.2.2 Another plea of the appellant is that the documents, loose sheets, kachcha challan books and hisaba books seized from the premises at 4130, Gali Barna, Sadar Bazar, Delhi, had been planted by one of their employee, Shri Umed Chandelia against whom an FIR has been lodged by Sh. Vikas Malu for mi-appropriation of the money. But this FIR had been lodged during 1999 while the search had taken place in October, 1998. Therefore, the plea that Shri Umed Chandelia, on account of enmity with Shri Mool Chand Malu and Shri Vikas Malu had planted certain documents at 4130, Gali Barna, Sadar Bazar, Delhi, is not tenable.

94.3 In view of the above discussions, we hold that -

(a) the documents listed is annexure to panchnama dated 9-10-1998 of the search of the premises at ‘4130, Gali Barna, Sadar Bazar, Delhi’, pertain to KTPPL and KI; and the same are admissible evidence for proving the allegation of duty evasion against them, and

(b) the Commissioner in the impugned orders has rightly determined the duty liability of KTPPL and KI during the period of dispute by relying upon the daily sheets, kachcha challan books and Hisaba books.

95. Another contention of the appellant is that, in any case, the Department’s case against the appellants is based on only assumptions and presumptions, as in absence of evidence regarding purchase of the raw materials required to manufacture the quantity of the goods, which are alleged to have been cleared and the evidence regarding production of unaccounted finished goods, the allegation of clandestine removal without payment of duty cannot be made just on the basis of kachcha challans, hisaba books and transport companies’ documents.

95.1 The main evidence in support of the allegation of clandestine removal without payment of duty against KTPPL and KI can be summarized as under :-

(1)     Statement each dated 17-11-1998 of Shri Mool Chand Malu and Shri Vikas Malu, wherein they had stated that about 50% of the production of branded Gutka and branded Khaini was being cleared without payment of duty, that this was being done on account of stiff competition and that the kachcha challan books and hisaba books recovered from the premises at 4130, Gali Barna, Sadar Bazar, Delhi pertain to KI and KTPPL and contain the details of all the clearances including the clearances made without payment of duty.

(2)     Seizure of 57 bags of Mool Chand brand Gutka totally weighing 877.8 Kgs valued at Rs. 3,76,200/- (MRP) from the premises of KTPPL at the time of officers’ visit to the factory on 9-10-1998 which was in excess to the recorded balance in RG-I Register, which as such represented unaccounted production.

(3)     Statement dated 17-2-2000 of Shri R.P. Sharma, Authorised Signatory of KTPPL wherein he stated that he was in charge of maintaining the Central Excise records of KTPPL and KI, while Shri C.S. Baid was in charge of the purchase of raw materials, manufacture of khaini and gutka and their dispatch and that he was entering the figures regarding production and clearance in the RG-I register on the basis of information regarding production and clearances given to him by Shri C.S. Baid and that he never verified the figures given to him by Shri Baid to be entered in the RG-I Register.

(4)     Loose sheets, kachcha challan books and hisaba books seized from the premises at 4130, Gali Barna, Delhi. While kachcha challan books contain the details of the each clearance, the hisaba books contain party-wise accounts of the sale of the finished goods. In respect of a larger number of clearances for which kachcha challans have been issued, there are no Central Excise invoices while in respect of some kachcha challans, invoices have been issued. In some cases where kachcha challans mention invoice having been issued only for a part quantity, the invoices are found only for that quantity. In some cases where the invoices have been issued, the value of the goods shown is much lower than the value mentioned in the kachcha challan books which shows that in such cases deliberately low value was being shown in the invoices to evade the taxes. Loose papers contained the detail of clearances of gutka and khaini by M/s. KTPPL and KI during 10-6-1998 to 30-6-1998 period and also the details of purchase of raw materials like tobacco (37330 Kgs.), Plastic Lamination (16383.1 kg.), glycerine, liquid paraffin, and diesel for running of generators during this period.

(5)     The GR nos. in case of transport by road and RR nos. in case of transport by railway, mentioned in the kachcha challans have been found to be genuine and as such, the records of the railways and the transport companies confirm the dispatch of the goods to the parties mentioned in the kachcha challans. Though the consignor’s name in each RR and GR have been found to be fictitious, the number of packages, GR/RR nos. as mentioned in the kachcha challans tally with the number of packages and GR/RR numbers in the GRs/RRs issued by the Transport Companies/Railways.

(6)     Inquiry with the consignees indicates that the consignees mentioned in the kachcha challans had, indeed, been purchasing the branded Gutka and branded Khaini from KI and KTPPL.

As discussed above, the statements of Shri Mool Chand Malu and Shri Vikas Malu, notwithstanding their retractions, are their true, correct and voluntary statements and the same stand corroborated by kachcha challan books and hisaba books which are the evidence of huge clearances of finished goods in respect of which neither any duty had been paid nor any Central Excise invoices had been issued. Since these statements have been recorded under Section 14 of the Central Excise Act, 1944, which is in pari materia with Section 108 of the Customs Act, 1962, in view of the judgments of Hon’ble Supreme Court in cases of - (i) Naresh J. Sukhwani v. Union of India reported in (S.C.), (ii) K.I. Pavunny v. Assistant Collector of Customs reported in and (iii) Surjeet Singh Chhabra v. U.O.I. reported in (S.C.) with regard to evidence value of inculpatory statement recorded under Section 108 of the Customs Act, 1962, the same have to be treated as substantive evidence. The seizure of 57 bags of Mool Chand Brand Gutka weighing 877.8 kgs from the premises of KTPPL on 9-10-1998 which had not been recorded in the RG-I Register is also clear evidence of unaccounted production, as this quantity of Gutka represents several days’ production which had not been recorded in the RG-I Register. The records of purchase of raw materials in loose papers within (Sl. No. 2 of the Annexure to the said panchnama dated 9-10-1998 of the premises at 4130, Gali Barna, Sadar Bazar, Delhi) show unaccounted purchase of 16383.1 kgs. of plastic lamination, 37330 kgs. of tobacco during just 20 days period from 11-6-1998 to 30-6-1998 and while this quantity of lamination and tobacco is sufficient for making lakhs of pouches of gutka and khaini, the production of gutka and khaini recorded by KTPPL and KI during this period is a small fraction of this. The loose sheets also disclose purchase of 29600 ltrs. of diesel during 11-6-1998 to 30-6-1998. Since DG set consumed 55 ltrs. of diesel per hour there was sufficient diesel to manufacture huge quantity of goods by KTPPL & KI. In view of this, the appellant’s plea that the Department’s case is based on assumptions and presumptions is difficult to accept.

95.2 This Tribunal in case of Sai Chemicals Pvt. Ltd. v. CCE reported in has, on the question of burden of proof of clandestine clearances of excisable goods, held as under :-

“It is true that the respondent had not conducted any investigation in relation to buyers of such final product, nor in relation to the transporters, nor there is evidence collected in respect of electricity consumption as well as of any excess intake of raw materials. However, the fact remains that the entries in the private records maintained by the appellants themselves are neither disputed nor shown to be referring to any other material or having been made pertaining for any other purpose. It is settled law that to establish any charge or accusation, it is not the quantity of the evidence but it is the quality of the evidence, which is material. Beside, once the basic facts which are relevant to establish the clandestine manufacture and removal of the final product are not disputed by the manufacturer, the question relating to the absence of further corroborating evidence does not arise. Once it is the case of the appellants themselves that they had maintained detailed records pertaining to the production in the factory and such records having been produced, which apparently revealed certain quantity of production of goods having been suppressed and not disclosed in the statutory records, it certainly amounts to discharge of the initial burden of the Department in establishing the case of the Department about clandestine manufacture and removal of the goods by the manufacturer. The onus then shifts upon the manufacturer to establish that the entries in such private records do not relate to the production in the factory or that the entries do not relate to manufacture and removal of the goods. In the case in hand, the appellants have totally failed to discharge his onus. In such circumstances, the question of further evidence in the form of buyers’ records or transporters’ examination or electricity records or record pertaining to excessive raw material need not be referred to.”

The Tribunal in case of K. Janardhanan Pillai v. Collector of Customs reported in (Tribunal) relying upon the Hon’ble Supreme Court’s judgment in the case of Collector of Customs v. D. Bhoormul reported in (S.C.) and Kanungo & Co. v. Collector of Customs, Calcutta reported in has held thus :-

“So far as trial proceedings in the Criminal Court are concerned, it is the axiomatic proposition of law that circumstantial evidence should point only to the hypothesis, viz., the guilt of the person and should be absolutely incompatible with the innocence of the persons accused of an offence. But the effect of the said decisions of the Supreme Court is that the standard of proof in criminal prosecution before a Criminal Court is different from the standard of proof before the adjudicating authority where pre-ponderance of probability would be guiding factor and proof beyond reasonable doubt relevant in criminal prosecution before a Criminal Court cannot be bodily lifted and transplanted in adjudication proceedings where consideration of probabilities would be the guiding factors. Be that as it may, on consideration of the entire evidence available on record, we are clearly satisfied that the Contract TCF - 1086, in question, was a fictitious and also amended contract to suit the convenience of the appellants, there was a motive on the part of the appellants to earn the foreign exchange illegally by not declaring the full export value of the goods in question in the Shipping Bill and in the G.R.1 form as required under Section 18(1) of FERA”.

In fact, the adjudication proceedings for determining the duty liability and question of penalty for failure to discharge the duty liability are civil proceedings and not criminal proceedings and it is settled law that the standard of proof in civil proceedings is preponderance of probability. In this regard, the Hon’ble Supreme Court in the case of Commissioner of Police, New Delhi v. Narender Singh reported in (2006) 4 SCC 265 has held thus :-

“12. It is not in dispute that the standard of proof required in recording a finding of conviction in a criminal case and in a departmental proceeding are distinct and different. Whereas, in a criminal case, it is essential to prove a charge beyond all reasonable doubt, in a departmental proceeding preponderance of probability would serve the purpose. (see Kamaladevi Agarwal v. State of West Bengal).

13. It is now settled by reason of a catena of decisions of this Court that if an employee has been acquitted of a criminal charge, the same by itself would not be a ground not to initiate a departmental proceeding against him or to drop the same in the event an order of acquittal is passed.”

Thus, for standard of proof required for proving the charge of clandestine removal is preponderance of probability and for establishing the preponderance of probability, it is not the quantity but it is the quality of evidence which is relevant.

