Principal Commissioner of CGST & Central Excise Vs A.J. Sugandhi Pvt. Ltd. (CESTAT Allahabad)
Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, dismissed the departmental appeal against M/s A.J. Sugandhi Pvt. Ltd., Kanpur, concerning allegations of clandestine manufacture and removal of pan masala and scented chewing tobacco during December 2020 to May 2021. The Department had issued a show cause notice dated 27 April 2023 demanding ₹27,00,38,182, comprising Basic Excise Duty of ₹52,94,866 and National Calamity Contingent Duty (NCCD) of ₹26,47,43,316, along with applicable interest and proposed penalties. The investigation originated from searches conducted by the Directorate General of GST Intelligence (DGGI), during which a file identified as File No. 17 was allegedly recovered from a vehicle associated with Shri Sujeet Kumar Singh of Bharat Transport Company Pvt. Ltd. The Department alleged that the file contained details of unaccounted transportation of printed laminates used for manufacturing pan masala under the SNK, GAGAN and GAGAN STRONG brands. Relying on this document, statements of transporters, dealers and company representatives, and estimated production calculations, the Department alleged substantial clandestine manufacture and clearance. However, the adjudicating authority dropped the proceedings through its order dated 20 September 2024, and the Commissioner (Appeals) upheld that decision on 7 March 2025, prompting the Revenue to approach the Tribunal.
The Tribunal examined whether the Department had discharged its burden of proving clandestine manufacture and removal through legally admissible, positive and corroborative evidence. It observed that File No. 17 was a third-party document whose authorship, authenticity, custody and connection with the respondent had not been satisfactorily established. The investigating officers had failed to verify the ownership and management of Bharat Transport Company Pvt. Ltd., despite contradictions in Shri Sujeet Kumar Singh’s statement concerning the alleged sale and subsequent takeover of the company. The Department had neither examined the company’s directors nor verified relevant corporate records. Further, the entries in the recovered file did not establish that the alleged laminates were actually delivered to or received at the respondent’s factory. No reliable gate registers, unloading records, weighbridge slips, inward registers, stock reconciliation statements or independent transport records were produced to substantiate the alleged movement and consumption of packaging materials. The Tribunal also identified contradictions in the Department’s interpretation of the records, including entries relating to the Sudh Plus brand manufactured at Gorakhpur rather than Kanpur. It held that the mere recovery of a private document from a third party could not establish clandestine activity without independent evidence connecting the recorded transactions with the assessee.
The Tribunal further rejected the Department’s methodology for quantifying the alleged clandestine production. The investigating officers had estimated that approximately 13,19,555.42 kilograms of laminates were clandestinely procured and used to manufacture 233,95,70,268 pan masala pouches. However, the quantity of laminates had been calculated by applying an average weight derived from only nine selected entries in the recovered file. The Tribunal noted significant inconsistencies in the underlying figures, including two entries showing an identical number of 881 boxes but substantially different aggregate weights. It held that the Department had not established that the boxes contained homogeneous materials or that the estimated quantities accurately represented goods received by the respondent. There was also no investigation into wastage, rejected materials, production capacity, additional labour, electricity consumption, procurement of other essential raw materials, transportation of finished goods or receipt of unaccounted sale proceeds. The Tribunal emphasised that transportation, receipt, consumption, manufacture and clandestine clearance are distinct factual stages, each requiring independent proof. An estimate based on an unverified average could not become reliable evidence merely through further mathematical calculations. Consequently, the Department’s successive assumptions regarding procurement, manufacture and removal were legally insufficient to sustain the demand.
Regarding scented chewing tobacco, the Tribunal found that the Department had proceeded on the unsupported assumption that every pouch of pan masala was invariably sold with an equivalent pouch of chewing tobacco. It observed that pan masala and scented chewing tobacco were separate excisable products involving different raw materials and manufacturing processes, and that manufacture of one commodity could not automatically establish manufacture of the other. No independent evidence of clandestine procurement of tobacco, kimam, flavours or other necessary ingredients was produced, nor was there reliable evidence of unrecorded tobacco production, transportation, sales or financial transactions. The Tribunal reiterated that allegations of clandestine manufacture and removal, particularly those carrying substantial fiscal and penal consequences, cannot be sustained on suspicion, market practices, conjectures or successive presumptions. The Department was required to establish the complete chain of clandestine activity through cogent and corroborative evidence, which it had failed to do. Since the adjudicating authority and Commissioner (Appeals) had already examined the evidence and reached concurrent findings against the Department, and the Revenue had demonstrated no perversity or material legal error, the Tribunal found no justification for interference. Accordingly, by its order pronounced on 15 September 2026, the CESTAT Allahabad dismissed the Revenue’s appeal and upheld the dropping of the excise duty and NCCD demand of ₹27,00,38,182.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
The present departmental appeal has been filed by the Assistant Commissioner, CGST & Central Excise, Lucknow (hereinafter referred to as the Appellant) against the Order-in-Appeal No.72-CE/APPL/LKO/2025 dated 07.03.2025 passed by the Commissioner (Appeals) Customs, CGST & Central Excise, Lucknow.The facts of the case in brief are that the M/s A.J.
2. Sugandhi Pvt. Ltd’., Kanpur (M/s AJSPL hereinafter referred to as the Respondent) were engaged in the manufacture and supply of Pan Masala and Scented Jarda Tobacco of brands – SNK, GAGAN & GAGAN STRONG of different MRPs. Investigation conducted by the Directorate General of GST Intelligence2, Ghaziabad, highlighted the taxpayer’s alleged involvement in unrecorded purchases of laminate and clandestine supply of their manufactured goods leading to substantial GST & Excise duty evasion. Accordingly, a Show Cause Notice3 No.114/2022-23 dated 27.04.2023 was issued against M/s AJSPL for the demand of Basic Excise duty of Rs.52,94,866/- and NCCD of Rs.26,47,43,316/-(Total of Rs.27,00,38,182/-). A separate SCN was also issued for evasion of GST. The impugned SCN No.114/2022-23 was adjudicated vide Order-in-Original No.80/ADC/LKO/GST/2024-25 dated 20.09.2024. The Department has reviewed the OM and preferred appeal before Commissioner (Appeals) Customs, CGST & Central Excise, Lucknow who vide Order-in-Appeal No.72-CE/APPL/KNP/2025 dated 07.03.2025 rejected the departmental appeal and upheld the OM dated 20.09.2024. Hence, this appeal.
2.1 Search was conducted at the residential premises of Shri Sujeet Kumar Singh, the owner of M/s Bharat Transport Company Pvt. Ltd4., located at Noida on 25.06.2021. A file resumed at SI. No.17, was found containing the details of printed laminates transported by M/s BTCPL through the vehicles owned by it. The transportation details were found maintained date wise for the period – December’2020 to June’2021 (Upto 8th June). On examination of Pages contained in the said recovered file, it was found that, the consignments printed laminates of different brands were transported to different places including Lucknow/Kanpur and Gorakhpur. During the course of verification, it was noticed that the invoices in respect of the said goods were issued by M/s Montage Sales Pvt. Ltd5., Delhi but the consignees shown in the invoices were found non-existing. On examination of the E-way bills as reflecting in the relevant invoices, it is found that the concerned vehicles had transported the said goods to Uttar Pradesh instead of its declared destination – Delhi.
