1. In the case of Miraj Products Pvt. Ltd.

Vs Commissioner, Central Goods & Service Tax it was

held by CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI on 02-09-2022
that:
““Capacity of Production” based on the notified factor of production, is not relatable to
actual production and clearance of the goods. An assessee may manufacture more or less
than the determined capacity, and the same is not relevant.”
AND
“Duty has been demanded on the basis of assumptions and presumption, which is not
permissible”

2. In the case of Commissioner of Central Excise vs Saakeen Alloys Pvt. Ltd. on 6 March, 2014,
Gujrat High Court held that:
“Confessional statements solely in absence of any cogent evidences cannot make the
foundation for levying the Excise duty on the ground of evasion of tax, much less the
retracted statements.”
3. In the case of Commissioner of Central Excise vs Mittal Pigment Pvt. Ltd. HIGH COURT OF
JUDICATURE FOR RAJASTHAN on 02-05-2018 held that:
“Any prudent person would not so conclude on extra production by approximation and by a
mere statement of the Director of the company. Unless there are further corroborations in
the form of documentary evidences, which could be like dispatch details for the production,
receipt details of the said material, transactions of the sale money, transportation details of
such goods, details of additional consumption of electricity for such suppressed production a
prudent individual would not agree with the present conclusions of the Revenue”.
4. In the case of “Court on its own motion” vs Union of India and Other on 30-05-2000, Punjab-
Haryana High Court held that:
“Law does not authorize any authority, however high it may be, to pass verbal orders. The
orders must be written and must be specific and the grounds for such orders must be siafed.
This is a basic rule of law.”
5. In the case of Avtar Singh & ANR. Vs. State of Punjab on 23-03-2023 the Supreme Court of
India held that:
“It is a settled law that where a power is given to do a certain thing in a certain way, the
thing must be done in that way or not at all. Other methods are necessarily forbidden.”
6. In the case of M/S Lari Almira House vs State of U.P on 12-04-2023 Allahabad High Court
held that:
“Mere report of inspection and discrepancy in the scrutiny of returns is not enough to assess
and levy the tax, the said discrepancies, even if noticed by the department should be
corroborated with materials in the form of either the evidence or in any other form as the
department may deem fit. Without any corroborative material, merely on the basis of
discrepancies found in the scrutiny of returns or discrepancies found during the inspection is
not enough to assess the tax.”
AND
“It is equally well settled that any document proposed to be relied upon should be provided
to the assessee prior to conclusion of the proceedings.”
AND
“In the present case, the order dated 24.01.2022, clearly falls short of the principle of
natural of justice as admittedly the SIB report, which is the foundation was never supplied to
the petitioner, no hearing was granted to the petitioner under section 75(4) of the Act and
 there is prima facie no material other than the SIB report to corroborate the discrepancies as
allegedly found by the SIB at the time of scrutiny of returns and inspection.”
7. In the case of FSM Education Pvt. Ltd. Vs Union of India on 02-10-2022, the High Court of
Bombay held That “If any summons is issued by the Respondents, the summons
shall indicate the purpose of issuing summons to the Petitioner with clear seven
days’ notice before fixing the date for recording the statement”.
 1

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

NEW DELHI.

PRINCIPAL BENCH - COURT NO. II

Excise Early Hearing Application No. 50020 of 2021

(on behalf of the respondent) in
Excise Appeal No. 51730 of 2019
(Arising out of order-in-original No. UDZ-EXCUS-000-COM-0083-18-19 dated
03.04.2019 passed by the Commissioner, Central Excise, Udaipur).

M/s Miraj Products Pvt. Ltd., Appellant

Uper Ki Oden, Nathdwara
Distt - Rajsamand (Rajasthan)

VERSUS

Commissioner, Central Goods & Respondent

Service Tax,
142-B, Hiran Magri, Sector-11
Udaipur (Rajasthan).

AND

Excise Appeal No. 51521 of 2019

(Arising out of order-in-original No. UDZ-EXCUS-000-COM-0083-18-19 dated
03.04.2019 passed by the Commissioner, Central Excise, Udaipur).

Prakash Chand Purohit Appellant

Managing Director of
M/s Miraj Products Pvt. Limited
Uper Ki Oden, Nathdwara
Distt - Rajsamand (Rajasthan)

VERSUS

Commissioner, Central Goods & Respondent

Service Tax,
142-B, Hiran Magri, Sector-11
Udaipur (Rajasthan).

APPEARANCE:

Sh. B. L. Narasimhan & Ms. Sukriti Das, Advocates for the appellant
Sh. S. K. Mathur, Special Counsel for the respondent

CORAM:

HON’BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL)

HON’BLE MR. P. V. SUBBA RAO, MEMBER (TECHNICAL)

FINAL ORDER Nos. 50804 – 50805/2022

 2

DATE OF HEARING: 16.08.2022

DATE OF DECISION: 02.09.2022

ANIL CHOUDHARY:

The issue in this appeal is whether Central Excise duty

along with equal amount of penalty have been rightly demanded from

the appellant company, and further whether penalty have been rightly

imposed on Sh. Prakash Chand Purohit - Managing Director on the

allegation of clandestine manufacture and clearance of chewing

tobacco.

2. Brief facts of the case are that the appellant company is

engaged in packing and clearance of branded lime mixed chewing

tobacco falling under tariff item 2403 99 10 of the First Schedule of the

Central Excise Tariff Act, 1985. Sh. Prakash Chand Purohit (Sh.

Purohit in short) is the Managing Director of the appellant company.

The appellant company is registered with the Central Excise

Department and was operating under compounded levy scheme during

the period of dispute from April, 2012 to April, 2013.

3. The Appellant has the following three manufacturing units:

(I) Unit-I, located at Upar ki Oden, Nathdwara, and having Central Excise

Registration No. AABCM4952DXM001, is engaged in packing of

processed chewing tobacco in pouches, using automatic „Form, Fill &

Seal‟ (FFS) machines;

(II) Unit-II, located at Khetan Road, Rabcha, Nathdwara, and having

Central Excise Registration No. AABCM4952DXM002, is engaged in

mixing of lime and tobacco upon receipt of raw tobacco and selling of

entire semi-finished goods to Unit-III upon payment of Central Excise

duty; and

(III) Unit-III, located at Village Kheda Bhansole, Mavli, Udaipur, and having

Central Excise Registration No. AABCM4952DXM003, is engaged in

 3
processing of tobacco which includes drying, grading and coating and

selling of entire processed tobacco to Unit-I.

The appellant company regularly deposits the duty in advance

at the beginning of each assessment period (which is month to

month) and also filed periodical return regularly.

4. The present appeal pertains to Unit-I, as mentioned above.

The Appellant is operating under the Chewing Tobacco and

Unmanufactured Tobacco Packing Machines (Capacity Determination

and Collection of Duty) Rules, 2010 (Chewing Tobacco Rules)

notified by virtue of Section 3A of the Central Excise Act, 1944 and was

paying duty on the aforesaid final products based on the „periodic

capacity determination orders‟ passed by the jurisdictional Central

Excise authority determining the annual capacity of production of the

Appellant (Determination Orders) under Rule 6(2) of the Chewing

Tobacco Rules. The appellant regularly deposits the duty & returns.

5. The officers of Income Tax Department (IT Department)

conducted search proceedings in September 2013 at various premises

of Miraj group and its personnel. During the such search on 25.9.2013

at the residential premises of Sh. Purohit under Panchnama dated

25/26.09.2013, the officers found inter alia one sheet (survey data).

5.1 Sh. Purohit in his statement dated 25.9.2013 and also vide

letter dated 4.12.2013, explained the contents of the Survey sheet to

the IT department which related to the Tobacco Market Survey Report,

conducted by the Appellant for data comparison of sales by the

 4

Appellant and other tobacco manufacturing competitors of Appellant. It

was explained that column „Green‟ category in the Survey Sheet

contained data of sales of the Appellant during the relevant period,

while the column „Red‟ category contained data of products sold by the

Appellant‟s competitors. The said information of the competitors were

gathered by Appellant from various dealers, wholesalers and

merchants (dealers) located across the country, vide telephonic

surveys.

5.2 The Appellant further vide letter dated 4.3.2015 informed

the IT Department that it had purchased 28,144.06 kg of packing

material (viz. paper lamination rolls) valued at Rs. 92,12,154/- from

M/s. Uma Polymers Ltd., (Uma Polymers), during the FY 2012-13 and

2013-14 under ten invoices. However, the same were found defective

upon inspection, and was not replaced by the supplier despite repeated

requests. This amount was unpaid liability in books of accounts.

Accordingly, the Appellant voluntarily offered such amount for taxation,

for the assessment year 2014-15 with a request not to initiate penal

proceedings. The IT Department for the previous year 2012-13 and

2013-14 passed the Assessment Orders, both dated 12.3.2015.

Investigation by the Central Excise Department.

6. Pursuant to the information gathered from the IT

Department during REIC meeting on 27.3.2015, the officers of the

Central Excise Department (CE Department) requested for supply of

relevant documents, which were made available by IT Department

under their letter dated 14.9.2015. Thereafter, the CE Department

conducted investigation against the Appellant by recording statement

 5

of Sh. Purohit on 15.6.2016, wherein he reiterated the submissions

which were already made before the IT Department regarding the

contents of Survey sheet.

7. The Department also conducted verification from various

tobacco manufactures and jurisdictional Central Excise authorities of

such manufacturers, the details whereof were mentioned in the survey

report. Some of the said manufacturers submitted letters and the

authorities provided the reports regarding the investigation, the details

of which are mentioned below:

1) Letter dated 28.3.2017 by Ld. Superintendent, Varanasi,

regarding M/s Mala Zarda Industries;

2) Letter dated 28.3.2017 by Ld. Superintendent, New Delhi,

regarding M/s Golden Tobacco Manufacturing Co. Pvt. Ltd.,

3) Letter dated 25.3.2017 by Ld. Assistant Commissioner,

Ghaziabad, regarding M/s Kay Pee Khaini Pvt. Ltd.,

4) Letter dated 24.3.2017 by Ld. Superintendent, Sonipat,

regarding M/s Vaneet Sales Corporation;

5) Letter dated 16.3.2017 by Ld. Assistant Commissioner, Anand,

regarding M/s Patel Products.

6) Letter dated 10.3.2017 by Ld. Assistant Commissioner, Jaipur,

regarding M/s Goyal Tobacco Co.;

7) Letter dated 14.3.2017 by M/s Malpani Group.

8) Letter dated 9.3.2017 by Ld. Superintendent, Howrah, regarding
M/s Angel Products;

9) Letter dated 6.3.2017 by Ld. Deputy Commissioner, Ambala,

regarding M/s SMC Products;

10) Letter dated 15.3.2017 by M/s Anas Enterprises;

11) Letter dated 24.3.2017 by M/s Praveen Kumar & Sons;

12) Letter dated 28.3.2017 by M/s Lok Nath Prasad Gupta; and

13) Letter dated 5.4.2017 by Ld. Deputy Commissioner, Ambala,

regarding M/s Sugandhi Snuff King Ltd.;.
 6

8. Sh. Purohit vide letter dated 29.4.2017, further intimated

the Excise Department, that since the packing material of 28,144.06

kg purchased from Uma Polymers was defective, therefore out of such

quantity, 10,854.110 kg. was destroyed under internal permission

letter dated 30.3.2015 and the remaining quantity of 18289.95 kg was

put to use and subsequently discarded as waste in routine manner. In

support of this, Sh. Purohit submitted copy of the Appellant‟s stock

ledger and A/c of Uma Polymers maintained by the Appellant .

Show Cause Notice dated 03.05.2017

9. In the above factual background, a Show Cause Notice

dated 03.05.2017 was issued to the Appellant proposing to recover

Central Excise duty amounting to Rs. 163,06,00,000/- under Rule 19

of the Chewing Tobacco Rules read with with Section 11A of the

Central Excise Act, 1944 along with interest, and penalty, by solely

relying on the data mentioned under the „Red‟ column of „Survey sheet‟

alleging that such figures depicts clearances of the final products

manufactured discreetly by the Appellant in a clandestine manner,

from presumed undeclared machines installed at a secret place. The

aforesaid reports/letters relating to competitor manufacturers, were

also relied upon to allege that the Appellant‟s explanation regarding

the Survey sheet was false and baseless.

9.1 Placing reliance on the appraisal report pursuant to search

by the IT Authority, wherein it was presumed that the figures

appearing in the red column in the survey sheet are the unrecorded

figure of turnover, outside the books of accounts.

 7

9.2 In order to examine the veracity of the survey report as

submitted by Sh. Purohit, the Department made further enquiries by

issuing letters to the jurisdictional Assistant / Deputy Commissioner of

such units/ manufacturers to verify whether the manufacturer names

appearing in the survey report are engaged in manufacture of tobacco

product with the brand name as divulged by Sh. Purohit and to provide

their production and clearance figures and accordingly the reports were

received as aforementioned. As per the reports received, there

appeared to be variation in the brand name as Sh. Purohit was

recording the data in the name of the manufacturing company, instead

of the brand name. It appeared that the contention of Sh. Purohit is

wrong and misleading. For example, as per the report of Range

Superintendent having jurisdiction over M/s Golden Tobacco

Manufacturing Co. Pvt. Limited, it was informed that they are engaged

in manufacture of branded chewing tobacco under the brand name

„Bengali Spit Tobacco‟. However, in the survey report the appellant

has claimed the brand name of the said manufacturer as „Golden‟ ,

which is actually not their brand name. Similar discrepancy, mis-

matching with respect to report received from other Range

Superintendents with respect to some other manufacturing unit, the

names which are appearing in the said report.

9.3 Thus, it appeared to Revenue that Sh. Purohit is trying to

mislead the Revenue and the said survey report resumed from his

premises during search by the IT Department, is not a survey report

but also contains the data of clandestine clearance by the appellant

company. It further appeared that the data appearing in the green

column in the said report matches with the returns filed with the
 8

Department, whereas the data appearing in the red column (claimed to

be the data of other manufacturers) is actually the clandestine

clearance of the appellant.

9.4 Revenue further worked out the number of pouches which

the appellant could manufacture from the declared machine(s) for

manufacture of chewing tobacco, and thereafter on the said basis

worked out, the number of cartons required for packing and despatch

(1600 pouches can be packed in one carton having RSP of Rs.3/-) and

similarly worked out as regards pouches manufactured having RSP

Rs.5/-. Accordingly, on comparison of the data as per the ER-1 returns

for the period under dispute, found that the declared production in the

returns matches with the production capacity of the declared machine.

Thus, it appeared to Revenue that the figures appearing in the red

column of the sample survey sheet, is not the data of survey, but is

the data of clandestine manufacture and clearance by the appellant.

Accordingly, the Revenue has adopted the method of reverse

calculation and arrived at the number of machine(s) required for

manufacture of such quantity. Thereafter, calculated the duty on such

presumed packing machines (which were never found admittedly), on

the basis of compounded levy for the period of dispute and accordingly

demanded the duty with penalty, as per the aforementioned show

cause notice.

9.5 On receipt of the show cause notice the appellant vide

letter dated 20.12.2017 requested the Adjudicating Authority to allow

cross-examination of various persons/ officers whose reports/ letters

have been relied upon in the show cause notice. Such permission was
 9

denied by the Adjudicating Authority vide order dated 08.06.2018.

Being aggrieved, the appellant challenged the said order in appeal No.

E/51687/2018 before this Tribunal, vide Final Order reported at 2018

(9) TMI 821 disposed of the appeal with the following observations:-

“15. In view of entire above discussion, it is held that the request

of the appellant in question was a premature request before the
Commissionerate hence the Order under challenge needs no
interference. However, the Commissioner is hereby required,
irrespective of the appellants filing any reply to the Show Cause
Notice or not, to follow the principles of adjudication as far as the
examination of the witness and cross examination thereof is
concerned, as discussed above. The adjudicating authority-
Commissioner is required to reconsider the request of the appellant
at the appropriate stage. However, keeping in view that the basic
concept behind the cross examination is fair play, it being the most
effective of all the means for extracting truth and exposing
falsehood. It is clarified that above observations shall have no
effect on the discretionary power of the adjudicating authority
below exercised with reasonable care and caution but at the
appropriate stage for the same. Appeal accordingly stands disposed
of.”

9.6 Thereafter, the appellant filed detailed reply to the

show cause notice filed on 29.10.2018 disputing all the allegations

and also filed additional submission dated 19.02.2019. However,

the Adjudicating Authority rejecting the contention of the appellant

was pleased to confirm the proposed demand with penalty against

the appellant company, and also imposed penalty on the Managing

Director Sh. Purohit. Being aggrieved, the appellants are in appeal

before this Tribunal.

10. Being aggrieved with the impugned order, the Appellant

has filed the present appeal on the following grounds.

SUBMISSIONS ON BEHALF OF THE APPELLANT

 10

11. COMPOUNDED LEVY SCHEME PRESCRIBED UNDER SECTION 3A

READ WITH THE CHEWING TOBACCO CAPACITY DETERMINATION RULES IS

A SELF-CONTAINED CODE, WHERE DUTY IS PAYABLE BASED ON NUMBER OF

PACKING MACHINES OPERATING/ INSTALLED, AND NOT ON ACTUAL

PRODUCTION OF GOODS. THUS, DEMAND BASED ON CHARGES OF CLANDESTINE

MANUFACTURE AND CLEARANCE IS NOT SUSTAINABLE.

11.1 The Appellant was operating under the Compounded levy

scheme, thus, duty demand cannot be confirmed on the absence of

any undeclared packing machine found operating at the Appellant‟s

premises during the relevant period.

11.2 The duty demand has been confirmed solely on Survey

sheet recovered by the Income Tax Department from the residence of

Sh. Purohit, alleging that the data mentioned in the Survey sheet

under column „Red‟ contains the data of clearances of goods

manufactured clandestinely by the Appellant from the undeclared

machines installed at a secret place. In this regard, it is submitted that

the said observation of the Ld. Commissioner is ex-facie erroneous and

not sustainable for the reasons elaborated below.

11.3 Section 3 of the Central Excise Act, 1944 (Excise Act),

provides that Central Excise duty is levied on the manufacture of

excisable goods in India. However, making an exception thereto,

Section 3A ibid provides for charging duty on the basis of „capacity of

production‟ in respect of goods notified thereunder, having regard to

the nature of manufacturing process, production of excisable goods of

any specified description, extent of evasion or any such other relevant

factor.
 11

11.4 Accordingly, the Central Government in exercise of the

powers conferred under Section 3A(1), vide Notification No. 10/2010-

CE (N.T.) dated 27.2.2010, specified inter alia „chewing tobacco‟ falling

under Tariff Item 24039910 of the First Schedule to the CETA, which is

manufactured with the aid of packing machine and packed in pouches

by FFS (Fill, Form and Seal) machines, as notified goods, on which

duty shall be levied and collected in accordance with Section 3A.

Simultaneously, in terms of Section 3A(3), the Central Government

specified the rate of duty applicable in respect of the said notified

goods vide Notification No. 16/2010-CE dated 27.2.2010 according to

per packing machine per month, depending on different RSP‟s fixed for

per pouch, manufactured in the factory.

11.5 For providing the manner of determination of the „Annual

Capacity of Production‟ of the factory, factor relevant to such

production, collection of duty, etc., Central Government notified the

Chewing Tobacco Rules in exercise of the powers conferred under sub-

sections (2) and (3) of Section 3A of the Excise Act.

12. In the present case, admittedly, the Appellant is engaged

in the manufacture of chewing tobacco falling under Tariff Item

24039910 with the aid of packing machine (FFS) and packed in

pouches. Thus, the Chewing Tobacco Rules are applicable in respect of

final products manufactured by the Appellant, and there is no dispute

in this regard.

12.1 Under the compounded levy scheme, excise duty is

imposed on the „factor‟ relevant for production of the notified goods

and in case of Chewing Tobacco Rules, the factor relevant for

 12

production of the notified goods is the „number of packing machines‟ in

the factory of the manufacturer as provided in Rule 4 ibid. Whereas

Rule 5 provides for the quantity which is deemed to have been

produced by use of one operating packing machine.

