Third-Party Transporter Diaries Insufficient to Prove Clandestine Removal: CESTAT Delhi

M/s. Ashish Enterprises’ has sought the quashing of that portion of the order dated 28.06.2024 passed by the Principal Commissioner, CGST and Central Excise, Bho-pal² that confirms the demand of central excise duty under section 11A with interest under section 11AA of the Central Excise Act, 1944³. Penalty has also been imposed upon the appellant under section 11AC of the Central Excise Act and rule 28 of the Central Excise Rules, 2017⁴.2. The appellant claims that it is engaged in the business of manufacture and sale of “Karamchand” brand Pan Masala and had cleared the goods on payment of appropriate GST and Compensation Cess and the details were duly disclosed in the monthly returns.

3. The appellant further claims that it had earlier decided to venture into manufacture of KC Brand Zafrani Zarda for which it started trial production but the application filed for registra-tion of brand name “KC”, was not registered. The appellant also arranged some old and di-lapidated machinery for manufacture of Zarda on sample basis and also purchased raw tobacco and accounted for in its book of accounts but since the appellant did not get satis-factory results, it did not pursue manufacturing Zafrani Zarda.

4. Directorate General of Goods and Services Tax Intelligence^s, Ahmedabad Zonal Unit conducted search at the premises of the appellant and distributors, sub-distributors and two transporters on 09.11.2020 and 13.11.2020 on receiving intelligence that the appellant and its distributors clandestinely removed the manufactured goods (Pan Masala and Safran Zarda) without cover of invoice and without payment of appropriate amount of tax. The proceedings of the search were recorded in Panchnama dated 09.11.2022 (RUD-1) and 13.11.2022 (RUD-13).

S. No.	Description
A-1	Made up File
A-2	Purchase File (2020-21)
A-3	Sales File (2020-21)
A-4	Account of Raw Materials and Components (Tobacco) (RUD-14)
A-5	Daily Stock Account (Tobacco) (RUD-15)
A-6	Account of Raw Materials and Components (Pan Masala) (RUD-16)
A-7	Daily Stock Account (Pan Masala) (RUD-17)

6. According to the appellant, none of the above documents show illicit clearance of the goods manufactured by the appellant and cleared clandestinely and the Panchnama dated 09.11.2020 also does not describe the documents/diaries found in any detail and merely mentions a brief name which is incapable of identifying the exact records seized. The ap-pellant also claims that none of the purchase/sales invoices seized were relied upon in the show cause notice.

7. During the investigation, statements of Ratan Makhija (Proprietor of the appellant) and Basant Makhija (Brother of Proprietor) were recorded from morning of 09.11.2020 till night of 11.11.2020. Ratan Makhija retracted his statements through an Affidavit dated 12.11.2020. Basant Makhija also retracted his statement through an Affidavit dated 12.11.2020. Basant Makhija also retracted all his earlier statements before Additional Chief Metropolitan Magistrate, Ahmedabad.

8. Follow up search was conducted against a transporter called M/s Sarco Roadlines Pvt. Ltd.⁶ on 09.11.2020 and 10.11.2020. During the search, the following doc-uments (diaries/register/files) were seized under a Panchnama:

S. No.	Description
A-1	Diary containing details of goods transported to buyers of the appellant, Gwalior (RUD-18)
A-2	Diary containing details of goods transported to buyers of the appellant, Gwalior (RUD-19)
A-7	Register (RUD-20)
A-8	Receipt Book (RUD-21)

9. Statement of Firoz Khan was recorded on 11.11.2020. Statement Mustaq Abdul Gani Khokhar, Director of Sarco Roadlines was recorded on 22.11.2021.

10. Search was also conducted at the premises of a transporter called M/s. Data Goods Carrier’ at Gwalior on 09.11.2020. The following documents were seized from the premis-es:

S. No.	Description
A-1 to A-8	Month wise Bill Books
A-29 to A-30	Registers
A-35	Bill Book

11. Search was also simultaneously conducted on 09.11.2020 at another office of the said transporter situated at B-24, Jatni Bagh near Juni Mandi Crossing, Agra. During search, cer-tain documents were seized as per Panchnama drawn on 09.11.2020 (RUD-3).

12. Statements of Kailash Gupta, in-charge of Gwalior Branch of the Data Goods Carrier, Hari Singh who worked as an Assistant and Shri Manmohan Agrawal were recorded.

12. Search was also conducted at the premises of a Distributor called M/s. Harikesh Agen-cies⁸ at Ahmedabad. The following documents were seized under a Pan-chnama dated 09.11.2020:

Sr. No.	Sr. No., as per GST INS-02	Documents description as per GST INS-02	Details contain in the documents
1.	A-1	Made-up file-1	Details of Commission income, summary of clandestine supplyof Karamchand tobacco and pan masala for the month of April, 2022 to June, 2020 (RUD-33)
2.	A-3	Note Book (Youva the original)	Details of clandestine supply of Karamchand tobacco and pan masala for the month of April, 2020 (RUD-34)
3.	A-4	Note Book (Youva the original)	Details of clandestine supply of Karamchand tobacco and pan masala for the month of June, 2020 (RUD-35)
4.	A-5	Note Book (Youva the original)	Details of clandestine supply of Karamchand tobacco and pan masala for the month of May 2020 (RUD-36)
5.	A-6	Note Book (Youva the original)	Details of clandestine supply of Karamchand tobacco and pan masala for the month of August, 2020 (RUD-37)
6.	A-7	Note Book (Youva the original)	Details of clandestine supply of Karamchand tobacco and pan masala for the month of July, 2020 (RUD-38)

15. The statements of Harish Patel, Proprietor of Harikesh Agencies, and Mukesh Patel, Accountant of the said firm, were recorded.

16. Search was also conducted at the premises of the following persons, who are said to be functioning as sub-distributors of Harikesh Agencies:

Sr. No.	Name of Distributors	Remarks
1	Swati Enterprise, Gandhidham	Found unaccounted goods
2	Maruti Enterprises, Vadodara	Found shortage of pan-masala
3	Vasu Sales, Anand	Found shortages of the goods other than the goods of the appel-lant

16. The statements of various employees said to be of transporters, tempo drivers, and distributors were also recorded.

17. A show cause notice dated 25.01.2023 was issued to the appellant proposing to demand central excise duty with interest and penalty. The appellant filed a preliminary reply dated 23.11.2023 and made a request for cross-examination of the wit-nesses, which prayer was granted. Thereafter, the appellant filed a detailed reply dated 19.01.2024 and denied the allegations made in the show cause notice.

