By TIOL News Service

NEW DELHI, DEC 15, 2015: THESE are Revenue appeals against the final order dated 21.10.2013 passed by the CESTATwhereby the appeals of the Respondents were allowed and the orders-in-original dated 9th June 2005 and 21st November 2005 passed by the CCE, Delhi-I were set aside.

The Respondent VCPL was engaged in the manufacture of gutka and pan masala under the brand name 'Vimal'.

The Department received an intelligence that VCPL was indulging in large-scale evasion of central excise duty by suppressing the actual production of gutka and clandestine removal of the same without payment of duty.

Investigation resulted in seizure of finished goods/Vimal brand gutka at several places since valid documents showing the payment of duty were not available in respect of the finished goods;seizure of raw materials/inputs and packing materials from the factory of VCPL and other places, including godowns of some of the transporters and their vehicles. It was also observed that the quantities of inputs found in excess of the recorded balances were in respect of both supari and tobacco; that no account was being maintained in the factory in respect of other inputs and packing material; that no stock of either jute bags, used for packing their products or menthol, one of the important ingredients, was found in the factory of VCPL.

A demand notice dt. 24.12.2003 came to be issued inter alia demanding CE duty of Rs.12,85,58,100/-on 38957 bags of Vimal brand gutkaallegedly manufactured and cleared clandestinely without payment of duty from the factory during the period from 1st April 2002 to 5th July 2003.

Annexed to the SCN was the report of the Shri Ram Institute of Industrial Research (SIIR), the findings of which when compared with the consumption of various raw materials as shown by VCPL in its records, revealed that there was excess consumption of supari and menthol, the two essential ingredients of gutka.

The second SCN further proposed to raise a demand of excise duty amounting to Rs.2,75,15,400/-leviable on the past clearances made during the period from 14th July 2003 to 2nd September 2003. It was noted that under TR-6 challans dated 5th July 2003, 17th September 2003 and 29th September 2003,VCPL had voluntarily deposited a sum of Rs.1crore and the said amount was proposed to be appropriated/adjusted against their duty liabilities.

Orders were passed confirming the CE duty liability and imposing penalties and interest.

Except for the amount of duty admitted by the respondent of Rs.6,93,285/- and the penalty in this regard, the other demands of duty on the ground of alleged manufacture & clandestine removal of gutka were set aside by the CESTAT and the appeals were allowed of the assessee. The Revenue appeal against non-imposition of penalty/confiscation was rejected by the CESTAT.

Thoroughly aggrieved, the Revenue is before the Delhi High Court.

At the outset, the High Court observed -

+ On findings of fact, ordinarily it is the CESTAT which would have the final say in the matter. A question of law would arise in that context only where it is possible to demonstrate (a) some vital piece of evidence which is material to the determination of the issues involved has been overlooked by the CESTAT or (b) where it is has made a patent error in appreciation of the evidence or misread the evidence on record. [ SreeMeenakshi Mills Limited v. CIT -2002-TIOL-733-SC-IT-LB refers ]

+ Merely because another view is possible to be taken on the same facts will not give rise to a question of law warranting interference by the High Court in exercise of its appellate jurisdiction. [In RatanchandDarbarilal v. Commissioner of Income Tax- 2002-TIOL-1630-SC-IT-LB refers]

The High Court further observed -

+ The Court finds that the CESTAT has considered the report of the SIIR and has examined carefully the evidence of Mr. Chib (who prepared the report). It noted that the percentage of the contents of the mixture as declared by VCPL was 86% supari, 2.2% lime, 6% tobacco, 5% kattha and 0.47% menthol, which added up to 99.67%. The other ingredients were perfumes and substances which were less than 1%. The total of the percentage of these five ingredients in the report of SIIR, instead of being more than 99%, was only about 90%. This by itself, therefore, created a doubt as to its correctness.

+ The Court finds that the explanation offered by Mr. Chib for the balance 9% is not very convincing. Considering that the test conducted was on a small quantity of 1.8 gm of gutka, the failure to account for 9% of the ingredients would be significant. The 9% could well have contained some percentage of the five main ingredients. That might then alter the inference to be drawn regarding the actual consumption of menthol. The missing contents that constituted the 9% cannot be a matter of surmises and conjectures.

+ The CESTAT has not only discussed the report of SIIR but has given cogent reasons why it was unable to accept it as a reliable piece of evidence.

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

+ It must be observed that the decision in Collector of Customs, Madras v. D. Bhoormull - 2002-TIOL-253-SC-CUS was specific to the provisions of Sea Customs Act, 1878 pertaining to smuggling. Although it is observed by the Court that this initial onus of proof on the Department can be sufficiently discharged by circumstantial evidence this was in the context of the fact that provision itself shifted the burden on the person in whose possession the contraband is found. As far as the CE Act is concerned, there is no such provision that raises a presumption and shifts the burden on to the person who is charged with clandestine removal of excisable goods.

+ In the present case the Assessee was given an opportunity to cross-examine Mr. Chib who prepared the report of the SIIR and the Assessee was able to demonstrate the unreliability of the said report.

+ It needs to be observed that there was no 'confession' as such by any of the noticees as to their involvement in the activities alleged against them in both the SCNs. The Department relied on the statements made by third parties including transporters, agents, and their employees. Where such statements are subsequently retracted or resiled from, it becomes necessary for the Department to produce other evidence which is of an independent nature which corroborates the retracted statements.

+ Once it is shown that the maker of such statement has, in fact,resiled from it, even if it is after a period of time, then it is no longer safe to rely upon it as a substantive piece of evidence. The question is not so much as to admissibility of such statement as much as it is about its 'reliability'.

+ At the relevant time there was no bar against an Assessee having more machines than what was declared as long as the machines that were operational tallied with the number declared. This aspect of the matter was overlooked by the CCE and the fact that there were 120 machines was taken to mean that they ought to have been used in manufacturing excess quantities of gutkawhich were clandestinely removed without payment of excise duty.

Observing that the Department has been unable to show that the impugned order of the CESTAT suffers from illegality or is perverse so as to warrant interference, the High Court held that the view taken by the CESTAT is based on a thorough analysis of the evidence on record and is a plausible one.

The appeals filed by the Revenue were dismissed.

(See 2015-TIOL-2792-HC-DEL-CX)