12.2 The provisions of Rule 6(1) states that a manufacturer of

notified goods shall file a declaration, providing the comprehensive

details in respect of packing machines. Under sub-rule (2), on the

basis of such declarations, jurisdictional Central Excise authority shall,

after making necessary inquiry including physical verification, approve

the declarations and determine the annual capacity of production by

passing Determination Orders. Sub-rule (3) states that the annual

capacity of production shall be calculated by applying the deemed

quantity under Rule 5 to the number of operating packing machines in

the factory during the month. The number of operating packing

machines during any month shall be equal to the number of packing

machines installed in the factory, as per sub-rule (4). Whereas the

machines not intended to be operated, shall be uninstalled and sealed

by the Department in terms of sub-rule (5).

12.3 Under Rule 7 of the Chewing Tobacco Rules, duty is

payable on the notified goods on the basis of annual capacity of

production, i.e. the number of packing machines operating in the

factory of assessee.

12.4 Rule 8 provides for alteration in number of operating

packing machines, while Rule 13 deals with addition or removal of

packing machines.
 13

12.5 Rule 9 provides the manner of payment of duty and

interest, as per which the duty on notified goods is payable in advance

on monthly basis by the 5th day of the same month. Whereas, Rule 10

deals with abatement of duty in case of non-production of goods. Rule

16 entitles a manufacturer to avail Cenvat credit on notified goods in

bulk packs.

12.6 Rule 18 deals with imposition of penalty for contravention

of any of the provisions of Chewing Tobacco Rules. And, Rule 19

borrows all the provisions of Excise Act and the Central Excise Rules,

2002, except for those provided under the Chewing Tobacco Rules

itself, including relating to recovery of dues.

13. From the above, it clearly transpires that the Compounded

levy scheme prescribed under the Chewing Tobacco Rules, is a self-

contained code which not only provides for the manner in which duty is

levied, but also for calculation of such duty. Thus, duty on notified

goods is required to be determined strictly within the four corners of

the Chewing Tobacco Rules and in no other manner whatsoever.

14. It is further submitted that duty is leviable on notified

goods only on basis of number of operating packing machines installed

in factory, meaning thereby that payment of duty under the

compounded levy scheme in terms of the annual production capacity

determined, is not relatable to actual clearance and sale of goods.

Assessee working under the said scheme is bound to pay a particular

quantum of duty irrespective of actual production/ clearance of such

goods.

15. The appellant relies on the following decisions:

 14
 Hans Steel Rolling Mill v. Commissioner of C. Ex., Chandigarh, 2011
(265) E.L.T. 321 (S.C.).

 Commissioner of C. Ex. & Customs v. Venus Castings (P) Ltd., 2000

(117) E.L.T. 273 (S.C.).

 Union of India v. Supreme Steels and General Mills, 2001 (133) E.L.T.
513 (S.C.).

 Goyal Tobacco Co. Pvt. Ltd. v. Commissioner of C. Ex. & ST, Jaipur-I,
2017 (348) E.L.T. 720 (Tri. – Del.), as affirmed by the Hon‟ble
Rajasthan High Court in Commissioner of C.G. & S.T., Jaipur v. Goyal
Tobacco Co. Pvt. Ltd., 2018 (360) E.L.T. 477 (Raj.).

 Ram Shyam Prints v. Commissioner of C. Ex., Ahmedabad, 2008 (226)

ELT 433 (Tri. – Ahmd.).

16. Further urges in the present case, since the Appellant is

engaged in the manufacture of notified goods, viz. chewing tobacco, it

is submitted that the duty is payable on such goods only in terms of

the provisions of the Chewing Tobacco Rules. For this reason only,

Department had determined the Annual Capacity of Production and

duty is payable on the basis of number of packing machines operating

in the Appellant‟s unit during the relevant period, under capacity

Determination Orders passed in terms of Rule 6(2) of the Chewing

Tobacco Rules, and such Determination Orders have attained finality.

17. However, the department while issuing the SCN proposing

to recover the excise duty, has failed to disclose any evidence

regarding the presumed undeclared machines, allegedly operated by

the Appellant. In Paras 42 & 43 of the impugned Order the Ld.

Commissioner has categorically recorded the following:

“42. … However, I find that in this case, during the search by Income
Tax authorities, the machines on which chewing tobacco identified as
category “Red” were manufactured, have not been found during the
investigation also, Shri Prakash Chandra Purohit has also not divulged
the source of production of the said clearances of pouches shown in the
category “Red”. Since, the said clearances mentioned in category “Red”
were un-recorded clearances of M/s Miraj Products Pvt. Ltd. only and the
number of machines were not declared with its identification & place of
manufacture and they have not deposited the duty, therefore, the duty
was worked out by taking into consideration the speed and maximum
 15
production of their declared machines as were operational during the
period from April 2012 to April 2013.”
“43. … I find that in the instant case the entire issue revolves around the
facts that they have clandestinely manufactured the Chewing Tobacco
pouches on machines not declared by them. The investigation has
revealed that the assessee used undeclared machines for manufacturing
the goods and clearing the same without payment of appropriate Excise
duty, naturally would not be found installed in the declared premises
after two years of detection by the income tax authorities.”

[Emphasis supplied]

18. On perusal of the above, it is abundantly clear that no such

undeclared machines, on which Appellant has allegedly manufactured

the notified goods and cleared the same, was ever found/investigated

by the department. Accordingly, the duty demand based on theoretical

determination of number of alleged undeclared machines operated by

the Appellant for clandestine manufacture of goods, is devoid of logic

and not tenable.

19. Further urges the duty on notified goods is determined

only on the basis of number of machines operating in the factory in

terms of the Chewing Tobacco Rules only. As a corollary, it is

submitted that no duty demand can be raised on the basis of

presumed undeclared machines, as done by the Department in the

present case, which is violative of the Chewing Tobacco Rules.

20. At this juncture, reliance is placed on the decision of

Hon‟ble Tribunal in the case of Goyal Tobacco Co. Pvt. Ltd. v.

Commissioner of C. Ex. & ST, Jaipur-I, 2017 (348) E.L.T. 720

(Tri. – Del.), where duty demand was confirmed against the assessee

on the basis of availability of three machines in the rented godown

premises. The Hon‟ble Tribunal, while setting aside such demand, held

that under the compounded levy scheme, duty cannot be levied on

 16

machines which were not functional or installed during the relevant

period. The said decision was further affirmed by the Hon‟ble

Rajasthan High Court in the case of Commissioner of C.G. & S.T.,

Jaipur v. Goyal Tobacco Co. Pvt. Ltd., 2018 (360) E.L.T. 477

(Raj.).

21. It is further submitted that the Appellant has sufficient

positive evidences to establish that it was operating only the number of

machines as declared before the CE Department. The same are

mentioned below.

21.1 The Determination Orders passed by the jurisdictional

Central Excise authorities of the Appellant under Rule 6(2) of the

Chewing Tobacco Rules, on the basis of declarations filed by the

Appellant under Rule 6(1), determining annual capacity of production

of the Appellant, and duty was paid in advance during the FY 2012-13,

and no undeclared machines were found. The said orders are also

found to be correctly reflecting the declared machines, in the SCN and

the impugned order;

21.2 The jurisdictional Central Excise authorities of the Appellant

invariably visited the Appellant‟s manufacturing unit, for uninstalling/

de-sealing or installing/ sealing the machines, as the case may be in

terms of Rule 6(5), and no undeclared machines were ever found;

21.3 The jurisdictional Central Excise authorities of the Appellant

visited the Appellant‟s manufacturing unit and conducted physical

verification of the machines installed and operating, for verifying the

maximum speed of machines in operation as declared by the Appellant

 17

in the declarations filed in terms of Rule 6(2), and no undeclared

machines were found;

21.4 The officers of the then Directorate General of Central

Excise Intelligence (now, Directorate General of GST Intelligence)

carried out surprise search at the Appellant‟s unit on 24.05.2013,

which is prior to the search carried by the IT Department in the

present case, and no undeclared machines were found.

25. The Ld. Commissioner in Para 43 of the impugned order,

has brushed aside the aforesaid documentary evidences by simply

holding that Appellant would not operate the undeclared machines

from its declared premises. However, it is submitted that even the

department has utterly failed to provide a single piece of evidence to

corroborate existence of undeclared machines being operated by the

Appellant during the relevant period. Thus, such findings are not

sustainable. Hence, in the absence of undeclared machines, duty

demand cannot be confirmed against the Appellant.

26. Without prejudice to above, assuming without admitting

that even if there was extra production of goods during the relevant

period, duty demand is not sustainable since duty is levied on the basis

of number of machines operating, and not based on the actual

production of goods.

27. Amount of Rs. 92,12,154/- pertained to outstanding dues of

Uma Polymers which remained unpaid due to defective packing material

supplied. No adverse inference can be drawn. In any case, there is no

evidence to support the allegation that such packing material was used in

clandestine manufacture of goods.

 18

27.1. As mentioned above, packing material weighing 29,144.06

kg purchased from Uma Polymers was found to be defective by

Appellant on inspection, and accordingly, the latter did not make the

payment of Rs. 92,12,154/-. Uma Polymers also did not replace the

material. It is submitted that the Appellant did not return the material

because it contained the Appellant‟s brand name „Miraj‟, thus, the

same was prone to misuse of brand name. The material was made of

multi-layered film containing plastic and metal foil, which cannot be re-

melted and re-used. Accordingly, Appellant put to use part quantity in

the production of such material and destroyed the remaining quantity

with permission.

27.2. It is further submitted that the Appellant has duly recorded

the details of the aforesaid purchase as well as the fact of destruction

of part quantity, in its books of account, which further shows bona fide

on the Appellant‟s part. Had the Appellant intended to use the material

in clandestine manufacture of goods, it would not have accounted for

the same. Thus, it cannot be said that Appellant used such packing

material in clandestine manufacture of goods. In fact, such a small

quantity of packing material cannot be used to manufacture huge

quantity of pouches as alleged, by the Department in the present case.

28. Further, it is submitted that the aforesaid amount of Rs.

92,12,154/- was voluntarily offered by Appellant to IT Department for

taxation for the assessment year 2013-14. The IT Department vide

Assessment Order dated 12.3.2015, taxed the said income as

undisclosed income in the hands of Appellant. However, on appeal

 19

against said order, the Ld. Commissioner of Income Tax (Appeals),

vide Order dated 5.10.2016, has set aside such finding thereby

accepting the Appellant‟s contentions made in this regard. And this

Order has attained finality in absence of any appeal by department

before the higher forum. Thus, it proves beyond any doubt that the

Appellant did not have any mala fide intention as regards the purchase

of packing material (found defective) and no adverse inference can be

drawn.

29. Without prejudice to above, it is submitted that disclosure

of income, if any, before the IT Department cannot be treated as sale

proceeds of clandestine manufacture activity on the part of Appellant,

in the absence of corroborative evidences to the contrary. Reliance in

this regard is placed on the following decisions:

 Trikoot Iron and Steel Casting Ltd. v. Commissioner of C. Ex., Meerut,

2015 (315) E.L.T. 65 (Tri. - Del.).

 Ravi Foods Pvt. Ltd. v. Commissioner of C. Ex., Hyderabad, 2011 (266)

E.L.T. 399 (Tri. - Bang.).

 Commissioner of Central Excise, Ludhiana v. Zoloto Industries, 2013

(294) E.L.T. 455 (Tri. - Del.)

30. THE SURVEY REPORT WAS PREPARED VIDE TELEPHONIC SURVEYS OF

DEALERS, AND THE APPELLANT’S EXPLANATION THEREOF CANNOT BE

DISREGARDED ON THE BASIS OF REPORTS/ LETTERS. IN ANY CASE, NO RELIANCE

CAN BE PLACED ON SUCH REPORTS/ LETTERS.

30.1. In the present case, Department has discarded the

Appellant‟s explanation regarding the contents of Survey sheet by

holding that such sheet is a private document(s) containing the

clandestine clearances of Appellant, and chose to rely on the reports/

letters relating to the competitors, to raise duty demand against the

 20

Appellant. Such allegations have been confirmed in the impugned

order.

30.2. In this regard, it is submitted that the Tobacco Market

Survey Report was an informal telephonic survey from dealers, and

was prepared by the Appellant capturing the details of sales (and not

clearances) of Appellant‟s competitors as informed by the dealers.

Naturally, the survey report had only captured sales data of the

Appellant‟s competitors as informed by the dealers located across the

country and not clearance data of such competitors. Whereas, the

reports/ letters were in respect of the other manufacturers showing

only the clearances from their respective units. It is due to this

difference in Department‟s verification process, it has been stated by

some of the competitors that their clearance of tobacco products

during the relevant period was Nil.

31. In the reports/ letters relating to the competitors, namely,

Malpani Group and SMC Products, it is mentioned that they are not the

manufacturers of tobacco products. In this regard, it is submitted that

tobacco under the brand name „Gai Chhap‟ and „Patta Chhap‟ as

mentioned in the Appellant‟s survey report, are available in the

market. Sample copies of such tobacco pouches, together with

pouches of all the brands mentioned in the survey report, collected

from the market has been annexed in the Appeal paper book.

32. The Ld. Commissioner has not recorded any findings on the

aforesaid submissions made by the Appellant in reply to SCN, and

simply confirmed the allegations made in the SCN. Therefore, reliance

 21

placed on the reports/ letters to discredit the survey report of the

Appellant, is devoid of any merit and not sustainable.

33. Sh. B. L. Narasimhan, ld. Counsel for the appellant inter

alia further urges -

Without prejudice, no reliance can be placed on the letters/

reports in the absence of cross examination of author thereof.

The impugned order has been passed in violation of the

principle of natural justice and in non-compliance of Section 9D

of the Central Excise Act.

33.1 The Impugned Order has relied upon various

reports/letters to counter the clarification given by the Appellant for

the Survey sheet. In this regard, it is submitted that despite making an

express request by the Appellant to grant cross-examination of the

officers/manufacturers whose reports/letters are relied upon in the

show cause notice, the Ld. Adjudicating Authority has passed the

impugned order, denying such request.

33.2 It is submitted that reports/letters in the present case, are

in the nature of statements tendered during the course of an inquiry or

proceeding under the Excise Act. Accordingly, Section 9D of Excise Act

requires that the truthfulness of such factual statements made, is

required to be accepted only after the same has been complied with

the requirement of cross-examination. In the absence of such cross-

examination, the reports/letters cannot be made the basis for

discrediting the explanation provided by the Appellant. Such reports /

letters are required to be discarded.

 22

33.3 It is further submitted that not providing the opportunity of

cross examination in the present case, is also violation of the principle

of Natural justice. Reliance in this regard is placed on the following

decisions, where cross-examination of Chemical Examiner was allowed

by this Tribunal to ascertain the veracity of the test reports relied upon

by department against the assessee. Therefore, the ratio of such

decisions equally applies to the present case, and categorically rebuts

the finding recorded by Ld. Commissioner in Para 20 of the impugned

order, for denial of such request:

 Youngman Indus. Ltd., v. Commissioner of Customs, Amritsar, 2004

(175) E.L.T. 663 (Tri. - Del.)

 Ultra Fine Fillers (P) Ltd. v. Commissioner of Central Excise, Jaipur-II,

2004 (167) E.L.T. 331 (Tri. - Del.).

34. EXTENDED PERIOD OF LIMITATION IS NOT INVOKABLE AND

DEMAND IS ENTIRELY TIME-BARRED.

34.1. The demand proposed in the SCN issued on 03.05.2017 for

the period April 2012 to April 2013, was raised by invoking the

extended period of limitation. It is submitted that the extended period

of limitation is not invokable in the present case, because the Appellant

did not suppress any facts, thus there is no intention to evade the

payment of Central Excise duty. Further, except a bald allegation,

neither the SCN nor the impugned order demonstrates as to how

Appellant has suppressed the facts. For this reason, extended period of

limitation is not invokable and the entire demand is time-barred.

35. It is further submitted that once it is evident that the

Appellant was regularly filing its returns and that the records of the

Appellant were also routinely audited, there is no basis to allege that

 23

there was any suppression by the Appellant. In fact, the

aforementioned documentary evidences in the form of Determination

Orders, regular visits by the officers, etc., show that all the material

facts were in the knowledge of the Department. Thus extended period

of limitation is not invokable. Moreover, it is submitted that despite

receiving the relevant information and documents from the IT

Department vide letter dated 14.09.2015, CE Department took more

than one and a half years to issue the SCN. Thus, extended period of

limitation cannot be invoked. In support of above submissions, reliance

is placed on the following decisions:

 Pushpam Pharmaceuticals Company v. Commissioner of Central Excise,

Bombay 1995 (78) ELT 401 (SC)

 Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, 2005

(188) ELT 149 (SC)

 Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur, 2013

(288) ELT 161 (SC).

36. It is further urged that even if for argument sake the

allegation of Revenue is accepted, still under the scheme of

compounded levy under Section 3A of the Act read with notification, no

demand can be raised on the basis of presumed undeclared packing

machine(s). Demand can only be raised under the compounded levy

scheme read with notification, if the Revenue finds any undeclared

machine installed in the declared premises or undeclared premises.

Admittedly, in the facts of the present case, no such undeclared

machine have been found either in the declared premises or anywhere

else.

37. It is further urged that Revenue has totally misconceived

itself by giving a total goby to the compounded levy scheme which

 24

provides for manner of determination & collection of duty based on the

capacity of production and have rather adopted an imaginary method

of assessment of duty, which is not permissible under the Act or Rules

thereunder.

38. In view of above submissions, it is urged that the extended

period of limitation is not invokable. Further submits that no penalty is

imposable on the Appellant Co. as well as on Sh. Purohit. It is further

submitted that when demand itself is not sustainable, penalty is not

imposable, and interest is also not recoverable.

39. In light of the above submissions, the Appellant prays that

the impugned order passed by the Ld. Commissioner is liable to be set

aside and the present appeals filed by the Appellant Co. and Sh.

Purohit are fit to be allowed in full, with consequential relief.

40. Learned Special Counsel Sh. S. K. Mathur appearing for the

Revenue urges that the goods manufactured by the appellant are

prone of evasion of Central Excise duty. Accordingly, he urges that the

duty has been rightly demanded in the impugned order, which is based

on assumption and presumption, on the basis of the survey report

(private documents) recovered at the time of search from the

residence of Sh. Purohit. Although Sh. Purohit has explained the said

sheet as survey report, but it is actually data of clandestine

manufacture and clearance by the appellant. He also relies on the

Appraisal report written by the Deputy Commissioner of Income Tax,

Udaipur to the Joint Commissioner (AE), Udaipur which gives the

details of data and cash found and seized at different premises,

 25

including residence of the Director. Learned Counsel also stresses that

Rs. 4 crore undisclosed income was declared by Sh. Madan Lal Paliwal

to cover up their various transactions out of undisclosed income.

Accordingly, he supports the impugned order and the demand of duty

with penalty.

41. Having considered the rival contentions, we find that

Section 3A of the Act read with the Chewing Tobacco Rules is a

complete code in itself. It provides for the detailed procedure for

determination of duty on the basis of capacity of production. Further,

the said Rules also provides for detailed procedure for determination of

duty payable and also provides for penalty in case of violation or mis-

declaration by the assessee. It also provides that if any undeclared

packing machines are found by the Department, the manner of

determination of duty on such machines and the penalty imposable.

42. Admittedly, in the facts of the present case, Revenue have

not found any undeclared machine(s) in manufacturing premises/

factory. Further, no such undeclared machine(s) was found at any

undisclosed premises. We further find that duty has been demanded

on the basis of assumptions and presumption, which is not permissible

under the scheme of compounded levy on the product manufactured

by the appellant. We further find that appellant have regularly filed

declarations for capacity determination under Rule 6(1) of the Chewing

Tobacco Rules, and the said declarations were adjudicated upon and

duty payable determined (assessment order) by the Adjudicating

Authority. Such adjudication orders have attained finality, as these

 26

have not been appealed against by the Department. We further find

that duty is payable under the Compounded Levy Scheme on the

„Capacity of Production‟ based on the notified factor of production, is

not relatable to actual production and clearance of the goods. An

assessee may manufacture more or less than the determined capacity,

and the same is not relevant. Further, we find that once an assessee

is assessed to compounded levy scheme, there is no scope for

assessment of duty under Section 3, on the basis of actual production.