95.3 In the present case, the seizure of huge quantity of unaccounted production from the factory premises of KTPPL, the statements of Shri Mool Chand Malu and Vikas Malu clearly admitting that about 50% of the production was being cleared without payment of duty recovery of the kachcha challan books and hisaba books containing details of the clearances in respect of which neither any Central Excise duty nor invoices had been issued, from the premises at 4130, Gali Barna, Sadar Bazar, Delhi which was being used by Shri Moolchand Malu and Sh. Vikas Malu as their guest house, the documents recovered from the railways and transport companies showing that the consignments mentioned in the kachcha challans and hisaba books recovered from the premises of the appellants had, indeed, been transported to the consignees mentioned in the kachcha challans and inquiry with the consignees, clearly show that the KTPPL and KI were involved in large scale of evasion of duty by clandestine removals without payment of duty and just because there is no records of procurement of unaccounted raw materials for the entire period of dispute, it cannot be concluded that there was no unaccounted production and no clearance of finished goods, the details of which are mentioned in the kachcha challan books. Moreover, as discussed above, loose sheets recovered from the premises at ‘4130, Gali Barna, Sadar Bazar, Delhi’ show purchase, during just 20 days period from 11-6-1998 to 30-6-1998, 16383.1 kgs. of plastic lamination, 37330 kgs. of tobacco and 29600 ltr. of diesel for running of generators, which is sufficient for manufacture of huge quantity of Gutka and Khaini pouches. Moreover when, as discussed above, the premises at 4130, Gali Barna, Sadar Bazar, Delhi was under the control of Shri Mool Chand Malu and Shri Vikas Malu and from this premises, the loose sheets, kachcha challan books and hisaba books had been recovered which show huge clearances of finished goods without issue of Central Excise invoices and without payment of duty and the dispatch of the goods is also corroborated by the documents obtained from the transport companies and railways, in view of the judgment of the Tribunal in case of Sai Chemicals (supra) and also the judgment of the Hon’ble Supreme Court in the case of Collector of Customs v. D. Bhoormul (supra), the initial burden of proof for establishing the allegation of removal of the goods without payment of duty can be said to have been discharged by the Department and the onus would, therefore, shift to the appellants - KTPPL and KI to establish that the entries in the kachcha and hisaba books do not relate to the clearances from their factories. But other than disputing the authenticity of the hisaba books and kachcha challan books and raising technical objections about the seizure of these documents, they have not produced any cogent evidence showing that kachcha challans and entries in the hisaba books do not pertain to the sale and clearance of the goods manufactured in their factories. In such circumstances, the question of further evidence in form of records of unaccounted purchase of the raw materials or inquiry with the workers of the factory or electricity consumption etc. is of no relevance.

96. In view of the above discussion, we do not find any infirmity in the impugned orders confirming the duty demands against KTPPL and KI under proviso to Section 11(1) of the Central Excise Act, 1944 along with interest under Section 11AB ibid, on this duty demand at the rate applicable and also imposition of penalty on KTPPL as well as KI under Section 11AC ibid. However, since Section 11AB and 11AC had been introduced w.e.f. 28-9-1996, interest under Section 11AB would be chargeable only in respect of clearances w.e.f. 28-9-1996 and penalty under Section 11AC would be confined only to the duty demand on the clearances w.e.f. 28-9-1996. Since Shri Mool Chand Maloo and Shri Vikas Maloo, Directors of the KTPPL and KI are involved in sale of excisable goods which had been clandestinely cleared and which they knew were liable for confiscation, penalty has been rightly imposed on them under the provisions of Rule 209A of the Central Excise Rules, 1944 and the same is upheld. However, since penalty under Section 11AC has been imposed on KTPPL and KI, penalty on Shri Mool Chand Malu in Order-in-Original Nos. 159/2005, dated 30-12-2005 and 3/2006, dated 30-1-2006 is reduced to Rs. 70 Lakhs and Rs. 70 Lakhs respectively and penalty on Shri Vikas Malu imposed under Order-in-Original No. 159/2005, dated 30-12-2005 is reduced to Rs. 70 lakhs.

97. As regards Shri Gowri Shanker Khattar of M/s. Delhi Marketing Co. and M/s. New Delhi Marketing, Shri Pawan Kumar Karnani of M/s. Mahamaya Trade Agencies, Raipur, Shri Dilip Ram Vallabh Sarda of M/s. Dilip Traders, Shri Bhim Karan Jain of M/s. Snow View Exports, Shri A. C. Kothari of M/s. Kothari Agencies, Shri Ashok Chaudhary of M/s. Chaudhary Sales Corporation, All of them are dealers/distributors of KI and KTPPL. On going through the records, it is seen that all of them had received branded Gutka and branded Khaini cleared without payment of duty from KTPPL and KI and had sold the same. The provisions of Rule 209A of Central Excise Rules, 1944 in respect of them would, therefore, be attracted and hence, penalty has been rightly imposed on them and as such, the same is upheld. However, looking to the volume of transaction the penalty on Shri G.S. Khattar, Shri pawan Kumar Karnani, Shri Bhim Karan Jain in order dated 30-12-2005 and penalty on Shri G.S. Khattar and Shri A.C. Kothari in order dated 30-1-2006 is reduced as under :-

Order-in-Original No. 159/2005, dated 30-12-2005

Order-in-Original No. 3/2006, dated 30-1-2006

97.1 As regards Shri Mahesh Kapoor, while penalty of Rs. 20 Lakhs has been imposed on him vide Order-in-Original No. 159/2005, dated 30-12-2005, penalty of Rs. 50 Lakhs has been imposed on him vide Order-in-Original No. 3/2006, dated 30-1-2006. His role in this duty evasion is discussed in detail in paras 51.27 to 51.31 and 66.4.4 to 66.4.9 of the Order-in-Original No. 3/2006, dated 30-1-2006, and para 56.33 to 56.38 and para 71.4.4 to 41.4.9 of the Order-in-Original No. 159/2005, dated 30-12-2005. While he is an employee of KI, he was owning/controlling two firms - M/s. Ganpati Agencies (GA) and M/s. Ganpati Marketing Company (GMC) - first in his own name and second in the name of his wife and the goods cleared by KI and KTPPL to GA and GMC were being marketed by Shri Kapoor in Punjab & Haryana and U.P. area. Total duty involved on the goods sold through him is about Rs. 1.08 Crores. However, looking to the fact that he is only an employee of KI, though conniving with Shri Mool Chand Malu and Shri Vikas Malu in evasion of duty, total penalty of Rs. 70 Lakhs on him is on higher side and the same is reduced as under :-

97.2 As regards, Shri C.S. Baid, since admittedly, he was the person in charge of purchase of raw materials including the unaccounted raw materials, manufacture of the Branded Gutka and Branded Khaini and dispatch of the finished goods to various consignees and since the evidence on records indicates that dispatches of finished goods without payment of duty and without issue of invoices had been made with his knowledge and since it is Shri C.S. Baid, who was telling that Shri R.P. Sharma, Excise Asstt. regarding the quantity of the goods manufactured to be entered in the RG-I Register, we are of the view that he is also the person involved in dealing with the goods, which he knew were liable for confiscation and hence, penalty under Rule 209A of Central Excise Act, 1944 has rightly been imposed on him. However, since Shri Vaid, he is only an employee of KTPPL and KI, in our view, penalty of Rs. 50 Lakhs vide Order-in-Original No. 159/2005, dated 30-12-2005 and Rs. 50 Lakhs vide Order-in-Original No. 3/2006, dated 30-1-2006 is excessive and hence the same is reduced to Rs. 5 Lakh each (Rupees Five Lakh) each.

97.3 As regards Shri Subh Karan Bothra as per his initial statement dated 9-10-1998 and the statement dated 17-11-1998 of Shri M.C. Maloo and Shri Vikas Maloo, he was the person in charge of Sadar Bazar Office of KTPPL and KI at 3909, Sadar Bazar, Delhi. We agree with the findings of the Commissioner in para 71.3 of the Order-in-Original No. 159/2005, dated 30-12-2005 and para 63.3 of the Order-in-Original No. 3/2006, dated 30-1-2006 that Shri Bothra and Shri C.S. Baid were working in tendem and Shri S.K. Bothra was also involved in the dispatch of the goods to consignees by showing fictitious names of the consignors. Thus, Shri Bothra has also dealt with the excisable goods which he knew were liable for confiscation and penalty on him has rightly been imposed under Rule 209A of the Central Excise Rules. However, Since he is only an employee, the penalty of Rs. 30 Lakhs imposed on him by Order-in-Original No. 159/2005, dated 30-12-2005 and penalty of Rs. 40 Lakhs imposed on him vide Order-in-Original No. 3/2006, dated 30-1-2006 is excessive and as such, the same is reduced to Rs. 2.5 Lakhs each.

97.4 As regards the imposition of penalty on the transporters viz. Jarnail Singh, Shri Harmit Singh and Shri Harpal Singh of RKRT Transport and Devji Bhai of Diamond Transport Companies, we find that there is no dispute that these transport companies had transported the goods cleared without payment of duty. On going through the records, we find that the Commissioner’s finding is that these persons were aware of the illicit nature of the consignments which had been transported by them and hence, penalty on them has rightly been imposed under Rule 209A of the Central Excise, Rules. We agree with the Commissioner’s findings as in all the GRs consignors’ names and addresses were bogus and the invoices covering the consignments were bogus and there is evidence on record indicating that the transporters were aware of the fact that the consignees are fictitious. However, looking to the facts that they are only the transporters, penalty of Rs. 20 Lakh each imposed by the impugned orders dated 30-12-2005 and 30-1-2006 on Shri Devji Bhai and penalty of Rs. 10 Lakh each and Rs. 20 Lakh each imposed on Shri Jarnail Singh, Shri Harmit Singh and Shri Harpal Singh of M/s. RKRT vide Order-in-Original No. 159/05 dated 30-12-2005 and Order-in-Original No. 3/2006, dated 30-1-2006 respectively appears to be excessive and as such, while penalty on Shri Devji Bhai is reduced to Rs. 3 Lakh each, penalty on Shri Harmit Singh, Jarnail Singh and Shri Harpal Singh is reduced to Rs. 1 Lakh each in the impugned order No. 159/2005, dated 30-12-2005 and to Rs. 50,000/- (Fifty Thousand only) each in Order-in-Original No. 3/2006, dated 30-1-2006.

97.5 As regards the confiscation of land, building, plant & machinery of KTPPL and KI under Rule 173Q(2) of the Central Excise Rules, 1944, the same has been rightly ordered as in both the cases, the duty involved on the clearances of finished goods in contravention of the provisions of the Central Excise Rules, 1944 exceeds Rs. One Lakh and thus, the conditions for confiscation under Rule 173Q(2) are satisfied.

98. The impugned orders are, therefore, upheld except for modification of the quantum of penalty as mentioned above and interest on duty under Section 11AB which shall be chargeable only in respect of clearances w.e.f. 28-9-1996. The penalty on KTPPL and KI under Section 11AC of Central Excise Act, 1944 shall be requantified by the Commissioner as per the directions in para 6 above for which the matter is remanded to the Commissioner. The appeals stand disposed of as above.

ORDER

99. In view of difference of opinion, it is necessary to place the matter before the third Member. The registry shall do the needful in this regard.

100. [Order]. - The difference of opinion has arisen in the above matters in relation to sufficiency of evidence to support the charges against the assessee. The point for consideration is, therefore, whether the evidence on record is sufficient to prove the charges against the assessee as held by Hon’ble Member (Technical) or is not sufficient to sustain the charges against the assessee as held by Hon’ble President.