2.2 Shri Sujeet Kumar Singh in his statement dated 25.06.2021 stated that he was the Director in M/s BTCPL till 2018. Shri Keshav Chandra Patra and Shri Madan Mohan Jena had taken over M/s BTCPL in the year, 2018 and they are the present Directors. As Shri Keshav Chandra Patra and Shri Madan Mohan Jena failed to pay the agreed amount to him, he took back control of M/s BTCPL. He admitted that he transported ‘printed laminates’ sold by M/s MSPL, Delhi to various Pan Masala/tobacco manufacturers and the recovered sheets contained in the File resumed at SI. No.17 were maintained date-wise, vehicle-wise, brand-wise and destination-wise. Searches were conducted at various premises connected with M/s AJSPL, the Respondent party on 09.08.2021.
2.3 Shri Avinash Modi, Director of M/s AJSPL in his statement dated 09.08.2021 stated that Shri Anil Kumar Gupta is the other Director in the said firm. GST Registration of M/s AJSPL was surrendered on 26.07.2021. After that, he and Shri Anil Kumar Gupta are the Directors in M/s Greensworth Enterprises Pvt. Ltd6., having Principal place of business at C-29D, Panki Industrial Area, Site-1, Kanpur and additional places of business at A-5/A-6 & C-29/A-2, Panki Industrial Area, Site-1, Kanpur. He stated that M/s GEPL is also engaged in manufacturing of ‘Pan Masala’ and ‘Scented Jarda Tobacco’ of brands – ‘SNK’, ‘GAGAN’ & ‘GAGAN STRONG’ of different MRPs. He informed that the brands – ‘SNK’, ‘GAGAN’ & ‘GAGAN STRONG’ are owned by M/s Shri Pranav Enterprises and Shri Naveen Kurele and Shri Praveen Kurele are the Partners in the said firm.
2.4 Shri Avinash Modi in his another statement dated 10.08.2021 agreed with the statement dated 09.08.2021 of Shri Kamlesh Gupta, Proprietor of M/s Shree Maa Vaishno Devi Trading Co., Lucknow and the statement of Shri Md. Rukhsaad, Proprietor of M/s Jabbar Zarda Store, Kanpur and stated that these persons used to receive the unaccounted goods supplied from his manufacturing unit. He also admitted that his firm had purchased accounted as well as unaccounted ‘Supari’ and ‘Kattha’ from M/s JMD Metal Pvt. Ltd., Kanpur. He further stated that his firm used to procure accounted as well as unaccounted packaging material i.e. laminates from the Montage Group units in the garb of bills issued to dummy firms. The unaccounted laminates received from the Montage Group units had been stored by the transporter i.e. M/s BTCPL in a godown located at 63B, Dada Nagar, Kanpur from where it was supplied to his factory. The said godown is managed by a person namely, Shri Kaushal Kumar. He also agreed that laminates seized at the said godown was purchased by his firm for the unaccounted production of finished goods. He admitted that the unaccounted laminates received from M/s MSPL, Delhi had been used in the clandestine production & supply of ‘Pan Masala’ and agreed with the duty calculation sheets & method of duty calculation. He also admitted that the quantity of raw material found excess was intended to be used in the clandestine manufacture & supply of ‘Pan Masala’.
2.5 Shri Naveen Kurele in his statement dated 09.08.2021 stated that he is the Partner in M/s Shri Pranav Enterprises, which had entered into an agreement with M/s AJSPL to manufacture ‘Pan Masala’ and ‘Scented Jarda Tobacco’ under the brands – ‘SNK’, ‘GAGAN STRONG’ etc. He has the right to monitor the quality of raw materials, being used in the production of finished goods and he has also the control over advertising/marketing activities. In his another statement dated 10.08.2021, Shri Naveen Kurele had shown his agreement with the statements tendered by Shri Pradeep Jain, Director of M/s JMD Metal Pvt. Ltd.; Shri Gaurav Narang, Proprietor of M/s Giriraj Traders; Shri Avinash Modi; Shri Ambika Chaurasiya, in-charge of vehicle No. UP78GN5070 and Shri Md. Rukhsaad.
2.6 Shri Ambika Chaurasiya in his statement dated 09.08.2021 stated that his job is to look after loading/unloading of finished goods pertaining to M/s GEPL (formerly M/s A. J. Sugandhi Pvt. Ltd.) and he used to accompany the drivers to the destination of dealers. He revealed that there was movement of goods multiple times on a single invoice/e-way bill. With respect to the goods loaded on Vehicle No. UP78GN5070, intercepted by the officers outside the factory gate on 09.08.2021 at around 1030 hrs, he stated that similar quantity of goods had already been delivered to M/s Shree Maa Vaishno Devi Trading Co., Lucknow in the morning of 09.08.2021 on the same vehicle and the driver of the said vehicle was Shri Ritesh Kumar.
2.7 Search was conducted at 63B, Dada Nagar, Kanpur, the alleged secret premise where the packaging materials i.e. laminates supplied by M/s MSPL, Delhi & transporter by M/s BTCPL were used to be stored and supplied in piecemeal to the manufacturers of Pan Masala/tobacco in Kanpur. During the course of search, it was found that the said premises had been looked after by an employee of M/s BTCPL namely, Shri Kaushal Kumar. Various packaging materials including that of ‘SNK’ & ‘GAGAN’ brands were recovered without any legal documents and hence, the same were seized. Enquiry was conducted at M/s JMD Metal Pvt. Ltd., Kanpur, being the supplier of ‘Kattha’ & ‘Betelnut’. Shri Pradeep Jain, Director of M/s JMD Metal Pvt. Ltd. in his statement dated 09.08.2021 stated that he sold ‘Kattha’ & ‘Betelnut’ both in cash & under B to B supply and discharged GST on both types of outward supply. He also stated that the goods sold in cash had been mostly supplied to Shri Naveen. Enquiry was conducted at M/s Aman Marketing, Kanpur, being the supplier of Tobacco, Kimam & perfumery compounds. Shri Deepak Kumar Malu, Manager of M/s Aman Marketing in his statement dated 22.12.2021 stated that his firm is engaged in the trading of Tobacco, Kimam & perfumery compounds both under B to B & B to C sales and taxes had been duly discharged under both categories of supplies. He also stated that major portion of B to C supply had been made to M/s AJSPL.