18. The Principal Commissioner, however, by order dated 28.06.2024 con-firmed the demand with interest and penalty.

19. The Principal Commissioner recorded the following finding in respect of the search at the factory premises of the appellant:

“26.6 I notice that during the search at the factory premises, the stock of raw materials, packing materials and finished goods were found in excess and no documents or stock records was found in respect of production and supply of Zafrani Zarda. Therefore, I find that M/s. Ashish Enterprises were engaged in the manufacturing and supply of Pan Masala and Zafrani Zarda but suppressed their production their production with intention to evade payment of applicable tax-es.*****”

20. Thereafter, the Principal Commissioner examined register A-4, A-5, A-6 and A-7 as also the statements of Ratan Makhija recorded on 10.11.2020 and 11.11.2020, the statements of Balwant Pal, Santosh and Virender, working as Drivers in the firm of the appellant and recorded the following finding:

“26.11 I find that on scrutiny of the registers at A-4, A-5, A-6 and A-7, as discussed above, it was found that M/s. Ashish Enterpris-es, Gwalior has shown very small/Nil quantity of both the raw materials and finished goods during the period from 01.03.2020 to 09.11.2020. However, huge quantum of raw materials and finished goods i.e. To-bacco (Zafrani Zarda) was seized at Premises of M/s. Ashish Enterprises, Gwalior which indicates that the Noticee M/s Ashish Enterprises, Gwalior was engaged in clandestine supply of tobacco (Zafrani Zarda). Further, the same was also accepted by Shri Ratan Ma-khija and Shri Basant Makhija in their respective statements tendered on various dates. Furthermore, it is also noticed that Shri Basant Makhija and Shri Ratan Makhija both ac-cepted and confirmed the facts deposed by each other. On going through the statements of the drivers, from the depositions made by them, I find that M/s. Ashish Enterprises, Gwalior was engaged in clandestine supply of tobacco (Zafrani Zarda).”

21. The Principal Commissioner also took into consideration the search carried out at the business place of Harikesh Agencies, said to be a Distributor of the appel-lant; the statement of Mukeshbhai M. Patel, Manager of Harikesh Agencies; and the docu-ments seized on 09.11.2020 and recorded the following finding:

“27.7 I find that on scrutiny of Page No. 74 of Made-up file A-1 wherein summary has been given which clearly indicates that M/s. Harikesh Agencies had procured illicit Karamchand Brand Pan Masala and Zarda of approx. Rs. 24 Crore during the period upto June 2020 and the same has been subsequently supplied to various distributors. Further, from Notebook A-3 to A-7, I find that they maintained daily account of illicit clearance of Karamchand Brand Pan Masala and Zarda to various distributors in Gujarat. I observe that the Registers listed at A-3, A-4, A-5, A-6 and A-7 are month-wise records for April 2020, May, 2020, June, 2020, August, 2020 and July, 2020 respectively containing daily records of illic-it receipts and supply of the Karamchand brand Zarda/Pan Masala received from M/s Ash-ish Enterprises. I also find that as per Register-A-6 and A-7, M/s. Harikesh Agencies has supplied Karamchand brand Zarda/Pan Masala clandestinely in Aug.2020 and July 2020 respectively, which was received from M/s Ashish Enterprises, Gwalior. Further, M/s Harikesh Agencies had supplied Karamchand brand Zarda/Pan Masala valuting Rs. 9 crore in these two months.”

22. The Principal Commissioner also examined the documents recovered from Sarco Roadlines, said to be a transporter, and the statements of Firoz Khan, an employee of the said transporter made on 11.11.2020 and recorded the following find-ing:

“32.17 I find that perusal and scrutiny of above Notebooks/Diaries of Sr. No. A-7 and A-2 and their further corroboration from Dia-ries A-1 and A-8 of Panchnama dated 10.11.2020 drawn at Gwalior office of M/s Sarco Roadlines Pvt. Ltd., reveals that these documents contain details of Karamchand brand Zarda (Tobacco) & Pan-Masala to various locations supplied by M/s Ashish Enterpris-es, was clandestinely transported to various locations through different vehicles during the period from 06.09.2019 to 08.11.2020 (Transportation details for date 21.11.2019, 24.11.2019 and 25.11.2019 are common in both diaries i.e. A-7 and A-2) by M/s Sarco Roadlines without any duty paying valid documents.”

21. The Principal Commissioner also examined the searches carried out at the premises of another transporter called Data Goods Carrier; the statements of Kailash Raghunandan Gupta, Incharge of Gwalior Branch of Data Goods Carrier; Santosh Baghel, an employee of the appellant; and Hari Singh, an Assistant in Data Goods Carrier and rec-orded the following finding:

“33.24 In view of the above, I find that the Registers/Notebooks listed at “A-29” and “A-30” of INS-02 of Panchnama dated 09.11.2020 contain details of Karamchand brand Pan-Masala and Zafrani Zarda manu-factured and supplied by M/s. Ashish Enterprises, Gwalior, clandestinely, without invoice and other legal documents and without payment of tax to M/s Data Goods Carrier, Gwalior for further transportation to Agra (H.O. of the said trans-porter). Further, Bill books A-1 to A-8 were prepared and the code words “CHHUARA/CHHUARI” for the said goods (Karamchand brand Pan-Masala and Zafrani Zarda manufactured and supplied by M/s. Ashish Enterprises, Gwalior) were given and thereafter, date-wise and vehicle wise bills were prepared and goods were transported by using the code word “CHHUARA/CHHUARI”. Therefore, I find that all the entries made in the Notebooks, A-30 and A­29 were the number of Jhals (bags) of White and Green colour) which contained Karamchand brand Pan-Masala and Zafrani Zarda respectively manufac-tured and supplied by M/s. Ashish Enterprises, Gwalior, clandestinely, without invoice and other legal documents and without payment of tax to M/s Data Goods Carrier, Gwalior dur-ing the period from 26.10.2019 to 08.11.2020 for further transportation to Agra (H.O. of the said transporter) by giving the code name “Chhuara/Chhuari”.”