101. This order is passed pursuant to perusal of the order dated 12-5-2011 by the Hon’ble Member before whom the matter was placed. Registry to do the needful in the matter.

102. [Order per : M.V. Ravindran, Member (J)]. - This matter was called out today for hearing Difference of opinion between the Hon’ble President and Hon’ble Member (Technical) which was referred to me.

This difference of opinion was heard on 14th and 15th July 2011 and then on day to day basis from 17th July 2011 to 20th July 2011.

At the outset learned CDR and Jt. CDR submitted that they pray for adjournment in order to engage a Senior Law officer. After hearing both sides this Court passed the following order :

“When this matter was called out, learned CDR appearing on behalf of the Department submitted that when the matter was called out first for hearing on 12th May, 2011, the matter was adjourned for engaging Senior Law officer and for specific difference of opinion and second time it was adjourned for engaging Senior law officer by the Government of India. He also makes a request for adjournment today for 4 weeks on the ground that senior law officer is not available. It is his submission that at the earlier occasion he sought adjournment for 8 weeks time.

2 On careful consideration of the submissions made by the learned CDR, this Bench was pleased to bring to his notice that on the date of second hearing i.e. on 22-6-2011, the Bench had specifically stated that both sides were informed that no adjournment for whatsoever reason will be granted on date fixed for hearing i.e. on 14-7-2011. In view of the specific mentioning by the Bench, it was for the Revenue to arrange for engagement of counsel in time. Accordingly, I am of the view that request made by the learned CDR needs to be declined and is declined and I propose to proceed ahead in the matter.

3. Learned Jt. CDR, Shri B.K. Singh, submits that a copy of this order be issued first and then only they will put forth their arguments. In my view, this submission made by the learned Jt. CDR seems to be not within the realms of Judicial discipline, as appearance is one thing and issuance of an order is another. In any case, copy of order be issued to the Department.

4. Learned Senior Counsel Shri A. Hidyatullah submits that Revenue could not seek adjournment orally, and they should have had courtesy of seeking adjournment at least two days in advance and inform the Bench in advance so that time of Bench, as well as time of Senior Counsel who came from outstation could have been saved.

5. The learned Jt. CDR request for copy of this order is granted and be issued to them by dasti and his submission that they will be making appearance only after receipt of order is not appreciated and needs to be deprecated. Be that as it may, copy of this order be issued dasti.

6. Copy of this order may also be forwarded to Hon’ble President, CESTAT for his information.”

103. The facts of the case are already detailed out by both Hon’ble President and Hon’ble Member (Technical) and therefore are not being repeated in this order.

103.2 Learned Senior Advocate Shri Hidyatullah assisted by Kamal Jeet Singh and Shri Manish Pushkarna, advocates appeared on behalf of the assessee.

104.1 Learned Senior Advocate submitted that as regards the view taken by Hon’ble President, that the Revenue has failed to prove their allegations and consequently demand of dues and penalties needs to be set aside, submitted as under :-

104.2 It is his submission that in order to prove the allegation of clandestine removal it has to be proved by the Department that there was clandestine manufacturing. It is his submission that to allege clandestine removal, there has to be first clandestine manufacturing. He would submit that there are no evidence of proportionate purchases of the main raw material and/or other raw materials which are required and used in the manufacturing of the final product i.e. ‘Gutka’/‘Pan Masala’. He would submit that the clandestine manufacturing activity first has to be brought on record and then only clandestine removal if any can be alleged by the Department. It is his submission that the clandestine manufacturing and clearance charges needs to be proved by the Department and it is the burden on the Department to do so.

104.3 He took me through the final order recorded by the Hon’ble President from paragraph 41 onwards. He would draw my attention to the points on which the Hon’ble President has considered for holding that adjudication order needs to be set aside. He further submitted that as per Hon’ble President’s order (i) adjudicating authority has relied upon the DO letter dated 11-8-1997 of the Chairman of the Board to hold against petitioner as regards manufacturing of gutka and pan masala; (ii) Panchnama drawn at the premises of Jyoti Packers and Rajlakshmi and production capacity of the appellants; (iii) Evidence in form of chits. It is his submission that DO letter issued by the Chairman is only a letter and not an order under Section 37B of the Central Excise Act to have mandatory or statutory force. It is his submission that Revenue has not been able to prove with cogent evidence that the appellants to have manufactured excess quantity of finished goods, which has not been recorded and clandestinely removed. He would draw my attention to paragraphs 50, 51 onwards of the order of the Hon’ble President, and submit that the adjudicating authority has not been able to produce any evidence regarding the clandestine purchases of raw material. It is his submission that the Kachcha chits/Hisaba book, relied upon by the adjudicating authority to come to a conclusion that there was clandestine manufacture, also does not indicate anything about the purchases of main raw materials and that who is author of such kachcha chits/Hisaba book. It is his submission that in the absence of any indication as to who the author or who has written the chits/Hisaba book and made available for cross-examination, reliance cannot be placed on them to press home serious charge of clandestine removal and reliance on such chits as is done by the learned Member (Technical). It is his submission that in the absence of any evidence either regarding the author of the chits or any evidence of excess procurement of raw material or sale of final product, the view taken by Hon’ble President is correct.

104.4 It is his submission that on the date of visit of the officers to the appellant’s factory, it is to be noted that there was no difference of stock of raw material and finished the goods, though 57 bags of finished products were lying in Shop floor of the factory premises. It is his submission that the lower authorities have not recorded any statement of the purchaser of final products of the appellants and there is nothing on the record to indicate that purchasers of finished products made payments in cash to the company or their representative. It is also his submission that the Revenue has not brought on record any unaccounted cash lying in the factory premises or anywhere else which could be linked to appellants. For this proposition regarding there being no clandestine manufacturing of goods, the charge of clandestine removal cannot be fastened, he relied upon on the following judgments :

(i)      Ruby Chlorates (P) Ltd. v. CCE, Trichy - (paras 21, 22, 23 and 24)

(ii)    Jagatpal Prem Chand Ltd. v. CCE Delhi II - (Tri-Del.) (paras 10, 11, 12)

(iii)   Ghodavat Pan Masala Products Ltd. v. CCE, Pune - (para 14)

104.5 On specific query from the Bench, it is his submission that there is nothing on record that Revenue has preferred any appeal against these decisions but he submits that in the case of Durga Trading Company [] in para 9, in an identical issue it was held that no inference can be drawn for clandestine removal unless there is evidence of clandestine manufacture of the goods. It is his submission that this matter was challenged by the Revenue in Civil Appeal before the Apex Court which was pleased to dismiss the appeal after condoning the delay as reported at (A.C.).

104.6 It is his submission that the adjudicating authority’s finding to hold that there is clandestine removal based upon the chits/Hisaba book, as upheld by Hon’ble Member (Technical) is on the premise that chits which were recovered were from the premises/house of some other person. It is his submission that it was recovery from third party’s premises. He would submit that unless the adjudicating authority has brought on record the author of the said chits and his relation with the company, said chits cannot be held as an evidence of clandestine removal of goods.

104.7 For this proposition, he would rely upon the Sharadha Forge Pvt. Ltd. v. CCE, Rajkot reported in (para 2) and Hyderabad Electrodes v. CCE, Hyderabad [] (para 5).

104.8 It is his submission that in Sharadha Forge case, the Bench specifically relied upon the decision of Durga Trading Co. as upheld by the Apex Court, and held that since there is no clarity as to who is the author of the chits the same cannot be relied against the assessee. He would place reliance on the decision of the Tribunal in the case of Vigirom Chem Pvt. Ltd.v. CCE, Bangalore [] and Atlas Conductors v. CCE, Mumbai reported in (Tri.-Mum.) for the proposition that their cannot be clandestine removal unless there is clandestine manufacturing.

104.9 It is his submission that the adjudicating authority has relied upon the evidence of manufacturing activity in the form of other manufacture is totally erroneous as the same is done behind the back of the assessee. It is his submission that the show cause notice to appellant was issued on 31-7-2000, while the checking or observing of manufacturing activities of other manufacturers by the adjudicating authority was conducted on 20-10-2000 and 12-2-2004. He would point out paragraph Nos. 54.6 and 54.7 for this and submit that to come to a conclusion that the appellant was clandestinely manufacturing, reliance cannot be placed on extraneous material not put up to assessee in show cause notice. It is his submission that Hon’ble High Court of Bombay in the case of Advani Oerlikon Ltd. and another v. Union of India and Others as reported at has specifically deprecated such action. He would submit that this would amount to reliance being placed as an evidence not disclosed to appellants and is beyond the scope of show cause notice as it was not relied upon.

104.10 It is his further submission that the adjudicating authority has relied upon the output of manufacturing activity in the form of other manufacture is totally beyond the scope of ahow cause notice and it is not correct. Such evidence was not put forth in the show cause notice. He would draw my attention to the show cause notice which was issued on 31-7-2000. In the case of Amar Jyoti Factories the observation of manufacturing activities was done by the adjudicating authority as on 20-10-2000 and in the case of Raj Lakshmi, observation was conducted on 12-7-2004. It is his submission that adjudicating authority in his order-in-original in paras 54.6 and 54.7 has extensively relied upon the capacity of production of these two manufacturers to come to a conclusion that the appellants could have manufacture more number of gutka/pan masala and hence there is clandestine manufacture. It is his submission that after issue of show cause notice, any evidence collected, should be put forth to them so that they are given an opportunity to defend or controvert such evidence. In the absence, the reliance placed by the adjudicating authority as held correct by the learned Member (Technical) is incorrect proposition of law.

104.11 It is his submission that Hon’ble High Court of Bombay in the case of Advani Oerlikon Ltd. and Another v. Union of India and Others as reported at has specifically deprecated this kind of demands confirmed by the authorities. He would draw my attention to para 6 wherein the High Court has specifically laid down that the orders passed by the Revenue authorities relying upon the personal observations in other factories, cannot be held as evidence against the appellants. It is his submission that in this case it has taken place so and the order of the Member (Technical) on that point is incorrect and order of the Hon’ble President holding that there is no evidence, is correct proposition of law.

104.12 It is his submission that reliance is placed by Hon’ble Member (Technical) upon the statement of one Shri Vikas Maloo, Director wherein it was stated that there was clandestine clearance to clear 50% of production. It is his submission that such statement was retracted by an affidavit filed in 2002, as soon as show cause notice was issued and he offered himself for cross-examination before the adjudicating authority which the adjudicating authority has not considered and not conducted the cross-examination. It is his submission that once the person has offered himself for cross-examination on a point which was against him and having not done so such statement cannot be relied upon. It is his submission that Vikas Maloo has in his affidavit stated that he was not the Director during the relevant period when investigating officers visited the premises.