2.8 Investigation conducted at the end of Dealers and their statements were recorded wherein they stated that earlier they were purchasing ‘SNK’ brand Pan Masala & Tobacco from M/s AJSPL and presently, they were purchasing the said goods from M/s GEPL without bills but they could not explain the exact quantum of such recorded/unrecorded transactions. Shri Amit Bhardwaj, Proprietor of M/s Bhardwaj Traders, Bareilly in his statement dated 12.04.2022 stated that on a single invoice/e-way bill issued by M/s AJSPL, the goods were delivered twice to his firm. One of the dealers Shri Sumit Jain, Manager of M/s Agarwal Traders, Nainital in his statement stated that every time almost 110 bags of goods were supplied to his firm, but the invoices/e-way bills were only for 60/70/80 bags and the remaining goods were supplied without any document.
2.9 Searches were conducted at the end of M/s AJSPL at its Principal place of business located at A-5/A-6, Panki Industrial Area, Site-1, Dada Nagar, Kanpur and at its additional place of business located at C-29/A-2, Panki Industrial Area, Site-1, Dada Nagar, Kanpur on 09.08.2021. During the course of search, multiple Pan Masala/Tobacco packaging machines were found installed and differences in the stocks of raw materials & finished goods were noticed. Shri Avinash Modi, Director of M/s AJSPL in his statement dated 27.08.2021 admitted that some of the raw materials & finished goods were lying unaccounted at the factory premises. Shri Anil Kumar Gupta, another Director of M/s AJSPL in his statement dated 10.06.2022 stated that presently, he is one of the Directors of M/s GEPL and prior to this, he was one of the Directors in M/s AJSPL. The premise of M/s GEPL located at A-5/A-6, Panki Industrial Area, Site-1, Dada Nagar, Kanpur was visited on 15.12.2022 to verify the production capacity of the installed Packing Machines per Kg of laminates with respect to Pan Masala/tobacco of different MRPs. Shri Anil Kumar Gupta, another Director of M/s AJSPL in his statement dated 10.06.2022 and Shri Pawan Kumar Gupta, Production Manager cum Supervisor of M/s AJSPL in his statement dated 10.06.2022 informed that their firm owned vehicles for transportation and the transportation of the finished goods was managed by their firm.
2.10 The details of the packaging materials i.e. laminates, transported from the secret premise and showing brand names – ‘SNK’, ‘GAGAN’ & ‘GAGAN STRONG’, have been taken into consideration. Month-wise details of the transportation of such packaging materials i.e. laminates are given at pages 25-26 for December’2020, at pages 67-70 for Jan’2021, at pages 105-108 for March’2021, at pages 190-191 for April’2021 and at pages 205-209 for May’2021. Since the weight of the laminates was not available, the details available in the file resumed at SI.No.17 pertaining to the supply of the laminates from Delhi to Kanpur secret godown have been taken into consideration, where the description of brand along weight is mentioned. The average weight was calculated on the basis of 09 sample entries. As such, total 13,19,555.42 Kg of laminates was found to be clandestinely procured by M/s AJSPL during the period from December’2020 to May’2021, which resulted into manufacturing of 233,95,70,268 nos. of ‘Pan Masala’ pouches. As per the prevailing selling practice of ‘Pan Masala’ in the market, ‘Pan Masala’ pouches are always being sold in the conjugation of similar numbers of tobacco pouches. One pouch of ‘SNK’ brand Pan Masala of MRP of Rs.1.5 is always being sold with one pouch of ‘SNK’ brand tobacco of MRP of Rs.1.00. Similarly, one pouch of ‘SNK’ brand Pan Masala of MRP of Rs.18.00 is always being sold with one pouch of ‘SNK’ brand tobacco of MRP of Rs.2.00. Therefore, M/s AJSPL had clandestinely supplied an equal number of pouches of tobacco of MRP Rs.1.00 as the clandestinely supplied number of pouches of ‘Pan Masala’ of MRP Rs.1.5 and similarly, clandestinely supplied an equal number of pouches of tobacco of MRP Rs.2.00 as the clandestinely supplied number of pouches of ‘Pan Masala’ of MRP Rs.18.00 during the relevant period. On the aforesaid ‘Pan Masala’ & ‘Tobacco’ pouches clandestinely supplied by M/s AJSPL during the relevant period, the taxes have been worked out as under:-
(a) Basic Excise duty – Rs.52,94,866/-.
(b) NCCD – Rs.26,47,43,316/-.
(c) GST & Cess – Rs.246,19,04,444/-.
(CGST – Rs.30,66,01,973/-, UPGST – Rs.30,66,01,973/- &
Cess – Rs.184,87,00,498/-).
2.11 SCN No.114/2022-23 dated 27.04.2023 was issued against M/s AJSPL proposing therein demand of Basic Excise duty of Rs.52,94,866/- and NCCD of Rs.26,47,43,316/- (totaling – Rs.27,00,38,182/-) under Section 11A of the Central Excise Act, 1944 along with interest under Section 11AA of the Central Excise Act, 1944. Penalty was proposed to be imposed under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002. Penalty was also proposed upon all other co-noticees under Rule 29 of the Central Excise Rules, 2017. A separate SCN was issued to M/s AJSPL, Kanpur for demand of GST & Cess.
2.12 The SCN was adjudicated by Additional Commissioner, CGST & Central Excise Lucknow, vide OM No.80/ADC/LKO/GST/2024-25 dated 20.09.2024 by set aside the proceedings initiated vide SCN No.114/2022-23 dated 27.04.2023. Feeling aggrieved, the Department preferred appeal before Commissioner (Appeal) CGST & Central Excise, Lucknow who vide OIA No.72-CE/APPL/LKO/2025 dated 07.03.2025 wherein he rejected the departmental appeal and upheld the findings of OIO. Feeling aggrieved with the order, the Department preferred this appeal.
3. The Respondent have stated that the allegation made in the SCN are totally misconceived and, being wholly devoid of any substantiating facts and evidences, have no factual and legal tenability and the charges levelled in impugned SCN are based entirely on unwarranted assumptions, presumptions, surmises and conjectures derived or emanating from baseless, factually unsubstantiated and erroneous inferences or interpretations drawn from third party documents or compulsively and coercively obtained involuntary oral statements, which fail to get any corroboration with positive, tangible and affirmative evidences. The sole evidence in the case is file @ No.17 and the sole statement of Shri Sujeet Kumar Singh is the basis of entire case. The quantification has been made on the basis of statement of Shri Sujeet Kumar Singh who has clarified the details mentioned in the file @ No.17. It has been stated in the appeal that pages containing details of transportation of printed laminate from secret premises located in Kanpur to various Pan Masala manufacturer in Kanpur were duly mentioned and Chart 1-A was prepared on such details.
3.1 It has been alleged by the DGGI that the pages of file @ No.17 contain details of transportation of laminates from a secret premises situated in Kanpur to various Pan Masala manufacturers of the Kanpur region. The specific pages cited are Pages 25-26 (for December 2020), Pages 67-70 (for January 2021), Pages 105-108 (for March 2021), Pages 190-191 (for April 2021) and Pages 205-209 (for May 2021).