We also find that the factory of the appellant was regularly visited from

time to time by the Officers of the Department and they have never

found any undeclared packing machine being operated by the

appellant.

42.1 We further hold that in the facts and circumstances

(Compounded Levy Scheme), undisclosed income declared before the

Income Tax Department has no bearing on the duty payable under

Central Excise Act. Further, it is undisputed that the amount of

Rs.92,14,154/-, which was voluntarily offered to Income Tax and was

confirmed in the Assessment order as undisclosed income, on appeal

by the appellant, the ld. Commissioner of Income Tax (Appeals) vide

Appellate Order dated 05.10.2016 have set aside the said amount.

Thus, the Income Tax Department have not drawn any adverse

conclusion with regard to the receipt of defective packing material from

M/s Uma Polymers, which is one of the basis for drawing adverse

assumption and presumption against the appellant. We further find

that the appellant has given a cogent explanation with regard to the
 27

sheet/ survey report found from the premises of Sh. Purohit, which

have been arbitrarily rejected by the Adjudicating Authority.

42.2 We also find that invocation of extended period of

limitation is bad and not available to Revenue, as no case of

`suppression or contumacious conduct is made out.

42.3 In view of our findings and observations, we allow these

appeals and set aside the impugned order. Thus, both the appeals are

allowed with consequential benefits to the appellants. Early hearing

application is also disposed of.

(Pronounced on 02.09.2022).

(Anil Choudhary)
Member (Judicial)

(P. V. Subba Rao)

Member (Technical)
Pant
 Commissioner Of Central Excise vs Commissioner on 6 March, 2014

Gujarat High Court

Commissioner Of Central Excise vs Commissioner on 6 March, 2014
O/TAXAP/143/2014 ORDER

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL No. 143 of 2014

With
TAX APPEAL No. 144 of 2014
To
TAX APPEAL No. 146 of 2014

================================================================

COMMISSIONER OF CENTRAL EXCISE....Appellant(s) Versus

S A A K E E N A L L O Y S P V T . L T D . . . . O p p o n e n t ( s )
================================================================
Appearance:

Ms. AMEE YAJNIK, ADVOCATE for the Appellant(s) No. 1

================================================================
CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and
HONOURABLE Ms. JUSTICE SONIA GOKANI 6th March 2014 COMMON ORDER
( P E R : H O N O U R A B L E M s . J U S T I C E S O N I A G O K A N I )
Since all these Tax Appeals contain common questions of facts and law,
they are being decided by this common order.

Challenging the order of the Customs, Excise & Service Tax Appellate
Tribunal, West Zonal Bench, Ahmedabad {"CESTAT" for short} dated 15th July
2013, Revenue has challenged the same in both these Tax Appeals, raising the
following substantial questions of law for our consideration :− O/TAXAP/143/2014 ORDER {a}
"Whether the CESTAT, while passing Order No. A/10817−
1 0 8 2 0 / W Z B / A H D / 2 0 1 3 d a t e d 1 5 . 0 7 . 2 0 1 3 , w a s c o r r e c t
in holding that there is no evidence of illicit clearance available
despite holding that there are suspicion of illicit clearance and
the Department proved the entire modus of illicit clearance on sample basis ?"

{b} Whether the Customs, Excise & Service Tax Appellate Tribunal, while passing Order No.
A/10817−1820/ WZB/ AHD/2013 dated 15.07.2013, was correct in holding that
evidences collected by Departments are admissible evidences
only for one offence while the same set of evidences only for
one offence while the same set of evidence are insufficient to establish another offence ?"

Indian Kanoon - http://indiankanoon.org/doc/113598484/ 1

 Commissioner Of Central Excise vs Commissioner on 6 March, 2014

{c} Whether the Customs, Excise & Service Tax Appellate Tribunal, while passing Order No.
A/10817−1820/WZB/ AHD/2013 dated 15.07.2013, was correct in admitting the
evidences for the past clearance and ignore the evidences for the remaining clearances ?"

{d} Whether the Customs, Excise & Service Tax Appellate Tribunal, while passing Order No.
A/10817−1820/WZB/ AHD/2013 dated 15.07.2013, was correct in holding that the
statement has been retracted even though the same person has
admitted the depositions made in the retracted statements in
h i s s t a t e m e n t r e c o r e d s u b s e q u e n t t o t h e r e t r a c t i o n ? "
We have heard learned counsel Ms. Amee Yagnik for the Revenue and O/TAXAP/143/2014 ORDER
with her assistance, examined the material on record. In the following factual
background, these appeals arise.

Messrs. Saakeen Alloys Private Limited, which is engaged in the manufacture of

CTD/Round bars, is situated at Visnagar−Mahesana Road,
District Mehsana. On the premises of Messrs. Saakeen Alloys Private Limited
and Messrs. Sunrise Enterprises, Mahesana simultaneous searches were carried out wherein three
note−books and one pen−drive were recovered containing details of illicit clearances made
by the said M/s. Saakeen Alloys Private Limited. On 24th November
2 0 0 7 , a t t h e b u s i n e s s p r e m i s e s o f M / s . K o d i y a r
Transport Services, Mahesana search was carried out and various documents
containing the invoices issued by M/s. Saakeen Alloys Private Limited were recovered. Statement
of one Mr. Mohammed Altaf Alambhai Kapadia
connected with Messrs. Saakeen Alloys Private Limited was recorded on 23 rd
November 2007 which was, within a short time, retracted. Statement also was
recorded of the proprietor of M/s. Sunrise Enterprises where he agreed to be
the main supplier of Messrs. Saakeen Alloys Private Limited. This statement too was retracted
very soon. Likewise, statements of proprietor of M/s.
Khodiyar Transport Service, Mahesana and Excise Manager of Messrs. Saakeen
Alloys Private Limited were recorded and on the basis of pen−drive seized,
panchnama and other documents were drawn. On the basis of entire material, O/TAXAP/143/2014
ORDER show cause notice was issued by the Commissioner of Central Excise dated 7 th
October 2010 demanding the duty amounting to Rs. 1,93,26,138/−. Out of this
total amount, Rs. 1.85 Crores [rounded off] was based on the data contained in the note−
books and pen drive recovered from Messrs. Sunrise Enterprises and
remaining Rs. 8.50 lakhs [rounded off] from the parallel invoices recovered from
the office of the transporter - M/s. Khodiyar Transport Services.

The order−in−original was passed on 7th October 2010 confirming the

entire demand mentioned in the show cause notice. This was when challenged before the
Commissioner of Central Excise, it confirmed the demand and imposed matching penalty.

Aggrieved by such action of both - order in original and that of the

Commissioner, the Tribunal was approached by the respondent−assessee and the Tribunal, vide

Indian Kanoon - http://indiankanoon.org/doc/113598484/ 2

 Commissioner Of Central Excise vs Commissioner on 6 March, 2014

its impugned order, set−aside the demand of Rs. 1.85 Crores confirming the duty demand of
R s . 8 . 2 5 l a k h s a s a l s o t h e p e n a l t i e s u n d e r
Section 11 (c) of the Central Excise Act. Therefore, the present appeals raising
aforementioned questions of law.

As can be noted from the decision of the Tribunal, it has extensively

dealt with the entire factual matrix presented before it. The Tribunal rightly concluded that in the
case of clandestine removal of excisable goods, there O/TAXAP/143/2014 ORDER
needs to be positive evidences for establishing the evasion, though contended
by the Revenue. In absence of any material reflecting the purchase of excessive
raw material, shortage of finished goods, excess consumption of power like electricity,
seizure of cash, etc., the Tribunal noted and held that there was
nothing to bank upon except the bare confessional statements of the proprietor
and of some of the persons connected with the manufacturing activities and
such statements were retracted within no time of their recording. The Tribunal
also noted the fact that the requisite opportunity of cross examination was also
not made available so as to bring to the fore the true picture and therefore, it concluded against
the Revenue observing that not permitting the cross examination of a person in−
c h a r g e o f r e c o r d s o f M / s . S u n r i s e E n t e r p r i s e s a n d
absence of other cogent and positive evidences, would not permit it to sustain
the demand of Rs. 1.85 Crores raised in the Demand notice and confirmed by
both the authorities below.

As could be noticed from the material on record that for the remaining
amount of Rs. 8.25 lakhs from the transporter's premises, the parallel invoices
were recovered which not only were confirmed by the proprietor of the said
transporter but independent evidences also affirmed the same. The Tribunal has chosen to
sustain such amount levied in order−in−original and in the
appellate order of the Commissioner.

O / T A X A P / 1 4 3 / 2 0 1 4 O R D E R
Penalties imposed on some of the persons being the Managing Director,
the proprietors and others on the basis of such material also hardly requires any indulgence.

All the appeals are based predominantly and essentially on factual matrix. The
Tribunal elaborately and very correctly dealt with the details
furnished by both the sides and rightly not sustained the demand of Rs. 1.85
Crores, which had no evidences to bank upon. Confessional statements solely
in absence of any cogent evidences cannot make the foundation for levying the
Excise duty on the ground of evasion of tax, much less the retracted statements.
To the extent there existed substantiating material, Tribunal has sustained the
levy. No perversity could be pointed out in the approach and treatment to the facts.

Indian Kanoon - http://indiankanoon.org/doc/113598484/ 3

 Commissioner Of Central Excise vs Commissioner on 6 March, 2014

Appeals since do not raise any question of law, much less substantial question of law, deserves
no consideration. Accordingly, both these Tax Appeals are disposed of.

{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash*

Indian Kanoon - http://indiankanoon.org/doc/113598484/ 4

 HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR

D.B. Central/excise Appeal No. 26/2017

Commissioner Of Central Excise And Service Tax,

Commissionerate Udaipur, 142-B, Hiranmagri, Sector 11,
Udaipur In The State Of Rajasthan.
----Appellant
Versus
Mittal Pigment Pvt. Ltd, A-203, Indraprasth Industrial Area, Road
No. 5, District Kota In The State Of Rajasthan.
----Respondent
Connected With
D.B. Central/excise Appeal No. 27/2017
Commissioner Of Central Excise Service Tax, Commissionerate
Udaipur, 142-B, Hiranmagri, Sector 11, Udaipur In The State Of
Rajasthan.
----Appellant
Versus
Ramesh Kumar Agarwal, A-203, Indraprasth Industrial Area,
Road No. 5, District Kota In The State Of Rajasthan.
----Respondent

For Appellant(s) : Mr. Siddhartha Ranka with Mr. Saurav

Harsh
For Respondent(s) : Mr. Sameer Jain with Mr. Arjun Singh

HON'BLE MR. JUSTICE K.S.JHAVERI

HON'BLE MR. JUSTICE BANWARI LAL SHARMA

Judgment

02/05/2018

1. In both these appeals, common questions of law and facts

are involved, hence they are decided by this common judgment.

2. By way of these appeals, the appellant has challenged the

judgment and order of the tribunal whereby the tribunal has partly

allowed the appeals of the assessee.

 (2 of 36) [EXCIA-26/2017]

3. While admitting the appeals, this Court framed the following

substantial question of law :-

In D.B. Central/excise Appeal No. 26/2017

(i) Whether in the facts, circumstances and in law the
ld. CESTAT, New Delhi has erred in brushing aside the
vital evidences in the form of voluntary statements of
the Director of the assessee respondent Company
which was corroborated by the reports of the test
samples and in turn setting aside the order of the
Adjudicating Authority?

In D.B. Central/excise Appeal No. 27/2017

(i) Whether in the facts, circumstances and in law the
ld. CESTAT, New Delhi has erred in deleting the penalty
levied upon the assessee respondent under Rule 26 of
the Central Excise Rules, 2002? ”

4. For convenience of the Court, the facts of the case are taken

from Appeal No. 26/2017 according to which M/s. Mittal Pigment

Pvt. Ltd, Kota (Rajasthan) (hereinafter called as the 'assessee') is

inter- alia engaged in the manufacture of zinc oxide. During the

course of investigation carried out by the Anti-Evasion team of the

Central Excise Commissionerate, Jaipur at the factory premises of

the assessee respondent, the Director of the assessee respondent

Unit, Shri Ramesh Agarwal stated in his statements that yield of

zinc oxide from zinc is @120% and that minimum content of the

zinc in various forms imported by them was 70%. As per Test

reports of two samples of raw material also, the zinc content was

81.50% and 96.40%. Thus, it was logically inferred that minimum

output should have been 84% (i.e. 120% of 70%) of the inputs

used in manufacture of zinc oxide. However, based on above

averments of the Director and from comparison of records of

inputs and output, it was found by the Anti-Evasion team that the

assessee had suppressed the production of 1,545.047 MT of zinc

oxide valued at Rs. 14,12,68,835/- during financial years 2003-04

 (3 of 36) [EXCIA-26/2017]

to 2006-07 and thus evaded central excise duty amounting to Rs

2,30,39,602/-.

3.3. During the course of investigation carried out by the Anti-

Evasion team of the Central Excise Commissionerate, Jaipur at the

premises of the assessee respondent it was also noticed that

inputs involving Cenvat Credit amounting to Rs. 1,31,898/- were

also found short. On the basis of above-said investigation, a show

cause notice was accordingly issued to the assessee respondent

on 11.02.2008 demanding the duty evaded and interest thereon,

proposing penalty and appropriation of the cenvat credit reversed

by the assessee respondent on inputs found short.

3.5 Counsel for the appellant has taken us to the show cause

notice wherein it has been stated as under:

“4. That the assessee is manufacturing zinc

content finished goods zinc oxide, zinc ingots,
zinc alloys from raw materials-zinc dross, zinc
scrap, zinc ingots etc. Raw material is being
imported by the assessee and also purchased
from local market. The imported raw material viz.
zinc dross/zinc scrap used in the manufacture of
zinc oxide etc. is being described in Bill of entry
as zinc dross/scrap in various names as ‘Seal’ or
‘Scribe' or Scrub’. These codes are also given
along with zinc contents in description provided
in ISRI (Institute of Scrap Recycling
Industries) which are reproduced below:
Code : ITEM
Scribe: zinc scrap contain a maximum 5%
unmeltables such as free iron, copper, aluminium
and other metals.
Scrub: Zinc dross in slab form with a minimum
zinc content of 92%.
Seal: Zinc Top dross with a minimum zinc
content of 90%.
Shelf: Zinc dross content minimum of 85%
The test results from the CRCL, New Delhi of the
samples of raw material i.e. zinc dross drawn
from the factory premises of the assessee on
 (4 of 36) [EXCIA-26/2017]

17.10.2006 vide Test Memo no. 2 & 3 dated

17.10.2006 have confirmed zinc content in scrap
us under:

Test Memo No. 2

‘The sample is in the form of grey coloured
metallic slab. lt is essentially composed of Zinc
and Iron’
Zinc contents 96.4%
Iron contents 02.51%

Test Memo No. 3

'The sample is in the form of grey coloured
friable lump. It is composed of Zinc, oxide of zinc
& Aluminium with silicious matters’.
Zinc contents 81.51%
From the Chemical Examiner’s reports given
above it is evident that the assessee was using
zinc dross of higher purity.
5. That the Director of the unit Shri Ramesh
Kumar Agarwal in his statement dated 2.12.2006
tendered under Section 14 of central Excise Act,
1944 stated that the percentage yield of zinc
oxide would be 120.6% if the zinc ingots of
99.95% purity is used foi manufacture of zinc
oxide as raw material. He stated that they used
zinc dross, zinc scrap and zinc ingots as raw
material jointly and zinc ingots having 99.95%
purity are less used. He further stated in his
statement dated 4.6.2007 that they use zinc
bearing waste, dross & zinc ingots as raw
material for the manufacture of zinc oxide and
the raw material used are mostly, imported. It is
further clarified that zinc dross, zinc scrap scribe,
zinc scrap score, seal, zinc dross scrub, zinc
remelted ingots, zinc dross ash, zinc ingots and
zinc alloy are used as raw material for
manufacture of zinc oxide which are mostly
imported and zinc content of raw material differ
to each other: viz zinc content in zinc ash is 50 to
55% and 96% in zinc alloy. He further confirmed
that zinc content in zinc scrap scribe, zinc dross
shelf. zinc scrap saves, zinc scrap seal and in zinc
dross scrap is almost equal and the purchases
rate of the same are also almost equal. He
further affirmed that the raw materials used by
them for manufacture of zinc product, contain at
least 70% zinc content. Based on these
affirmations each types of scrap has been
quantified from purchases bill description and
details supplied by the assessee and it observed
that in proportion of zinc content in each
described raw material a quantification arrived at
for each different raw material issued for
manufacture of zinc product, they are showing
 (5 of 36) [EXCIA-26/2017]

less production as detailed in Annexure "A" with

compare to (percentage) yield 120.6% required
as per zinc content in each type of Scrap.
6. That the value of clearance of suppressed
production and clandestine removal of the zinc
oxide has been calculated on average basis by
calculating total value of clearances made by the
assessee, divided by total clearance of zinc oxide
in the particular year.”

3.6 He has also taken us to the demand of total duty from the

assessee through a chart which has been produced along with the

show cause notice which reads as under:

M/s Mittal Pigments Pvt. Ltd. Kota

Quantity in quintal

Year Raw material Production Production Production Average sale Value on Cenvat 16% Cess
issued for to be as per shown suppressed rate per which duty (Rs.) (Rs.)
production % yield (Qntls.) (Qntls.) quintal not paid
(Qntls.) recovery (Rs.) (Rs.)
70%-84%
(Qntls.)
2002-03 8360.53 7022.84 7893.50 - - - - -
2003-04 23486.98 19729.06 18799.25 929.81 5200 48,35,012 7,73,602 -
2004-05 41,171.65 34584.18 27993.43 6590.75 5300 3,49,30,975 5,588,956 1,11,779
2005-06 39991.88 33593.18 35177.58 - - - - -
2006-07 40,228.31 33719.78 25861.87 7929.91 12800 10,15,02,848 1,62,40,456 3,24,809
Total 2,26,03,014 4,36,588

TOTAL DUTY:- Rs. 2,30,39,602/-

3.7 He has taken us to the finding of CIT(A) wherein it has been

observed as under:

“19. I first take up the issue of raw

material/finished stock found short during the
stock verification of the unit by the visiting
Central Excise Officers. From the statement of
Shri Ramesh Kumar Agarwal, Director tendered
under Section 14 of the Central Excise Act,1944.
l observe that he admitted the shortage in raw
material/finished stock as pointed out by the
Officers and tried to explain the reason of non-
making the entries in their record for issue of raw
material as well as finished goods due to the
facts that he was out of station for last few days
and there was shortage of staff due to holidays
for Dusherra festival. The duty of Rs. 1,29,311/-
and Cess Rs. 2,586/- total Rs. 1,31,897/-
involved on the shortage was reversed vide entry
no. 940 to 943 dated 22.03.2007 in RG-23A Part-
ll Register on the spot by the assessee. It is
therefore clear that there was shortage in the
 (6 of 36) [EXCIA-26/2017]

stock which had been cleared by the assessee

without issue of invoices and payment of duty
and admitting the act the assessee paid the
required duty immediately which is clearly liable
to be appropriated into Government Account.

20. Now. I take up the main issue of

suppression of production of zinc oxide to the
tune of 1545.047 MT worked out by the
department on the basis of minimum contents of
Zinc in the raw material used for the production
as admitted by Shri Ramesh Kumar Agarwal.
Director in his statement tendered under Section
14 of the Central Excise Act, 1944. The
department has contended that the assessees
were manufacturing zinc oxide from Zinc dross,
Zinc scrap, zinc ingots etc. These raw materials
either were imported or purchased from local
market. The imported raw material viz. zinc
dross/zinc scrap were described in Bill of entry as
‘Seal’ or ‘Scribe’ or ‘Scrub’. The ‘Seal, ‘Scribe' and
‘Scrub’ codes have been provided in ISRI
(Institute of Scrap Recycling Industries) which
reads as under:
Scribe: zinc scrap contain a maximum 5%
unmeltables such as free iron, copper, aluminum
and other metals.
Scrub: zinc dross in slab form with a minimum
zinc content of 92%.
Seal: Zinc top dross with a minimum zinc
content of 90%.
Shelf: zinc dross content minimum of 85%.
From the above definitions, it is clear that zinc
Scribe, Scrub. Seal and Shelf means that this
material contains zinc contents between 95% to
85%. Further samples from zinc dross lying were
drawn on 17.10.06 and sent to the CRCI, New
Delhi for test. The test results confirmed zinc
content 96.40% in scrap under memo no. 2 and
zinc contents 81.51% under test memo No. 3
Further chemical Examiner also opined that the
assessee was using zinc dross of higher purity.