104.13 It is his further submission that as regards the evidence relied upon by the Revenue on the kachcha chits recovered on 22-8-2002, the advocate of the appellants have filed an interim reply seeking for the inspection of relied upon documents and original documents. It is his submission that in the said reply the counsel of the appellant has specifically brought out that there is mis-match of quantity and value from information that kachcha chits relied upon by the Revenue and entries made in the records, it is his submission that this particular reply dated 28-8-2002 was not considered by Member (Technical) while arriving at conclusion while recording his finding on the kachcha challans.

104.14 In summary, it is his submission that in the case of Atlas Conductors (supra), this Bench has taken a clear view that the demand cannot on presumption of manufacture but on the basis of actual manufacture which is the basis to come to conclusion as recorded by Hon’ble President in para 47 onwards that the findings of the adjudicating authority are without any evidence and is not correct view and is liable to be set aside.

104.15 Learned Senior Advocate submits that the order of Hon’ble Member (Technical) is incorrect and has not considered various evidences which were given during hearing. He would take me through a paragraph 3 onwards till paragraph 5. It is his submission that learned Member (Technical) has not considered the fact that Shri Moolchand Maloo and Shri Vikas Maloo had filed the affidavit as regards the meeting which took place, which was recorded in the statement placed on 17-11-1998. It is his submission that in the said affidavit dated 3-9-2002 Shri Moolchand Maloo had categorically stated that if required, he could be cross-examined by the Department. It is his submission that in view of this affidavit, which were placed by Shri Vikas Maloo it cannot be held that they had admitted the clandestine removal and should have been decided on the points raised in the affidavit filed. It is his further submission that it is on record that Shri Bothra had brought the keys of the said premises at 4130, Gali Barna but at the same time panchnama does not mention the time of search as to when it started and when it was completed. It is his submission that in para 4.2.1 of the order of Hon’ble Member (Technical), it is recorded that documents were written by Shri Kishan Sharma and Shri Umed Jain. It was his submission that it was stated in the statements of directors that the documents which were recovered were written by Shri Kishan Sharma can not be held as implicating as Revenue authorities did not produce these persons to authenticate the entries made in the said records in Kachcha challans and Hisaba book. For this proposition he would rely upon the judgment of the Supreme Court in the case of Ramji Dayawala v. Invest Import reported at AIR (1981) S.C. 2085 and more specifically para 16 and Bareilly Electricity Supply v. The Workmen reported at AIR 1972 (SC) 330 and more specifically para No. 14. It is also his submission that Hon’ble High Court of Punjab and Haryana in Laxmi Engg. Works reported at (P & H) upheld the law that it is necessary to have some positive evidence of clandestine removal of goods which has been retracted and Hon’ble High Court of M.P. in the case of UOI v. MSS Foods Products reported at (MP), it is his submission that once the affidavit has been filed on description of the individual and has offered for cross-examination, which has not been availed by the authorities, then the affidavit has to be considered as the correct and true picture of the proceedings.

104.16 He would rely upon the judgment of the Hon’ble Supreme Court in the case of Godrej Indus. Ltd. v. D.G. Ahire reported at (S.C.) and more specifically para 41. He would also rely upon the judgment of Subhash Chandarnishat v. UOI reported at 1979 (4) E.L.T. (J212) (Bom.) and more specifically page 223. He would also draw my attention to para 4.3 of the order of the Hon’ble Member (Technical) and submit that, as recorded by Hon’ble Member (T) seizure of huge quantity of unaccounted production is totally incorrect expression, as total quantity seized was 877 kg. (57 bags,) which was found lying on the shop floor of the factory premises. It is his submission that as regards the reliance placed on the purchase of material he would submit that during the proceedings before the Division Bench, they had filed the detailed chart which indicted how and what quantity of raw material, packing material or other material was purchased which was sought to be relied upon by the Revenue to hold against the appellants. After taking me through the said chart, it is his submission that it is very clearly mentioned that all the goods are supplied to either Kuber International or Kuber Tobacco Ltd. on payments received by cheques and no cash payment was ever received. He would submit that these submissions were recorded by suppliers and factory incharge of the appellants who also specifically mentioned that goods were procured from suppliers whose names and addresses were given but Revenue failed to pursue these leads.

104.17 As regards the contention on the consumption, it is his submission that during the hearing before the Division Bench they have given detailed work sheet made, which was not properly considered by Hon’ble Member (Technical) for arriving at the conclusion.

104.18 As regards the evidence relied upon by the Hon’ble Member (Technical) in respect of transactions noted on GRs/TRs of the transporter bag, it is his submission that when the matter was argued before the Division Bench, they have given the details of the submissions which were recorded in the synopsis and the some of which is being now produced. It is his submission that it should be noted that all these consignments were booked either in the name of self or in the name of one Northern Marketing Company. It is also his submission that booking clerk from various Transporters have specifically stated that they always insist upon documents before booking, in the absence of which they (transporters) do not book consignment. It was his further submission that GRs/TRs which are referred to by Revenue are third party documents. It was his submission that any alteration therein or addition and deletion to the description of the product could be properly explained by the transporter which is not on record.

104.19 It is his further submission that as regards the case of Kuber International, the said show cause notice issued was on identical set of facts and evidence and the proceedings before the Division Bench proceeded on the ground that it is a common order being dealt in for both show cause notices issued. In view of this the submissions made earlier would suffice for this case also, however, in any case he would bring on record the similarities of show cause notice and relied upon documents as appended to both the show cause notices. It is his further submission that Hon’ble Member (Technical) while recording the submission has categorically stated that all these issues are common and hence they are disposed of by common orders. Hence the submissions made by them in respect of Kuber Tobacco are applicable to Kuber International also.

104.20 Learned Senior Counsel also submits that decision relied upon by the Hon’ble Member (T) in the case of D. Bhoormull (supra) was distinguished by the Hon’ble High Court in the case of Ganesh Enterprises wherein it was held that decision of D. Bhoormull was correct in the facts and circumstances of that case. It is his submission that the decision of D. Bhoormull [ (S.C.)] may not be applicable in this case, as it was in the case of smuggling of goods but here in this case there is a question of manufacturing activity and clandestine removal. He would distinguish the judgment of Radheshyam Kanoria v. CCE [].

105. When this matter was called out in the afternoon for the hearing of the submissions from the Department’s side, learned CDR submits that as per Section 129C(5) the point or points of difference should have been referred to third Member but in this case it is not so; it is his submission that unless the point or points of difference is not properly formulated or referred, they are not in a position to argue and not prepared in the matter.

105.1 It is noticed and brought to the attention of learned CDR that in the first session when the matter was called out, learned CDR had prayed for adjournment of the matter for four weeks which was declined. Again in the afternoon session, learned CDR cannot submit that they are not prepared for arguments.

105.2 After giving due consideration to the submission of learned CDR, I find that on 12th May, 2011 when the matter was listed for hearing before me for the first time, the Jt. CDR as well as the counsel of the assessee raised the issue of specific point or points of difference which was not noted in the referral order and requested that it may be placed before the Hon’ble President for formulation of specific point or points of difference. In furtherance of such an order by the Bench, the referral Bench passed the following order raising the point of difference of opinion :

“The difference of opinion has arisen in the above matters in relation to sufficiency of evidence to support the charges against the assessee. The point for consideration is, therefore, whether the evidence on record is sufficient to prove the charges against the assessee as held by Hon’ble Member (Technical) or is not sufficient to sustain the charges against the assessee as held by Hon’ble President.”

105.3 It can be seen from the above reproduced order that the point of difference between the Hon’ble President and Hon’ble Member (Technical) is whether there is sufficient evidence to prove the charges against the assessee or not sufficient in their respective orders. In my considered opinion, this satisfies the requirement of Section 129C(5) of the Customs Act, 1962, for hearing the difference of opinion. As regards, the submissions of the learned CDR that they are not in a position to argue this matter as they have not prepared, I have already recorded an order today morning which has been circulated and issued declining their request for adjournment. In any case, in order to meet the ends of justice, this matter will be taken up tomorrow for hearing the arguments of Revenue.

106. The matter was called out today (17-7-2011) for arguments of Jt. CDR.

106.1 Learned Jt. CDR starting the arguments on behalf of the Revenue reads the order written by the Hon’ble President and submits that Hon’ble President has recorded his arguments after the Member (Technical) recorded his comments. It is his submission that Hon’ble President has not addressed to the findings recorded by the Hon’ble Member (Technical) on many evidences which were relied upon by the Hon’ble Member (Technical) to come to conclusion. He reads the difference of opinion which was referred to the Bench and submits that the entire evidence on record needs to be gone into the details as the point for consideration was mentioned whether the evidence on record is sufficient to prove charges or not. He would exhort me to go through the evidence on record.

106.2 On a specific direction from the Bench that, the scope of third Member reference is limited to the difference of opinion and the evidence recorded by the Hon’ble Member (Technical) and Hon’ble President, he took me to the findings recorded by the Hon’ble President from para No. 15 onwards on the Panchnama drawn on 9-10-1998.

106.3 It is his submission that difference of opinion which is referred talks about sufficiency of evidence i.e. to say preponderance of evidence on record to come to conclusion whether the charges are proved or not. He painstakingly, takes me through the entire findings recorded by the Hon’ble President from para 15 onwards. After taking me through the entire finding, it is his submission that the letter of the chairman of the C.B.E. & C. was not relied upon by the Revenue but was produced by the appellants during the course of proceedings before the adjudicating authority. It is his submission that the adjudicating authority has not concluded the matter of clandestine removal/manufacture based upon such letter. It is his submission that for arriving at the conclusion whether there was clandestine manufacture or not it has to be first concluded that whether there was clandestine clearance or not. For this purpose, he would submit that entire reading of the findings recorded by the Hon’ble President would indicate that the panchnama was drawn at particular premises of 4130, Gali Barna, Sadar Bazar, Delhi, was done in the presence of authorised person of the appellant i.e. one Shri S.K. Bothra was discarded. After taking me through the entire findings recorded by the Hon’ble President as regards the panchnama being faulty, it is his submission that :

(i)      Panchnama was recorded in the presence of persons/officers who prepared such panchnama whose name is mentioned;

(ii)    The key of the premises (No. 4130, Gali Barna) was brought and lock was opened by Shri S.K. Bothra;

(iii)   Non-mentioning of the name and surrounding of the premises in the panchnama cannot be said to discredit the panchnama;

(iv)   Non-mentioning of the description of the premises and the exact site of the premises cannot be taken as panchnama being faulty or discreditable.

(v)     That out of documents seized in Panchnama, the Revenues is more concerned and place reliance on the entry mentioned at Sr. No. 2 and Sr. No. 5 i.e. Folders containing loose paper and loose paper file.

(vi)   Panchnama recorded the submission that Shri Bothra before opening the premises had brought the keys from the head office and there is no need for any further corroboration as Shri Bothra was called from the head office and he has brought the keys along with him.

(vii)  Panchnama indicates the presence of Shri Bothra during the search is recorded in panchnama.

