Brief of the Case
Delhi High Court held In the case of Rakesh Kumar Garg & others vs. CCE that the SCN which proposed the penalty would have to make out a case for how Rule 26 is attracted. In the present case, apart from merely stating that the three Appellants were in control of the affairs of the company engaged in manufacturing pan masala and gutka of ‘Rajdarbar’ brand, there is nothing in the SCN which points to how they were actually involved in the transporting, removing or clearing of excisable goods. Also considering that statements implicating the appellants were retracted, the CCE and the CESTAT should have produced other independent corroborative evidence. That clearly was not available in the present case. Hence, the requisite evidence necessary for levy of penalty under Rule 26 of the CE Rules 2002 was not brought on record by the Department and, therefore, the levy of penalty not sustainable.
Facts of the Case
M/s. Amar Jyoti Packers (‘AJP’), a sole proprietary firm of which Ms. Mahesh Kumar Gautam was sole proprietor, was engaged in manufacturing pan masala and gutka of ‘Rajdarbar’ brand. Mr. Devi Das Garg (the Appellant in CEAC No. 3 of 2011), was one of the two partners of M/s. Sonal Food Products (‘SFP’) which owns the ‘Rajdarbar’, ‘Rahat’, ‘Rustam’, and ‘Raj Tilak’ brands used to manufacture gutka and pan masala by AJP. One of his sons Mr. Santosh Kumar Garg (the Appellant in CEAC No. 2 of 2011) is the other partner in SFP. Mr. Rakesh Kumar Garg (the Appellant in CEAC No. 1 of 2011) is the other son of Mr. Devi Das Garg.
On 13th April 2000, AJP entered into a franchisee agreement with SFP for using the aforementioned brand names. Six months thereafter, i.e., on 20th October 2000, the department conducted searches in the premises of AJP and the suppliers of raw materials of AJP. They recorded the statements of Mr. Vinod Kumar Bansal, an Accountant as well as authorized signatory of AJP. They also recorded the statements of Mr. Manoj Bansal, the Manager of M/s. Surya Traders (‘ST’). Ultimately it was on 20th May 2004 that a show cause notice (‘SCN’) was issued raising a duty demand of Rs. 33,20,03,239 to M/s AJP, M/s. ST, the three Appellants herein and Mr. Vinod Bansal.
The central allegation in the SCN was that during the course of the search it was observed that 20 pouch packing machines were found working and these were found manufacturing 200 pouches per minute; that the records for consumption of raw materials in Form IV register and records for production and clearances of finished goods in RG-1 register showed thatlarge quantities of gutka and pan masala had been manufactured and clandestinely cleared without payment of excise duty and thereby there was deliberate evasion of payment of excise duty.
Contention of the Appellants
The ld counsel of the appellants submitted that the CESTAT erred in failing to notice that no penalty could have been imposed on the Appellants under Rule 26 of the CE Rules 2002 as there was no allegation in the SCN or any conclusion drawn in the order in original by the CCE or by the CESTAT itself to the effect that any of these Appellants ever received or purchased any goods from AJP or sold any goods manufactured by AJP. There was no evidence also that any of the Appellants supervised the dispatch or the removals made by AJP or provided any distribution network assistance to it or transported stored any goods or provided any premises for production or storage of any goods. There was no evidence that any of the Appellants appointed any supervising staff in AJP. In other words, none of the ingredients of Rule 26 stood satisfied. There was no evidence that any of these Appellants received money out of the sales made by AJP or any profits there from or provided machines to AJP or any financial assistance for its activities of clandestine removal of excisable goods. As regards the allegation that most of the companies in which Mr. D.D. Garg was Director gave interest free loan to AJP without security, the CESTAT failed to notice that the entire loan amount was repaid by AJP even prior to the date of search.
As regards the retraction by Mr. Gautam of his statement, it is urged byMr. Kant that the CESTAT overlooked the legal position explained in K. I. Pavunny v. Assistant Collector of Central Excise, 1997 (90) ELT 201(SC), Ravindran @ John v. Superintendent of Customs 2007 (80) RLT 427 and Mahindra Chadnra Dey v. CEGAT 1992 (58)ELT 192 (Ca1.) and several orders of the CESTAT itself which required independent corroboration of retracted statements before they could be relied upon. It was not noticed that as far as Mr. Gautam was concerned, there were several acts done by him which substantiated the plea that he was in fact the proprietor of AJP.
Contention of the Revenue
The ld counsel of the revenue submitted that the CCE had undertaken a detailed analysis of the evidence on record and in particular the evidence of Mr. Mahesh Kumar Gautam. He submitted that the involvement of the three Appellants in the affairs of AJP was convincingly established. He submitted that with the dismissal of AJP’s appeal by the CESTAT, the order-in-original of the CCE, as far as the liability of AJP was concerned, became final. It is no longer open, therefore, even for the Appellants to assail that part of the order of the CESTAT.
Held by CESTAT
The CESTAT has affirmed the order of the CCE in original to the extent of holding that the Appellants are liable for penalty. However, the amount of penalty levied on each of the Appellants was reduced from Rs.25crore, Rs.21crore and Rs.21 crore on Mr. D.D. Garg, Mr. R.K. Garg and Mr. S.K. Garg respectively to Rs.5 crore each.