21. I further observe that Shri Ramesh Kumar

Agarwal. Director of assessee unit. In his
statement dated 02.12.2006 tendered under
section 14 of Central excise Act, 1944 confirmed
120.6% yield of zinc oxide if the zinc ingots of
99.95% purity are used for manufacture. He also
confirmed that they used zinc dross. Zinc scrap
scribe, zinc scrap score, seal, zinc dross scrub,
and zinc remitted ingots, zinc dross ash, zinc
ingots and zinc alloy for manufacture of zinc
oxide which are mostly imported. He further
confirmed that zinc content in zinc scrap scribe,
 (7 of 36) [EXCIA-26/2017]

zinc dross shelf, zinc scrap sables, zinc scrap seal

and in zinc dross scrap is almost equal and the
purchase rates of the same are also almost
equal. He further affirmed that the raw materials
used by them for manufacture of zinc product,
contain at least 70% zinc content.
From the above averment of the director of
the unit, it is almost clear they had used various
types of raw materials which at least contain
70% zinc. The production of zinc oxide is based
on the contents of zinc in the raw materials used
as the zinc contents only converted into zinc
oxide due to oxidation process and the yield
come to 120.6% of the zinc contents' As such the
production of zinc Oxide would be 120.6% or
120% of 70% i.e. 84% as alleged in the Show
cause Notice, I thus observe that the department
has correctly worked out the total production of
zinc Oxide 1972.906MT the Financial Year 2003-
04, 2799.343 MT in 2004-05 and 3379.178 MT in
the Financial Year 2003-04, 3458.418 MT in
2004-05 and 3379.178 MT in 2006-07. The
assessee had however reconded production of
zinc oxide 1879.925 MT in 2003-04, 2799.343
MT in 2004-05 and 2586.187 MT in 2006-07. As
such total production of 1545.047 MT was
suppressed by the assessee during above
mentioned three Financial Years.

22. l further observe form the charts showing the

pattern of consumption of raw materials
produced by the assessee along with their reply
to the Show Cause Notice that they had used
following raw materials.
(i) 2003-04 zinc Dross Scrap, zine Scrap Scribe,
zinc Scrap Score.
(ii) 2004-05 zinc Dross. Zinc Scrap Scribe. Zinc
Dross shelf, score. zinc ingot etc.
(iii) 2006-07 Zinc Scrap Scribe, Saves, Dross,
Scrub, Scope, Shelf, Score.
In view of above it is clear that the
assessee used the type of scrap which at least
contained zinc not less than 70% as per the
norms prescribed by the Institute of Scrap
recycling Industries (ISRI).

23. The assessee has contended that the

production suppressed is mentioned to have been
calculated at 70 to 84% of the yield recovery but
the actual calculations have been made on 84%.
it is not mentioned as to why the calculation at
84% has been done, why not at 70% contents of
zinc in raw materials used in the manufacture
which is the lowest contents accepted by the
assessee. The 70% contents of zinc converted
 (8 of 36) [EXCIA-26/2017]

into 120% yield comes to 84% of the weight of

raw materials used in the production of zinc
oxide, as such l do not find any substance in the
contention of the assessee.

24. The assessee also relied upon the

commissioner (Appeals) order on similar issue
dated 24.09.2002 in the case Zinc-O-India,
Alwar. I have gone through the above case and l
observe that the commissioner (Appeals) had
held in this case that during the period 10/95 to
6/96 a greater proportion of zinc Dross was used
as input resulting in a lower yield than the period
from 6/96 to 3/97 when a greater percentage of
zinc Ingot were used as input. Therefore,
Logically would in lower production of zinc oxide
than what can be produced from zinc Ingot. The
facts of the present case are altogether different
as in the present case department had made out
the case of suppression of production on the
basis of minimum contents of zinc in the raw
materials namely zinc Dross Scrap, zinc Scrap
Scribe, Zinc Scrap score used normally in the
manufacture zinc Oxide. As such the case law
cited is of no help to the assessee.

25. This is a case of suppression of production

and clandestine removal of goods without
payment of duty. In the cases of clandestine
removal all that would be sufficient is to establish
to such a degree of probability that a prudent
man may, on its basis, believe in the existence of
the facts in issue. If there is a chain of events
which lead to the only irrefutable conclusion that
the party was engaged in suppression of
production and evasion of duty. The same set of
events/evidence may substitute for direct
evidence, In the present case the yield of zinc
Oxide is based on the contents of zinc in the raw
materials used for the manufacture and the 70
percentage of zinc contents taken for calculating
the suppressed production is proved from
literature of ISRI, statement of the director and
the raw material found short at the time of the
visit of Central Excise Officers. The Quantity of
suppressed production had been cleared
clandestinely without payment of duty and
without issue of invoices.”

5. Counsel for the appellant contended that the tribunal has

seriously committed an error in relying on judgment of Allahabad

High Court, in the matter of Continental Cement Company vs.

 (9 of 36) [EXCIA-26/2017]

Union of India reported in [2014] 49 taxmann.com 374

(Allahabad) wherein it has been held as under :-

“We have heard the learned counsel for the

parties and gone through the material available
on record, from which it appears that Shri
Shubhashis Dev, Government Examiner of
questioned documents, Shimla gave his written
opinion dated 12.6.1998, wherein he has stated
that "the documents of this case have been
carefully and thoroughly examined. The enclosed
writings and signatures stamped and marked
were all written by one and the same persons.
From the above, it appears that all the
documents were written by one and the same
persons, though the dates and the name of the
parties are different. When it is so then the
genuineness of the documents cannot be
accepted.”

5.1 He contended that the said judgment is not applicable in the

present case and he relied on the following judgments :-

(1) In Krishna Screen Art. vs. Commissioner of Central

Excise 2015 (316) E.L.T. 534 (Guj.) wherein it has been held

as under:-

“10. It can thus be seen that the findings and

conclusions of the Tribunal were based on
evidence on record. Such evidence was not
confined to a single statement of the proprietor.
It is true that reliance was placed on such a
statement which was not impermissible since the
statement was never retracted. However, it would
be incorrect to suggest that the conclusions of
the Tribunal were based on a single factor
namely unretracted statement of the proprietor.
As noted, the Tribunal based its conclusion on
several factors and evidences noted above. ”

(2) In Commissioner of Central Excise vs. Sarin and Sarin

2015 (316) E.L.T. 401 (Allahabad) wherein it has been held as

under:
 (10 of 36) [EXCIA-26/2017]

11. The Adjudicating Officer has considered the

statement of the assessee and, in our view, the
Adjudicating Officer has appreciated the material
evidence correctly. The statements made by Sri
Dipak Mehra and Sri Davi Sarin have a material
bearing on the issue. For the sake of
convenience, the relevant part of the statements
is extracted herein below:

"A. I have seen this raw material register &

signed in the same on today date it is the same
register which is resumed from my factory on 20-
1-03, yet there is a difference in Qty. of Sada Pan
Masala & Gutkha actually mfd. in the factory &
shown in our records but I cannot explain the
difference & I have no reply for this shortage.

Q.9. Are you excepting that you have suppressed

the production of Pan Masala & Gutkha as
described in Q. No. 8?

A. Yes, there is a suppression but I cannot

explain the same.

Q.11. Are you prepared to deposit Central Excise

duty on the Qty. of Sada Pan Masala & Gutkha
not accounted for in your statutory records as
discussed above?

A. We have already pre-deposited Rs. Twenty five

lacs only as Central Excise Duty on the Qty. of
Gutkha & Pan masala not entered in our records
which is voluntarily."

12. In our view, the Tribunal has erred in

ignoring material evidence and has not recorded
any finding for setting aside the penalty imposed
by the Adjudicating Officer. No reason has been
recorded for setting aside the penalties.

13. After careful consideration of the matter, we

are of the view that the finding of the Tribunal,
setting aside the penalties imposed by the
Adjudicating Officer needs to be interfered with.
Accordingly, it is set aside. [The matter is
remitted to the Tribunal to reconsider the matter
on the question of penalties and duties afresh.

14.The appeal is, accordingly, disposed of. There

shall be no order as to costs.
 (11 of 36) [EXCIA-26/2017]

(3) In Tulip Lamkraft Pvt. Ltd. vs. Commissioner of Central

Excise 2015 (316) E.L.T. 417 (Gujarat) wherein it has been

held as under:

3. In our opinion, however, it does not give rise

to any substantial question of law. The entire
issue is based on appreciation of evidence. The
Excise authorities during the raid on the premise
of the manufacturing unit of the appellant, as
noted earlier, recorded two confessional
statements. One was of Shri Maheshbhai
Thakkar, an employee of the company who
admitted that he was the dispatch supervisor. He
would load the manufactured goods for dispatch.
As per the kachha note details of which he would
note down in his small diary. Once the diary is
exhausted, he would hand over the same to the
Director of the company Shri Nileshbhai Thakkar.
He was shown two diaries of such description and
agreed that the same were such diaries. He
admitted that the goods shown to have been
dispatched in the said diaries were actually so
dispatched. In his statement dated 13-12-2009,
Shri Nilesh Thakkar, Director of the company
admitted that he was engaged in the day-to-day
functioning of the company. He was also shown
such two spiral diaries which contained his
signatures. He admitted that the goods described
in such diaries were actually dispatched as
mentioned in the diaries and such goods were
dispatched without bills or invoices. He admitted
that value of such goods would be approximately
Rs. 91.92 lacs on which Excise Duty payable
would be approximately Rs. 7.57 lacs. He
admitted that no such Excise Duty was paid on
the goods so dispatched. He also admitted that
the goods were sold without bills or invoices or
without making any entries in the records. Raw
materials for such goods were purchased in cash
without making any entries in the record. In his
second statement dated 17-2-2011, in addition
to admitting his previous statement, he further
stated that the goods clandestinely removed as
mentioned in the spiral diaries were sold to
known people. He, however, could not produce
the names and addresses of such purchasers
since they were not mentioned in the register.
4. It can thus be seen that the Dispatch
Supervisor as well as one of the Directors of the
company who was responsible for the day-to-day
functioning of the company had in unequivocal
terms admitted the clandestine removal of the
 (12 of 36) [EXCIA-26/2017]

goods without payment of Excise Duty. Matching

entries were found in their diaries which did not
form part of the final records. Raw material was
purchased in cash. Clearances were made
without raising bills or invoices. Significantly and
admittedly these statements were never
retracted. The authorities were, therefore,
entitled to rely on such statements. When the
adjudicating authority and two appellate
authorities found that there was enough evidence
of clandestine removal of goods, in our opinion,
the appeal does not give rise to any question of
law. We are prepared to accept the appellant's
contention that the question of additional
consumption of electricity and procurement of
raw material was raised before the lower
authorities or that it could have been raised for
the first time before the Tribunal. However, such
question was not germane at all. When there was
overwhelming evidence of unretracted
unequivocal confessional statements, mere
failure on the part of the Excise authorities to
produce additional evidence of extra consumption
of electricity or source of procurement of raw
material would pale into insignificance. The
Tribunal's remarks were merely in the nature of
passing thoughts. Vulnerability of such
observations would not vitiate the order itself.

(4) In Subodhchandra and Co. vs. Dy. Commissioner of

Income Tax [2017] 80 taxmann.com 70 (Gujarat) wherein it

has been held as under:

6. Heard the learned Counsel appearing for

respective parties at length. Considering the
submissions made by Shri Shah, learned Counsel
appearing on behalf of the assessee it appears
that the main grievance is that though new
evidences were produced for the year under
consideration, which were not there in A.Y. 1989-
90, without considering the same and solely
relying upon the decision of this Court for A.Y.
1989-90, the learned ITAT has materially erred in
dismissing the appeals and confirming the
additions made by the Assessing Officer.
Therefore, it is the case on behalf of the assessee
that the matter is required to be remanded to the
learned ITAT to consider the new evidences
produced which were not there for A.Y. 1989-90.
Therefore, it is the case on behalf of the assessee
that the decision of this Court for A.Y. 1989-90
shall not be applicable to the facts of the case on
 (13 of 36) [EXCIA-26/2017]

hand for other assessment years i.e. 1990-91 to

1994-95.

6.1 To appreciate the above more particularly

whether the learned ITAT has missed to consider
new evidences produced for the years
consideration, the grounds on which the
Assessing Officer made the additions are required
to be considered. It appears that the Assessing
Officer noticed the gold content in the final
product as per the Books of Accounts and as per
the appraisal of customs authority. Therefore, the
Assessing Officer worked out the excess
consumption of gold which according to him had
been actually sold in the local market. The
Assessing Officer also noticed that similar modus
operandi was done in the year 1989-90 also and
there was no change in the modus operandi in
the subsequent years under consideration. At this
stage it appears that the assessee produced
some further evidence which we have perused
from the paper book produced and according to
the assessee by producing such new evidences
the case differs from 1989-90, as according to
the assessee by using new evidences which were
not there in the year 1989-90, they have been
able to produce the evidence with respect to the
actual consumption of gold in final product of
ornaments which were exported. However,
considering the evidences from the paper book
produced, which according to the assessee are
new evidences, we are of the opinion that as
rightly observed by the learned ITAT none of the
evidences can be said to be contemporaneous
and/or the evidences to suggest the actual
consumption of gold. Most of the evidences and
the material produced can be said to be the
correspondences and/or general requirement of
use of gold. None of the documents/materials
show the actual consumption of gold. Under the
circumstances, the learned Tribunal has rightly
observed and held that the evidences (new
evidences) are not contemporaneous and/or the
evidences to suggest actual consumption of gold.

6.2 As such the issue has been concluded by the

Division Bench of this Court in the case of very
assessee but with respect to A.Y. 1989-90 when
similar question arose. The additions were made
by the Assessing Officer on the basis of the
discrepancy in quantity of gold recorded in the
Books of Accounts at the time when the
ornaments were manufactured and received from
the artisans, as compared to gold actually
exported by the assessee to its foreign importers.
 (14 of 36) [EXCIA-26/2017]

In the year 1989-90, it was found that the

assessee received gold ornaments, according to
its records, having purity of 93.37%, however,
some ornaments when were exported, the
assessee recorded its purity as 91.66% (similar
is the case in the years under consideration
also). Before the High Court the assessee's
explanation that ornaments actually carried
purity of 93.37% but were reflected in export
documents having purity of 91.66% because the
importers had desired such level of purity
whereas the assessee to air on safer side used
more gold so that stringent international
standards were not even unintentionally
breached, which would incur liability of rejection
of consignment. Such explanation by the
assessee was found unacceptable and inadequate
and came to be rejected by all the lower
Authorities which came to be confirmed by the
High Court in Tax Appeal No. 346/2000 (A.Y.
1989-90). While confirming the additions made
by the Assessing Officer after noting some
submissions which are now made by the learned
Counsel appearing on behalf of the assessee, the
Division Bench has considered the submissions
and observed and held as under in paras 7 to
10.1.

"7. As can be seen from the questions framed,

there are two main elements of assessee's
contentions. Learned counsel Shri J.P. Shah's first
contention [relatable to Question No. 2 framed
above] was that the entire procedure of
manufacturing ornaments was controlled by the
State authorities under the Gold Control Act. Raw
gold supplied to the karigars for preparation of
ornaments was recorded in the books of the
assessee. To such gold, the karigars would add
alloy @ 7.100 grams per 100 grams of gold to
achieve desired purity of gold of 22 carat. Even
when such ornaments were received back after
preparation, they were tested, certified and
recorded in the assessee's records. It was
thereafter not possible for any mischief or
modification, particularly looking to the certificate
issued by the Gems & Jewellery Export Promotion
Council. Counsel pointed out that 22 carat of gold
or for that matter any other carats would not
have precise purity and would have a range of
fineness of gold. He drew our attention to the
specifications laid down by the Bureau of
Standards, which provides as under:"

1. 22.3 Carat gold: It shall be of fineness not less

than 970.
 (15 of 36) [EXCIA-26/2017]

2. 22 Carat gold: It shall be of fineness not less

than 916.6.

3. 21 Carat gold: It shall be of fineness not less

than 875.

4. 18 Carat gold: It shall be of fineness not less

than 750.

5. 14 Carat gold: It shall be of fineness not less

than 583.3.

6. 12 Carat gold: It shall be of fineness not less

than 500.

7. 9 Carat gold: It shall be of fineness not less

than 375.

7.1 Counsel therefore urged that the gold

ornaments manufactured and exported by the
assessee retained the same purity of 22 Carat [or
other specifications as the case may be]
irrespective of whether it had purity standard of
93.37% or 91.66%.

7.2 Counsel contended that as per the importers'

requirements, the assessee would export
ornaments of 22, 20, 18 or 14 carats and charge
the importers according to the agreed percentage
of gold for such ornaments.

However, in order not to breach the stringent

requirement of international standards of purity
of gold, the assessee would prepare ornaments
with slightly higher purity then what was the
minimum standard asked for by the importers.
The value of difference of gold was recovered in
the form of higher labour charges.

7.3 Referring the first question of law framed,

counsel contended that in any case there was no
proof that the excess gold was sold in the local
market. The same must therefore be considered
as the assessee's additional export sale, which as
per the tax policies of the Government was in
any case exempt from payment of income tax.

7.4 As against that learned counsel Shri M.R.

Bhatt for the Department took us through the
evidence on record to contend that the revenue
authorities and the Tribunal had concurrently
come to the conclusion that there was sizeable
discrepancy in the consumption of gold reflected
by the assessee in its own books of account. The
 (16 of 36) [EXCIA-26/2017]

assessee was unable to explain such

discrepancies. The assessee's explanation that it
exported gold of greater purity and thereby
greater quantity than what was reflected in the
assessee's documents cannot be believed, and
therefore, rightly not accepted by the authorities
below. Counsel submitted that the onus was on
the assessee to explain such discrepancies.

8. Having thus heard learned counsel for the

parties and having perused the documents on
record, it emerges that the revenue authorities
as well as the Tribunal came to conclusion that
there was considerable discrepancy in the
quantity of gold recorded in the assessee's books
at the time when the ornaments were
manufactured and received from the artisans, as
compared to the gold actually exported by the
assessee to its foreign importers.

8.1 This is not even seriously disputed by the

assessee. If we take as sample of such
discrepancy that emerges in the category of 22
Carat gold ornaments, after supplying raw gold
to the artisans and the artisans preparing gold
ornaments after adding alloy in the specified
quantity, the assessee received gold ornaments,
according to the assessee's records having purity
of 93.37%. The very same ornaments when were
exported, the assessee recorded its purity as
91.66%. Some of these ornaments also were
subject to actual test by the Customs authorities.
The result also matches the assessee's claim of
gold purity of 91.66%. Thus, in fact, there was
considerable discrepancy between the two sets of
documents pertaining to the same set of gold
ornaments is undeniable. The assessee owed an
explanation and had a duty to reconcile this
discrepancy. The authorities found that the
assessee failed in doing so. This was on the
premise that the assessee's explanation was
found unacceptable and inadequate. The
assessee's only explanation was that the
ornaments actually carried purity of 93.37% but
were reflected in the export documents having
purity of 91.66%. This according to the assessee
was done because the importers had desired
such level of purity whereas the assessee to err
on safer side, used more gold so that the
stringent international standards were not even
unintentionally breached, which would incur
liability of rejection of the consignment.