3.2 The Respondents have submitted that a careful scrutiny of the SCN and the relied upon documents (RUDs) annexed thereto, clearly show that no documentary evidence or corroborative material has been placed on record to substantiate the Department’s averment that the said pages indeed contain “details of transportation of laminates” from any “secret premises.” The SCN merely contains a bald assertion based on the interpretation or presumption drawn by the investigating officers. The actual content of the pages, as made available in the record, does not specify the name of any manufacturer, vehicle details, date, invoice, or any identifiable proof that could reasonably establish that the entries pertain to the alleged transport of laminates to Pan Masala units.
3.3 The Respondent, has also questioned the recovery of document from the Land Cruiser Car in the form of file @ No.17 is in itself is illegal and result of flawed investigation. In Panchnama proceedings, Shri Sujeet Kumar Singh, confirmed that Flat No.101, was in name of his sister Ms. Shipra Singh, and thereafter admittedly with NIL recovery from where search warrant was executed under Rule 139. From Flat No.101 to 102, the story continues to the parking area, with lot of mud added to the water, to make it muddy, no reason has been shown in the Panchnama as what prompted them to go to the parking area. Neither keys of any vehicle nor any registration papers were found in the flat. Even no question was asked by the officers about the ownership of vehicle or about any parking are. Further, no permission from society and volley of questions on credibility of why no fresh search warrant for open parking premises, how did the Visiting Officers got ceased of a particular parking out of nine parking lots allotted to flat No.101 & 102, who made them lay hands on the keys and slim to none disclosure about the place of recovery of alleged file No.17, containing 251 pages. The law on invalidating the same, that subject to one search warrant for a closed premises i.e., Flat No.101 & 102 referred above, can in no manner within the compass of Rule 139, captured within its realm the independent Vehicle parking area, which as per Corporating Housing Norms are a common area appropriately cannot be trespassed without permission from the society.
3.4 Now coming to the sole statement of Shri Sujeet Kumar Singh recorded by DGGI officers of 25.06.2021, the Respondent has submitted that Shri Sujeet Kumar Singh, the self-claimed owner of the transport Company M/s BTCPL has stated in his statement dated 25.06.2021 that he had sold the transport Company on payment of 6.5 crores with 140 old Trucks to Shri Keshav Chandra Patra and Shri Madan Mohan Jeena who were the Directors of company on the condition that they will pay the installments of the vehicles. Since they did not pay the required amount and also did not pay the installments, he again took over the charge of company. There was no written agreement as they were known to each other.
3.5 The Respondent has argued that no investigation was made by DGGI in this regard. The fact of sale of M/s BTCPL was never verified through the company details available at MCA. Shri Sujeet Kumar Singh stated in his statement dated 25.06.2021 that M/s BTCPL was sold without any agreement. How a Private Limited Company was sold without agreement? Whether any transaction actually took place? The DGGI officers did not even bothered to check the statement that how a private limited company is sold? In the Pvt. Ltd. company sale means transfer of shares, it was never verified by the DGGI, when shares of the company were transferred in favour of Shri Madan Mohan Jena and Shri Keshav Chandra. It is a settled law, if shares has been transferred, Shri Sujeet Kumar Singh has no locus standi as far as M/s BTCPL is concerned and he has no role to play in M/s BTCPL. Accordingly, his statement has also got no evidentiary value.
3.6 Further, when Shri Madan Mohan Jeena and Shri Keshav Chandra Patra defaulted in payment then why they were still Directors of the company at the time of search. Why these facts stated by Shri Sujeet Kumar Singh was not confronted with Shri Madan Mohan Jeena and Shri Keshav Chandra Patra. Since Shri Jeena and Shri Patra were Directors they must be getting salary from the company. Why no statement of Shri Keshav Chandra Patra and Shri Madan Mohan Jeena was not recorded by DGGI under Section 70 of the CGST Act, 2017.
3.7 It was also argued that in such a scenario, by what authority, Shri Sujeet Kumar Singh, was having the disputed documents for the Financial Year 2020-21, which were allegedly recovered from the Vehicle Parked near his residence? Was any Authorization or Resolution passed by the Board of Directors to enable him to have access to such documents? Why no relevant facts in this regards ascertained from Shri Sujeet Kumar Singh while recording his statement on 25.06.2021 or at any subsequent time by summoning him under Section 70 of the CGST Act, 2017. All these facts remained unanswered as there was no investigation on this issue by the DGGI, Meerut.
3.8 Further argument was that the Investigating Officers of DGGI have made no efforts to ascertain the veracity of the contents of the loose computer print outs/ paper sheets placed in file @ serial No.17, recovered from the residence of Mr. Sujeet Kumar Singh, by cross checking and verifying relevant details from the contents of the records and registers maintained in normal course of business by M/s BTCPL as a transport company, such as Loading / Unloading Register, Trucks Movement Register, Goods Manifest Register, Goods Receipt Books / Bilty Books / Challans or similar books of accounts.
3.9 As regards allegation that demand on chewing tobacco has been raised merely on the basis of an assumed “prevalent selling practice” in the market—i.e., that pouches of Pan Masala and Chewing Tobacco are always sold in equal numbers—is wholly untenable in law. The Department has not produced a single piece of primary evidence of actual procurement, manufacture, clearance, transportation, or sale of chewing tobacco by the noticee. Instead, the entire case rests on a broad market assumption and on statements of certain dealers who have merely stated that they “generally” received similar numbers of Pan Masala and Tobacco pouches. Such statements, without independent corroboration, cannot form the basis of a duty demand. It is a settled position that clandestine manufacture or removal cannot be alleged on the basis of presumptions, general market practices, or unverified dealer statements, and must be supported by concrete evidence such as raw-material consumption, production records, transport documents, seizure, excess stock, confessional statements of responsible persons, or any tangible linkage to the assessee’s unit.
3.10 In the present case, the Department has failed to show any evidence that the noticee ever manufactured or procured chewing tobacco, possessed machinery, purchased raw materials, or maintained any records for the same. No transporters, buyers, or suppliers related to tobacco have been examined or confronted. No parallel invoices, slips, challans, loading sheets, weighment details, seizure, or stock variation has been shown. The reliance on generalized dealer statements—unsupported by documents—is legally insufficient and contrary to established judicial principles that demand cannot be sustained on conjecture, presumption, or customary trade practice. Therefore, the allegation is baseless, uncorroborated, and unsustainable.
3.11 The Respondent has submitted that the analogy put forth by the revenue itself show that the case has been made on assumption, presumption and surmise. The question comes before the Bench is that where is the incontrovertible evidence of any unaccounted supply of all the other Raw Materials. Is there any live interception or outward supply of finished goods, except for Oral Statements, which apparently, all of them were recorded, post arrest of Mr. Avinash Modi and Mr. Naveen Kurele on 10.8.2021. Outward/ imaginary buyers not identified, without admitting any liability, no Cash recovered, no trail of any electronic evidence from the Respondents, DGGI was apparently under avarice and deceit against the Respondents.