106.4 It is his submission that the finding of the Hon’ble President that documents which were recovered and author(s) thereof were not identified is incorrect, as there is a statement indicating that one Shri Kishan Sharma, employee of the assessee was the author of such kachcha chits and Hisaba book. It is his submission that this person was not produced for recording the statement to adduce fool-proof evidence as to the author of chits, as he was not available and did not appear despite summons.

106.5 It is his submission that the entries recorded in the statutory records and in the Hisaba book were reconciled. It is his submission that it was recorded in such a way that entries in records needs to be read less 2 digits as per the statement of Shri C.S. Vaid, summary of which is reproduced in para 7.15 of the show cause notice. It is his submission that the documents which are described as Kachcha chits/Hisaba books were in fact recovered in the presence of Mr. Bothra under a panchnama from the premises, used by the appellants as Guest House, and hence the conclusion reached by the adjudicating authority and upheld by Hon’ble Member (Technical) as regards the reliance on such documents to hold that there is clandestine removal of goods is correct.

106.6 It is his submission that the findings of the Hon’ble President that panchnama was faulty and hence the documents recovered under the panchnama could not be relied upon is totally incorrect and cannot be considered as being in accordance with law.

106.7 Due to paucity of time it was informed that matter will be taken up for further submissions of learned Jt. CDR on Monday, the 18th July, 2011.

106.8 When this matter was called out today, learned Jt. CDR continued his arguments. It was submitted that he would like to add some more arguments on the panchnama issue. It is his submission that panchnama was recorded first and statement of Shri Bothra was recorded separately afterwords. He reads the statement of Shri Bothra extensively found at page 44 to 58. He would like to submit the following :

1.      Shri Bothra is authorised signatory;

2.      There was a search in 3909, Gali Barna and subsequently Shri Bothra was called to produce keys of premises of 4130, Gali Barna where Central Excise officers were present;

3.      The locks were opened by him in the presence of two officers and panchas;

4.      This house is used as Guest House by their company.

5.      Papers found in Panchnama belonged to the company. It is his submission that his statement was recorded subsequent to panchnama which was drawn at 4130, Gali Barna.

106.9 Learned Jt. CDR would submit that the findings recorded by Hon’ble President regarding the connection of the documents which were recovered during the panchnama as inconclusive is wrong and he would submit that veracity of the documents and doubting the same is incorrect. For this purpose, he would take me extensively through the statement of Shri Moolchand Maloo and Shri Vikas Maloo at pages 65-72 and 73-76 respectively and submit that both the Directors have clearly recorded that the documents as recovered by panchnama, are written by one Shri Kishan Sharma. He would submit that the recorded statement was retracted afterwards and which was very much belated and there are many evidences which would render the retraction as not a proper retraction and the original statement by these directors stands as it was, and was correctly relied upon by the Commissioner and wrongly discarded by Hon’ble President. It is his further submission that the retraction which was done and letter of retraction was addressed to the Commissioner of Central Excise, Delhi while statements were recorded by the Superintendent. It is his submission that any retraction of the statement should be done before the same authorities who has recorded the statement. For this proposition, he relied upon the decision in the case of CCE, Bombay-I v. Champion Confectionery reported in (Tri.-Mum.). He draws my attention to Paragraph 9.

106.10 Learned Jt. CDR after extensively reading from para 36 to para 45 of the order of the Hon’ble President submits that there is no retraction of the statement done by Shri Moolchand Maloo or Vikas Maloo. It is his submission that retraction letters which were written would not indicate what kind of force was used. It is his submission that such letters contains activity which was done subsequently i.e. on 19-11-1998 which cannot be recorded on 18-11-1998. It is his further submission that the finding recorded by the Hon’ble President in para 42-43 does not bear out of actual proceeding as it was undisputed that documents were recovered from 4130, Gali Barna. It is his submission that subsequently when the authorised signatory and others, when confronted with the documents, it came out that the documents, indicated details of clearance made to various distributors which included the clearances which were recorded in the statutory records and also clearances which were not recorded in the statutory records. It is his submission that there is a relation or link between the documents which were recovered and shown to the Directors/employees of the Company. It is his submission that as from the statement of Shri Bothra which is very clear that there is no dispute that he has brought the keys and opened the premises, it makes no difference that he opened the ‘lock’ or ‘locks’ and it is disclosed in his statement that premises at 4130, Gali Barna was used as guest house for the people who are coming for official work of the company. It is his further submission, that the Directors in their retraction of the statement indicated that Shri Bothra was not the employee of KTPPL/KI, but on perusal of the attendance register at page 914 of the documents placed by him, it is very clear that Shri Bothra’s name is recorded as first employee of the company. In sum, it is his submission that the findings recorded by the Hon’ble President upto para 46 discarding panchnama as being incorrect and other documents cannot be relied, is not in accordance with the law. It is his submission that there cannot be a coercion, only by uttering the words of possibility of arrest of an individual.

106.11 After extensively reading of para 49 onwards of the order of the Hon’ble President, is it his submission that there is evidence to show that there is clandestine removal, the clandestine manufacturing activity has to be presumed to have taken place. It is his submission that the Revenue officers has made the statement of the clearances recorded in Hisaba book, kachcha challans and correlated the same with GR’s available, after deleting, the entries that were found entered in the statutory books and found to be correct and the demand of the duty has been worked out. It is his submission that once there is evidence to indicate that there was clandestine removal of the goods in the form of party-wise information on the Hisaba book/kachcha challans, and it being co-related with the GR available with the transporter (as annexed from page 232-252) in respect of one transporter, the proof of preponderance of the clearance of the goods clandestinely from the factory of the appellants is proved. It is his submission that GR copies which has been referred to in the proceedings undoubtedly indicate that there is overwriting of ‘gum powder’ and it is proved that gum powder has been written subsequently, but it is not clear who has scored out Gutka and it was written as ‘gum powder’. It was his further submission, on specific query from the Bench, that transporter’s statement was recorded but they were categorical in stating that correction/over-writing, was done by some of the employee of transporters and they cannot be produced for further examination or recording of the statement, as the employee has left the job.

106.12 Learned Jt. CDR on this juncture submits that proposition given by learned Senior advocate today was placed before the Bench which differed on matter but both the members, i.e. Hon’ble President as well as Hon’ble Member (Technical) did not record any finding or did not refer.

106.13 When this mater was called out, learned Jt. CDR raises the preliminary objection regarding the continuation of the matter to be heard by this Court. It is his submission that this Court has not been constituted as per the provisions of CEGAT Notification No. 2/CEGAT/99, dated 16-7-1999, as in the absence of Hon’ble President either on leave or on tour, Senior Vice President is required to exercise such powers.

106.13.1 Learned Counsel on the other hand, submitted that being a part heard matter, which has been continuing from 14-7-2011, there is no need for further constitution of the Bench.

107. On careful consideration of the submissions made by both sides. It is to be noted that this Court has been hearing this matter from 14-7-2011 continuously and hence this is a part heard matter which is being continuously heard. It is also brought to the notice of Jt. CDR, that the Roster for sitting of this Court was issued by Registrar and the same is issued as per directions of the Hon’ble President. In view of this, in my considered opinion, there is no irregularity or any further requirement for any constitution of the Bench for hearing Difference of opinion. In view of this, Jt. CDR is directed to proceed ahead and put forth further arguments on behalf of Revenue.

108.1 As per the direction of the Bench, in continuation of the submissions, ld. Jt. CDR submits that there is evidence to show that extra packaging material was purchased and supplied by supplier. It is his submission that in most of the cases where goods are clandestinely removed and booked through transporter consignor/consignee, name mentioned on the GRs are fictitious. He would draw my attention to pages 471 and 477 and 480 to support the proposition, and statements of various persons to submit that consignor/consignee name as indicated in the address were not present or fictitious. It is his submission that sale of clandestinely removed goods is proved by seizure of the goods manufactured by the appellants from Mahamaya Trading Co., Raipur and from Gauhati. It is his submission that when the consignments were verified, it is noted and recorded that pouches of gutkas were manufactured by the appellant-company in September 1998. He would submit that appeal should be considered on the basis of evidence/panchnama/submissions at pages 514, 518 and 521 of the papers given by them.

108.2 It is his submission that once there has been evidence to indicate that there was clandestine removal of the goods, further evidence of clandestine manufacture need not be given. It is his submission that expert opinion need not be taken in cases where the appellant Directors and various consignors and the presence of kachcha challans and Hisaba books were entered and recorded by one Shri Kishan Sharma, who is their employee. It is his submission that adjudicating authority in para 57.15 of the order-in-original has clearly recorded that said Mr. Kishan Sharma, was sought to be contacted by various means and also by issuing summons, but was not traceable. It is his submission that the appellants herein have intimated the authorities that Mr. Kishan Sharma has left the services and they were not aware of his address. It is his submission that Shri Kishan Sharma being employee of appellant-company should have been produced for recording statement. He would distinguish the decision cited by Senior Counsel in the case of Ramji Dayawala (supra), Bareilly Electricity Supply (supra) and MSS Foods (supra) on the ground that the facts and circumstances mentioned in those cases and in the current cases are totally different. It is his submission in the cases in hand, Revenue did their best to bring on record all the evidence against the assessee while in the cases which were referred to, the issue was not that of same.

108.3 It is his submission that the affidavit filed by Vikas Maloo need not be considered by the Court for following reasons :

1.      That Vikas Maloo has filed the affidavit on behalf of his father which is not correct.

2.      The said affidavit has been filed almost after three years after recording of the statement.

3.      That affidavit did not contradict the facts which were recorded in the statement and that the said affidavit only talks about his offering himself for cross-examination. He would submit that decisions relied upon by the learned Counsel in the case of Godrej Indus Ltd. can be distinguished directly on the facts of the case as jurisdiction involved were is not the same as in Godrej Indus. case.

108.4 He would distinguish the following cases as relied upon by the learned Senior Counsel on the facts of the issue.

(i)      Laxmi Engineering Works (supra)

(ii)    Mittal Steel (supra)

(iii)   Vigirom Chem (supra)

(iv)   Atlas Conductors (supra)

(v)     Hyderabad Electrodes (supra)

(vi)   Ghodavat Pan Masala

(vii)  Ruby Cholrates (supra)

viii)  Ganesh Enterprises (supra)

108.5 Learned Jt. CDR continuing the arguments, supplements the order written by Hon’ble Member (Technical). Reading paras 3, 4 and 5 of the Hon’ble Member’s order he submits that there is a submission of Shri R.P. Sharma which is indicating that production in the factory is recorded as per the direction of Mr. C.S. Baid. It is his submission that entire records of the factory which has been relied upon by the other side is written only based upon the instructions of Shri Baid and reconciliation done of the records recovered at 4130, Gali Barna is correct reconciliation for the demand of duty. It is his further submission that entire dispute on records arose due to the reason that the statements recorded by Shri Bothra, were denied in cross-examination, which resulted in the doubtfulness of the documents recovered at 4130, Gali Barna on 9-10-1998. It is his submission that Hon’ble Member (Technical) has correctly come to a conclusion that even at the stage of cross-examination, it was admitted that the recovery of documents from the place was done so in his presence. It is his submission that Shri Bothra claimed to be an employee of Durga Trading Co., but perusal of record, it reveals that he was an employee of KTPPL. On specific query from the Bench it was submitted that Shri C.S. Baid was not a personal employee of M.C. Maloo. It is his submission that in the cross-examination if the employee of the company is asked questions, it is expected that such employee will always support his employer and give a submission favourable to employee.