8.2 Such explanation of the assessee was

rejected by the three authorities below. We are
 (17 of 36) [EXCIA-26/2017]

also unable to fathum why an exporter would

declare lesser purity of gold than what was being
actually exported. As rightly observed by the
CIT[A], if the gold ornaments were carrying
greater purity value, and therefore, greater
content of gold, the assessee had no reason to
make a misdeclaration. In either case, assessee
was meeting with the minimum standard of 22
carat gold. What the assessee had to charge
from its importers had nothing to do with what
the assessee may declare in the export
documents regarding the purity of gold. As per
the by lateral understanding, even if the
importers would have paid the assessee for the
gold purity at 91.66%, there was no reason why
the assessee should shy away from declaring that
the correct purity of the gold ornaments is
93.37%, if that was the real case. The CIT[A]
also made a significant point in observing that
the assessee could import only that much
quantity of gold that was exported. By making
misdeclaration therefore, the assessee was
seriously reducing quantity of gold that would be
available for import against the export
undertaken by it. The analysis made by the
Customs authorities also matched with that of
the assessee's own declaration regarding purity
of gold.

9. Had the revenue relied solely on the Customs

analysis, we would have further examined the
assessee's contention that such analysis was
based on the touchstone method which may not
yield highly accurate results. In the present case,
however, assessee itself declared certain purity of
gold which also considered with the random
testing carried out by the Customs authorities.

10. The difference between the two sets of

declarations was not minor or insignificant. It
could not have been passed off as mixing of
impurity or error in measuring standards. It was
simply a case where the assessee utterly failed to
explain the considerable difference in the gold
quantity in two sets of documents maintained by
itself.

10.1 It can therefore not be stated that the

finding of the authorities below, as confirmed by
the Tribunal, are perverse. It is also not true that
in coming to such conclusions, the Revenue
authorities ignored the presence of the certificate
of the Gems & Jewellery Export Promotion
Council. The contention that in absence of proof
of local sale, it must be presumed to have been
 (18 of 36) [EXCIA-26/2017]

exported, in our opinion, is fallacious. It is not

even the case of the assessee, barring his
explanation about the higher purity of gold being
exported when lower purity gold is declared in
the export documents, that such gold was in
some form or the other, separately or
independently exported. When the authorities did
not accept the assessee's explanation, it comes
to a situation where such differential quantity of
gold did not form part of the assessee's exports.
The only conclusion, therefore, available to the
authorities and therefore rightly reached at was
that the gold was subjected to local sale. All in
all, the issues considered by the Revenue
authorities at a greater length, referring to and
analyzing the evidence on record and once which
were confirmed by the Tribunal by giving cogent
and detailed reasons, in our opinion, do not
suffer from any perversity. In the result, the
questions are decided in negative - against the
assessee. The appeal is, therefore, dismissed."

6.3 Therefore, as such the issue is concluded in

the case of very assessee in A.Y. 1989-90. As
observed hereinabove, the new evidences which
according to the assessee were not there while
deciding the assessment for A.Y. 1989-90, as
observed hereinabove cannot be said to be
contemporaneous and/or the evidences to show
the actual consumption of gold. It cannot be said
that the learned ITAT has at all not considered
the said evidences. After considering the
evidences as such there is a finding recorded by
the learned ITAT that the evidences are not
contemporaneous and/or evidences to suggest
actual consumption.

We are of the opinion that there is no material

change with respect to 1989-90 (which came to
be confirmed by the Division Bench of this Court)
and the years under consideration, as the new
evidences cannot be said to be the evidences to
show actual consumption of gold. There are
concurrent findings of fact recorded by all the
Authorities below, which are on appreciation of
evidence on record.

(5) In Commissioner of Central Excise vs. Kalvert Foods

India Pvt. Ltd. and Ors. 2011 (270) E.L.T. 643 (S.C.) wherein

it has been held as under:

18. During the course of arguments learned

Counsel appearing for the Respondent submitted
 (19 of 36) [EXCIA-26/2017]

before us that although the aforesaid statements

of Managing Director of the Company and other
persons were recorded during the course of
judicial proceedings but the same were retracted
statements, and therefore, they cannot be relied
upon. However, the statements were recorded by
the Central Excise Officers and they were not
police officers. Therefore, such statements made
by the Managing Director of the Company and
other persons containing all the details about the
functioning of the company which could be made
only with personal knowledge of the Respondents
and therefore could not have been obtained
through coercion or duress or through dictation.
We see no reason why the aforesaid statements
made in the circumstances of the case should not
be considered, looked into and relied upon.

19. We are of the considered opinion that it is

established from the record that the aforesaid
statements were given by the concerned persons
out of their own volition and there is no
allegation of threat, force, coercion, duress or
pressure being utilized by the officers to extract
the statements which corroborated each other.
Besides, the Managing Director of the Company
on his own volition deposited the amount of Rs.
11 lakhs towards excise duty and therefore in the
facts and circumstance of the present case, the
aforesaid statement of the counsel for the
Respondents cannot be accepted. This fact
clearly proves the conclusion that the statements
of the concerned persons were of their volition
and not outcome of any duress.

(6) In Commissioner of C. Ex., Madras vs. Systems and

Components Pvt. Ltd. 2004 (165) E.L.T. 136 (S.C.) wherein it

has been held as under:

5. The Appeal filed by the Department has been

disposed of by the Tribunal by holding that the
Department has not proved that these parts were
specifically designed for manufacture of Water
Chilling Plant in question. The Tribunal has noted
the Technical details supplied by the Respondents
and the letter of the Respondents dated 30th
November, 1993 giving details of how these parts
are used in the Chilling Plant. The Tribunal has
still strangely held that this by itself is not
sufficient to show that they are specifically
designed for the purpose of assembling the
Chilling Plant. We are unable to understand this
 (20 of 36) [EXCIA-26/2017]

reasoning. Once it is an admitted position by the

party itself, that these are parts of a Chilling
Plant and the concerned party does not even
dispute that they have no independent use there
is no need for the Department to prove the
same. It is a basic and settled law that what is
admitted need not be proved.

6. The Judgment of the Tribunal thus needs to be

set aside. It was however urged, on behalf of the
Respondents that there are circulars of the Board
which should really have been considered by the
Tribunal.

7. We, therefore, set aside the impugned

Judgment and remit the matter back to the
Tribunal for deciding the same on merits on the
basis of above admitted position. The Appeals are
allowed accordingly. There will be no order as to
costs.

(7) In K.I. Pavunny vs. Asstt. Collr. (HQ), C.Ex.

Collectorate, Cochin 1997 (90) E.L.T. 241 (S.C.) wherein it

has been held as under:

19. Next question for consideration is: whether

such statement can form the sole basis for
conviction? It is seen that, admittedly, the
Appellant made his statement in his own hand-
writing giving wealth of details running into five
typed pages. Some of the details which found
place in the statement were specially within his
knowledge, viz., concealment of the 200 biscuits
in his earlier rented house till he constructed the
present house and shifted his residence and
thereafter he brought to his house and concealed
the same in his compound; and other details
elaboration of which is not material. The question
then is: whether it was influenced by threat of
implicating his wife in the crime which is the sole
basis for the claim that it was obtained by threat
by PW-2 and PW-5? In that behalf, the High
Court has held that it could not be considered to
be induced by threat that his wife will be
implicated in the crime and accordingly
disbelieved his plea. It is seen that admittedly
after the Appellant gave his statement, he was
produced before the Magistrate though no
complaint was filed and was released on bail. He
did not complain to the Magistrate that Ex. P-4
statement was given under inducement, threat or
duress. It was raised only subsequently making
accusations against PW-5, the Inspector of
 (21 of 36) [EXCIA-26/2017]

Customs. Therefore, obviously it was only an

afterthought. The High Court, therefore, rightly
has not given any weightage to the same. It is
true that the Magistrate has given various
reasons for disbelieving the evidence of PW-3,
the panch witness who had also, at one point of
time, indulged in smuggling. It is unlikely that
PW-3 would bring 200 gold biscuits of foreign
marking and conceal them in the compound of
the Appellant without Appellant's knowledge for
safe custody. It is not his case that he had
facilitated FW-3 in concealing them in his
compound. The place of concealment of the
contraband is also significant at this juncture. It
is just near and visible from the window of his
bed-room through which he or family members
could always watch anyone frequenting the place
where the contraband was concealed. This fact
becomes more relevant when we consider that
after concealment of the contraband in the
compound one would ensure that others having
access to the compound may not indulge in
digging and carrying away the same. As soon as
the Appellant and/or the members of his family
had sight of such visitor or movement by others,
they would immediately catch hold of such
person or would charge them. Obviously,
therefore, it would be the Appellant who had
concealed 200 gold biscuits of foreign marking in
his compound at a place always visible from his
bed room window. Therefore, the High Court was
right in its conclusion, though for different
reasons, that Ex. PA is a voluntary statement and
was not influenced by threat, duress or
inducement etc. Therefore, it is a voluntary
statement given by the Appellant and is a true
one.
20. The question then is: whether the retracted
confessional statement requires corroboration
from any other independent evidence? It is seen
that the evidence in this case consists of the
confessional statement, the recovery panchnama
and the testimony of PWs 2, 3 and 5. It is true
that in a trial and propria vigore in a criminal
trial, courts are required to marshal the
evidence. It is the duty of the prosecution to
prove the case beyond reasonable doubt. The
evidence may consist of direct evidence,
confession or circumstantial evidence. In a
criminal trial punishable under the provisions of
the Indian Penal Code it is now well settled legal
position that confession can form the sole basis
for conviction. If it is retracted, it must first be
tested whether confession is voluntary and
truthful inculpating the accused in the
 (22 of 36) [EXCIA-26/2017]

commission of the crime. Confession is one of the

species of admission dealt with under Sections 24
to 30 of the Evidence Act and Section 164 of the
Code. It is an admission against the maker of it,
unless its admissibility is excluded by some of
those provisions. If a confession is proved by
unimpeachable evidence and if it is of voluntary
nature, it when retracted, is entitled to high
degree value as its maker is likely to face the
consequences of confession by a statement
affecting his life, liberty or property. Burden is on
the accused to prove that the statement was
obtained by threat, duress or promise like any
other person as was held in Bhagwan Singh v.
State of Punjab [MANU/SC/0035/1952 : AIR
1952 SC 214, para 30] If it is established from
the record or circumstances that the confession
is shrouded with suspicious features, then it falls
in the realm of doubt. The burden of proof on the
accused is not as high as on the prosecution. If
the accused is able to prove the facts creating
reasonable doubt that the confession was not
voluntary or it was obtained by threat, coercion
or inducement etc., the burden would be on the
prosecution to prove that the confession was
made by the accused voluntarily. If the Court
believes that the confession was voluntary and
believes it to be true, then there is no legal bar
on the Court for ordering conviction. However,
rule of prudence and practice does require that
the Court seeks corroboration of the retracted
confession from other evidence. The confession
must be one inculpating the accused in the
crime. It is not necessary that each fact or
circumstance contained in the confession is
separately or independently corroborated. It is
enough if it receives general corroboration. The
burden is not as high as in the case of an
approver or an accomplice in which case
corroboration is required on material particulars
of the prosecution case. Each case would,
therefore, require to be examined in the light of
the facts and circumstances in which the
confession came to be made and whether or not
it was voluntary and true. These require to be
tested in the light of given set of facts. The high
degree of proof and probative value is insisted in
capital offences.

21. In Kashmira Singh's case the co-accused,

Gurcharan Singh made a confession. The
question arose whether the confession could be
relied upon to prove the prosecution case against
the Appellant Kashmira Singh. In that context,
Bose, J. speaking for Bench of three Judges laid
 (23 of 36) [EXCIA-26/2017]

down the law that the Court requires to marshal

the evidence against the accused excluding the
confession altogether from consideration. If the
evidence de hors the confession proves the guilt
of the Appellant, the confession of the co-
accused could be used to corroborate the
prosecution case to lend assurance to the Court
to convict the Appellant. The Court considered
the evidence led by the prosecution, de hors the
confession of co-accused and held that the
evidence was not sufficient to bring home the
guilt of Appellant Kashmira Singh of the charge of
murder. The Appellant was acquitted of an
offence under Section 302 Indian Penal Code but
was convicted for the offence under Section 201
Indian Penal Code for destroying the evidence of
murder and sentenced him to seven years
rigorous imprisonment. This decision was
considered by a four-Judge Bench in Balbir Singh
v. State of Punjab [MANU/SC/0101/1956 : AIR
1957 SC 216] wherein it was held that if there is
independent evidence, besides the confession,
the rule that the confession could be used only to
corroborate the other evidences losses its
efficacy. Therefore, it was held that if the
retracted confession is believed to be voluntary
and true, it may form the basis of a conviction
but the rule of practice and prudence requires
that it should be corroborated by independent
evidence. Therein also,, for the charges of capital
offence, the trial Court did not accept the
confessional statement of co-accused containing
inculpatory and self-exculpatory statement. The
High Court reversed the acquittal and convicted
the accused, accepting that part of the
confessional statement of the accused which was
corroborated from other evidence. This Court
upheld the conviction and held that it is not
necessary that each item of fact or circumstance
mentioned in the confessional statement requires
to be corroborated separately and independently.
It would be sufficient if there is general
corroboration. The ratio in Kashmira Singh's case
was referred to.

25. It would thus be seen that there is no

prohibition under the Evidence Act to rely upon
the retracted confession to prove the prosecution
case or to make the same basis for conviction of
the accused. The practice and prudence require
that the Court could examine the evidence
adduced by the prosecution to find out whether
there are any other facts and circumstances to
corroborate the retracted confession. It is not
necessary that there should be corroboration
 (24 of 36) [EXCIA-26/2017]

from independent evidence adduced by the

prosecution to corroborate each detail contained
in the confessional statement. The Court is
required to examine whether the confessional
statement is voluntary; in other words, whether
it was not obtained by threat, duress or promise
if the Court is satisfied from the evidence that it
was voluntary, then it is required to examine
whether the statement is true. If the Court on
examination of the evidence finds that the
retracted confession is true, that part of the
inculpatory portion could be relied upon to base
conviction. However, the prudence and practice
require that Court would seek assurance getting
corroboration from other evidence adduced by
the prosecution.

32. It is true that in criminal law, as also in civil

suits, the trial Court and the appellate Court
should marshal the facts and reach conclusion,
on facts. In a criminal case, the prosecution has
to prove the guilt beyond doubt. The concept of
benefit of doubt is not a charter for acquittal.
Doubt of a doubting Thomas or of a weak mind is
not the road to reach the result. If a Judge on
objective evaluation of evidence and after
applying relevant tests reaches a finding that the
prosecution has not proved its case beyond
reasonable doubt, then the accused is entitled to
the benefit of doubt for acquittal. The question
then is: whether the learned Single Judge of the
High Court has committed any error of law in
reversing the acquittal by the Magistrate. Not
every fanciful reason that erupted from flight of
imagination but relevant and germane requires
tested. Reasons are the soul of law. Best way to
discover truth is through the interplay of view
points. Discussion captures the essence of
controversy by its appraisal of alternatives,
presentation of pros and cons and review on the
touchstone of human conduct and all attending
relevant circumstances. Truth and falsity are
sworn enemies. Man may be prone to speak
falsehood but circumstantial evidence will not.
Falsity is routed from man's proclivity to faltering
but when it is tested on the anvil of
circumstantial evidence truth trans. On scanning
the evidence and going through the reasoning of
the learned Single Judge we find that the learned
Judge was right in accepting the confessional
statement of the Appellant, Ex. P-4 to be a
voluntary one and that it could form the basis for
conviction. The Magistrate had dwelt upon the
controversy, no doubt on appreciation of the
evidence but not in proper or right perspective.
 (25 of 36) [EXCIA-26/2017]

Therefore, it is not necessary for the learned

Judge of the High Court to wade through every
reasoning and give his reasons for his
disagreement with the conclusion reached by the
Magistrate. On relevant aspects, the learned
Judge has dwelt upon in detail and recorded the
disagreement with the Magistrate and reached
his conclusions. Therefore, there is no illegality in
the approach adopted by the learned Judge. We
hold that the learned Judge was right in his
findings that the prosecution has proved the case
based upon the confession of the Appellant given
in Ex. P-4 under Section 108 of the Evidence Act
and the evidence of PWs 2, 3 and 5. The
prosecution proved the case beyond doubt and
the High Court has committed no error of law.
34. Having reached the finding that the Appellant
has committed the offences under Section 135(1)
(i) of the Act and Sections 85(1)(a) and 86 of the
Gold (Control) Act, 1968 we think that instead of
being committed to jail, the Appellant should be
sentenced to pay fine of Rs. 10,000/- and Rs.
5,000/- respectively for the two aforementioned
offences, within 4 months from today. In default,
he shall undergo imprisonment for a period of 2
months and 1 months respectively which are
directed to run consecutively.

(8) In Collector of Customs, Madras and Ors. vs. D.

Bhoormall 1983 (13) E.L.T. 1546 (S.C.) wherein it has been

held as under:

40. In the case before us, the circumstantial

evidence suggesting the inference that the goods
were illicitly imported into India, was similar and
reasonably pointed towards the conclusion drawn
by the Collector. There was no violation of the
rules of natural justice. The Collector had given
the fullest opportunity to Bhoormull to establish
the alleged acquisition of the goods in the normal
course of business. In doing so, he was not
throwing the burden of proving what the
Department had to establish, on Bhoomiull. He
was simply giving him a fair opportunity of
rebutting the first and the foremost presumption
that arose out of the tell tale circumstances in
which the goods were found, regarding their
being smuggled goods, by disclosing facts within
his special, knowledge.
 (26 of 36) [EXCIA-26/2017]

5.2 Counsel for the respondent has tried to raise the preliminary

objections regarding limitation and maintainability of theses

proceedings. However, in view of the admission of the appeal we

refrain ourselves from entering into these questions.

5.3 Counsel for the respondent has relied on the following

judgments :-

(1) In Continental Cement Company vs. Union of India 2014

(309) ELT 411 wherein it has been held as under:

12. Further, unless there is clinching evidence of

the nature of purchase of raw materials, use of
electricity, sale of final products, clandestine
removals, the mode and flow back of funds,
demands cannot be confirmed solely on the basis
of presumptions and assumptions. Clandestine
removal is a serious charge against the
manufacturer, which is required to be discharged
by the Revenue by production of sufficient and
tangible evidence. On careful examination, it is
found that with regard to alleged removals, the
department has not investigated the following
aspects:
(i) To find out the excess production details.
(ii) To find out whether the excess raw materials
have been purchased.
(iii) To find out the dispatch particulars from the
regular transporters.
(iv) To find out the realization of sale proceeds.
(v) To find out finished product receipt details from
regular dealers/buyers.
(vi) To find out the excess power consumptions.
13. Thus, to prove the allegation of clandestine
sale, further corroborative evidence is also
required. For this purpose no investigation was
conducted by the Department.
14. In the instant case, no investigation was made
by the Department, even the consumption of
electricity was not examined by the Department
who adopted the short cut method by raising the
demand and levied the penalties. The statement of
so called buyers, namely M/s. Singhal Cement
Agency, M/s. Praveen Cement Agency; and M/s.
Taj Traders are based on memory alone and their
statements were not supported by any
 (27 of 36) [EXCIA-26/2017]

documentary evidence/proof. The mischievous role

of Shri Anil Kumar erstwhile Director with the
assistance of Accountant Sri Vasts cannot be ruled
out.
15. In view of the above, we are of the opinion
that when there is no extra consumption of
electricity, purchase of raw materials and
transportation payment, then manufacturing of
extra goods is not possible. No purchase of raw
material out side the books have been proved.
16. In the light of the above discussions and
considering the totality of the case, we are
satisfied that no case is made out for extra so
called clandestine sale of the Portland Cement to
the said parties. We are satisfied that the first
appellate authority has rightly deleted the addition
and cancel the penalties. Hence we hereby set
aside the impugned order passed by the Tribunal
and restore the order passed by the first appellate
authority, alongwith the reasons mentioned herein.

(2)Commissioner of C. Ex., Meerut-I vs. R.A. Castings Pvt.