4. We have carefully considered the records of the case, the impugned Order-in-Appeal, the Order-in-Original, the grounds of appeal filed by the Revenue, the written submissions and heard oral arguments advanced by both sides.
4.1 The short question arising for determination is whether the Revenue has discharged the burden of proving, by legally admissible and cogent evidence, that the Respondent M/s AJSPL clandestinely manufactured and cleared Pan Masala and Scented Chewing Tobacco during the period from December, 2020 to May, 2021 and whether the findings recorded by the Adjudicating Authority, as affirmed by the Commissioner (Appeals), suffer from any legal infirmity warranting interference.
4.2 The law relating to clandestine manufacture and removal is no longer res integra. It is well settled through a catena of judgments of the Hon’ble Supreme Court, various High Courts and this Tribunal that an allegation of clandestine manufacture and removal cannot be sustained merely on the basis of private records recovered from a third party or on assumptions and presumptions. The burden squarely rests upon the Department to establish, by cogent, positive and corroborative evidence, the entire chain of events leading to the alleged clandestine activity. Such evidence must demonstrate, inter alia, procurement of excess raw materials, manufacture of excess finished goods, availability of adequate infrastructure and manufacturing capacity, abnormal consumption of electricity or fuel, deployment of additional labour, transportation of the clandestinely manufactured goods, identification of the buyers, receipt of consideration from such clandestine sales and the corresponding financial flow-back. These circumstances are not independent or isolated factors but constitute interconnected links in the chain of evidence which must collectively establish clandestine manufacture and removal beyond mere suspicion. In the absence of such comprehensive and corroborative evidence, no demand alleging clandestine manufacture and removal can be legally sustained. It is equally well settled that clandestine removal, being a serious charge carrying civil as well as penal consequences, cannot be founded upon conjectures, surmises or mathematical assumptions. Suspicion, however grave or compelling, cannot substitute legal proof, and the allegation must necessarily be established through evidence that is clear, cogent, convincing and duly corroborated.
4.3 The facts of the case reveals that the entire case of the Revenue is founded upon File No.17, which was allegedly resumed during the course of search conducted at the residential premises of Shri Sujeet Kumar Singh, Director of M/s BTCPL. According to the Department, the said file contained particulars relating to the transportation of laminate allegedly supplied by M/s MSPL. Significantly, the entire demand has been built upon the premise that every entry recorded in the said file is genuine and accurately reflects the actual movement of goods. Proceeding on this premise, the Department has further presumed that the laminate mentioned in the said file was in fact transported, reached the factory premises of the Respondent, was duly received by the Respondent, consumed in the manufacture of Pan Masala, and that the entire quantity of laminate so received was converted into finished goods. The Department has thereafter gone a step further by presuming that every pouch allegedly manufactured out of such laminate was clandestinely removed without payment of duty and, on the basis of the alleged prevailing market practice, has further assumed that an equal quantity of chewing tobacco pouches was also manufactured and clandestinely cleared. Thus, the entire chain of conclusions drawn in the SCN rests exclusively upon the authenticity, correctness and evidentiary value of File No.17. Unless the entries contained in the said file are first established to be genuine, reliable and duly corroborated by independent evidence connecting them with the Respondent, the entire foundation of the Revenue’s case necessarily fails, as every subsequent inference recorded in the SCN is merely a consequential presumption flowing from the correctness of the said third-party document.
4.4 The principal document relied upon by the Department, namely File No.17, was admittedly neither recovered from the premises of the Respondent nor maintained by the Respondent in the ordinary course of its business. It is an undisputed fact that the said file was allegedly resumed during the search conducted at the residential premises of Shri Sujeet Kumar Singh, who claimed to be the owner of M/s BTCPL. The Department has sought to fasten liability upon the Respondent solely on the basis of the entries contained in the said third-party document without first establishing its authenticity, authorship and evidentiary value. Significantly, no evidence whatsoever has been brought on record to establish as to who prepared the entries contained in File No.17, when such entries were made, under whose instructions they were recorded, whether they formed part of the regular books or records of M/s BTCPL, whether they were maintained contemporaneously in the ordinary course of business, or whether the Respondent had ever accepted, acknowledged or acted upon the correctness of such entries. Equally, the Department has failed to establish the authorship of the entries through any independent evidence or by examining the person who actually prepared or maintained the document. It is a settled principle of law that a private document recovered from a third party does not automatically become admissible evidence against an assessee merely because the assessee’s name appears therein. Unless such document is independently proved, corroborated and linked with the assessee through legally admissible evidence, no civil or penal liability can be fastened upon the assessee merely on the basis of such third-party records.
4.5 The another crucial evidence is the sole statement of Shri Sujeet Kumar Singh recorded by the officers of DGGI on 25.06.2021. In the said statement, Shri Sujeet Kumar Singh himself categorically stated that he had sold M/s BTCPL along with approximately 140 trucks, to Shri Keshav Chandra Patra and Shri Madan Mohan Jeena for a consideration of X6.5 crores, subject to the condition that the purchasers would continue paying the instalments of the vehicles. He further stated that as the purchasers failed to honour their commitments and defaulted in payment of the instalments, he subsequently took over the affairs of the company again. Surprisingly, he also admitted that no written agreement whatsoever had been executed in respect of such an alleged sale, stating only that the parties were known to each other.
4.6 These assertions, which formed the very foundation of the Revenue’s reliance on Shri Sujeet Kumar Singh and the documents allegedly recovered from him, were accepted by the investigating officers without any verification whatsoever. No investigation was undertaken to ascertain whether any such transaction of sale had in fact taken place. The records maintained by the Ministry of Corporate Affairs’, which could have conclusively established the shareholding pattern, directorship and management of M/s BTCPL during the relevant period, were admittedly never examined. It is inconceivable that a private limited company could be transferred merely through an oral understanding without execution of any agreement or without transfer of shares in accordance with the provisions of the Companies Act. The investigation is completely silent on these vital aspects.
4.7 If, as claimed by Shri Sujeet Kumar Singh, the shares of M/s BTCPL had in fact been transferred to Shri Madan Mohan Jeena and Shri Keshav Chandra Patra, then, in law, Shri Sujeet Kumar Singh would cease to have any control over the affairs, records or management of the company and would have no locus standi to speak on behalf of the company or produce its internal records. Conversely, if no such transfer of shares had taken place, his assertion regarding sale of the company itself stood falsified. Astonishingly, the Department made no effort to verify either of these possibilities. Such a fundamental issue, going to the very root of ownership and custody of the records, remained completely un-investigated.
4.8 Equally significant is the fact that although Shri Sujeet Kumar Singh alleged that Shri Madan Mohan Jeena and Shri Keshav Chandra Patra had defaulted in payment and that he had taken over the company again, the Department never examined why, despite such alleged default, Shri Jeena and Shri Patra continued to remain Directors of M/s BTCPL at the time of search. These glaring contradictions were never confronted to either Shri Madan Mohan Jeena or Shri Keshav Chandra Patra. No statement of either of them was recorded under Section 70 of the CGST Act, 2017, despite the fact that they were admittedly the Directors of the company and were the most competent persons to explain the management, custody of records and transportation activities of M/s BTCPL during the relevant period.