109. Shri R.K. Verma, DR, arguing for the Department in the case of Kuber International submits as under :

109.1 He supports the order recorded by Hon’ble Member (Technical) as has been submitted by his senior Jt. CDR Shri B.K. Singh and adopted the arguments made by Shri B.K. Singh. He further submits as under :

(1)     that the bone of contention regarding the authenticity of records needs to be gone into this case. He would submit that records were recovered/resumed for KTPPL and KI are the same and were from 4130, Gali Barna..

(2)     He would submit that as regards the authenticity and entries of records in the said hisaba books, as a specimen case he takes the entry in respect of Bhagwati General Mills and Diamond Transporters.

109.2 He would extensively take me through paras 16.1 and 19.2 of the show cause notice and submit that the details recorded therein clearly indicate that these were transactions which were recorded in the accounts meticulously, by the person. It is his submission that these transactions indicated the invoice numbers, cheques numbers, mode of payment DD numbers and was reconciled with the transactions recorded in the statutory books, and it clearly reveals that these documents cannot be doubted upon. It is also his submission that it cannot be anyone’s case that these documents are forged and implanted by any person in order to make case against the assessee. He would submit that the allegations as detailed in paras 16.1 and 19.2 of the Show cause notice are found correct as recorded in order-in-original. It is his submission that his endeavour to read out to this particular paras of the show cause notice and the order-in-original is to supplement to the order of the Hon’ble Member (Technical) wherein he has recorded in paras 5.1 (4) and (5) as regards the loose sheets Kachcha challans books and hisaba books seized from both the assessee.

109.3 Continuing the arguments for the Revenue in the afternoon, learned SDR submits that reading of para 19.5 of the order-in-original would clearly indicate that the clearance of goods by kachcha challans in Hisaba books have been clearly taken place. It is his further submission that reading of allegation and as adjudicated by the adjudicating authority in paras 24.5, 25.1, 25.2, 25.3 and 25.4 of the order-in-original clearly indicate how the transportation of the goods have taken place clandestinely from the manufacturing premises. It is his submission that all these records indicate and gave a cross connection to the entries recorded in the hisaba books and delivery challans which were unearthed from the premises of 4130, Gali Barna.

109.4 He further takes me through paragraph No. 54 of the order-in-original to submit that extent of clearance of goods were unearthed by investigation and show that the appellant companies have floated various fictitious firms. It is his submission that invoice books by these fictitious firms were recovered. It is also his submission that Sales Tax number which were printed on the said blank invoices were inquired upon from the Sales Tax authorities, and Sales Tax authority have categorically stated that there are no firms registered under the said numbers. He would also draw my attention to paras 56.2 to 56.24 of the order-in-original in respect of Kuber International and submitted that how conclusive is the entire evidence as have been given and correlated to the entries found in Hisaba books. It is his submission that Hon’ble Member (Technical)’s finding in Paras 5.1 (4) and (5) clearly gets supplemented by all these evidence on record.

109.5 It is his submission that he wants to highlight linkages to conclusion reached by Hon’ble Member (Technical) and would rely upon the various submissions that there was clandestine removal and said clandestine removal has been recorded in the hisaba book which were recovered from the possession of the assessee.

110. Learned CDR Shri B.R. Tripathi and SDR Shri Sumit Kumar further submit that they are mainly arguing on following three points :

1       that whether the reference to Third Member was correct as per the provisions of law?

2.      that Whether the reference which was returned back to the Hon’ble President and referred back to the Third Member was correct or not?

3.      that Whether the Third Member should go into entire records or not?

110.1 He would refer to Section 129C(5) of Customs Act, 1962 for the purpose of difference of opinion. It was brought to his knowledge that very section have been referred to by Jt. CDR on 14-7-2011 when the matter was called and Bench have given a view reference is framed and this Court is seized with the matter of Difference of opinion. He would still insist on being heard on this point.

It is the submission that a reference once returned in the month of May should be again returned back to the original Bench without answering as the reference is for the entire appeal. It is the submission that such a reference is incorrect. It is the submission that the referral Bench has not put the date, signature in the second reference which is being heard. They would reiterate the submissions made by Shri B.K. Singh and Shri R.K. Verma. It is the submission that evidence on record proves the fact of duty evasion and is backed by number of evidences which has been demonstrated. It is the submission that Hon’ble President has come to a conclusion without reference to the evidences adduced by Revenue.

They place reliance on following case laws :

(i)      Shah Guman Mal v. State of Andhra Pradesh - (S.C.)

(ii)    CC v. D. Bhoormull - (S.C.)

(iii)   CIT v. Best & Company - 1966 (2) SCR 480.

(iv)   Kundan Lal Rallaram v. Custodian Evacuee Property - AIR 1961 SC 1316.

(v)     CC v. D. Bhoormull - AIR 1974 SC 859.

(vi)   Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi - AIR 1960 SC 100

(vii)  Sahib Singh v. State of Haryana - AIR 1997 SC 3247

(viii) Lokeman Shah v. State of West Bengal - AIR 2001 SCW 1646 SC (3-Member Bench)

(ix)   Assistant Collector of Central Excise, Rajamundry v. Duncan Agro Industries Ltd. - (2000) 7 SSC 53 = (S.C.)

(x)     C. Sampath Kumar v. The Enforcement Officer - (S.C.)

(xi)   K.I. Pavunny v. ACC - (S.C.)

(xii)  The Director of Enforcement v. Shri Rohit B. Jhaveri - 1996 (1) All. M.R. 89

(xiii) K.T.M.S. Mohammed & others v. UOI - 1992 SCC (3) 178

111. After the conclusion of the hearing on the Difference of opinion on 20-7-2011, time was granted to both sides for filing additional written submissions, if any, which were filed and considered by me and recorded in above submissions.

112. After conclusion of the hearing, Revenue filed a miscellaneous application No. 618/2011, which was listed for hearing on 4-11-2011 before me. The said miscellaneous application was found defective by the Registry and on 4-11-2011, a note-sheet order was passed by me, wherein 4 weeks time was granted to cure the defects and objections raised by Registry. The said objections were cured and defects were removed by the Revenue and the miscellaneous application was heard by me on 23-12-2011.

113. Ld. CDR Shri Tripathi and SDR Shri Amit Kumar appeared for the Revenue and submitted that miscellaneous application is for the purpose that the difference of opinion which was referred back to the original Bench for recording the difference or difference of opinion and the differing Members had recorded the difference of opinion and the matter was placed before third Member. It is the submission that the said point referred back is undated, and it is one order which is not in accordance with the provisions of Rule 26 of CESTAT Procedure Rules, which states that every order of the Tribunal shall be in writing and shall be signed and dated by the Members constituting the Bench concerned. Hence, it is their prayer that the third Member may return the reference and pass such an order as may deem fit and proper in the facts and circumstances of the case.

114. It is the submission that there was an amendment to Rule 26 which indicates about the order to be signed and the same should bear a date. It is the submission that the object of Rule 26 would defeated if the same is not followed. It is also the submission that the Rule itself would become otiose and redundant if the date is not considered mandatory. It was also mentioned during the course of argument that the order has been reserved by the third Member on 20-7-2011 and 4 months have elapsed and no order has been passed and hence the reference may be returned back.

115. Ld. Sr. Counsel Shri Shanti Bhushan along with Shri R. Adsure, Shri Manish Pushkarna and Shri Sarkar, Advocates, appeared on behalf of the assessee. Ld. Sr. Counsel Shri Shanti Bhushan would draw my attention to the provisions of Rule 26 and submits that the said Rule talks about every order of the Tribunal, shall be in writing and shall be signed and dated by the Members constituting the Bench concerned. It is his submission that when there was difference of opinion, order referred to the third Member was dated and signed and consequent a order of third Member, the point/points of difference were referred to the Bench. It is the submission that once an order has been signed on the first day, subsequent orders are only pursuant to the direction of the Bench. He would draw my attention to the decision of constitution of the Bench of the Apex Court in the case of State of Uttar Pradesh v. Babu Ram Upadhya - (1961) 2 SCR 679 and more specifically to Paras 28 & 29, for the proposition that the Rules which include the word “shall” in is ordinary import is obligatory but a situation arises when the said word would mean to say “may”. It is the submission that though the Rule talks about the word “shall”, Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. He would further submit that the judgment of Constitution Bench of the Apex Court in the case of State of Uttar Pradesh v. Manbodhan Lal Srivastav was also on the similar lines.

116. I have considered the submissions made by both sides and perused the records.

117. The Difference of Opinion was directed to be heard by me by Hon’ble President. The matter on the first date of listing was adjourned by me as the Revenue authorities wanted to engage senior counsel, which was allowed and in the note sheet order it was recorded that the difference or points of difference which were to be decided and disposed of by the third Member were incorrectly recorded or not indicated. It is undisputed that the first order of difference between Hon’ble President and Hon’ble Member (Technical) was dated and signed. Consequent to the direction of third Member, the Bench which differed on the matter, framed the points of difference and referred the same back for hearing. The said points of difference were in pursuant to the order of the third Member, which was dated and signed. In my considered view, the objections of the miscellaneous application raised by the Revenue consequent to prolonged hearing of difference of opinion on 14th and 15th July, 2011 and from 17th July to 20th July, 2011 is unwarranted. Be that as it may, I consider the original reference having been dated and signed by both the Members and subsequent reference being curative in nature, for reference to third Member, can be heard and disposed by me. Hence, the application filed by the Revenue is devoid of any merits and is dismissed.

118. This difference of opinion was heard by me on 20-7-2011 and orders were reserved by me. As per the standing order, the Bench has to pass an order on a matter within 4 months of reserving such order and in case the same is not passed, further extension of 2 months can be granted by President. In the case in hand, on a reference being made to Hon’ble acting President/HOD, the Hon’ble acting President/HOD has directed me to pass an order within further 2 months from the date of reserving the order, as indicated by the Registrar vide his Letter F. No. 01/(18)/D.O.O./Reg./CESTAT/2011, dated 28-11-2011.

119. The allegation against the assessee is of clandestine removal as well as under-valuation to save duty. It is necessary to ascertain whether in the peculiar facts of the case, there was sufficient cogent, unimpeachable, relevant and credible material evidence so as to establish the case against the appellant-company applying the test of preponderance of probability. Although every link of the process is not required to be proved for the said purpose, however the Revenue is not relieved altogether of the burden of producing some credible evidence in respect of the fact in issue.