22. The Principal Commissioner, therefore, concluded: “34. In view of above discussions, I find that the duty liability of M/s Ashish Enter-prises, Gwalior has been worked out in respect of goods viz. K C brand Zafrani Zarda con-taining tobacco, manufactured by them and cleared illicitly without payment of duty and without issue of invoice. The Noticee has evaded payment of duty/tax with the help of transporters namely, M/s Sarco Roadlines Pvt. Ltd., Branch at Gwalior (Head office at In-dore) and M/s Data Goods Carrier, Branch office at Gwalior (H.O at Agra). The Noticee was taking the services of M/s. Sarco Roadlines Pvt. Ltd., Branch at Gwalior for transportation of goods manufactured by them to M.P. and Gujarat etc. and of M/s Data Goods Carrier, Branch office at Gwalior for supply to Agra and other places.”

23. The Principal Commissioner than worked out the amount of Zafrani Zarda clandestinely cleared on the basis of the statement made by Basant Makhija, brother of the Proprietor of the appellant, and recorded the following finding:

“33.24 In view of the above, I find that the Registers/Notebooks listed at “A-29” and “A-30” of INS-02 of Panchnama dated 09.11.2020 contain details of Karamchand brand Pan-Masala and Zafrani Zarda manufactured and supplied by M/s. Ashish Enterprises, Gwalior, clandestinely, without invoice and other legal documents and without payment of tax to M/s Data Goods Carrier, Gwalior for further transportation to Agra (H.O. of the said transporter). Further, Bill books A-1 to A-8 were prepared and the code words “CHHUARA/CHHUARI” for the said goods (Karamchand brand Pan-Masala and Zafrani Zarda manufactured and supplied by M/s. Ashish Enterprises, Gwalior) were given and thereafter, date-wise and vehicle wise bills were prepared and goods were transported by using the code word “CHHUARA/CHHUARI”. Therefore, I find that all the entries made in the Notebooks, A-30 and A-29 were the number of Jhals (bags) of White and Green colour) which contained Karamchand brand Pan-Masala and Zafrani Zarda respectively manufactured and supplied by M/s. Ashish Enterprises, Gwalior, clandestinely, without invoice and other legal documents and without payment of tax to M/s Data Goods Carrier, Gwalior during the period from 26.10.2019 to 08.11.2020 for further transportation to Agra (H.O. of the said transporter) by giving the code name “Chhuara/Chhuari”.”

24. The Principal Commissioner, therefore, concluded:

“34. In view of above discussions, I find that the duty liability of M/s Ashish Enterprises, Gwalior has been worked out in respect of goods viz. K C brand Zafrani Zarda containing tobacco, manufactured by them and cleared illicitly without payment of duty and without issue of invoice. The Noticee has evaded payment of duty/tax with the help of transporters namely, M/s Sarco Roadlines Pvt. Ltd., Branch at Gwalior (Head office at Indore) and M/s Data Goods Carrier, Branch office at Gwalior (H.O at Agra). The Noticee was taking the services of M/s. Sarco Roadlines Pvt. Ltd., Branch at Gwalior for transportation of goods manufactured by them to M.P. and Gujarat etc. and of M/s Data Goods Carrier, Branch office at Gwalior for supply to Agra and other places.”

25. The Principal Commissioner than worked out the amount of Zafrani Zarda clandestinely cleared on the basis of the statement made by Basant Makhija, brother of the Proprietor of the appellant, and recorded the following finding:

“34.8 Therefore, on the basis of formula given by Shri Basant Makhija in his statement dated 10.11.2020, 1 Jhal of Zafrani Zarda was containing 33,600 pouches of MRP Rs. 1 per pouch and therefore, I find that M/s. Ashish Enterprises, Gwalior had clandestinely cleared 58,28,25,600 (i.e. 17,346 X 33,600) number of pouches of MRP Rs. 1 per pouch during the period from Sept.2019 to 08.11.2020.”

26. Shri Hardik Modh, learned counsel for the appellant made the following submissions:

(i) The appellant is not engaged in any clandestine manufacture or removal of goods. The entire basis of the demand against the appellant is two-fold:

(a) Diaries recovered from the premises of third parties like the transporters (which Diaries do not belong to the appellant); and

(b) Oral statements of various witnesses (which have been denied in cross-examination) recorded under section 14 of the Central Excise Act and the statements of the Proprietor and Basant Makhija which were subsequently retracted;

(ii) The demand cannot be sustained merely on the basis of third party documents and statements in the absence of any tangible or corroborative evidence. It is well-settled that the following four essential ingredients are required to be established by the investigating authorities to prove clandestine removal of goods:

(a) Procurement of raw materials;

(b) Manufacture of final products;

(c) Clandestine removal of goods;

(d) Receipt of consideration against such removal;

(iii) In the present case, although the Principal Commissioner purportedly examined the witnesses, such examination was conducted in a stereotyped and perfunctory manner, without posing any questions germane to the allegation of clandestine removal of goods or the issues arising from the investigation. Consequently, the so-called examination-in-chief cannot be regarded as a proper examination of the witnesses within the meaning of section 9D(1)(b) of the Central Excise Act;

(iv) The appellant conducted cross-examination of the witnesses who stated that the statements were recorded under duress and coercion. Thus, such statements are not reliable;

(v) No incriminating documents were recovered or seized from the premises of the appellant;

(vi) The Diaries recovered from the alleged transporters do not belong to the appellant;

(vii) The investigating authority searched the premises of the Distributors but nothing incriminating against the appellant was found;

(viii) The investigating authority and the Principal Commissioner relied upon statements recorded under section 14 of the Central Excise Act, without taking consideration the cross-examination;

(ix) The machines installed in the factory, as recorded in the Panchnama, lacked the capacity to manufacture the alleged quantities, especially when compared with the actual electricity consumption. No evidence has been adduced of generators, additional premises, or other machines being used to achieve excess production. In the absence of proof of manufacturing capacity, unaccounted production cannot be established. Hence, the allegation of clandestine removal is unsustainable. In this connection, reliance has been placed on the decision of the Tribunal in Sulekhram Steels Pvt. Ltd. vs. Commissioner of Central Excise9 and Kuber Tobacco Products Ltd. vs. Commissioner of Central Excise10 ; and

(x) The appellant had challenged the veracity of the Panchnamas in the replies and sought cross-examination of Panchas, which was not granted.

