Allegation of clandestine removal- whether sustainable when no evidence exist?

PJ/Case Laws/2011-12/1231

Case: Chandan Tobacco Company v/s Commissioner of C. Ex. Vapi

Citation: 2011(268) E.L.T. 286 (Tri.- Ahmd.)

Issue:- Clandestine removal alleged on the basis of difference between actual production and declared average production – whether sustainable when no other evidence exist?

Brief Facts:- Circular No. 854/12/2007-CX dated 07.09.2007 prescribed that the Pan masala/Gutka and chewing tobacco manufacturers have to submit declaration to the Department by 12.09.2007 giving details of packing machines used for filling and packing of pouches or containers, the number of shifts operated in the Factory and the record of main inputs etc. Accordingly, appellant filled declaration with the department giving details of the various machines installed in their factory and the average production of 3300 pouch per hour per machine.

During the period from 7.9.07 to 30.6.08 the production of Gutkha, as reflected in statutory records and the ER-1 returns filled by the appellant was less than the production arrived at by taking into account the declared average production of 3300 pouches per hour per machine. According to the Revenue, the appellant had reflected less production in their records and the excess production was removed by them clandestinely. Accordingly proceedings were initiated against them demanding excise duty. The demand was confirmed and penalty of Rs. 1 crore was imposed under Rule 25 (1) of the Central Excise Rules, 2002.

Appellant’s Contention:- Appellant have contended, during the course of adjudication that the central excise duty is payable not on the number of the machines in operation but on the basis of the actual production, which is based upon the market demand. All the machines do not run at all times as there are obstruction on account of labour problem, market conditions, power failure, maintenance of machine, delay in receipt of raw material and its processing, changes in the size of production etc. the circular does not require them to pay duty on the average production but the duty is required to be paid on the actual production. The appellant has been intimating the department about the closure of the production activities on account of festival, labour problems, market conditions etc. and they have also submitted that during the festival periods, their production matched the declared average production and even sometimes was more than that. There is no allegation of receipt of excess raw material or the actual production of the goods, neither any buyer has been identified by the Revenue.

They also submitted that to manufacture such a huge quantity of Gutkha, they require more than 23 Crore pouches of Gutkha. There is no allegation much less any evidence to show the procurement of such a huge quantity of the raw material or the payments made to the suppliers or the payments received from the buyers of Gutkha.

Respondent’s Contention: - Revenue submitted that as the appellants have themselves submitted the average production to be 3300 pouches per hour per machine, it was for them to establish as to how such declared production could not be achieved by them.

Reasoning of Judgement: - The only ground for arriving at the finding of the clandestine removal is the declaration made by the appellant as regard the average production. There is no other evidence much less any allegation about the nature of purchase of raw material, use of electricity, sale of excess quantity of Gutkha, clandestine removal of Gutkha, manner of transport and made of receipt of the sale proceeds etc. The circular is not in the nature of compound levy scheme requiring an assessee to pay duty on the declared average production. The duty was required to be paid on the goods actually manufactured and cleared.

The Tribunal further held that the appellant has been filling the ER-1 return regularly and has been periodically intimating about change of shift, shutting down of plant, sealing or de-sealing of machines, closure of production activity, starting of production of new brand, extension of closure, sale of machines to the Range Superintendent.

It was held that prima facie good case has been made out by the appellant.

Decision:- Stay application allowed unconditionally.

Comments:- This is very good decision as the department normally demand duty on average basis but without corroborative evidences. It has to be established with purchase of raw material, power consumption and other factors.

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PJ/Case Laws/2011-12/1231

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