120. Plethora of case-laws has been cited by both the sides, and ratio of these case-laws has been duly considered by me. I have heard at length ld. Senior Advocates, initially Shri Hidayatullah and thereafter Shri Shanti Bhushan, both appearing on behalf of the appellants, and Ld. CDR, Jt. CDR, SDR and DR appearing on behalf of the Revenue. To arrive at a finding as to whether there has been clandestine removal and under-valuation, essentially peculiar facts of the case and the evidence relied upon in the background facts, have been seen. Even the reference before me is limited to the said question whether the evidence on record is sufficient to prove the charges against the assessee.

121. As rightly observed by the Hon’ble President, it should not be forgotten that the charge of clandestine removal of goods connotes accusation of serious nature and therefore is required to be established with cogent evidence, and while the evidence obtained even by illegal search and seizure cannot be discarded totally but should be scrutinized and examined carefully and what weight should be attached to such material should be decided depending upon facts of each case.

122. The ld. Representatives for the Revenue have taken me through the findings and the material which the ld. Member (Technical) has considered in support of the charges in the two Show Cause notices. These evidences are -

(i)      Statements dated 17-11-1998, of Shri Mool Chand Malu and Shri Vikas Malu retracted vide letters received by the investigating officers on 4-12-1998,

(ii)    Statement dated 9-10-1998, 9-2-1999 and 24-4-2000 of Shri Shubh Karan Bothra, wherein he retracted earlier statements in statement dated 24-4-2000,

(iii)   Statement dated 1-12-1998, 13-4-2000, 17-4-2000 and 18-4-2000 of Shri C.S. Baid,

(iv)   Statement of various other persons,

(v)     Central Excise Invoices showing lower value than value mentioned in Kachcha challans,

(vi)   Seizure of 57 bags of Mool Chand Brand Gutka valued at Rs. 3,76,200/- in the factory premises of KTPPL on 9-10-1998,

(vii)  Contents of the Loose Sheets, Kachcha Challan books and hisaba books seized from the premises at 4130, Gali Barna, Delhi,

(viii) Verification of GR/RR, mentioned in the Kachcha Challan,

(ix)   Inquiry with the consignees,

(x)     Seizure of blank invoice/bill books of four companies from premises at 5987, Plot No. 83, South Nawab Road, Basti Harphool Singh, Delhi, where one Shri Ravi Kumar Duggar, accountant of KTC was present,

(xi)   Seizure of Rs. 1.8 Lacs on reasonable belief that the same was sale proceeds of goods cleared without payment of duty,

(xii)  Seizure of other documents/records and unaccounted materials from various places.

123. As per the Revenue, the above evidence is sufficient to sustain the charge. I find that at first blush, it may appear to be sufficient, however a deeper scrutiny reveals to the contrary. The above evidence is not relevant and credible material evidence, sufficient to establish the case against the appellant-company even applying the test of preponderance of probability and requires too many assumptions and presumptions to uphold the allegation of clandestine removal and under-valuation.

124. The ld. Representatives for the Revenue have drawn my attention to the fact that ld. Member (Technical) considered the depositions of Shri Moolchand Maloo in his statements dated 17-11-1998, and found that the same corroborated the statement recorded on the same date of Shri Vikas Malu. Statements of Shri Shubh Karan Bothra were also considered by him. Even retractions filed by them were considered by the Hon’ble Member (Technical).

125. However while the ld. Member (Technical) has recorded that each of them retracted their statements, the retractions are brushed aside by holding that the same were not only belated but were bald retractions without any evidence from which it can be inferred that there was any threat, coercion or inducement used in recording the same. I am unable to agree with this proposition. It is contrary to the law laid down by the Hon’ble Supreme Court in Vinod Solanki v. Union of India, (S.C.) = (S.C.), wherein while considering various judgments of the Hon’ble Supreme Court, on which reliance has been placed by Revenue, it was held that -

“34……..Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the Court as such.”

“35……..It is one thing to say that a retracted confession is used as a corroborative piece of evidence to record a finding of guilt but it is another thing to say that such a finding is arrived at only on the basis of such confession although retracted at a later stage.”

“37……..The inference that burden of proof that he had made those statements under threat and coercion was solely on the proceedee does not rest on any legal principle. The question of the appellant’s failure to discharge the burden would arise only when the burden was on him. If the burden was on the Revenue, it was for it to prove the said fact. The Tribunal on its independent examination of the factual matrix placed before it did not arrive at any finding that the confession being free from any threat, inducement or force could not attract the provisions of Section 24 of the Indian Evidence Act.”

Therefore, burden was not on the deponents to prove that statements were obtained by threat and coercion. Moreover, had the statements been voluntary and the retraction of statement dated 17-11-1998 been a bald retraction, there was no need to write ‘Under Protest’ on the TR-6 Challans, while depositing the total amount of Rupees Two Crores. These statements were not only retracted by them, but Shri Vikas Malu also submitted duly affirmed affidavit dated 3-9-2002, and offered himself for examination before the adjudicating authority in presence of officer of the Department. Despite this, opportunity of his cross-examination was not availed by Revenue, which lends credence to the retraction affidavits. As per ratio laid down in Parle Beverages Pvt. Ltd. v. CCE, Bombay, (S.C.), affidavit cannot be brushed aside solely on account of delay without going into the genuineness of the evidence adduced, and in case of doubt deponent can be cross-examined by the Revenue. In the affidavit filed by Shri Vikas Malu, he has not only stated that he was not the Director during the relevant period, but has also submitted the documentary evidence to that effect. Moreover, as evident from the impugned Order Shri Mool Chand Malu also sent a letter dated 4-12-1998 to the Commissioner alleging harassment of officials of the company, and that their Manager was detained continuously for more than 30 hours. Thereafter, he again sent a letter dated 5-8-1999 to the Chief Commissioner, wherein he reiterated that the officials of the appellant-company were being subjected to unlawful harassment by the officers. The fact that they were not directors since September, 1998 was also corroborated from the depositions of Shri C.S. Baid in his cross-examination held on 28-1-2005. Further, Shri Bothra not only backed out from his statement in his cross-examination, even in his immediate retraction dated 10-10-1998, his deposition that he was employed with M/s. Kusum Trading Company since five to six years and there will not be his signature in any documents pertaining to KTPPL has not been rebutted by the Revenue by producing reliable evidence to the contrary. Statement of Shri C.S. Baid was also retracted by him. Shri Baid not only alleged that he was detained for 30 hours and that third degree methods were used against him, he also addressed a complaint to the Deputy Commissioner of Police, and submitted medical evidence indicating “Swelling face Lt. Side/Dep Psychosis...”. I do not find any reason to accept the finding of the adjudicating authority that he may have slapped himself to obtain the medical evidence, or that the medical evidence ought to have been only from a Government Hospital. Shri Mukesh Kapoor and and Shri Gauri Shanker, in their cross-examination conducted on 31-1-2005, said that they have not seen ‘hisaba books’ and that they were not aware who has written the same. I find that these material aspects have escaped the attention of the Hon’ble Member (Technical). In the above background the sound legal proposition that what is admitted need not be proved, is not applicable in the instant case. For the same reasons, I find that it would not be justified to rely on these oral testimonies in the peculiar facts of the case.

126. I find that the Hon’ble President has correctly relied on the judgment of Hon’ble Supreme Court in the matter Nagubai Ammal and Others v. B. Shama Rao, AIR 1956 SC 593 wherein it was held that - “an admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which matters depends on the circumstances under which it is made. I am unable to find these retracted oral testimonies as credible piece of evidence to sustain the charge against the appellant Company.

127. It would be necessary to analyze whether the evidences, other than the retracted oral evidences, are credible for being used as corroborative evidence. The Hon’ble Supreme Court in case of Sitaram Sao v. State of Jharkhand - (2007) 12 SCC 630, pithily encapsulated the idea of “corroborative” evidence, in the following words :

“34. The Word ‘corroboration’ means not mere evidence tending to confirm other evidence. In DPP v. Hester - (1972) 3 All ER 10.16, Lord Morris said :

“The purpose of corroboration is not to give validity or credence to evidence which is deficient or suspect or incredible but only to confirm and support that which as evidence is sufficient and satisfactory and credible; and corroborative evidence will only fill its role if it itself is completely credible…….”

There can be, therefore, no “corroboration” of evidence, which is itself unworthy of credence.”

128. That, apart from these retracted oral evidence, the main evidence on which reliance is placed by the Revenue are the loose sheets, Hisaba books and Kachcha Challans. It is undisputed facts that any author of these records was not traced and made available for cross-examination. Moreover, these documentary evidence were not recovered from the office or factory premises of the appellant manufacturer company, and there is no tangible evidence on record to conclusively relate the same with the appellant manufacturer company, except the retracted oral evidence. There isn’t any untainted, undisputed admission by the concerned Director of the company that these records relied by the Department were of company’s unaccounted production and removal thereof. The entire accounted production of the appellant manufacturer for the relevant period is not recorded in these Kachcha records besides the alleged unaccounted production. The Hon’ble Member (Technical) was persuaded to assume that Shri Bothra would have keys to premises at ‘4130, Gali Barna, Sadar Bazar, Delhi’, and although Panchnama drawn at this premises nowhere records the name of the appellant-company, he was persuaded to further assume that it was a guest house of the appellant-company. Although the names of the consignors on GR/RR were found fictitious, the Hon’ble Member (Technical) was persuaded to assume that the same related to the appellant-company. As rightly observed by the Hon’ble President, even the panchnama did not describe or identifies in its annexure which enlists the documents stated to have been recovered from the premises, recovery of any ‘hisaba book’ or ‘Kachcha Challans’ or ‘loose sheets with written pages’. I agree with the findings of the Hon’ble President that entire proceedings have lost credibility and serious doubt arises about the credibility of the materials stated to have been collected by Revenue in the course of proceedings.

129. Physical verification conducted at the factory premises of the appellant-company did not reveal any excess stock of raw material as such. There is evidence of seizure of 57 bags weighing 87.8 Kgs valued at Rs. 3,76,200/- from the factory premises of KTPPL during the visit of the officers, however I agree with the finding of the Hon’ble President that same could have been recorded in the course of the day and before their clearance, and even otherwise the seizure of 57 bags by itself cannot be a substitute for the proof of clandestine removal of goods.

130. In the entire records of proceedings, there is no evidence to indicate that there was clandestine manufacturing. There is no independent tangible evidence on record of any clandestine purchases or receipt of the raw materials required for the manufacturing of the alleged quantity of finished goods for its clandestine removal from the factory. In the entire notice and the order there is no satisfactory and reliable independent evidence as regards the unaccounted manufacture and or receipt of the huge quantities of raw materials. The quantities of the alleged bags dispatched from the factory would require some transportation arrangement for delivery from the factory. However, any reliable evidence about any vehicle coming to or going out of the factory without proper entries is not forthcoming. There is also no cogent evidence about any freight payment for any such movement.