27. Shri S.K. Ray, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions:

(i)  The appellant was found to be manufacturing and supplying Karamchand Brand Pan Masala and KC Brand Zafrani Zarda without proper documentation, invoice, or payment of applicable taxes;

(ii) The appellant operated a manufacturing unit for Zafrani Zarda without obtaining central excise registration thereby violating section 6 of the Central Excise Act;

(iii) During searches, unaccounted raw materials, packing materials and finished goods (Pan Masala and Zafrani Zarda) were seized at the premises of the appellant indicating illicit production and clearance;

(iv) At the premises of transporters (Sarco Roadlines and Data Goods Car-rier), larger quantities of Pan Masala and Zafrani Zarda were found without tax documents and were seized;

(v) At M/s. Harikesh Enterprises and M/s. Shree Sales, goods were found without legitimate documents, with some stock shortages and excesses not-ed;

(vi) Diaries seized from Sarco Roadlines and Data Goods Carrier contained details of clandestine supplies. These Diaries corroborated the illicit supply chain, showing dispatches from the appellant without invoices or tax payments;

(vii) Rough registers at Data Goods Carrier recorded goods received from the appellant without bills, using code words like “Chhuara/Chhuari” in trip slips to conceal transactions;

(viii) Ratan Makhija, Proprietor of the appellant, admitted to using unac-counted raw and packing material for illicit manufacture of Pan Masala and Zafrani Zarda without invoices. He confirmed that KC Brand Zafrani Zarda was supplied without GST payment and that transporters (Sarco Roadlines and Data Goods Carrier) did not issue lorry receipts for undocumented goods. He accepted the contents of seized Diaries showing clandestine dispatches;

(ix) Basant Makhija, brother of the Proprietor, stated that the entire produc-tion of KC Brand Zafrani Zarda was for illicit supply without paying duties/taxes. He con-firmed that sales of Karamchand Pan Masala and KC-1000 Zafrani Zarda were conducted without invoices, with cash payments received from distributors/dealers. He verified that Diaries from Sarco Roadlines gave details of the consignments;

(x) Sarco Roadlines staff admitted receiving goods without invoices through four tempos daily, issuing only informal “kachcha receipts” and transporting goods to Indore without lorry receipts. Kailash Gupta, employee of Data Goods Carrier, confirmed maintaining rough registers for the goods of the appellant, transporting them to Agra without bills or e-way bills, using code words; and

(xi) Proprietors of M/s. Shree Sales (Jhansi), M/s. Vasu Sales (Anand), M/s. Maruti Enterprises, and M/s. Swati Enterprises admitted receiving Pan Masala and Zafrani Zarda without invoices, paying in cash through angadias (informal couriers) for undocumented goods.

28. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.

29. Before appreciating the contentions that have been advanced, it will be useful to examine the essential ingredients that are required to be established to prove clandestine removal of goods.

30. This issue was examined by the Tribunal in Arya Fibers Pvt. Ltd. vs. Commissioner of C. Ex., Ahemdabad-II¹¹ and it was observed:

“40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearanc-es, certain fundamental criteria have to be established by Revenue which mainly are the following :

(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;

(ii) Evidence in support thereof should be of :

(a) raw materials, in excess of that contained as per the statutory records;

(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;

(c) discovery of such finished goods outside the factory;

(d) instances of sale of such goods to identified parties;

(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;

(g) statements of buyers with some details of illicit manufacture and clear-ance;

(h) proof of actual transportation of goods, cleared without payment of duty;

(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc.

Needless to say, a precise enumeration of all situations in which one could hold with activi-ty that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately main-tained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v. CCE, Vadodara [2013 (293) E.L.T. 689]. It would ap-pear that the decision, though rendered on 3-5-2013, was reported in the issue of the E.L.T., dated 29-7-2013, when the present case was being argued before us, perhaps, not availa-ble to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the de-cision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material pur-chased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabu-lated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.”

(emphasis supplied)

31. It is seen that the four essential ingredients that required to be estab-lished for establishing clandestine removal of goods are:

(a) Procurement of raw materials;

(b) Manufacture of final products;

(c) Clandestine removal of goods; and

(d) Receipt of consideration against such removal.

32. In the present case, findings have been recorded against the appellant on the basis of Diaries recovered from the premises of the third parties and the oral statements of the witnesses. The demand cannot be sustained merely on the basis of third-party docu-ments and statements, in the absence of any tangible or corroborative evidence.

33. There is nothing on the record which may establish procurement of raw materi-als for the manufacture of goods in the factory of the appellant. There is also no proof of receipt of consideration against the alleged illicit clearance by the appellant. Even in re-spect of transportation, no incriminating evidence was found in the premises of the appel-lant. The documents recovered from transporters do not establish any case of clandestine removal of goods by the appellant. Thus, neither of the four conditions enumerated above are satisfied.

34. In Kuber Tobacco Products Ltd. Commissioner of C. Ex., Delhi¹², the Tribunal by majority held that charge of clandes-tine removal cannot be sustained unless it is first established that there was clandestine manufacture of the goods and for this purpose it is incumbent upon the department to es-tablish procurement of requisite quantity of raw materials and the actual manufacturing capacity of the assessee to produce such quantities of finished goods. The relevant para-graph of the decision is reproduced below:

“49. As regards the contention regarding the raw material, it can hardly be disput-ed that there cannot be any clandestine removal of the goods unless the assessee manu-factures the same clandestinely and for that purpose procures raw materials clandestinely or utilizes the raw materials without disclosing its utilization. Learned Commis-sioner has clearly observed in the impugned order that there is no evidence of purchase of major raw materials like supari, to-bacco etc. even in the loose sheets. In other words, the Department could not bring any evidence about procurement of raw materials sufficient to manufacture the final product of the quantity which is alleged to have been clandestinely removed.”

(emphasis supplied)

35. The submissions advanced by the learned counsel for the appellant can be broadly considered under the following heads:

Relevance of statements recorded during investigation under section 14 of the Central Excise Act

36. The contention of the learned counsel for the appellant is that though the adju-dicating authority did examine the persons whose statements had been recorded under section 14 of the Central Excise Act and opportunity to cross-examine was granted to the appellant, but the statements made during cross-examination have not been properly ap-preciated. The learned counsel also pointed out that though the statement of Ratan Makhi-ja, Proprietor of the appellant, was recorded under section 14 of the Central Excise Act, but he retracted the said statement on an affidavit filed immediately on the next day explaining the circumstance and the mental state under which the statement was taken. He was, however, not called to record his voluntary statement. Learned counsel also pointed out that as the initial statement made under section 14 of the Central Excise Act was denied in cross-examination, the initial statement cannot be relied upon in the absence of any inde-pendent corroborative evidence.

