CESTAT Delhi Quashes Excise Demand Against Gutka Firm; One Raw Material Receipt Can't Prove Clandestine Removal

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside an excise duty demand and penalties against R.S. Company and its partner in a gutka clandestine removal case.

It found that the Commissioner relied on photocopies of six lorry receipts, DGGI re-quantification, and a formula based on alleged scented tobacco receipts without sufficient supporting evidence.

A coram of President Justice Dilip Gupta and Technical Member P. Anjani Kumar observed:

“The adjudicating authority, thereafter, has simply relied on the information supplied by DGGI and determined the demand of duty without examining the evidence.”

The tribunal also observed, "The adjudicating authority was not justified in rejecting the request of the appellant for inspection of the six Lorry Receipts for this reason. Inspection would hardly take any time. Even otherwise, when photostat copies of the Lorry Receipts were supplied to the appellant as relied upon documents, the appellant was justified in claiming that the original Lorry Receipts should at least be shown to the appellant for ascertaining whether they were in its name.”

The case arose from a DGCEI investigation launched in 2000 into Suresh Enterprises in Pune for alleged clandestine manufacture and removal of scented tobacco.

According to the department, transport records from Sarita Roadways and other transporters showed scented tobacco being sent to R.S. Company, which allegedly used it to manufacture gutka without paying excise duty.

A show cause notice issued in 2003 alleged clandestine manufacture and clearance of 39,44,210.52 kilograms of gutka and sought excise duty of Rs. 39.44 crore.

The Commissioner initially dropped the proceedings in 2004, holding that the pocket diary recovered during the investigation was unreliable, transporter documents were merely third-party records, and there was no evidence showing procurement of other raw materials needed for such massive production.

The department appealed, leading to multiple rounds of litigation. The tribunal eventually directed that only lorry receipts specifically in the name of R.S. Company could be considered.

After remand, the Commissioner confirmed a reduced duty demand of Rs. 1.14 crore, along with interest and penalties, based on six lorry receipts and a formula assuming that 5.7 kilograms of scented tobacco would produce 100 kilograms of gutka.

R.S. Company challenged this, arguing that only photocopies of the lorry receipts had been supplied and that inspection of the originals was denied. It also argued that clandestine manufacture could not be established merely from alleged receipt of one raw material, without proof of procurement of other essential inputs such as lime, katha, menthol, supari, kimam, and packing material.

The tribunal agreed. It held that the Commissioner failed to comply with the remand directions requiring independent verification of the lorry receipts and instead simply accepted DGGI's re-quantification. It also held that denying inspection of original lorry receipts was unjustified, especially since the documents were not recovered from the company's premises.

Holding that the excise demand itself could not be sustained, the tribunal also set aside the penalties imposed on the company and its partner, Natwar Lal Sharda, and allowed both appeals.

For Appellant: Advocates J.C. Patel and Shri Ankur Upadhyay,

For Respondent: AS.K. Ray, Authorised Representative of the Department