Ltd. 2011 (269) ELT 337 wherein it has been held as under:

3. Being aggrieved by the impugned orders, the

respondents filed appeals before the Customs,
Excise & Service Tax Appellate Tribunal, New Delhi.
The Tribunal observed that it is settled principle of
law that the electricity consumption can not be the
only factor or basis for determining the duty
liability, that too on imaginary basis, especially
when Rules 173E mandatorily requires the
Commissioner to prescribe/fix norm for electricity
consumption first and notify the same to the
manufacturers and thereafter ascertain the
reasons for deviations, if any, taking also into
account the consumption of various inputs,
requirements of labour, material, power supply and
the conditions for running the plant together with
the attendant facts and circumstances. The
Tribunal further observed that no experiment have
been conducted in the factories of the appellants
for devising the consumption norms of electricity
for producing on MT of steel ingots. Tribunal also
observed that the electricity consumption varies
from one heat to another and from one date to
another and even from one heat to another within
the same date. Therefore, no universal and
uniformly acceptable standard of electricity
consumption can be adopted for determining the
excise duty liability that too on the basis of
imaginary production assumed by the Revenue
with no other supporting record, evidence or
 (28 of 36) [EXCIA-26/2017]

document to justify its allegations. The Tribunal

has also considered the report of Dr. Batra, which
has been relied upon for making the allegations
that there was higher electricity consumption. It
appears that Dr. Batra in his report has observed
that for the production of 1 MT of steel ingots,
1046 units electricity required.
4. So far as the various after allegations relating to
the fictitious firms and the income from the share
trading, the Tribunal recorded the finding that
since the incriminating statements of share brokers
etc. have been relied upon in the proceedings, it
was incumbent upon the Revenue to produce them
as well as the investigating officer for cross-
examination by the appellants, as was repeatedly
requested by them. In the absence of the same,
the statements of the share brokers etc. cannot be
relied upon. The Tribunal further observed that
even if, for the sake of argument, it is accepted
that the income shown in the balance sheets is not
the income derived form the sources declared by
the appellants, there is nothing on record to link it
with the so called clandestine removal of the
goods.
5. On consideration of the aforesaid findings, we
are of the view that the findings of the Tribunal are
based on the material on record and they cannot
be said to be without any material and perverse.
We find that the Revenue has invoked the proviso
to Section 11A(1)of the Act but no case has been
made out in the show cause notices or in the
adjudication order that there were any
misstatement, suppression of fact or fraud on the
part of the respondents. No substantial question of
law arises from the order of the Tribunal.

(3) Paras Ship Breakers Ltd. vs. Commissioner of Central

Excise 2007 (217) ELT 321 wherein it has been held as under:

18. In terms of Section 35G of the Central Excise

Act, the High Court, thus, could entertain an
appeal only if a question of law arose. No question
of law having, thus, arisen for consideration before
the High Court, we are of the opinion that the
impugned judgment does not suffer from any legal
infirmity.

(4) Collector of Customs, Bombay vs. Swastic Woollens

(P) Ltd. and Ors. 1988 (37) ELT 474 wherein it has been held

as under:
 (29 of 36) [EXCIA-26/2017]

9. The expression "wool wastes" is not defined in

the relevant Act or in the notification. This
expression is not an expression of art It may be
understood as in most of financial measures where
the expression are not defined not in a technical or
any preconceived basis but on the basis of trade
understanding of those who deal with these goods
as mentioned hereinbefore. The Tribunal
proceeded on that basis. The Tribunal has not
ignored the Technical Committee's observations.
We have noted in brief the Tribunal's handling of
that report. The Tribunal has neither ignored the
observations of CCCN nor the Board's Tariff Advice.
These observations have been examined in the
light of the facts and circumstances of the case.
One of the basic factual disputes was long length
of sliver tops. Having regard to the long length, we
find that the Tribunal was not in error.
Whether a particular item and the particular goods
in this case are wool wastes, should be so
considered or not is primarily and essentially a
question of fact. The decision on such a question of
fact must be arrived at without ignoring the
material and relevant facts and bearing in mind the
correct legal principles. Judged by these yardsticks
the finding of the Tribunal in this case is
unassailable.
We are, however, of the view that if a fact finding
authority comes to a conclusion within the above
parameters honestly and bona fide, the fact that
another authority be it the Supreme Court or the
High Court may have a different perspective of
that question, in our opinion, is no ground to
interfere with that finding in an appeal from such a
finding. In the new scheme of things, the Tribunals
have been entrusted with the authority and the
jurisdiction to decide the questions involving
determination of the rate of duty of excise or of
the value of goods for purposes of assessment. An
appeal has been provided to this Court to over-see
that the subordinate Tribunals act within the law.
Merely because another view might be possible by
a competent Court of law is no ground for
interference under Section 130E of the Act though
in relation to the rate of duty of customs or to the
value of goods for purposes of assessment, the
amplitude of appeal is unlimited. But because the
jurisdiction is unlimited, there is inherent limitation
imposed in such appeals. The Tribunal has not
deviated from the path of correct principle and has
considered all the relevant factors. If the Tribunal
has acted bonafide with the natural justice by a
speaking order, in our opinion, even if superior
Court feels that another view is possible, that is no
 (30 of 36) [EXCIA-26/2017]

ground for substitution of that view in exercise of

power under the Clause (b) of Section 130E of the
Act.

(5) Commr. of C. Ex., Jaipur-I vs. Welcure Drugs and

Pharmaceutical Ltd. 2015 (317) ELT 436 wherein it has been

held as under:

4. We have gone through the orders passed by the

Appellate Authorities as well as the Tribunal, and
find that the Tribunal has recorded a finding of fact
in paragraph 8 of the order as follows:-
"8. It is seen from the above that the Revenue's
only reliance is on the order forms recovered from
the residential premises. All the respondents have
clarified in their statement that such order are only
for Booking of the goods and do not relate to
clearance of the goods mentioned therein. The
clearance of the final product is only about
percentage of such quantities shown in order
Booking Forms which is dependent upon various
factors. In the absence of any evidence to support
Revenue allegation, I am of the view that the
appellant authority has correctly set aside the
demand. Accordingly, Revenue appeal is rejected
on the above ground also."

(6) Hindustan Processors Ltd. vs. Union of India 2014

(300) ELT 23 wherein it has been held as under:

9. In the first place, what is involved in the case is

a pure question of fact and not any question of law
much less substantial question of law. Secondly,
this Court cannot again in this appeal undertake
the examination of factual issues nor can draw
factual inferences on the basis of explanation
offered by assessee. Thirdly, once the explanation
is accepted by Tribunal as last court of appeal on
facts, then in such event, a finding of fact recorded
on such explanations by the appellate court would
be binding on the High Court.
10. Perusal of the impugned finding recorded on
the issues in question by the Tribunal would go to
show that Tribunal did examine the issue in
relation to what is called clandestine removal of
goods and the systematic manner in which the
goods were removed with the active connivance of
other two companies. This was examined keeping
in view the evidence and explanation given by
assessee in detail. Such finding when impugned
 (31 of 36) [EXCIA-26/2017]

would not constitute any substantial question of

law within the meaning of Section 35G ibid in an
appeal arising out of such order at least so far as
this case is concerned.
11. In our opinion, therefore, once the Tribunal
upheld the current finding of adjudicating authority
and that of CCT (Appeals), then it would not
involve any substantial issue of law as such and it
would be binding on this Court. In other words,
this Court in its appellate jurisdiction under
Section 35G ibid, would not again de novo hold yet
another factual inquiry with a view to find out as to
whether explanation offered by assessee and
which did not find acceptance to the Tribunal is
good or bad, or whether it was rightly accepted, or
not. It is only when the factual finding recorded
had been entirely de hors the subject, or that it
had been based on no reasoning, or based on
absurd reasoning to the extent that no prudent
man of average judicial capacity could ever reach
to such conclusion, or that it had been found
against any provision of law, then a case for
formulation of substantial question of law on such
finding can be said to have been made out, such is
not the case here.

(7) D.B. Central/Excise Appeal No. 120 / 2017

Commissioner of Central Excise Jaipur-I Vs. Tara Chand

Naresh Chand decided on 6.12.2017 wherein it has been held

as under:

8. Taking into consideration the ratio laid down by

the Allahabad High Court, as quoted above, only
on the basis of statement of Tara Chand who was
the partner of the Company, case of the
department is not sustainable.
9. In that view of the matter, in our considered
opinion, the Tribunal has not committed any error
in reversing the view taken by the Commissioner
Excise. In that view of matter, no substantial
question of law arises. However, we make it clear
that since no other material was available as per
judgment of Allahabad High Court, therefore, we
are not interfering.

(8) Oudh Sugar Mills Ltd. Versus Union of India 1978 (2)

E.L.T. (J 172) (S.C.) wherein it has been held as under:

 (32 of 36) [EXCIA-26/2017]

7. Now, these calculations certainly involve some

assumptions. The first is that the difference of 56
maunds noticed by the Assistant Chemical
Examiner during the two and quarter hours test
conducted by him on May 7, 1957 was uniform for
every 2-1/4 hours working throughout the working
hours of the crushing season which began on
November 4, 1956 upto May 7, 1957 when the test
was conducted.
11. If any one of these assumptions breaks down,
then the ultimate conclusion will have to be
rejected as incorrect. It has to be borne in mind
that human element is involved at certain stages
of the operation such as time of commencement of
the day’s working, the rapidity or slowness in
feeding cut sugarcane into the crusher and mills,
accurately adding the same quantity of water in
the crusher and mills, stopping the inflow of mixed
juice into the tanks at a uniformly higher level than
that indicated by the mixed mark, allowing a
uniform time lag between the emptying of the
tanks and starting inflow into them again and so
on. It is also unsafe to rely on the average of
10.11% of sugar recovery for the entire period
because it involves the assumption that even
during the periods when the gross weight of the
tanks was 7.5 tons or less sugar content of the
sugarcane crushed in the factory was such as could
not have been yielded anything less than 10.11%
For, it is well-known that the sugar content of
sugarcane even grown in the same area is ot
constant but is variable according to the time of
the year. Again it has to be borne in mind that the
recovery of sugar must necessarily depend upon
the milling performance. It cannot be assumed
that even in a ordinarily well run factory the
performance would be uniformly good or uniformly
the same.
13. Again the value of fibre percentage in cane is
very difficult to determine directly and accurately.
For calculations, only indirect values are taken
which may at the most be only approximate and,
therefore, no absolute conclusion should be drawn.
They then say:
“A formula which does not apply to Indian
conditions because of wide diversity in case
varieties, milling performance etc. cannot therefore
be used to establish under weighment of juice only
because our mixed juice % does not correspond to
it.
Moreover inferential method of calculation merely
gives rough idea of the value of data collected by
other means and cannot be used to overrule
actually found results.”
 (33 of 36) [EXCIA-26/2017]

Apparently, their contention is that the particular

ratio upon which a part of the calculations of the
Assistant Chemical Examiner was based is founded
on analysis of Java cane and is, therefore, no guide
for determination of the ratio in respect of Indian
cane. However, the point raised is a highly
technical one and counsel on neither side was able
to throw any light upon it. We would, therefore,
not base any conclusion upon it but only observe
that this argument was not considered by the
Collector or by the Central Board of Revenue or the
Central Government. In the circumstances,
therefore, we must hold that the finding that
11,606 maunds of sugar were not accounted for by
the appellant has been arrived at without any
tangible evidence and is based only on inferences
involving unwarranted assumptions. The finding is
thus vitiated by an error law.
14. The other finding that the registers were not
properly maintained as required by Rule 83 is also
an inferential finding based upon the calculations
made by the Assistant Chemical Examiner. As we
have already held those calculations being based
upon unwarranted assumptions cannot form legal
basis for a finding that more juice than what was
recorded in the register has gone into the
production of sugar.
15. It was, however, contended on behalf of the
respondent that at the personal hearing given by
the Central Board of Revenue, Shri C.M. Dalmia,
Assistant Secretary of the Appellant and Shri, J.M.
Shah, Superintendent Technologist employed by
the Appellant had conceded that there had been
“some erroneous accounting” on their part in
showing the weight of mixed juice on an average
of 7.5 tons and that their only plea was that this
was not intentional or deliberate nor did it signify
any mala fides on their part. No reliance has,
however, been placed upon this confession in the
Respondent’s statement of the case. We may
however point out that the gross annual turnover
of sugar manufactured in the factory is in the
neighbourhood of 12 lakhs of maunds and the
amount of excise duty the appellant pays to
Government runs into about a crore of rupees per
annum. It would therefore be a little far-fetched to
infer that what happened at the time of the
inspection was something more than an error
occasioned perhaps by carelessness nor could it be
said that this shows that there was a deliberate
attempt on their part to evade payment of duty on
a mere 11,606 maunds and amounting to less tha
a lakh of rupees. We are saying this not because
an error due to carelessness in maintaining the
registers properly as required by Rule 83 does not
 (34 of 36) [EXCIA-26/2017]

amount to a contravention of that rule; the only

reason why we mention this is that in a factory
where the turnover of sugar is so considerable and
the operations conducted in which the human
element lays a significant part it would not be right
to base calculations on the surmise that over filling
of the tanks was being practised systematically. No
doubt, during the test, the tanks were slightly over
filled on nine out of ten occasions as pointed out
by the Assistant Chemical Examiner. But this could
be attributed to a slight failure of the human
element resulting from the fact that a special
operation was being conducted by the operators in
the presence of a Government official. We would,
however, make it clear that these observations are
just incidental and are not the basis of our
decision.”

6. Taking into consideration, we are of the opinion that the view

taken by the Allahabad High Court is required to be accepted

inasmuch as in the statement of Director and laboratory report,

there is nothing on record to establish that the manufacturing

process has taken place either by way of electricity bills, labour

charges, transport charges or any corroborative piece of evidence

is available.

6.1 In that view of the matter, the view taken by that tribunal is

just and proper and does not require interference. For ready

reference, the finding of the Tribunal is quoted below:

“6.1 Further the department has not gone

beyond the approximation of yield which they
have shown as 70 to 84% in col.3 of Annexure-A
attached to the show cause notice and average
yield overall had been shown as 77.60% which
has been made the basis for issuance of the
show cause notice (SCN) as well as for
confirming the duty of central excise by the
impugned order dated 19.5.2009. The
department confirmed the duty demand along
with interest for the period of five years alleging
suppression of clandestine removal of the final
product and also imposed penalty mainly based
on the production approximation and on the
statement of Director of the unit, Shri Agarwal,
who is one of the appellants in this case.
 (35 of 36) [EXCIA-26/2017]

6.2 The department has not gone beyond the

approximation and the statement of Shri
Agarwal. Any prudent person would not so
conclude on extra production by approximation
and by a mere statement of the Director of the
company. Unless there are further corroborations
in the form of documentary evidences, which
could be like despatch details for the production,
receipt details of the said material, transactions
of the sale money, transportation details of such
goods, details of additional consumption of
electricity for such suppressed production a
prudent individual would not agree with the
present conclusions of the Revenue. There is
nothing on record from the Revenue side to come
to a reasonable conclusion to say that there has
been preponderance of probability of such
suppressed production on the part of the
appellant. The evidences in the form of
approximation and averaging production as
77.6% and one statement of Shri Agarwal,
Director of the appellant company cannot be
called a prudent conclusion of the production
estimate
6.3 Consequently, we are of the considered view
that the department has not discharged its
burden of conclusively proving the case of
suppressed production and clandestine clearance
by the appellants. In this regard we seek support
from Hon'ble Allahabad High Court's decision in
the case of Continental Cement Company Vs.
Union of India 2014 (309) ELT 411 (All.) and
Supreme Court's decision in the case of Oudh
Sugar Mills Ltd. Vs. Union of India 1978 (2) ELT
(J.172)(SC) and CESTAT’s in the case of Punalur
Paper Mills Ltd Vs. CCE- vide Final order No. 996-
997/2008 dated 26.8.2008. The Hon’ble High
Court in the case of Continental Cement
Company (supra) has inter alia observed as
under:
13. ……to prove the allegation of clandestine sale,
further corroborative evidence is also required.
For this purpose no investigation was conducted
by the Department….
14………
15. ……When there is no extra consumption of
electricity, purchase of raw materials and
transportation payment, then manufacturing of
extra goods is not possible…….”

7. Considering above discussions and the case

laws cited above, we conclude that the Revenue
has failed to reasonably prove suppressed
production and clandestine clearance on the part
 (36 of 36) [EXCIA-26/2017]

of the appellants. Consequently, the impugned

order in respect of confirmation of duty for
alleged suppressed production, and imposition of
fine and penalty on the appellant No. 1 and
imposition of personal penalty of Rs.40 lakhs on
Shri Agarwal who is appellant No. 2 are hereby
set aside. The appellants will get the relief
accordingly.
8. The impugned order has confirmed another
Central Excise duty of Rs.1,31,898/- on short
found inputs which was deposited by the
assessee and was appropriated to the
government account. In this regard, there has
not been any submissions by the appellants.
Therefore, this part of the order confirming the
said duty of Rs.1,31,898/- does not warrant any
intervention from this Tribunal. It is hereby
sustained.”

7. Therefore, the issues are required to be answered in favour

of the assessee against the department.

8. The appeals stand dismissed.

(BANWARI LAL SHARMA),J (K.S.JHAVERI),J

//bmg 22-23
 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

Punjab-Haryana High Court

Court On Its Own Motion vs Union Of India And Others on 30 May, 2000
Equivalent citations: 2001 CriLJ 225
Author: T Chalapathi
Bench: T Chalapathi
JUDGMENT T.H.B. Chalapathi, J.

1. This petition has been registered on ihc basis of a representation of Shri Kanti Parkash Bhalla,
resident of Panchkula, addressed to this Court and also on the basis of the reports of the media.

2. The general elections for the Parliament took place on 5th of September, 1999. The Chief Minister
Shri Om Parkash Chaulala was campaigning in the said election in Bhaiwani Constituency. While so,
on 4th September, 1999, the Election Commissioner Mr. J.M. Lyngdoh spoke to Mr. Bhaskar
Chaterjee, Chief Electoral Officer of Haryana that the Chief Minister should go back to State
Headquarters and leave Bhi-wani Parliamentary Constituency otherwise the Election Commission
would be compelled to take drastic action. The Chief Electoral Officer conveyed the same to Shri S.C.
Chaudhary, Special Principal Secretary to the Chief Minister and also Shri Sanjcev Kaushal,
Additional Principal Secretary to the Chief Minister for conveying the message to the Chief Minister.
It was brought to the notice of the Principal Secretary to Chief Minister. According to the allegations
in the petition, a representation made to this Court and also the media reports, the Chief Minister of
Haryana Slate was prevented from casting his vole as he was directed by the Election Commissioner
Shri J.M. Lyngdoh to leave Bhiwani Parliamentary Constituency and return to State Headquarters
and therefore the Election Commissioner Shri J.M. Lyngdoh violated the provisions of Section 62 of
the Representation of People Act and also committed an offence under Section 171 of the Indian
Penal Code.

3. Notice of this petition has been given to the State of Haryana, the Chief Minister, Election
Commission of India and also the Election Commissioner Shri J.M. Lyngdoh.

4. The Chief Electoral Officer. Haryana, Shri Bhaskar Chaterjee, I.A.S, filed an affidavit stating as
follows :-

"That on 4th September, 1999 around 9 A.M., 1 received a telephone call from Shri J.M. Lyngdoh,
Election Commissioner, Election Commission of India from Delhi, He desired that Chief Minister
Ch. Om Parkash Chautala should go back to State Headquarters at Chandigarh and leave Bhiwani
Parliamentary Constituency, otherwise the Election Commission of India would becompelled to lake
drastic action. The same directions were immediately passed on to Shri S.C. Chaudhary, I.A.S.,
Special Principal Secretary of Chief Minister and also to Mr. Sanjeev Kaushal, I.A.S., Additional
Principal Secretary to Chief Minister for conveying to the Chief Minister."

5. Shri Vijai Vardhan, I.A.S., Joint Secretary to Government Haryana, Political and Services
Departments, also filed on affidavit wherein he stated as follows :

Indian Kanoon - http://indiankanoon.org/doc/553317/ 1

 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

"That the facts leading to the said situation are that the Election Commissioner Shri J.M. Lyngdoh,
spoke to Shri Bhaskar Chaterjee, I.A.S., Chief Electoral Officer, Haryana, over the telephone on 4th
September, 1999 and desired that the Chief Minister Ch. Om Parkash Chautala should go back to the
State Headquarters and leave the Bhiwani Parliamentary Constituency and it was further conveyed
that in case the Chief Minister did not comply with the directions, the Election Commission would
take drastic action."