37. The involuntary statements of Ratan Makhija, Proprietor of the appellant, have been recorded under section 14D of the Central Excise Act. According to him these state-ments were recorded under duress and coercion and immediately retracted on an Affidavit dated 12.11.2020 explaining the circumstances and the mental state under which the statements were taken. However, despite his willingness to cooperate in the investigation and record his statement, the department never called him for recording his statement.

38. It would be pertinent to state that the appellant cross-examined persons whose statements were recorded under section 14D of the Central Excise Act. Such persons, in their cross-examination, stated that their statements were recorded under duress and coercion.

39. In this connection, the cross-examination of the following persons can be referred to.

Cross-examination of Basant Makhija

40. In response to Question No. 3 of cross-examination Basant Makhija, brother of the Proprietor of the appellant, stated that he was not involved in sale, supply and market-ing of any products being manufactured and supplied by the appellant.

Answer 4: He stated that he did not know about the packaging of the product.

Answer 6: He stated that he did not know about the sales team, buyers and transporters and other details of the appellant.

Answer 9: He mentioned that he was not shown the contents of the Dia-ries and the Panchnama while recording statements and was forced to sign without read-ing the contents.

Answer 11: He stated that he did not know anything about the supplier or brokers of raw material.

Cross-examination of alleged tempo drivers — Virender, Santosh, Balwant Pal and Santosh

41. In cross-examination, all the tempo drivers confirmed that they had never worked for the appellant and had rendered services only on a temporary hire basis to persons who engaged them. They denied knowing Kamal Kishore Sharma, the alleged owner of the tem-pos, as well as Nikhil and Sachin, employees of the appellant. They further deposed that their initial statements were recorded under coercion and that they were compelled to sign without being permitted to read the contents.

Cross-examination of Firoz Khan, alleged employee of Sarco Roadlines

42. In cross-examination, he stated:

Answer 3: He does not know who is the Owner/Director of Sarco Roadlines and that he worked only for Abdul Wazid Khan.

Answer 8: He stated that he never opened the bags received for transportation and had not seen their contents.

Answer 9: He denied that particular four tempo drivers were engaged daily for transportation of goods.

Answer 11: He stated that only Abdul Wazid Khan could specify the transportation and destination of goods.

Regarding Diaries Al, A2, A7 and A8: he deposed that they were authored by Abdul Wazid Khan and only he could explain their contents.

Cross-examination of Kailash Gupta and Hari Singh, employees and Manmohan Agarwal, Proprietor of Data Goods Carrier

43. In cross-examination, Kailash Gupta stated that he had not maintained any Dia-ries and was, therefore, unaware of their contents. He further clarified that description of goods was never altered and was always mentioned in the bilties strictly on the basis of in-voices received from the parties. He also deposed that his earlier statement was recorded under coercion and that his signature was obtained without being allowed to read its con-tents.

44. In cross-examination, Hari Singh stated in response to Question No. 3 that the Diaries contained details of goods received for transportation from various parties during the day and the entries were not confined to any one particular party. In response to Ques-tion No. 5, he clarified that invoices were always received along with the goods supplied by the appellant. He further deposed that his earlier statement was recorded under duress and coercion, and that his signatures were obtained without being given an opportunity to read the contents.

45. In cross-examination, Manmohan Agrawal stated in response to Question No. 14 that he had never transported Zafrani Zarda and had only transported Pan Masala for the appellant. He further clarified that he had never given any instructions for maintaining Diaries such as A29 and A30. In response to Question No. 13, he affirmed that goods were transported only under the cover of invoices. He also deposed that his earlier statement was recorded under coercion and that he was not permitted to read its contents before sign-ing.

46. In cross-examination, the dealers categorically denied having received any goods without invoices and affirmed that all payments were made only through bank chan-nels. The proprietors of M/s Vasu Sales and M/s. Maruti Enterprises specifically stated that they had never received goods from the appellant. They further deposed that their earlier statements were recorded under coercion and that their signatures were obtained without being allowed to read the contents.

47. It needs to be noted that none of the alleged dealers or buyers were
questioned regarding receipt of goods from Data Goods Carrier or Sarco Roadlines nor were they shown any of the Diaries allegedly recovered from the premises of the transporters. The names of the alleged dealers or buyers also do not appear in any of the said Diaries. The Diaries and the entries therein do not pertain to the appellant.

48. Thus, the statements made under section 14D of the Central Excise Act cannot be considered as reliable.

Incriminating documents were not recovered or seized from the premises of the appellant

49. Incriminating evidence, parallel records, or accounts indicating clandestine re-moval were not found at the premises of the appellant. Non-excise invoices, vouchers, or challans evidencing removal of finished goods without payment of duty were not recovered during investigation. Neither any unaccounted cash was recovered from the appellant nor has the department explained the alleged source or channel of funds for such large-scale clandestine operations. Consignment notes/bilties evidencing transportation of finished goods without invoices, with the appellant shown as consignor, were not recovered either from the premises of the appellant or the premises of the transporters. Neither consignment notes/bilties mentioning the names of the alleged buyers/dealers as consignees were recovered either from the premises of the appellant or from the alleged premises of the transporters. The name of the appellant or that of any of the alleged buyers/dealers does not appear in any of the entries of the Diaries recovered from the premises of the transporters, which form the sole basis of the impugned demand. Parallel invoices, vouchers, or challans for purchase of raw materials were not found, nor has the department explained the alleged source of procurement of raw materi-als necessary for such voluminous production.

50. There is, therefore, substance in the submission advanced by the learned counsel for the appellant that the allegations levelled in the show cause notice and the findings recorded in the impugned order are factually incorrect.

51. The impugned order does not also correlate the electricity consumption records with the alleged large-scale clandestine manufacture, which is a critical parame-ter.

52. The demand has been confirmed on the basis that the appellant sup-plied total 17,346 green jhal of Zafrani Zarda and 61,234 white jhal of Pan Masala during the period from September, 2019 to November, 2020. The average of the above comes to around 200 jhals per day during the disputed period. If stock of at least 4-5 days is to be kept, there would be a requirement of around 800-1000 jhals but there was no stock of such empty jhals at the premises of the appellant. The entries in the Diaries recovered from the premises of the transporters have been incorrectly attributed to the appel-lant.