Their complete non-examination leaves a substantial gap in the investigation and seriously undermines the credibility of the Revenue’s case.
4.9 The investigation is equally silent regarding the manner in which Shri Sujeet Kumar Singh was functioning after the alleged sale of the company. If Shri Jeena and Shri Patra were continuing as Directors, they would naturally be responsible for the day-to-day affairs of the company and for maintaining its statutory and commercial records. In such circumstances, the Department has not explained under what authority Shri Sujeet Kumar Singh was allegedly in possession of confidential records pertaining to the Financial Year 2020-21, particularly when those records were allegedly recovered from a vehicle parked near his residence. No investigation was carried out to ascertain whether any resolution of the Board of Directors, authorization or other Legal Authority existed enabling Shri Sujeet Kumar Singh to retain or access such records. These vital questions were neither put to Shri Sujeet Kumar Singh during his statement dated 25.06.2021 nor was he subsequently summoned to explain these glaring inconsistencies. The investigation, therefore, leaves unanswered the fundamental question regarding the lawful custody, origin and authenticity of the documents allegedly recovered from him.
4.10 The Revenue has further sought to explain the absence of any name, signature, initials or identifying mark of M/s BTCPL or its employees on pages 1 to 251 of File No.17 by contending that it was a confidential record maintained for covert transportation of printed laminates to various Pan Masala manufacturers. We find ourselves unable to accept such a sweeping assertion in the absence of any supporting evidence. Merely describing a document as “confidential” cannot dispense with the legal requirement of proving its authorship, authenticity and reliability. If the document was indeed maintained by M/s BTCPL in the ordinary course of its business, the Department was required to establish, through cogent evidence, who prepared it, under whose directions it was maintained, how it formed part of the business records of the transporter and what was the basis for treating the entries therein as truthful and reliable. The complete absence of any identifying particulars, signatures, initials, company stamp or other indicia of authorship only heightens the suspicion regarding the origin and authenticity of the document. A document of unknown authorship and uncertain provenance cannot acquire evidentiary sanctity merely because the Department chooses to describe it as a confidential record. Such an explanation, unsupported by any investigation or independent corroboration, is wholly insufficient to confer evidentiary value upon File No.17 or to sustain a demand involving serious civil and penal consequences.
4.11 Viewed from any angle, therefore, File No.17 remains an unverified third-party private document of doubtful origin and authorship, unsupported by any independent corroboration and recovered from a person whose own legal status, authority and relationship with M/s BTCPL remained unexplored. In the absence of a proper investigation establishing its authenticity and connecting it with the Respondent through reliable and legally admissible evidence, no adverse inference can be drawn against the Respondent on the basis of such a document alone. The very foundation upon which the Revenue has built its case is thus rendered legally unsustainable.
4.12 Even if, for the sake of argument, the transporter’s record contained in File No.17 is accepted at its face value, the burden still lay squarely upon the Department to establish that the laminate allegedly referred to therein was in fact transported to, delivered at and received by the factory premises of the Respondent. Mere existence of an entry in a private record maintained by a third party does not ipso facto establish the actual movement or delivery of goods. The Department was required to substantiate the alleged delivery through independent and corroborative evidence such as unloading records, gate entry registers, weighbridge records, acknowledgements of receipt, warehouse records, inward registers, labour deployment records, inventory reconciliation, stock verification reports or any other contemporaneous documentary evidence evidencing receipt of the alleged laminate by the Respondent. However, the investigation is conspicuously silent on all these material aspects. No such evidence has been brought on record to establish that the laminate allegedly mentioned in File No.17 ever reached the Respondent’s factory, much less that it was received, accounted for or consumed in manufacture. At best, the transporter’s record merely suggests an alleged movement of certain goods. However, movement by itself does not establish delivery; delivery does not establish receipt; receipt does not establish consumption; consumption does not establish clandestine manufacture; and clandestine manufacture, in turn, does not establish clandestine clearance. Every link in this chain required independent proof through legally admissible and reliable evidence. In the present case, none of these essential links has been established by the Department.
5. The allegation contained in the SCN is that certain pages of File No.17, allegedly recovered during the search conducted on 25.06.2021, contain details of transportation of laminates from a so-called “secret premises” situated in Kanpur to various Pan Masala manufacturers of the Kanpur region. The Department has specifically relied upon pages 25-26 pertaining to December, 2020, pages 67-70 pertaining to January, 2021, pages 105-108 pertaining to March, 2021, pages 190-191 pertaining to April, 2021 and pages 205-209 pertaining to May, 2021. However, on a careful scrutiny of the SCN and the relied upon documents annexed thereto, it becomes evident that no documentary evidence or corroborative material has been placed on record to substantiate the bald assertion that the said pages indeed contain details of transportation of laminates from any alleged secret premises. The SCN merely proceeds on the basis of the investigating officers’ own interpretation and assumptions regarding the contents of these pages. The actual entries contained therein do not disclose the name of any manufacturer, particulars of the consignor or consignee, invoice number, e-way bill number, description of goods, quantity of laminate, destination, or any other identifiable particulars which could reasonably establish that the entries relate to transportation of printed laminates to the Respondent or any other Pan Masala manufacturer. Thus, the very premise on which the Department seeks to rely upon File No.17 remains unsupported by any objective or independent evidence.
6. The Department has primarily relied not only upon File No.17 but also upon the statement of Shri Sujeet Kumar Singh recorded on 25.06.2021, wherein he allegedly stated that pages 25-26 and certain other pages contained date-wise details of laminate transported to Pan Masala units situated in Kanpur. However, a critical examination of the said statement reveals that Shri Sujeet Kumar Singh has nowhere stated that the pages referred to in the SCN pertain to transportation of laminate in piecemeal from any secret premises situated in Kanpur to the Respondent, namely M/s AJSPL, manufacturing SNK brand Pan Masala. The statement has been selectively interpreted by the Department to attribute a meaning which is conspicuously absent from the actual deposition. The findings recorded in the SCN, therefore, are not based upon what Shri Sujeet Kumar Singh actually stated but upon an inference subsequently drawn by the investigating officers. Such selective reading and embellishment of the statement cannot constitute legally admissible evidence against the Respondent.
7. The inherent fallacy in the Department’s interpretation becomes further apparent from the very entries relied upon by it. The first entry appearing on page No.26 of File No.17 records the following particulars:-
Date Vehicle No. Box Brand
1 5823 13 Sudh Plus
8. It is an admitted and undisputed fact that during the relevant period from December, 2020 to June, 2021, the brand “Sudh Plus” was being exclusively manufactured by M/s KGPPPL, Gorakhpur and not by any manufacturer of Kanpur. This undisputed factual position completely demolishes the Department’s allegation that the entries contained in the said pages relate exclusively to transportation of laminates from a secret premise in Kanpur to the manufacturing units of Pan Masala at Kanpur. If the very first entry pertains to a brand admittedly manufactured at Gorakhpur, the Department’s sweeping assumption that the entire record pertains to clandestine transportation to Kanpur-based manufacturers becomes inherently unreliable and factually unsustainable.