6. Shri O.P. Chautala, Hon'ble Chief Minister, Haryana, filed a reply wherein he stated as follows :

That it is matter of record and fact that upon the direction issued by the Election Commissioner Shri
J.M. Lyngdoh, the deponent left the State of Haryana on 4th September, 1999 and could not cast his
vote.

That the facts leading to the said situation are that the Election Commissioner Shri J.M. Lyngdoh,
spoke io Shri Bhasker Chaterjee, I.A.S., Chief Electoral Officer, Haryana, on telephone on 4th
September, 1999 that the deponent should go back to the State headquarters and leave the Bhiwani
Parliamentary Constituency and it was further conveyed that in case, the deponent did not comply
with the directions, the Election Commission would take drastic action.

"That the said directions were immediately passed on to Mr. S.C. Chaudhary, I.A.S., Spl. Principal
Secretary to Chief Minister and also to Mr. Sanjeev Kaushal, I.A.S., Additional Principal Secretary to
Chief Minister which were then conveyed to the deponent. The above directions were also brought
to the notice of Mr. Vishnu Bhagwan I.A.S., Principal Secretary to the Chief Minister.

That Mr. Stibas Pani, Secretary, Election Commission of India also rang up Mr. R.S. Verma, Chief
Secretary, Haryana on 4th September, 1999 and asked him to provide State aircraft to the deponent
in order to enable him to leave the area immediately which was otherwise not permissible for the
Chief Minister to use in view of the Model Code of Conduct."

7. It is also averted by the Hon'ble Chief Minister that he represented the facts to Ihe Election
Commissioner Shri M.S. Gill and also to the Hon'ble President of India.

8. A reading of the affidavit of the Chief Minister clearly indicates that he felt humiliated.

9. A short reply has been filed by Shri J.M. Lyngdoh, Election Commissioner, Election Commission
of India, New Delhi in which he has taken the following pleas :-

"That the dependent is a public servant as defined in Section 21 of the Indian Penal Code, 1860 and
no Court can take cognizance of any offence, alleged against him, in the discharge of his
constitutional duties without the previous sanction of the Central Government i.e. the President of
India, which is the mandatory requirement of Section 197 Code of Criminal Procedure, 1973. To the
knowledge of the deponent, no such sanction has been sought for or granted till today.
Consequently, the rule nisi issued by this Hon'ble Court deserves to be discharged on this ground
alone.

Indian Kanoon - http://indiankanoon.org/doc/553317/ 2

 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

That it has been brought to the notice of this Hon'ble Court that Shri Om Parkash Chautala, is
registered as a Voter at SI. No. 297 in Part No. 151 in village Chautala, Tehsil Dabwali, District Sirsa
falling on 84 - Dabwali (SC) Assembly Constituency comprised within 10 - Sirsa (SC) Parliamentary
Constituency. Even according to the complaint, no order/direction was ever issued restraining Shri
Chautala from going to Sirsa (where he is registered as a voter) or from casting his vote on 5th
September, 1999.

That no illegality, much less an electoral offence, has been committed by the deponent as whatever
steps were taken by the Election Commission of India were taken to ensure free and fair elections to
ensure the purity of the election process and level playing field for all concerned. All this was done in
the bona fide discharge of the constitutional duties bestowed upon the deponent by the Constitution
of India."

10. A reading of the reply-affidavit of Shri J.M. Lyngdoh clearly shows that he never denied the
averments made in the petition and also in the press reports that he orally talked to the Chief
Electoral Officer on phone on 4th September, 1999 desiring that the Chief Minister, Haryana,
should go back to State Headquarters and leave the Bhiwani Parliamentary Constituency and if the
Chief Minister did not comply with the direction, the Election Commission would take drastic
action. In his affidavit, Shri J.M. Lyngdoh stated that he reserves his right to answer the allegations
made against him on merits in order to avoid prejudicing his case at a later stage. II is pertinent to
note that the Election Commission has not denied the averments that the Election Commissioner
would take drastic action in case of failure of the compliance of his direction that Ihe Chief Minister
should go back to the State Headquarters.

11. From the affidavits filed above, the following facts emerge :-

That the Mid Term Elections for Lok Sabha have taken place on 5th September, 1999. On 4th
September, 1999, the Hon'ble Chief Minister of State of Haryana was campaigning at Bhiwani
Parliamentary Constituency. According to the affidavit of Chief Electoral Officer, Shri Bhaskar
Chater-jee the Election Commissioner Shri J.M. Lyng-doh orally conveyed to him on phone that the
Chief Minister of Haryana, Mr. Om Parkash Chautala should leave the Bhiwani Constituency and
return to the Headquarter of the State, otherwise drastic action has to be taken. According to the
representation of Kami Parkash Bhalia this oral direction of Ihe Election Commissioner amounts to
an offence as defined under Section 171C of the Indian Penal Code. Further according to him, the
directions given by the Election Commissioner direct ing the Chief Minister of the Slate of Haryana
io return to the State H.Qs. amounts to an interference with the free exercise of the electoral right of
the Chief Minister of Haryana.

12. Electoral right has been defined in Section 171A, I.P.C. inter alia either to vote or refrain from
voting at an election. When the Election Commissioner without assigning any reason directed the
Chief Minister of the State of Haryana to return to the Headquarters of the State, it amounts to
restraining the Hon'ble Chief Minister from exercising his franchise at Sirsa where he has been
registered as a voter since the direction was to stay at the State Headquarters.

Indian Kanoon - http://indiankanoon.org/doc/553317/ 3

 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

13. It is no doubt true that as per the affidavit of Shri Bhasker Chaterjee, Chief Electoral Officer,
there was no direction of the Election Commissioner that the Hon'ble Chief Minister should not
exercise his franchise. But the very fact that Shri Bhashker Chaterjee, had sworn affidavit stating
that the Election Commissioner specifically directed the Hon'ble Chief Minister to return to the
State Headquarters immediately under that threat of taking a drastic action, will certainly amount to
interfering with the electoral right to Mr. Om Parkash Chautala. Unfortunately, the Election
Commissioner Shri J.M. Lyngdoh has not chosen to deny the averments made by the Chief Electoral
Officer, Haryana, Shri Bhasker Chaterjee and also Ihe averments made in the affidavit of Mr. Vijai
Vardhan, Joint Secretary to Government, Haryana, and also the averments made in the affidavit
filed by the Hon'ble Chief Minister except saying that "whatever steps were taken by the Election
Commission of India, were taken to ensure free and fair election process and level playing field for
all concerned." There is no elaboration of this statement. In all fairness, Ihe Election Commissioner
should have stated the reasons which prompted him to issue a direction directing Mr. Om Parkash
Chautala to leave the Bhiwani Parliamentary Constituency and to return to State Headquarters
thereby refraining (restraining ?) Mr. Om Parkash Chautala, who is the elected representative of the
State of Haryana, and is holding responsible office of the Chief Minister from exercising his
franchise.

14. There cannot be any dispute that Ihe Election Commission has to function within the framework
of law and any order passed by it must be traceable to some existing law. On the facts of this case, it
is very clear and it cannot be disputed nor doubted that the Election Commissioner Shri J.M.
Lyngdoh has only passed verbal orders directing the Chief Minister of the State of Haryana to return
to the State Headquarters. This is very unfortunate situation. The Election Commissioner should
have put in writing his direction so that there cannot be any ambiguity. It is not as though the
facilities are not available for the Election Commissioner to send written orders or communication
instead of verbal orders. Both the Election Commission and the Chief Electoral Officer in the State
have been provided with the fax machines. What prevented Mr. J.M. Lynghod to communicate the
orders on fax, it is best known to him only. The action of Shri J.M. Lyngdoh giving oral instructions
deserves condemnation and to be deprecated. The Election Commission is not supposed to act as a
super authority. It has to function within limits of law. No one in this country, however high he may
be, can be above.law. No material has been placed by the Election Commissioner Shri J.M. Lyngdoh
before this Court what prompted him to issue such a direction to an elected representative of the
people of the State and who is leading the State as its Chief Minister particularly when.no allegations
of violence in the electoral process have been reported in the media or stated in the verbal
directions.

15. Further I fail to understand under what authority the Election Commissioner had issued oral
directions directing the Hon'ble Chief Minister to return to State Headquarters. Will, under this
siluation, it be possible for the Hon'ble Chief Minister to go to Sirsa to exercise his franchise
especially when he was prevented from leaving Chandigarh, the Headquarters of the State of
Haryana. The affidavit of Mr. J.M. Lyngdoh furnishes no answer. A person who is holding high
office of Election Commissioner is expected to place before the Court all the facts and circumstances
which prompted him to issue such an unexpected direction. Mr. J.M. Uyngdoh failed to discharge
this obligation to the Court. There is every justification for the Hon'ble Chief Minister to feel that he

Indian Kanoon - http://indiankanoon.org/doc/553317/ 4

 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

has been humiliated by the action of the Election Commissioner and he has been hurt.

16. No material has been placed before this Court that what act Mr. Om Parkash Chautala has done
which compelled the Election Commissioner to direct him to leave Bhiwani Parliamentary
Constituency and return to State Headquarters. The Election Commissioner did not support his
allegations in the affidavit filed in this Court. Further he sought to reserve Ihe right to answer the
allegations made against him on merits in order to avoid prejudicing his case at a later stage, if any.
This is not fair to the Court. When the Court issued notice to him he must have placed all the
material on record which prompted him to issue such a verbal direction which he was not
authorised to issue while holding such a high and responsible office. The verbal orders do not have
any support of legal provisions. Nobody can find fault with if one thinks that Mr. J.M. Lyngdoh
acted as he is the supreme authority and can issue any orders verbal or written. Law does not
authorise any authority, however high it may be, to pass verbal orders. The orders must be written
and must be specific and the grounds for such orders must be siafed. This is a basic rule of law. Even
otherwise, the Election Commissioner should have sent a confirmation in writing of what he had
directed orally on telephone to Chief Electoral Officer. No more is required to be said in regard to
the action of Mr. J.M. Lyngdoh, but his action deserves to be deprecated and condemned. 1 trust
and hope the Chief Election Commissioner will take necessary action to prevent such misuse or
abuse of the powers of the Election Commission by issuing necessary guidelines in this regard in
consultation with other Commissioners.

17. In this context, reference may be made to the judgment of the Apex Court in Mohinder Singh Gill
and another v. Cltief Election Commissioner, New Delhi and others, 1978(1) SCC 405 wherein it has
been held as follows :-

"Article 324, which we have set out earlier, is a plenary provision vesting the whole responsibility for
national and State Elections and, therefore, the necessary powers to discharge that function. It is
true that Article 324 has to be read in the light of constitutional scheme and the 1950 Act and 1951
Act. Shri Rao is right to the extent he insists that if competent legislation is enacted and visualised in
Article 327, the Commission cannot shake itself free from the elected prescriptions. After all as
Mathew, J. has observed in Indira Gandhi (supra) (P 523) (SCC P. 136, Paras 335-6):

In the opinion of some of the Judges constituting the majority in Bharati's case, Rule of law is a
basic structure of the Constitution apart from democracy. The rule of law postulates the
pervasiveness of the spirit of law throughout the whole range of government in the sense of
excluding aibitrary official action in any sphere. And supremacy of valid law over the Commission
argues itself. No one is an imperium in our constitutional order. It is reasonable to hold that the
Commissioner cannot defy the law armed by Article 324. Likewise, his functions are subject to the
norms of fairness and he cannot act arbitrarily. Unchecked power is alien to our system.

Even so, situations may arise which enacted law has not provided for. Legislators are not prophets,
but pragmatists. So, it is that the Constitution, has made comprehensive provision in Article 324 to
take care of surprise situations. That power itself has to be exercised, not mindlessly nor mala fide,
not arbitrarily nor with partiality but in keeping with the guidelines of the rule of law and not

Indian Kanoon - http://indiankanoon.org/doc/553317/ 5

 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

stultifying the presidential notification nor existing legislation. More in not necessary to specify, less
is insufficient to leave unsaid. Article 324, in our view, operates in areas left unoccupied by
legislation and the words, superintendence, direction and control, as well as 'conduct of all election',
are the broadest terms. Myriad maybes, too mystic to be precisely presaged, may call for promot
action to reach the goals of free and fair election. It has been argued that this will create a
constitutional despot beyond the pale of accountability, a Frankenstein's monster who may
manipulate the system into elected depotism - instances of such phenomena are the tears of history.
To that the retort may be that the judicial branch, at the appropriate stage, with the potency of its
benignant power and within the leading strings of legal guidelines, can call the bluff, quash the
action and bring order into the process. Whether we make a triumph or travesty of democracy
depends on the man as much as on the Great National Parchment. Secondly, when a high
functionary like the Commissioner is vested with wide powers the law expects him to act fairly and
legally. Article 324 is geared to the accomplishment of free and fair elections expeditiously.
Moreover, as held in Virendra and Harishankar, discretion vested in a high functionary may be
reasonably trusted to be used properly, not perversely. If it is misused, certainly the Court has power
to strike down the act. This is well established and does not need further case law confirmation.
Moreover, it is useful to remember the warning of Chandrachud, J.

But the electorate lives in the hope that a sacred power will not so flagrantly be abused and the
moving finger of history warns of the consequences that inevitably flow when absolute power has
cor- rupted absolutely. The fear of perversion is no test of power."

18. But the question is whether this Court can direct the prosecution of Mr. J.M. Lyngdoh for the
offence cognizable under Section 171F of the Indian Penal Code. There is no doubt that the offence
punishable under Section 171-K is non-cognizable. Therefore, there cannot be any direction to
register an FIR against Mr. Lyngdoh for the said offence.

19. The next question which oscillates whether this Court can direct the Magistrate to take
cognizance of the offence said to have been committed by Mr. J-.M-. Lyngdoh. The Election
Commissioner Shri J.M. Lyngdoh is a public servant as defined under Section 21 of the Indian Penal
Code. Under clause 11th of Section 21 every person who holds any office in virtue of which he is
empowered to conduct an election is a public servant. Therefore, Mr. J.M. Lyngdoh is a public
servant. Section 197 of the Code of Criminal Procedure prohibits the Court from taking cognizance
of any offence except with the previous sanction of Central Government in case of a person who is
employed in connection with the affairs of the Union. Mr. J.M. Lyngdoh is employed in connection
with the affairs of the Union since it is the duty of the Central Government to hold elections under
the provisions of law and he can only be removed from the office only on the recommendations of
the Chief Election Commissioner by the President of India. The President of India has to act on the
aid and advice of the Council of Ministers of the Central Government as provided under Article 74 of
the Constitution of India. Therefore, the Election Commissioner can be removed only by the Central
Government. Therefore Section 197 Cr. P.C. comes into play. When the Magistrate cannot take
cognizance of the offence under Section 190 of the Code of Criminal Procedure because of the bar
provided in Section 197 Cr. P.C., I cannot direct the Magistrate to take cognizance of the offence
against Mr. J.M. Lyngdoh, the Election Commissioner.

Indian Kanoon - http://indiankanoon.org/doc/553317/ 6

 Court On Its Own Motion vs Union Of India And Others on 30 May, 2000

20. In this view of the matter, I cannot give any direction to persecute Mr. J.M. Lyngdoh, the
Election Commissioner, though I am satisfied that the action of Mr. J.M. Lyngdoh is not warranted
under law and it is also in violation of the electoral right of the Hon'ble Chief Minister of the State,
who is an elected representative of the people of the State of Haryana.

21. In view of my foregoing discussion, I have no other option except to dismiss the petition with
liberty to Mr. Kanti Parkash Bhalla. who made representation of this Court or any other aggrieved
person to launch the prosecution in accordance with law in a competent Court.

22. With the above observations, the petition is disposed of.

23. Petition dismissed.

Indian Kanoon - http://indiankanoon.org/doc/553317/ 7

 1

REPORTABLE

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1711 OF 2011

AVTAR SINGH & ANR.           .…Appellant(s)

Versus

STATE OF PUNJAB                             …Respondent(s)

J U D G M E N T

Rajesh Bindal, J.

1. The   judgment   of   the   High   Court   of   Punjab   &

Haryana   in   Criminal   Appeal   No.   562­SB   of   1997   dated

January 15, 2010 is under challenge in this Appeal.

2. The   appellants   are   aggrieved   of   their   conviction

under   Section   7   of   the   Essential   Commodities   Act,   1955

(hereinafter referred to as ‘the Act’).
Signature Not Verified

Digitally signed by
Anita Malhotra
Date: 2023.03.23
17:29:39 IST
Reason:
 2

3. The   Trial   Court   vide   judgment   and   order   dated

July 8, 1997 had convicted the appellants and directed them

to   undergo   imprisonment   for   a   period   of   six   months

alongwith fine of ₹ 500/­ each.

4. The facts, as are available on record, are that on

26.02.1995,   Sub­Inspector   of  Police  alongwith   other   police

officials was present at bus stop, Phagwara.  They received a

secret   information   that   the   appellants   were   indulging   in

selling gas cylinders in black.   They were charging   ₹ 250/­

(Rs.   two   hundred   and   fifty   only)   instead   of   the   prescribed

rate of  ₹102/­(Rs. one hundred and two only).   Their truck

bearing   No.   HR­05A­4918   was   parked   in   front   of   Chawla

Auto Workshop.  Finding the information to be reliable, FIR

was   registered   and   police   officials   went   at   the   spot   and

apprehended the accused. They were taken into custody.

5. In the evidence led before the trial court, none of

the   independent   witnesses   or   the   alleged   buyers   of   the

cylinders in black supported the case of the prosecution.  It

was only two official witnesses who deposed in favour of the

prosecution.
 3

6. The   only   charge   which   could   be   proved   was

unauthorized   possession   of   gas   cylinders   on   the   basis   of

which the trial court convicted the appellants and ordered

imprisonment.

7. The order passed by the trial court was upheld in

appeal by the High Court.  

8. The sole argument raised by the learned counsel

for   the   appellants   is   that   in   terms   of   Liquefied   Petroleum

Gas   (Regulation   of   Supply   and   Distribution)   Order,   1988

dated   08.03.1988   (hereinafter   referred   to   as   ‘   the   Order’),

entry and seizure should be in exercise of the powers under

clause 7 of the Order.       Clause 7 of the Order authorises

certain   persons   to   stop   and   search   any   vessel   or   vehicle

which the officer has reason to believe has been or is being

or is about to be used in contravention of the order.

9. Clause   3   of   the   Order   restricts   unauthorised

possession of gas cylinders.   The submission is that as per

clause   7,   an   officer   or   the   Department   of   Food   and   Civil

Supplies   of   the   Government,   not     below   the   rank   of     an

Inspector   authorised   by   such   Government   and   notified   by

Central Government or any officer not below the rank of a
 4

Sales Officer of an Oil Company, or a person authorized by

the Central Government or a State Government and notified

by   the   Central   Government   may,   with   a   view   to   ensure

compliance with the provisions of the Order, for the purpose

of   satisfying   himself   that   this   order   or   any   order   made

thereunder has been complied with, is authorised   to carry

out such exercise/seizure.

10. In the case in hand, the action has been taken by

sub­Inspector   of   the   Police   who,   as   per   the   Government

Order,   is   not   authorised.     Hence,   the   entire   case   of   the

prosecution   falls.     The   aforesaid   argument   has   not   been

considered either by the trial Court or by the High Court.

11. On the other hand, learned counsel for the State

submitted   that   the   appellants   have   been   found   in

unauthorized   possession   of   the   gas   cylinders.     They   have

rightly   been  convicted.    Merely  for   some  technical  default,

they   should   not   be   allowed   to   go   scot­free.     At   that   time,

there was a huge shortage of gas cylinders and Order   was

issued   to   check   its   black   marketing   and   unauthorised

possession.
 5

12. Heard learned counsel for the parties and perused

the relevant referred record.  

13.  The   facts  in  the case as noticed above as such,

are not in dispute.   The only argument raised is about the

power of the person who had seized cylinder on the basis of

which   the   appellants   were   prosecuted.     Clause   7   of   the

Order,   which   is   reproduced   hereunder,   prescribes   officers

who have the power.