53. In the present case, neither any cash was found or recovered nor has any trail been established by the department. The impugned order has failed to appreciate this vital fact and has merely brushed it aside by observing that it is an “ongoing process”.

54. The department has, therefore, failed to establish the allegation of clandestine removal of goods by the appellant.

Diaries recovered from the transporters

55. The Diaries recovered from the premises of the transporters and the contents thereof do not pertain to the appellant. In all the entries, the name of the appellant is not mentioned. Even the address, bill/challan number, name of alleged dealers/buyer or de-scription of goods is also not mentioned. Only the names and mobile numbers of various other persons, including drivers are mentioned. No investigation was carried out to verify the entries nor any attempt was made to verify the consignee names mentioned there-in.

A. Diaries recovered from the premises of Sarco Roadlines

56. The order has relied on two Diaries “Al” and “A2” and Register marked as “A7” and Receipt Books marked as “A8” recovered from premises of Sarco Roadlines.

57. Diary Al is said to contain the details of consolidated entries of the goods re-ceived from the appellant for transportation of the same to various destinations. Diary A2 is said to provide a break-up of number bags supplied at different locations by a particular ve-hicle. The order has attempted to reconcile both Diaries stating that a particular vehicle car-ried the goods of the appellant to different places as mentioned in Diary A2.

58. Merely corroborating details of Diary Al and Diary A2 does not mean that the appellant clandestinely cleared the goods without payment of duty for following reasons:

(a) Both the Diaries provide the details of truck numbers and Lorry Re-ceipts. It has not been ascertained whether the said truck transported the goods to a par-ticular city as mentioned in Diary A2;

(b) Statements of the consignees to whom the goods were transported as per the bilty have not been recorded;

(c) Mobile numbers had been provided in the Register but such persons were not called to ascertain the correct facts of the case;

(d) No effort was made to ascertain whether the said truck moved to the particular place as mentioned in Lorry Receipt;

(e) It was not ascertained whether the handwriting mentioned in the Diary was that of Abdul Wazid Khan or some other person;

(f) If the Diaries were written by Abdul Wazid Khan, as has been noted, the same cannot be relied without his statement being recorded;

(g) None of the alleged tempo drivers were shown the Diaries to corrobo-rate whether the entries in the said Diaries pertained to the appellant;

(h) Details of Diaries were neither shown to the appellant nor his signature was taken on any page of the Diary;

(i) Various truck numbers have been mentioned in the Diary but the inves-tigating authority did not make any attempt to find out whether these trucks had travelled to that particular city;

(j) Details for receipt of freight for the transportation of the material were not found from the premises of Sarco Roadlines; and

(k) Statement of Firoz Khan was recorded wherein he stated that freight amount was paid by cash but not a single evidence was found to show that the payment of freight was made in cash.

59. Register A7 recovered from the premises of Sarco Roadlines is said to contain details of the goods transported to various buyers of the appellant. It is said to con-tain details of both booking and dispatch of the goods being manufactured by the appel-lant.

60. The same cannot be relied upon for the following rea-sons:

(a) Details of inward stocks do not corroborate with the receipt books found from the premises of Sarco Roadlines which has been marked A8;

(b) Name of the appellant is not mentioned in the docu-ments;

(c) Even though it provides details of the booking, it does not provide na-ture of inward stocks;

(d) Details of truck numbers, mobile numbers and other details have been mentioned. No attempt was made to investigate whether the said trucks transported the materials as alleged in the register;

(e) Enquiry was not made from the persons whose mobile numbers have been mentioned in the page to ascertain the correct facts; and

(f) Statements of persons, whose name were mentioned in the Diary, have not been recorded.

61. Diary A8 is said to contain the details of clandestine transportation of tobacoo and Pan Masala from factory premises of the appellant to premises of Sarco Roadlines. This Diary is stated to provide details regarding number of bags that were unloaded in the premises of Sarco Roadlines.

62. The said Diary could not have been relied upon for the following reasons:

(a) The receipt book is not signed by an employee of the Sarco Road-lines;

(b) It does not corroborate with the details mentioned with Registers Al, A2 and A7 recovered from the premises of Sarco Roadlines. For example at page no. 4 of Diary A8, there is a receipt stating 40+10 for 12.02.2020. However, in Diary Al at page 29, the en-try mentions as 120+30 for 12.02.2020. Further, in Diary A8, there is a receipt stating 18 white and 8 green for 14.02.2020 whereas in Diary Al at page 29, the entry mentions 160+40;

(c) Name of the appellant is not mentioned in these receipt books;

(d) Even though some of the receipts mention the name of the tempo driv-ers, it does not give details of the type of materials supplied and further the tempo drivers have denied that they were called by these names;

(e) The receipt book only provides date and numerical numbers without given any fur-ther details;

(f) Statement of Abdul Wazid Khan, who is said to have maintained these receipt books, has not been recorded; and

(g) Incriminating documents were not found from the premises of the appellant which can corroborate details mentioned in receipt book A8.

63. The entire basis of attributing the Diaries of Sarco Roadlines is the statement of Firoz Khan. His statement should not have been relied as he was not the author of the Dia-ries. The author of the Diaries is said to be Abdul Wazid Khan, whose statement was not recorded.

64. The Delhi High Court in Commissioner of Central Excise Vishnu and Co. Pvt. Ltd.¹³, upheld the view of the Tribunal in Kuber Tobacco that if the statement of persons who wrote the loading Registers and daybook were not recorded, then those evidences could not be relied upon. It was also held that it was for the department to explain why the entries in the documents were not further investigated by them and it was for the department to establish the link be-tween such evidences.

65. Statement of Director of the transporter, Mushtaq Abdul Gani Khokha was rec-orded wherein he stated that he does not know any Firoz Khan.

66. Firoz Khan in his statement dated 11.11.2020 (RUD-49) has stated that Diary Al contains the details of goods received from the appellant and Diary A8 is the receipt book which contains carbon copy of Katcha receipt given to drivers of the appellant when the goods were unloaded at the premises of Sarco Roadlines. However, as noticed above, a pe-rusal of both the Diaries shows that the entries are not matching.

67. Firoz Khan further deposed in his statement dated 11.11.2020 that goods of the appellant were transported by mentioning the goods as seeds or agricultural products in the Lorry Receipts and the details were mentioned in Diary A2. However, there is no entry in Diary A2 with the details of seeds or agricultural products. Further, such Lorry Receipts were not recovered or provided with the show cause notice.