9. What further weakens the Revenue’s case is the admitted position that the DGGI itself was fully aware that “Sudh Plus” was being manufactured at Gorakhpur. In fact, on the basis of the very same File No.17, the Department had issued a separate SCN to M/s KGPPPL, Gorakhpur alleging an identical modus operandi whereby laminate was allegedly diverted to Gorakhpur under the camouflage of manipulated invoices, purportedly corroborated through E-Way Bill portal data. Having taken such a stand in proceedings against M/s KGPPPL, the Department cannot, in the present proceedings, simultaneously contend that the very same entries contained in File No.17 represent clandestine transportation of laminate to the manufacturers at Kanpur. Such mutually destructive and inconsistent stands adopted by the Department on the basis of the same set of documents demonstrate a selective, contradictory and self-serving interpretation of the evidence.
10. These contradictions assume considerable significance because they strike at the very reliability of File No.17 and expose the speculative nature of the Department’s entire investigation. The investigation has failed to identify the alleged secret premises, failed to establish the ownership or possession thereof, failed to identify the person operating the said premises, failed to establish transportation from such premises to the Respondent’s factory, and failed to produce any corroborative documentary evidence connecting the disputed entries with the Respondent. In these circumstances, the reliance placed upon File No.17 and the selectively interpreted statement of Shri Sujeet Kumar Singh to fasten excise liability upon the Respondent is wholly misplaced. The findings recorded in the SCN are founded entirely upon conjectures, assumptions and inferential reasoning rather than legally admissible evidence. Consequently, no adverse inference can be drawn against the Respondent merely on the basis of such unverified and internally inconsistent material, and the Department’s allegations, being devoid of credible evidentiary support, are liable to be rejected in limine.
11. We find that the most fundamental infirmity in the Revenue’s case is that the entire demand, involving duty and cess of approximately Z27 crores, has been raised not on the basis of any direct evidence of clandestine manufacture or removal but solely upon a series of assumptions and presumptions originating from File No.17 recovered from a third party. Even assuming, though not admitting, that the entries contained in the said file represent transportation of printed laminates, the Department was still required, in accordance with settled principles governing third-party records” target=”_blank” rel=”noopener”>clandestine removal, to establish through independent and cogent evidence that the alleged laminate actually reached the Respondent’s factory, was received by the Respondent, was consumed in the manufacture of excisable goods, that such manufacture actually took place, and that the finished goods were thereafter clandestinely cleared without payment of duty. None of these foundational facts has been established by the Department.
12. The investigation is conspicuously silent regarding the actual receipt of laminate at the Respondent’s factory. No unloading records, gate registers, weighbridge slips, inward registers, warehouse records, acknowledgement of receipt, inventory records or stock reconciliation statements have been relied upon. No officer or employee responsible for receiving the alleged consignments has been examined. No transporter has stated that the disputed consignments were actually unloaded at the Respondent’s premises. Thus, even the alleged delivery of laminate remains unproved. It is trite that an alleged movement of goods reflected in a third-party record cannot, by itself, establish actual delivery. Likewise, delivery cannot establish receipt, receipt cannot establish consumption, consumption cannot establish manufacture and manufacture cannot establish clandestine clearance. Every one of these stages constitutes an independent fact in issue requiring independent proof. The Department has failed to establish even the first link in this chain.
13. What is even more startling is that the Department has raised a colossal demand by assuming that every kilogram of laminate allegedly reflected in File No.17 stood entirely converted into finished Pan Masala pouches. There is absolutely no investigation regarding wastage, rejection, damage, spoilage, quality control losses, obsolete stock or unused laminate. The Department has proceeded as if every gram of laminate necessarily resulted in manufacture of marketable excisable goods, an assumption which has no technical or legal basis whatsoever. The allegations become even more untenable when the Department proceeds to raise an independent demand of approximately Rs.27 Cr., on Scented Chewing Tobacco. Admittedly, there is not a single piece of evidence collected during investigation regarding clandestine manufacture or clearance of tobacco. No investigation has been conducted regarding procurement of raw tobacco, kimam, flavours, menthol, edible lime, catechu or any other raw material required for manufacture of chewing tobacco. No supplier of tobacco has been examined. No purchase records have been scrutinized. No evidence has been produced regarding clandestine procurement of tobacco raw materials. In fact, the investigation in relation to tobacco is completely non-existent. Instead of collecting evidence relating to tobacco, the Department has merely proceeded on the alleged “prevalent market practice” that every pouch of Pan Masala is invariably sold along with one pouch of chewing tobacco. Proceeding on this sweeping assumption, the Department has presumed that the number of tobacco pouches clandestinely manufactured and cleared must necessarily be equal to the number of Pan Masala pouches allegedly manufactured. This assumption alone has resulted in fastening an excise duty and NCCD liability of approximately Z27 crores upon the Respondent.
14. Such a methodology is wholly alien to fiscal jurisprudence. Tax liability cannot be fastened merely on the basis of alleged commercial practice or prevailing market behaviour. A market practice, even if assumed to exist, cannot substitute legal evidence of manufacture and clearance. Every taxable event must be independently established by the Department. The manufacture of Pan Masala and the manufacture of chewing tobacco are two distinct manufacturing activities involving different raw materials, different manufacturing processes, different excisable goods and separate levy of duty. The Department could not have presumed manufacture of one excisable commodity merely because it suspected manufacture of another. Such a course is completely contrary to the settled principles governing adjudication under the 4.25 Central Excise Act.
15. The investigation also suffers from another fundamental defect. Assuming that the Respondent had manufactured over 233 crore pouches of Pan Masala together with an equal quantity of chewing tobacco pouches during a period of merely six months, such gigantic production could never have been undertaken without corresponding evidence regarding procurement of other essential raw materials, deployment of additional manpower, increased electricity consumption, enhanced production capacity, storage arrangements, transportation infrastructure and financial transactions. Surprisingly, the investigation is completely silent on every one of these vital aspects. There is no evidence whatsoever regarding clandestine procurement of supari, catechu, edible lime, flavours, perfumes, cardamom, tobacco, kimam, menthol, cartons, labels, corrugated boxes, adhesives or other indispensable inputs required for manufacture of such enormous quantities of Pan Masala and chewing tobacco. No supplier has admitted clandestine supply of these materials. No transport records relating to such inputs have been recovered. No financial trail relating to their procurement has been unearthed.