“ 7. Power of entry, search and seizure:­

(1) an officer or the Department of Food and Civil

Supplies of the Government, not  below the rank
of  an Inspector authorised by such Government
and   notified   by   Central   Government   or   any
officer not below the rank of a Sales Officer of
an Oil Company, or a person authorized by the
Central Government or a State Government and
notified by the Central Government may, with a
view to ensuring compliance with the provisions
of   this   Order,   for   the   purpose   of   satisfying
herself   that   this   order   or   any   order   made
thereunder has been complied with: 

(a) Stop   and   search   any   vessel   or   vehicle

which the Officer has reason to believe has
 6

been, or is being or is about to be, used in
the contravention of this Order;

(b) Enter or search any place with such aid or

assistance as may be necessary;

(c) Seize   and   remove   with   such   aid   or

assistance   as   may   be   necessary   ,   the
entire   quantity   of   any   stock   of   liquefied
petroleum gas in cylinders, cylinder valves
and   pressure   regulators,   alongwith   the
vehicles, vessels or any other conveyances
used   in   carrying     such   stock   if   he   has
reason to suspect that any provision of this
Order has been or is being or is about to
be,   contravened   in   respect   of   such   stock
and thereafter take or authorise the taking
of all measures necessary for securing the
production   of   the   stock   of   liquefied
petroleum   gas   in   cylinder,   cylinders,   gas
cylinder   valves,   pressure   regulators,
vehicles,  vessels  or  other  conveyances  so
seized   before   the   Collector   having
jurisdiction under the provisions of section
of the Essential Commodities Act, 1955 (10
of 1955) and for their safe custody pending
such production……”
 7

14. It nowhere prescribes that a Sub­Inspector of the

Police   can   take   action.     No   doubt,   the   aforesaid   Clause

provides   that   in   addition   to   the   specified   officers,   the

persons authorised by the Central or State Government may

take   action   under   the   Order.     However,   nothing   has   been

placed   on   record   to   support   the   argument   that   the   Sub­

Inspector of the Police was authorised to take action under

the aforesaid Order.   

15. It is a settled law that where a power is given to do

a certain thing in a certain way, the thing must be done in that

way or not at all.   Other methods are necessarily forbidden.

Reference can be made to  Dharani Sugars and Chemicals

Ltd. Vs. Union of India and Ors. reported in  (2019) 5 SCC

480. 

16. In the absence of the authority and power with the

Sub­Inspector to take action as per the Order, the proceedings

initiated  by  him  will  be  totally  unauthorised   and  have   to  be

struck down.
 8

17. For   the   reasons   mentioned   above,   the   appeal   is

allowed.     The   judgment   by   the   High   Court   of   Punjab   &

Haryana   in   Criminal   Appeal   No.   562­SB   of   1997   dated

January 15, 2010 and the order dated 08.07.1997 passed by

the Trial Court are set aside.  As a consequence, the conviction

and sentence of the appellants under Section 7 of the Act is set

aside.  The bail bond stands discharged.

…………………J.
                                                         [Abhay S. Oka]

…….……………J.
     [Rajesh Bindal]
New Delhi 
23.03.2023.  
 Neutral Citation No. - 2023:AHC:78054

Page No.1

AFR

Reserved

Court No.6

Case :- WRIT TAX No. - 1569 of 2022

Petitioner :- M/S Lari Almira House

Respondent :- State Of U.P. And 3 Others
Counsel for Petitioner :- Aloke Kumar
Counsel for Respondent :- C.S.C.
Along - With

Case :- WRIT TAX No. - 1570 of 2022

Petitioner :- M/S Lari Almira House

Respondent :- State Of U.P. And 3 Others
Counsel for Petitioner :- Aloke Kumar
Counsel for Respondent :- C.S.C.

Hon'ble Pankaj Bhatia,J.

1. Both the writ petitions are common in terms of the content and
relate to the same assessee although for different years, as such,
the same are being decided by means of this common order. For
the sake of brevity, the facts of Writ Tax No.1570 of 2022 are
being referred to.

2. Both the writ petitions have been filed challenging the order dated
24.01.2022 passed in exercise of the power under Section 74 of
the U.P. G.S.T. Act against the petitioner as well as the order dated
30.09.2022 passed by the first appellate authority whereby the
appeal was dismissed as beyond limitation.

3. The contention of the counsel for the petitioner is that the

appellate authority has erred in dismissing the delay condonation
application, however he argues that in the event, this Court finds
 Page No.2

that the appellate court had rightly dismissed the application for
extension of period of limitation, this Court should hear the matter
in respect of challenge to the order dated 24.01.2022 on the
grounds which are available for challenge of a quasi judicial order
in exercise of the power under Article 226 of the Constitution of
India, more so as the doctrine of merger would not apply as the
appeal has been dismissed on the ground of limitation and not on
merits.

4. On perusal of the appellate order (Annexure no.13), it is clear that

the same has been dismissed as being beyond limitation
prescribed under Section 104 (4) of the U.P. G.S.T.Act.

5. Considering the law which is clearly well settled by the Supreme

Court in the case of M.P. Steel Corporation vs. Commissioner of
Central Excise 2015(7) SCC 58, I do not find any error in the
appellate order dated 30.09.2022, whereby the appeal was dismissed
on the ground of limitation. However, this Court is to consider the
validity of the order dated 24.01.2022 on the limited grounds which
are available for judicial review under Article 226 of the Constitution
of India as the order dated 24.01.2022 has not merged in the order
dated 30.09.2022.

6. The facts, in brief, are that the petitioner claims to be an assessee

and holds a valid registration under the U.P. G.S.T. Act. It is
claimed that the petitioner had uploaded the relevant documents
of sale and inward supply and had claimed input tax credit in
accordance with law, however, for the financial year 2017-18, an
inspection was carried out by the Deputy Commissioner (SIB),
Commercial Tax, Gorakhpur on 20.04.2018 and a Panchanama
was prepared in pursuance to the inspection so carried out. The
inspection report is on record as Annexure no.2 and 3.
 Page No.3

7. It is argued that in terms of the said search and seizure, summons

were issued to the petitioner under section 70 of the Act on
28.04.2018, the petitioner appeared in pursuance to the said
summons and also filed a reply. Subsequently, after about three
years on 02.09.2021, the petitioner was served with a show cause
notice under section 74 of the U.P.G.S.T. Act on the basis of the
SIB survey report. The said show cause notice is on record as
Annexure no.8. Along with the said show cause notice, no relied
upon documents were mentioned and the petitioner was not even
supplied with a copy of the SIB report. The petitioner asked for
adjournment and was waiting for the supply of the SIB report,
however, an ex-parte order came to be passed on 24.01.2022
solely based upon the said SIB report (Annexure no.9).

8. The contention of the counsel for the petitioner is that the entire
proceedings initiated against the petitioner on 02.09.20221 were
based upon the SIB report and without supplying a copy of the
SIB report, the petitioner was not in a position to file a reply to the
show cause notice. He further argues that the order dated
24.01.2022 is an ex-parte order solely based upon the SIB report
and without there being any effort of the department to
corroborate the same by means of any evidence whatsoever. He
further argues that even if for the sake of argument, it is accepted
that in the survey carried out by the SIB, there was some
discrepancy in the recording of the materials, it is still incumbent
upon the department to establish that the Tax was not paid on the
supplies effected by corroborating the same by means of some
evidence either in the form of evidences by the purchaser of the
said goods or otherwise.

9. He draws my attention to argue that the G.S.T. is payable on

supply of goods in terms of Section 7 of the U.P. G.S.T. Act and
 Page No.4

the time of payment of the tax is governed by Section 12 and 13

of the U.P. G.S.T. Act and the valuation of the supply of goods is
to be done in terms of Section 15 of the U.P.G.S.T. Act, which
admittedly has not been done as is clear from the perusal of the
order dated 24.01.2022. He argues that it is well settled that any
document based upon which the order intended is to be passed
should be supplied to the assessee and any non-compliance
thereof would render the order bad in law and also in violation of
principle of natural justice. He lastly argues that improper returns
only give the right to the department to initiate the proceedings
under section 74 of the Act, in the light of section 61(3) of the
U.P. G.S.T. Act. He also argues that in any event, no right of
hearing was accorded to the petitioner which is a mandatory
requirement under section 75(4) of the U.P.G.S.T. Act. Specific
allegation with regard to non-supply of the SIB report has been
made in paragraph 19, 36 and 38 of the Writ Petition.

10. Standing counsel, on the other hand, justifies the order dated
24.01.2022 by arguing that the SIB had found certain
discrepancies in the search and seizure carried out at the premises
of the petitioner and a copy of the search, seizure and panchnama
are available with the petitioner. He further argues that in
pursuance to the search and seizure carried out by the SIB,
summons were also issued to the petitioner and the petitioner filed
a reply to the said summons and thereafter the SIB had forwarded
its report.

11. In reply to the contention of the counsel for the petitioner that the
SIB report was not provided, it is stated in paragraph 28 of the
counter affidavit that the petitioner never demanded the copy of
the report and in any case, all important points mentioned in the
report were mention in the show cause notice itself. It is further
 Page No.5

pleaded in paragraph 43 of the counter affidavit that the report

was sent by the SIB on the basis of adverse facts found during the
investigation by the SIB Unit and all important points in the SIB
report were mentioned in the show cause notice.

12. With regard to the other contentions of the counsel for the
petitioner, it has been especially stated in paragraph 42 of the
counter affidavit that as the stocks found by the SIB at the time of
survey were verified by the petitioner and due to variation of the
stocks from the books of account by the trader, the stock has been
treated as ‘condemn purchase’. It is further pleaded in paragraph
44 of the counter affidavit that the assessment of duty was done,
on the basis of unverified records and stock by the SIB Unit,
which has prepared the report on the basis of the verification and
not on the basis of eye estimation and thus, on the said
foundation, the demand has been created as per the Rules.

13. It is also pleaded that the petitioner was provided with several
reasonable opportunities for hearing but no explanation was
submitted, as such, an ex-parte order was passed.

14. In the light of the pleadings as referred above, what emerges is

that an ex-parte order came to be passed against the petitioner on
24.01.2022, the foundation for passing the said order is the SIB
report alone. No opportunity of hearing appears to have been
granted to the petitioner nor is the same mentioned in the order
dated 24.01.2022.

15. In terms of the scheme of the Act, the power of search and seizure
is conferred by virtue of Section 67 of the Act and the power of
scrutiny of returns filed is conferred upon the proper officer in
terms of Section 61 of the Act. Both the said sections 61 and 67,
are step towards the initiation of the proceedings either under
 Page No.6

Section 73 or Section 74 of the Act, as the case may be. They in

itself do not form any basis for concluding the evasion of tax,
which has to be established by following the procedure as
prescribed under section 73 and under section 74 of the Act as the
case may be. Section 74 from its plain reading confers the power
to assess the non-payment of tax on the supply or wrong
availment of input tax credit by the reasons of fraud, wilful
misstatement or suppression of facts coupled with an intent to
evade tax. Irrespective of the outcome of the scrutiny of return
under section 61 of the Act or the inspection carried out under
section 67 of the Act, the burden of assessing the short payment of
tax or wrong availment of input tax credit still lies on the
department which is to be discharged by the department.

16. To calculate and assess the non-payment of tax, it is essential that

the relevant evidence is carried out by the department in respect of
the taxable supplies made by the assessee and non-payment of tax
which is required to be done at the time of supply as specified
under section 13 of the Act. It is also incumbent on the
department to compute the value of taxable supply on the goods
on which it is alleged that the tax has either not been paid or short
paid or short levied. In addition to the said, the burden is on the
department to establish that the said non-payment was on account
of fraud, wilful misstatement or suppression of facts. Mere report
of inspection and discrepancy in the scrutiny of returns is not
enough to assess and levy the tax, the said discrepancies, even if
noticed by the department should be corroborated with materials
in the form of either the evidence or in any other form as the
department may deem fit. Without any corroborative material,
merely on the basis of discrepancies found in the scrutiny of
 Page No.7

returns or discrepancies found during the inspection is not enough

to assess the tax.

17. It is also incumbent upon the department to give the opportunity

of hearing as per the Section 75(4) of the Act which is mandatory
to be followed by the department. It is equally well settled that
any document proposed to be relied upon should be provided to
the assessee prior to conclusion of the proceedings.

18. In the present case, the order dated 24.01.2022, clearly falls short
of the principle of natural of justice as admittedly the SIB report,
which is the foundation was never supplied to the petitioner, no
hearing was granted to the petitioner under section 75(4) of the
Act and there is prima facie no material other than the SIB report
to corroborate the discrepancies as allegedly found by the SIB at
the time of scrutiny of returns and inspection.

19. Thus, on all the three grounds, as noted above, the impugned
order dated 24.01.2022 is unsustainable and is quashed. The
matter is remanded to the adjudicating authority to pass a fresh
order after supplying the copy of the SIB report and giving an
opportunity of hearing to the petitioner and also an opportunity of
filing a reply.

20. Both the writ petitions stand allowed in terms of the said order.

Order Date :- April 12, 2023

VNP/-
[ Pankaj Bhatia, J ]
 Fsm Education Pvt.Ltd vs Union Of India And 2 Ors on 10 January, 2022

Bombay High Court

Fsm Education Pvt.Ltd vs Union Of India And 2 Ors on 10 January, 2022
Bench: R.D. Dhanuka, S. M. Modak
Chittewan
15. WPL 30974-21.odt

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION (L) NO.30974 OF 2021

FSM Education Pvt. Ltd. ... Petitioner

Versus
Union of India, through the
Principal Secretary,
Department of Revenue,
Ministry of Finance,
Aayakar Bhavan, Mumbai
And Others ... Respondents

******
Mr. Jamshed Master a/w Ms. Natasha K. Bhot for the Petitioner.
Mr. Jitendra B. Mishra a/w Mr. Satyaprakash Sharma and Ms. Sangeeta Yadav
for the Respondents.
******

CORAM : R. D. DHANUKA &

S. M. MODAK, JJ.

DATE : 10 JANUARY 2022.

(Through Video Conference)

Oral Judgment : (Per R.D. Dhanuka, J.)

. Rule.

2 Mr. Jitendra Mishra, learned Counsel waives service. By consent of the

parties, this petition is taken up for final hearing.

3 By this petition filed under Article 226 of the Constitution of India, the Petitioner prays for a writ
of mandamus or any other writ as this Court deem appropriate so as to quash and set aside the
summons issued to Ms. Tanuja Gomes and seeks direction to the Respondents to conduct an
enquiry without Chittewan

15. WPL 30974-21.odt initiating summons and interrogation unless found extremely necessary and
only by due adherence of the law.

Indian Kanoon - http://indiankanoon.org/doc/56560933/ 1

 Fsm Education Pvt.Ltd vs Union Of India And 2 Ors on 10 January, 2022

4. The Petitioner is a School of Music engaged in the business of recreational activities such as
teaching music to school children and other enthusiasts either at its teaching centre or at a school.
The Petitioner is registered under the Central Goods and Services Act 2017. The Petitioner received
a communication dated 2 December 2021 on the letter head of the Office of the Commissioner of
CGST, Mumbai West, requesting to submit certain documents within a period of four days from the
date of receipt of the Notice.

5 It is the case of the Petitioner that it has submitted various documents from time to time to the
Respondents. Respondent No.3 issued a summons on the Petitioner on 15 December 2021, under
Section 70 of the Central Goods and Services Act, 2017 (for short the said GST Act) to remain
present before Respondent No.3 on 16 December 2021 at 11.20 a.m. The said summons were issued
to the Petitioner company without any details of the inquiry. The Petitioner deputed Mr. Piyush
Patel, Accounts Manager of the Petitioner. It is the case of the Petitioner that the said Piyush Patel
was grilled and interrogated for a period of about five hours from 4.00 p.m. to 9.00 p.m. and was
subjected to cross-questioning which was contrary to the guidelines issued by Respondent No.1.

6 The Respondents issued summons on 23 December 2021 to Mrs. Tanuja Gomes, one of the
Directors of the Petitioner for producing documents and providing oral evidence by Respondent
No.3 on the basis of the summons Chittewan

15. WPL 30974-21.odt dated 23 December 2021. Respondent No.3 issued summons to Ms. Tanuja
Gomes to remain present before his office on 29 December 2021.

7 The learned Counsel appearing for the Petitioner relied on Question 34 of the FAQs dated 15
December 2018 issued by GST Department and would submit that it is clear beyond reasonable
doubt that the assessee can be summons only as a last resort and as far as practicable, details can be
obtained from an assessee by way of an ordinary letter. It is submitted that all the documents are
furnished as requisitioned by the Respondents. The summons cannot be issued to coerce and
pressurize the Petitioner or its director. He submits that Ms. Tanuja Gomes is not personally
familiar with the issue of exemption regarding payment of GST, she being a musician.

8 It is submitted by learned Counsel for the Petitioner that a Consultant of the Petitioner would
remain present before the Respondents and would provide all details and the particulars as may be
further requisitioned by the Respondents. He states that in the event of the Respondents not being
satisfied with the documents and response of the Consultant, only in that event, the said Ms. Tanuja
Gomes would remain present before the Authority in response to the said summons in accordance
with law.

9 Mr. Jitendra Mishra, learned Counsel appearing for the Respondents disputes that the Petitioner
has furnished all the documents called upon by the Respondents. He relied upon the averments
made in affidavit-in-reply filed by the Respondents.

10 A perusal of the reply to the question 34 of FAQs dated 15 December Chittewan

Indian Kanoon - http://indiankanoon.org/doc/56560933/ 2

 Fsm Education Pvt.Ltd vs Union Of India And 2 Ors on 10 January, 2022

15. WPL 30974-21.odt 2018, issued by GST Department would clearly indicate that issuance of
summons is a last resort and are not issued in a casual manner. There are no allegations made by
the Respondents alleging non-cooperation on the part of the Petitioner.

11 A perusal of the averments in para 7.1 indicates the said summons was issued only in view of the
statement made by Shri Piyush Patel which was recorded under Section 70 of the CGST Act 2017,
that the decision regarding payment of taxes and claiming of exemption was taken by the director
Ms. Tanuja Gomes. In the affidavit-in-rejoinder filed by the Petitioner and the affidavit filed by Mr.
Piyush Patel, the averments made by the Respondents in para 7.1 of the reply are denied.

12 Be that as it may, since the Petitioner is agreeable to co-operate with the Respondents in
furnishing the documents as requisitioned and to provide further details through Consultants, who
would remain present in the Office of Respondent No.3, we pass the following order :-

:Order:

(a) The Respondents are directed to inform the Petitioner the list of further
documents required to be produced by the Petitioner and other requisite queries to
which, they seek clarifications from the Petitioner. Such list of documents along with
queries shall be furnished to the Petitioner within one week from today.

(b) The Consultants, M/s MGB & Co. of the Petitioner would furnish all the
documents on behalf of the Petitioner and Chittewan

15. WPL 30974-21.odt would furnish such details as per the requisitions as would be
made by the Respondents, within the prescribed time or such period as may be
extended by the Respondents. The said Consultant shall co-operate with the
Respondents in furnishing the documents and the information.

(c) It is for the Respondents to decide whether Ms. Tanuja Gomes, director of the
Petitioner shall be still called for recording of evidence after furnishing of the
documents and information by the Consultant of the Petitioner.

(d) If any summons is issued by the Respondents, the summons shall indicate the
purpose of issuing summons to the Petitioner with clear seven days notice before
fixing the date for recording the statement of the said Director Ms. Tanuja Gomes.
Ms. Tanuja Gomes shall appear before the Authorities on the appointed date and co-
operate with the Respondents in recording her evidence.

13 The impugned summons dated 23 December 2021 issued to Ms. Tanuja Gomes,
Director of the Petitioner company would not survive in view of the undertaking
given by the Petitioner and in view of the aforesaid directions issued by this Court.
Writ Petition is disposed of accordingly. Rule is made absolute. No order as to costs.
Parties to act on the authenticated copy of this order.

Indian Kanoon - http://indiankanoon.org/doc/56560933/ 3

 Fsm Education Pvt.Ltd vs Union Of India And 2 Ors on 10 January, 2022

[S. M. MODAK, J.] [R. D. DHA

Digitally signed by
RAJESH RAJESH VASANT
VASANT CHITTEWAN
Date: 2022.01.12
CHITTEWAN 17:39:08 +0530

Indian Kanoon - http://indiankanoon.org/doc/56560933/ 4