B. Diaries recovered from the premises of Data Goods carrier

68. The Diaries Al to A8 are stated to be bill books for receipts of goods; A29 and A30, are stated to include entries of tobacco and Pan Masala clandestinely transported to various location through different vehicles; and A35 is stated to be Bill Book containing de-tails of transportation of goods without payment of tax.

69. None of the Diaries or contents are of the appellant. It has been connected with the appellant without there being any proof or evidence.

70. Diaries Al to A8 are said to be Bill Books which were allegedly used for preparing bilty in respect of the goods received without GST/Excise invoices for onward transportation to Agra office of Data Goods Carrier during the period 25.02.2020 to 08.11.2020. Details such as number of bags along with its colour, weight and transportation charges are rec-orded in the bilty. Code word “Chhuara/Chhuari” had been used for alleged transportation of Karamchand brand Zarda/Pan Masala.

71. The Diaries Al to A8, do not mention the name of the appellant nor the alleged consignee/dealers. On the other hand, various other names are mentioned in the Diaries as recipient/consignee such as Mahesh, Pappu and Banti. Further names include Dev, Kesar, Chaudhary but no investigation had been carried out to verify the details of such con-signor/consignee.

72. The impugned order has heavily relied upon Diary A29 and A30 and has held that details contained in the Diaries show clandestine supply of goods without payment of tax. The order records that the entries pertaining to peri-od from 03.02.2020 to 08.11.2020 are mentioned in Diary A29 and entries pertaining to period from 25.10.2019 to 02.02.2020 are mentioned in Diary A30.

73. The name mentioned on the bottom of page no. 1 of Diary A29 and at the starting of page no. 1 of Diary A30 reads as “Ashish/Arish”. Merely because “Ashish” is written, the records mentioned therein cannot be connected to the appellant for the following reasons:

(a) It is not clear whether the name written is “Arish” or “Ashish”;

(b) There are various names written such as “Raju Vakil”, “Shri Sita Ram Ji”, “Raja Chemicals” and the name “Ashish/Arish” is written only at the bottom of the page and at very obscure place (in Diary A29);

(c) “Ashish Enterprises” is not specifically mentioned to link it to the appellant;

(d) The address of the appellant is also not mentioned; and

(e) There can be many firms with the name “Ashish” in Gwalior. Thus, merely be-cause “Arish/Ashish” is written, it cannot be assumed that the contents pertain to the appellant.

74. It has been consistently held that the mere mention of the name of the assessee in private records/diaries, without any corroborative evidence establish-ing actual transportation or clearance of goods, is wholly insufficient to conclude that such records pertain to the assessee or that they evidence clandestine removal of goods.

75. In Kumar Trading Company Commissioner of Trade Tax, Lucknow¹⁴, the Tribunal held:

“5. Admittedly, in the booking register which was seized from the premises of Transport Company the address is not mentioned. It is also not disputed that there are other regis-tered Firms in Varanasi itself in the name of M/s. Kumar Trading Company. Bill, builties re-lating to the transactions have not been produced by the Transport Company. In the cross-examination, the person concerned has refused to recognize the applicant and has no where admitted that the booking of the alleged transactions were made by the applicant. Apart from the extract of the booking register in which alleged 55 bookings in the name of M/s. Kumar Trading Company are mentioned. There are absolutely no material to connect such transactions with the applicant Firm. It appears that the alleged transactions of the booking register have been connected with the applicant merely on surmises and conjunc-ture without any specific material in this regard. It is settled principle of law that in case, if the Revenue wants to rely upon the entries of the document seized from the premis-es of third party, the burden lies upon the Revenue Authority to prove the genuineness and authenticity of the said entry and to connect the said entry with the dealer, in case, if the dealer denies to have any connection with such entry. In the present case, Revenue has failed to prove that such entries are related to the present applicant. In the cir-cumstances, the view taken by the Tribunal and the authorities below connecting the en-tries of the booking register with the applicant is merely based on surmises and conjunc-ture.”

(emphasis supplied)

76. In Synergy Steels Ltd. vs. Commissioner of Central Excise, Al-war^ls, the Tribunal held:

“13. The issue involved in this case are regarding undervaluation of finished goods by the appellant sold through M/s. JBCPL and M/s. MBSC and shortage of finished goods during the stock taking at the factory premises by the DGCEI officer, including those of taking ir-regular Cenvat credit on the basis of four supplier of the scrap without accompanying of the goods. We find that demand of Rs. 40,76,894/- has been confirmed on the basis of certain loose slips/pages relied upon by the Revenue which were resumed from Shri Raman Bhatia, Director of M/s. JBCPL, who was the consignment agent. We find that no reliance can be placed on these loose sheets as the name of the appellant is not mentioned in the said loose sheets. Reliance cannot be placed on the statements of Shri Raman Bhatia without cross-examination. Placing reliance in the following decisions :

(i) 2018-TIOL-1917-HC-KOL in case of Modern Agency & Ors. v. Commission-er of Customs and Ors.

(ii) 2016 (338) E.L.T. 113 (Tri.-Del.) – Commissioner of CESTAT, Delhi-I v. Kuber To-bacco India Limited;

(iii) 2016 (340) E.L.T. 67 (P&H) – Jindal Drugs v. Union of India;

(iv) Tech Industries v. Union of India – 2016 (339) E.L.T. 209 (P&H).

14. We also find that M/s. JBCPL was selling the identical goods on behalf of the other manufacturer as a dealer. No statements have been recorded from alleged buyer of finished goods, whose name appeared on these loose sheets. Hence, there is no corrobo-ration for the authenticity of loose sheets or averment of Shri Raman Bhatia. We also find that the adjudicating authority has not followed the procedure as prescribed under Section 9D of the Central Excise Act for placing reliance on the various statements recorded from the various persons, who were either the consignment agent/dealers/supplier of the goods. It is also stated earlier that no reliance can be placed on the third party evidence, without independent corroboration as has been done by the adjudicating authority. In holding so, we place reliance on the following cases :

(i) Rhino Rubber Pvt. Ltd. v. CCE – 1996 (85) E.L.T. 260 (T);

(ii) Rama Shyama Papers Ltd. v. CCE – 2004 (168) E.L.T. 494 (T);

(iii) Badri Industrial Metal Pvt. Ltd. v. CCE – 2000 (245) E.L.T. 539 (T) (sic);

(iv) Sri Sidhi Ispat Ltd. v. CCE – 2017 (357) E.L.T. 724 (T).”

