CX - Clandestine manufacture of Khaini - A foundational fact that would have to be shown to exist for attracting deeming fiction u/r 18(2) is that goods were found to have been 'manufactured in or cleared from' premises searched - Tribunal to hear appeal without pre-deposit: HC
By TIOL News Service
NEW DELHI, NOV 18, 2015: PURSUANT to a search, the officers of the Department found that one portion of the premises was used for manufacturing of khaini (chewing tobacco) and the other portion was used for storing raw materials, packing materials, etc. Both the portions had separate electricity connections. Two khaini single track pouch packing machines and one tobacco mixer machine were found installed in the premises. The officers seized the machines under the reasonable belief that they were used in the unlawful manufacture of khaini without obtaining Central Excise registration and without paying the appropriate Central Excise duty. On physical stock taking, the officers found packing materials valued at Rs.2,01,500/-, raw materials valued at Rs.1,00,650/- and finished goods valued at Rs.95,280 in the premises.
The investigation culminated in issuance of a SCN by applying the deeming provisions of Rule 18(2) of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 & a CE duty demand of Rs.1.99crores was made.
The CCE, Delhi-I upheld the demand and imposed mandatory penalty.
In appeal, the CESTAT directed the Appellant to make a pre-deposit Rs.15 lakhs within a period of eight weeks and against this order the appellant filed an appeal before the Delhi High Court.
The High Court observed that the CESTAT did not examine the submissions of the parties on merits but arrived at a conclusion in the following two short paras:
"3. After careful consideration of the submission of both the sides, we find that the demand made as per rule 18 (2) of the said rules required to be rebutted by the applicant. The seizure of Machine, Packing material, Packing Machine of Products are to be explained with clear supporting evidence. This requires detailed appreciation of contention by both the sides.
4. On perusal of records and arguments we are Prima -Facie of the opinion that the applicant failed to make a case for full waiver of duty and penalties. Accordingly we order pre-deposit of Rs.15,00,000/- (Rupees Fifteen lakhs only) within 8 (eight) weeks. On compliance of the same the recovery of the remaining duty and penalties shall be stayed till the disposal of the case."
The appellant pointed out that the premises themselves were rented only on 23rd September 2010 and the machines purchased on 30th September 2010. Therefore it was unlikely that those machines would have been operational and that too without motors as on the date of the search i.e. 10th October 2010 or used, as claimed by the Department for clandestinely manufacturing or packing chewing tobacco in pouches. The duty of excise although not demandable could at the most be for one month i.e. October 2010. The deeming provisions of Rule 18(2) of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 cannot be made applicable simply on the ground that noticee's attitude was non co-operative.
It is further submitted that the point regarding the absence of motors at the time of search has been dealt with by the Commissioner on the basis of surmises and conjectures by observing:
"114. In view of the above said admission and this being a case of clandestine manufacture, the possibility of noticee bringing in motors for the purpose of manufacturing and thereafter removing the same after completing manufacturing activity cannot be ruled out. The motors may well have been removed on day of search for repairs, replacements etc."
The counsel for the Revenue while referring to the o-in-o submitted that in relation to the demand of nearly Rs.4crores towards duty, penalty and interest, as confirmed by the order-in-original, a direction to the Appellant to make a pre-deposit of Rs.15 lakhs cannot be said to be causing undue hardship.
The High Court observed -
"9. …To recall, the specific defence of the Appellant is that there is no evidence to show that the machines found in the premises belonged to the Appellant or that they were actually utilized in the manufacture of chewing tobacco. A foundational fact that would have to be shown to exist by the Department for attracting the deeming fiction under Rule 18 (2) of the Rules is that the goods were found to have been "manufactured in or cleared from" the premises searched. The CESTAT, when it hears the appeals on merits, will have to address itself to the central issue of whether the evidence on record demonstrates that the Appellant as NoticeeNo.1 could be said to have been party to the clandestine manufacture and removal of chewing tobacco using the machines found at the premises. This would also have to be examined in the context of the fact that a separate SCN has been issued to Mr. Kunal Indoria arising from the same search. The effect of the retraction of the statement made by Mr. Kunal Indoria and the requirement that there must be sufficient other evidence to corroborate the said retracted statement would also have to be examined in detailed by the CESTAT."
Noting that in the light of the submissions made by the appellant, which have not been considered by the CESTAT, the Court is satisfied that the Appellant has made out a prima facie case for waiver of the deposit of the duty, penalty and interest, the order of the CESTAT was modified by directing that the Appellant's appeal be heard by the CESTAT by waiving the requirement of pre-deposit.
The appeal was disposed of in above terms.
(See 2015-TIOL-2622-HC-DEL-CX)