16. Similarly, there is no evidence regarding excess electricity consumption, deployment of additional manpower. Such massive production could never have been achieved without engaging a substantially larger workforce. Yet no attendance registers, wage records, overtime payments, contractor details, labour deployment records or statements of employees have been relied upon. The investigation proceeds as if hundreds of crores of pouches could be manufactured without any human intervention. The Department has also failed to establish transportation of the alleged clandestinely manufactured finished goods. No transporter has admitted transportation of such finished products. No vehicle carrying clandestine goods has ever been intercepted. No lorry receipts, e-way bills, loading slips or destination records have been produced. No buyer has been identified. No dealer has confirmed receipt of clandestinely manufactured goods. No market survey has been conducted. No sale proceeds have been traced. No flow-back of funds has been established. No unaccounted cash or investments have been discovered. Thus, every essential ingredient which the law requires to prove clandestine manufacture and removal is completely absent.
17. A further serious infirmity is noticed in the methodology adopted by the Department for converting the alleged number of boxes appearing in File No.17 into the weight of laminate and thereafter using such derived weight for computation of alleged clandestine production. Since the pages attributed to M/s AJSPL allegedly contained only the number of boxes transported to Kanpur and did not disclose their actual weight, the DGGI selected nine entries from different pages of File No.17 where both the number of boxes and corresponding weight were mentioned, calculated an average weight per box therefrom and applied such average to the boxes attributed to the Respondent. Significantly, the pages from which these nine representative entries were selected do not themselves form part of the pages identified for detail of transport to Respondent, on the basis of which the demand in Table-1A of the SCN has been quantified. Further, except for the entry dated 04.12.2020, the material column merely mentions the brand name without identifying the MRP, specification, size, thickness, dimensions or other particulars of the alleged laminate. The very selection of these entries as representative samples for determining a uniform average weight is, therefore, unsupported by any evidence establishing that the goods contained in those boxes were homogeneous or comparable to the material allegedly attributable to the Respondent.
18. The unreliability of this methodology becomes manifest from the Department’s own data. The entry dated 04.05.2021 records 881 boxes weighing 29,719.45 kg, whereas the entry dated 10.05.2021 records the same 881 boxes weighing only 27,702.75 kg. Thus, despite the number of boxes being exactly identical, there is a difference of 2,016.70 kg in their aggregate weight, which works out to approximately 29 kg per box and a variation of about 7.28% when the lower weight is taken as the base. This is not an insignificant or negligible variation. In our considered view, this is a strong indicator that the contents, specifications, quantity packed per box, or packing configuration were not necessarily identical. However, in the absence of evidence identifying the actual contents of each box, it can certainly be concluded from the Department’s own figures is that uniformity of the contents and weight of the boxes has not been established. Once such uniformity is unproved, the fundamental premise underlying the Department’s averaging exercise disappears. The investigating authority could not first assume that heterogeneous and unidentified consignments were comparable, derive an artificial average weight from selected entries, apply that average to entirely different entries where no weight was recorded, and thereafter treat the resulting estimated quantity as the actual quantity of laminate received by the Respondent.
19. The defect assumes greater legal significance because this is not merely an ancillary calculation. The estimated weight arrived at through this averaging exercise constitutes an essential link in the chain by which the Department has travelled from an unidentified number of boxes in a third-party record to the alleged quantity of laminate, from laminate to the number of Pan Masala pouches allegedly manufactured, and thereafter, on the basis of the alleged “prevalent market practice”, to an equal number of Scented Chewing Tobacco pouches and ultimately to a demand involving approximately X27 crores. Thus, an inherently variable and unverified set of figures has been converted into a supposed mathematical certainty and used as the foundation for an enormous fiscal and penal liability. An estimate founded upon an unproved average cannot acquire the character of substantive evidence merely by subjecting it to further arithmetic calculations. Where the basic conversion factor itself is demonstrably uncertain, every consequential computation based thereon necessarily becomes equally uncertain. We, therefore, find the methodology adopted for determining the alleged weight of laminate from the number of boxes to be arbitrary, statistically unreliable and legally unsafe for sustaining a charge as serious as clandestine manufacture and removal. What emerges from the record is that the Department has attempted to establish one presumption upon another. The first presumption is that File No.17 correctly records transportation of laminate. The second presumption is that such laminate reached the Respondent’s factory. The third presumption is that it was received by the Respondent. The fourth presumption is that it was entirely consumed in manufacture. The fifth presumption is that the resulting goods were clandestinely removed. The sixth presumption is that an identical quantity of chewing tobacco was also manufactured merely because of an alleged prevailing market practice. It is well settled that a presumption cannot be founded upon another presumption. Where the foundational fact itself remains unproved, every consequential inference necessarily collapses.
20. The Hon’ble Supreme Court and various High Courts have consistently held that allegations of clandestine manufacture and removal cannot be sustained on probabilities, assumptions, market perceptions or mathematical calculations. They must rest upon positive, cogent and independent evidence establishing every constituent element of the alleged clandestine activity. The present case falls woefully short of this settled legal standard. The Department has, in effect, sought to levy approximately Z27 crores of duty by replacing legal proof with assumptions based on alleged market practice. Such an approach is fundamentally inconsistent with the scheme of the Central Excise Act, violates the settled principles governing burden of proof and cannot be countenanced in law.
21. Accordingly, we are of the considered view that the entire demand relating to both Pan Masala and Scented Chewing Tobacco is founded upon conjectures, successive presumptions and unverified assumptions rather than legally admissible evidence. The findings recorded by the Adjudicating Authority, as affirmed by the Commissioner (Appeals), therefore call for no interference, and the Revenue’s appeal deserves to be dismissed on this ground alone.
22. The Adjudicating Authority examined the entire evidence threadbare and concluded that the Department had failed to establish clandestine manufacture through legally admissible corroborative evidence. The Commissioner (Appeals), after independent appraisal of the record, concurred with those findings. The Revenue has not demonstrated that these concurrent findings suffer from perversity, misreading of evidence or disregard of any material record. An Appellate Forum ordinarily does not interfere with concurrent findings of fact unless such findings are shown to be manifestly erroneous. No such circumstance exists in the present case.
23. After considering the evidence in its entirety, we find that the Revenue has failed to establish the essential ingredients necessary for sustaining an allegation of clandestine manufacture and removal. The investigation has proceeded substantially on assumptions arising from a third-party transport record without establishing the complete chain of evidence required in law.
34. The demand concerning Tobacco has been computed entirely on presumed market practice without any direct evidence and therefore cannot independently survive. In fiscal jurisprudence, particularly in matters involving clandestine manufacture and penal consequences, the standard of proof is necessarily stringent. Mere suspicion, however grave, cannot substitute proof. The burden cast upon the Department has not been discharged in the present case.
25. Accordingly, we find no infirmity whatsoever in the Order-in-Original dropping the proceedings, as affirmed by the Commissioner (Appeals). The impugned appellate order is legal, proper and calls for no interference. The appeal filed by the Revenue is, therefore, dismissed.
(Order pronounced in open court on – 15.09.2026)
Notes:-
1 M/s AJSPL
2 DGGI
3 SCN
4 M/s BTCPL
5 M/s MSPL
6 M/s GEPL
7 MCA