(emphasis supplied)

77. In the present matter, only on the bottom of one of the register, name “Arish” is written, among various other names. It is, therefore, not possible to attribute the register to the appellant, M/s. Ashish Enterprises merely on this basis.

78. The Principal Commissioner held that the vehicles and the drivers, whose numbers and names are mentioned in Diaries A29 and A30, were used for transport-ing the goods of the appellant. The said vehicles belong to Kamal Kishor Sharma whose statement was not recorded. In the cross-examination Hari Singh, who is said to have maintained these Diaries, stated that these Diaries were used for recording the receipt of all goods during the day in the office of Data Goods Carrier. The tempo drivers have also stated that they used to transport goods for various parties who engaged them for transportation on daily wage basis. It cannot, therefore, be said that the entry in these Diaries pertain to the appellant.

79. Diary A35 is said to record details of goods transported by a particular vehicle on a particular day for the period from 02.09.2020 to 08.11.2020. It is said that the code words “Chhuara/Chhuari” was used for transportation of Karamchand Pan Masa-la/Zarda. The name of the appellant is not mentioned in these Diaries. Only vehicle num-bers, name of consignee and bilties numbers are mentioned. In the absence of any corrob-orative evidence, it cannot be said that these Diaries pertain to the appellant for transport-ing of Pan Masala/Zarda in the guise of “Chhuara/Chhuari”. In fact, in Diary A35, Pan Masala is specifically written when it was transported. Kailash Gupta also in his cross-examination stated that he never mentioned the goods received from the appellant as “Chhuara/Chhuari” and that he always mentioned the correct description of the goods. It cannot, therefore, be held that the entries in the Dia-ries relate to the appellant. Bilties/Lorry Receipts or invoices or parallel records were not re-covered from the premises of the appellant. Kailash Gupta and Hari Singh in their cross-examination stated that the Diaries that were recovered by the department were used to maintain the details of all goods received during the day for further transportation. The statements made during the cross-examination cannot be brushed aside by merely stating that it was an afterthought. The drivers Santosh, Balwant Pal and Virender also stated that they were not working for the appellant but working on a daily wages basis for the person who gave the work on a particular day.

80. In this view of the matter, it cannot be said that the entries in the Diaries recov-ered from the premises of Data Goods Carrier are connected with the appellant.

C. Diaries recovered from the premises of Harikesh Agency

81. The Principal Commissioner has relied upon the Diaries/Register recovered from the premises of Harikesh Agency and has recorded a finding that Notebooks A3 to A7 pro-vide details of date wise clandestine supply of the goods to the dealers mentioned in differ-ent cities of Gujarat in the month April, 2020 to August, 2020.

82. It has been found that page no. 73 of Made-up file Al provides details of com-mission paid by the appellant to Harikesh Agency during the month of June for removal of goods without payment of duty to different cities in Gujarat. Page no. 74 shows clandestine supply of goods during the months of April, 2020 to June, 2020 and payment received in the month of May, 2020 and June, 2020. Page no. 75 shows the payment received during June, 2020 from different cities and persons.

83. According to the appellant, because of COVID-19 pandemic, there was a severe restriction on the movement of goods and, therefore, no business activity could be carried out or was carried out by the appellant to undertake any sale during the said period. The statement of the appellant deserves to be accepted as the said pages do not contain the name of the appellant nor is there anything to link them with the appel-lant.

84. It was for the department to have ascertained how the goods were transported to the particular place as mentioned in the Diaries and recorded statements of the consignees to whom the goods were transported as per the entries. There is also no evi-dence of transfer of funds to the appellant against the said clandestine removal of goods. It needs to be noted that during the search of the premises of the appellant, no incriminating material was found.

D. Sub-distributors

85. The search at the premises of sub-distributors does not show that any incriminating material against the appellant was recovered. The Principal Commissioner relied upon statements recorded under section 14 of the Central Excise Act but correct facts were stated in the cross-examination.

86. The facts stated in the cross-examination have not been considered by the Prin-cipal Commissioner. The documents recovered from the premises of the sub-distributors, therefore, do not establish the allegation of clandestine removal of goods.

Failure to determine production capacity of the machines installed in the factory of the appellant with power consumption

87. According to the appellant, the machines installed in the factory as recorded in the Panchnama, lacked the capacity to manufacture the quantities, more particularly when they are compared with the actual electricity consumption. No evidence has been adduced regarding use of generators, additional premises or other machines that may have been used to achieve the excess production. In the absence of proof of manufacturing capacity, the unaccounted production cannot be established and, therefore, the allegation of clan-destine approval cannot be sustained.

88. In this connection, reliance can be placed on the decision of the Tribunal in Sulekhram Steels Pvt. Ltd. vs. Commissioner of C. Ex., Ahmedabad-II¹⁶. In Kuber Tobacco, the Tribunal, by majority, held that it was for the department to prove clandestine removal of goods and for this the department has to ascertain the actual production capacity of the machines but since the department did not ascertain this, the case of clandestine removal could not be proved.

89. The contention of the appellant, therefore, deserves to be accepted.

90. It, therefore, clearly transpires from the aforesaid discussion that the charge of clandestine removal of goods by the appellant has not been substantiated by the depart-ment. The Principal Commissioner, therefore, committed an error in holding that the charge of clandestine removal of goods by the appel-lant stood proved.

91. The inevitable conclusion, therefore, that follow is that the impugned order dated 28.06.2024 passed by the Principal Commissioner in so far as it concerns the appellant deserves to be set aside and is set aside. The appeal is, accordingly, allowed.

Notes:

1. the appellant

2. the Principal Commissioner

3. the Central Excise Act

4. the 2017 Rules

5. the DGGI

6. Sarco Roadlines

7. Data Goods Carrier

8. Harikesh Agencies

9. 2011 (273) E.L.T. 140

10. 2013 (290) E.L.T. 545 (Tri. – Del.)

11. 2014 (311) E.L.T. 529 (Tri.-Ahmd.)

12. 2013 (290) E.L.T. 545 (Tri.-Del.)

13 2016 (332) E.L.T. 793

14. 2008 (230) E.L.T. 240 (All.)

15. 2020 (372) E.L.T. 129 (Tri. – Del.)

16. 2011 (273) E.L.T. 140 (Tri.-Ahmd.)