131. I do not find cogent evidence of disproportionate and unaccounted receipt and consumption of the basic raw materials and packing material, required for manufacturing alleged quantity of unaccounted finished goods. I do not find tangible proof of unauthorized payment for procuring such unaccounted raw material and packing material. I do not find cogent evidence of disproportionate power consumption, capacity utilization and labour employed, or any cogent evidence of clandestine manufacture of unaccounted quantity alleged as clandestinely removed. I find that unaccounted production in the factory of the appellant-company has not been established. In Ruby Chlorates (P) Ltd. v. Commissioner of C. Ex., Trichy, (Tri.-Chennai), it was held that :-

“21…..The settled legal position is that when several raw materials are involved, when a case of clandestine production and clearance is built on clandestine use of raw materials, the same should be proven with reference to unaccounted use of all such major raw materials”.

“22. In a case of clandestine removal the Department should produce positive evidence to establish the same. In the absence of corroborative evidence, a finding cannot be based on the contents of loose chits of uncertain authorship. Department has not produced evidence of use of inputs to prove that there was manufacture of unaccounted finished product. ...”

Moreover, in the case of Atlas Conductors (supra), this Tribunal has taken a clear view that the demand cannot be on presumption of manufacture but on the basis of actual manufacture which is the basis to come to conclusion as recorded by Hon’ble President in para 47 onwards that the findings of the adjudicating authority are without any evidence and is not correct view and is liable to be set aside.

132. My above views are fortified by a recent case in the case of Viswa Traders Pvt. Ltd. & others v. CCE, Vadodara being Final Order Nos. A/1846-1851/WZB/AHD/2011, dated 1-11-2011 [ (Tri. - Ahmd.)], a similar issue of clandestine removal was decided by co-ordinate Bench of Tribunal in Ahmedabad, wherein it is held that unless clandestine manufacturing is brought on record, there cannot be any allegation of clandestine clearances, un-corroborated with evidences. I was one of the Members in that Bench and while coming to the conclusion, the Bench had relied upon the judgment of Hon’ble High Court of Gujarat in the case of Nissan Thermoware Pvt. Ltd. - (Guj.) I am reproducing the relevant portion of the said order, which is fortifying my view in this case also.

“15. We find that Hon’ble High Court of Gujarat, in the case of Nissan Thermoware Pvt. Ltd. - (Guj.), has specifically held as under :

“7. Thus, on the basis of findings of fact recorded by the Tribunal upon appreciation of the evidence on record, it is apparent that except for the shortage in raw material viz., HD which was disputed by the assessee and the statement of the Director, there was no other evidence on record to indicate clandestine manufacture and removal of final products. On behalf of the revenue, except for placing reliance upon the statement of the Director recorded during the course of the search proceedings, no evidence has been pointed out which corroborates the fact of clandestine manufacture and removal of final products. In the circumstances, on the basis of the material available on record, it is not possible to state that the Tribunal has committed any legal error in giving benefit of doubt to the assessee.  (Emphasis supplied)

The above ratio, as laid down by Hon’ble High Court of Gujarat, would squarely cover the issue before us.

16. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s. VTPL, in the peculiar facts and circumstances of this case, we hold that the impugned order which confirms the demand on the appellant M/s. VTPL and imposes penalty on them is not sustainable and is liable to be set aside and we do so.”

133. I also do not find tangible evidence of removal from factory, of unaccounted goods so manufactured, by loading from factory and transportation therefrom, of alleged clandestinely removed goods. I do not find any reliable evidence of the actual customer/recipient of the clandestinely removed goods with their confirmation of unauthorized payment towards unaccounted purchase of goods allegedly manufactured and removed in a clandestine manner from the factory of the appellant. There was no recovery of any unaccounted sales proceeds in substantial cash in the factory or office premises or anywhere else in the control of the appellant-company, backed by any confirmation oral or written from the person giving such cash against goods removed in clandestine manner without payment of duty from the factory of appellant-company.

134. I find that in the peculiar facts of this case, for confirming the charges and for accepting the evidence adduced, a series of assumptions and presumptions are to be made, viz.-

(i)      The total number of machines installed was intimated on 11-8-1997, which was not found incorrect by visiting Central Excise Officers or in Audit inspection by CERA and internal audit and there is no evidence of working for more than one shift a day. As per the appellant, the production capacity with such machines, in one shift, is not sufficient to manufacture the alleged huge quantity alleged to be removed in clandestine manner, and moreover, the duty fixed by the Board per machine, if taken into account would also indicate much less production than alleged in the Notice. As rightly observed by the Hon’ble President, the working of the machines in the appellant’s factory was not tested or certified to ascertain the production capacity of the machines installed. Even number of machines installed in working condition was not recorded in panchnama drawn at factory. There is no record to show that the appellants were working for three shifts. Panchnama regarding the production capacity of the machines at totally different factory of a stranger could not have been applied to decide production capacity of the machines in the appellant’s factory, as has been sought to be done in the impugned Orders. There is no evidence of additional employees having been employed to enhance the production, nor is there any evidence of excess wages having been paid to the existing employees. However, it is to be assumed that the factory was continuously running for three shifts, more machines than declared were installed, and that the actual production was grossly suppressed,

(ii)    Although, the stock of raw material found on physical verification at factory at 31-K, Siraspur, under panchnama dated 9-10-1998 was found as per record, and there is no evidence of purchase of main raw materials ‘Betel Nuts’ (which constitutes 85% of the raw materials), Catechu, Perfume and Lime, it is to be assumed that all these raw materials were purchased in cash, brought to factory, and used in unaccounted manufacture of Pan Masala/Gutka in the factory premises.

(iii)   Despite the fact that the panchnama do not describe or identifies in its annexure which enlists the documents stated to have been recovered from the premises, recovery of any ‘hisaba book’ or ‘Kachcha Challans’ or ‘loose sheets with written pages’, it is to be assumed that the same were recovered under the panchnama drawn at Premises 4130, Gali Barna, Delhi.

(iv)   It is to be assumed that Shri Bothra would have keys to the said premises, although not recorded in the panchnama.

(v)     Although the alleged supplier of paraffin, Shri Rajiv Gulati stated that he issued invoices only if he sells the goods and denied the contents of loose sheets, it is to be assumed that he had supplied paraffin,

(vi)   Although Shri Bhikam Chand Chaudhary in his statement, when confronted with loose sheets for alleging supply of Tobacco to the assessee by M/s. Shambhu Dayal Kaushal & Sons and M/s. Shiv Devi Enterprises showed his unawareness about the same, it is to be assumed that unaccounted Tobacco as mentioned in the loose sheets was supplied by them to the appellant-company.

(vii)  Although Shri Chetan Kanodia of M/s. Kanodia Technoplast Pvt. Ltd., in his statement denied the contents of loose sheets and denied having sold laminations without invoices or having received payments in cash against any such sale, it is to be assumed that the alleged unaccounted laminations were sold by him to the appellant-company.

(viii) There is no evidence of any fruitful inquiry from any Courier services, despite allegation of dispatch of Kachcha Challans by the appellant-company through any Courier Service, however it is to be presumed that the same were sent through Courier by the appellant-company.

(ix)   It is to be assumed that huge quantity of 91445 bags was removed from factory in a clandestine manner.

(x)     Although the amount of Rs. Two Crores deposited during the investigations was clearly deposited by recording on the Challans ‘Duty under protest’, it is to be assumed that the said payment was voluntary with acceptance of the clandestine removal.

(xi)   It is to be assumed that Original Kachcha Challans must have been destroyed by all of the alleged distributors/dealers.

(xii)  It is to be assumed that ‘packet’ mentioned on Kachcha Challans, is actually ‘bag’.

(xiii) It is also to be assumed that the appellant manufacturer was the actual consignor although the name of the consignor in the GRs/RRs relied by Revenue are other than that of the appellant manufacturer.

(xiv) It is also to be assumed that although the description of goods on GR/RR were ‘Chewing Tobacco’, ‘Tobacco’, ‘Supari’, ‘Garments, Shoes, Handloom Cloth etc.’, ‘Gum Powder’, ‘Rakhi’, the same actually were ‘Branded Gutka’ manufactured and clandestinely cleared by the appellant-company.

(xv)  It is to be assumed that there must be receipt of cash amount over and above the sale amount recorded in statutory records to sustain the charge of under-valuation.

(xvi) Despite retractions having been filed, and the veracity of alleged voluntary statements was effectively assailed in cross-examination, it is to be assumed that all the statements relied by the Revenue were voluntary.

135. There is no dispute on the fact that in adjudication proceedings, the charge of clandestine removal and under-valuation is definitely to be established on the basis of preponderance of probabilities. However, it cannot be merely on the basis of presumptions and assumptions. Suspicion however grave cannot replace the proof. As rightly pointed out by the Hon’ble President with detailed findings, the link between the documents recovered in search and the activities of the appellants in their factory is required to be proved. However, I find that due to various reasons as recorded above, the Revenue has failed to prove the same.

136. The loose sheets, Kachcha Challans and hisaba books were not recovered from the factory of the appellant-company or from any of their office or residential premises. I find that for considering the same as relevant and credible material, on one hand a series of assumptions and presumptions are to be made, and on the other hand various fatal objections regarding veracity of the panchnama and the contents of these documents stated to have been seized in the course of panchnama, as correctly recorded in the detailed findings of the Hon’ble President are to be ignored. I agree with the reasons and findings recorded by the Hon’ble President that entire proceedings had lost their credibility and serious doubt arises about the credibility of the materials stated to have been collected in the course of such proceedings. Therefore, it would not be justified to rely on these records to fasten the duty and penal liability on the appellants even by applying the principles of preponderance of probability.

137. I find that the Revenue failed to substantiate the findings recorded in the impugned Order regarding production capacity, to persuade me to reject the contention of the appellant that there is failure on the part of respondent to collect any evidence in relation to either procurement of raw materials by the appellant or production of huge quantity of final goods alleged as removed clandestinely to sustain the charge of clandestine removal. Once unaccounted production is not established, even otherwise there can be no clandestine removal thereof. Unaccounted removals have in any case not been established on the basis of the evidence available on record.

138. The ratio laid down by the Hon’ble Apex Court in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.L.T. J172 (S.C.), is clearly applicable in the peculiar facts of the instant case inasmuch as the demand cannot be sustained without any tangible evidence, based only on inferences involving unwarranted assumptions.

139. In this view, I would concur with the Hon’ble President that these appeals should be allowed. Reference ordered accordingly.

Registry is directed to place this file before Hon’ble acting President/HOD for further action.

FINAL ORDER

140. In view of the order of the third Member pronounced at Ahmedabad on 12-1-2012 and on basis of the majority decision, the appeals are allowed.

141. Since the Bench which passed the differing orders with that particular Constitution is not available, in accordance with the Office Order No. 2/1996 of Hon’ble President, the majority order is being pronounced by the Bench constituted as per the orders of Hon’ble the Vice-President.