By TIOL News Service

CHENNAI, APR 04, 2019: THE present appeal has been filed by the assessee contesting duty demand raised and penalty imposed upon it for alleged clandestine removal of chewing tobacco manufactured by it.

During the relevant period, the officers of the DGCEI visited the business premises of the assessee, whereupon certain records were recovered, such as registered containing details of date-wise production, clearance of chewing tobacco, customer details, day books, ledgers & invoices. They also took statements from two employees of the assessee, both of whom allegedly admitted clandestine removal of chewing tobacco, Moreover, statements taken from the assessee firm's managing partner also admitted clandestine manufacture & clearance of chewing tobacco under the brand 'Super deluxe/Deluxe'. Hence an SCN was issued to the assessee.

The assessee filed reply to SCN, pointing out that the statements relied upon by the Revenue, had been retracted. Upon adjudication, duty demand was raised with interest & equivalent amount of penalty along with personal penalty on two employees. On appeal, the Commr.(A) upheld the duty demands but reduced the quantum of the penalties imposed. On further appeal, the Tribunal noted that the retraction of statements was an attempt to wriggle out from statements given earlier, thus revealing their loyalty to their bosses. Thus, the Tribunal upheld the demands while also restoring the penalties imposed by the adjudicating authority.

On hearing the matter, the High Court appreciated the well-reasoned nature of the order passed by the Commr.(A) and also observed that the same was based on proper appreciation of facts. The High Court observed that -

"10.... we find the order to be a well reasoned order and after taking note of the factual position, the order has been passed. In fact, the order has been provided in a unique manner by which, the relevant statements, copies of registers etc., have been photocopied in the order itself so as to show continuity. Exercising power under Section 35G of the Act, the Court cannot sit as a second appellate authority over the factual findings recorded by the first appellate authority and the Tribunal. Therefore, we are not inclined to interfere with the findings rendered by the Tribunal with regard to the demand of duty..."

However, the High Court also noted that the Tribunal's order did warrant intervention on one count. It noted that the Revenue had not filed an appeal against the order of the Commr.(A) wherein the quantum of penalty had been reduced. Hence the high court opined that the Revenue could not have raised such ground in the assessee's appeal filed before the Tribunal and that the Tribunal consequently lacked the jurisdiction to restore the penalty as originally imposed by the adjudicating authority. The high court held that -

" 11. So far as the imposition of penalty is concerned, the firm and the employees were before the Tribunal challenging the levy of penalty on them. Admittedly, the Revenue did not prefer any appeal against the order passed by the first appellate authority reducing the penalty from that of what was imposed by the Assessing Officer. In such circumstances, in an appeal filed by the assessee, they cannot challenge the penalty and the Tribunal lacked jurisdiction to restore the penalty imposed by the Assessing Officer. Therefore, to that extent, the order passed by the Tribunal calls for interference..."

The high court also observed that the assessee was facing financial distress and that much of its business had been regulated by various Central and State Acts. It's attention was also drawn to the nature of the trade and the trade conditions in which the assessee operated. It observed that -

"14. We have gone through the order passed by the first appellate authority wherein, statement of the family members of the employees and others have been recorded from which, we find that the particular trade in which, the assessee was engaged, viz., manufacture of chewing tobacco is a cottage industry in and around the said area. The statement of one of the employee's wife, viz., Mr.M.Chandramohan who appears to be a non literacy woman states that she did not know wherefrom her husband brings the tobacco and she only put them into the plastic pouches and seal them with a candle. Therefore, certain leverage can be granted to the assessee, considering the nature of trade and the trading practices which have been violated. Therefore, this Court is of the view that the penalty imposed on the firm has to be vacated in toto..."

Thus the High Court allowed partial relief to the assessee, having sustained the duty demand but by scrapping the penalty imposed.

(See 2019-TIOL-746-HC-MAD-CX)