The CESTAT noted that other than the statement of Mr. M.K. Gautam there was no other independent evidence showing that the Appellants were the persons controlling AJP and its operations. The CESTAT rejected the plea that the said statement retracted by Mr. Gautam on the very next day, was obtained by subjecting him to duress and coercion. According to the CESTAT there was no denial that Mr. Gautam was working only as a pujari on monthly wages of Rs.2,000 to Rs.3,000 in the house of Mr. R.K. Garg and it was difficult to believe that overnight he became the manufacturer of a popular ‘Rajdarbar’ brand Gutka and Pan Masala. According to the CESTAT notwithstanding the retraction of the statement by Mr. Gautam it had the ‘ring of truth’. A reference was made to the decision of the Supreme Court in Vinod Solanki v. Union of India 2009 (233) ELT 157 (SC).
The CESTAT also referred to the fact that the further statements of Mr. Gautam were recorded on 4th November 2003 and 12th March 2004 where he confirmed the earlier statement dated 26th April 2002 as true and correct. In the said statements also, he had stated that the machines installed in AJP had been taken from M/s. Krishna Packers on credit and that both M/s. Krishna Packers and M/s. ST were related to the Garg family. In that view of the matter, all three statements of Mr. Gautam were treated as voluntary and hence admissible in evidence.
The CESTAT also referred to the statement of Mr. Dev Kumar Sharma dated 20th October 2000, which had not been retracted, which stated that it was the Gargs who were the actual owners of M/s. ST and that the raw materials, i.e., supari, tobacco, illaichi, chuna, kattha, perfumes etc., were being supplied by M/s. ST after grinding and mixing all those and converting them into pan masala/gutka on the instructions of the Gargs.
According to the CESTAT, the above evidence was sufficient to prove the case of the Department against the Gargs. This was even if the gold transactions of Garg family with M/s Surya Ornaments and M/s Shreeji Jewellery were ignored on the ground that these transactions pertained to 1998-99 and 1999-2000 period, whereas the period of duty evasion was from 1st April 2000 to 31st August 2002. Further the Gargs themselves have adduced no evidence to show that they had no connection with ST and AJP other than the agreement of NFPL with AJP regarding the use of ‘Rajdarbar’ brand. A reference was made to the decision of the Supreme Court in Naresh J. Sukhawani v. Union of India 1996 (83) ELT 258 (SC) and it was held that the statement of Mr. Gautam was in the nature of an inculpable statement of a co-accused which could be used as substantive evidence against Mr. Gautam. Further the statement was corroborated by the statements of Mr. Dev Kumar Sharma and Mr. V.K. Bansal.
Held by High Court
High Court held that as per rule 26 of the CE Rules 2002, for the purposes of levy of penalty the Department would have to show the actual involvement of the person sought to be penalised in the actions of possessing, transporting, removing, keeping, concealing, selling or purchasing, etc. of the excisable goods, which he knows or has reason to believe are liable to confiscation.
In Gian Mahtani v. The State of Maharashtra AIR 1971 SC 1898 it was observed by the Supreme Court that the main accused, who played the leading role “in extensive smuggling operations on his own admission” did create a serious suspicion but “according to the system of jurisprudence which we follow, conviction cannot be based on suspicion nor on the conscience of the Court being morally satisfied about the complicity of an accused person.”
The SCN which proposed the penalty would have to make out a case for how Rule 26 is attracted. In the present case, apart from merely stating that the three Appellants were in control of the affairs of AJP, there is nothing inthe SCN which points to how they were actually involved in the transporting, removing or clearing of excisable goods by AJP. The SCN at the same time acknowledges that AJP is an independent entity against whom the SCN was also issued and against whom a separate order has been passed confirming the demand of duty and interest, apart from penalty. The mere fact that challenge by the AJP to the adjudication order failed, on account of its appeal being dismissed in default by the CESTAT, does not preclude the Appellants from showing that the penalty against them is not justified in law.
The main evidence relied upon by the Department in support of its case against the Appellants herein is that of Mr. Mahesh Kumar Gautam. As already noticed there were three statements made by him. The first one was on 26th April, 2002 where he is supposed to have made several incriminating statements to the effect that the actual owners of AJP were the Gargs. However, this was retracted by him at the earliest available opportunity by lodging an FIR to the police and also by producing the medical certificate in support of his contention that the statement had been extracted under duress and coercion.
The decision in K.I. Pavunny v. Assistant Collector, Central Excise 1997 (90) ELT 201(SC), holds that where a confession is shown to be involuntary, as a matter of prudence, the authority should seek some independent corroboration. In the present case the fact that an FIR was registered by Mr. Gautam against the excise officials immediately after the statement was given is a strong indication of the lack of voluntariness in making the statement.
In Ravindran and Peter John v. The Superintendent of Customs 2007-TIOL-89-SC-CUS, the Supreme Court cautioned that a confession cannot form the sole basis of a conviction under the Customs Act. Two other decisions that are relevant in this context are V. Ananthraman v. Union of India 2003 (151) ELT 278 (Bom.) and Nicco Corporation Ltd. V. Commissioner of Service Tax 2014 (307) ELT 228 (Cal.).
Considering that Mr. Gautam’s statements implicating the Appellants were retracted, the CCE and the CESTAT should have produced other independent corroborative evidence. That clearly was not available in the present case. It is the statement of Mr. Gautam that has been relied upon to hold that there was ‘maximum involvement’ of Mr. Rakesh Kumar Garg in the clandestine activity although as already noticed hereinbefore the statement of Mr. Gautam was a weak evidence. Even in the statement of Mr. Santosh Garg, there was no admission about his being involved in the management or control of AJP. No cross-examination was offered of any of the witnesses whose statements were relied upon in the order of the CCE.
As regards Mr. Rakesh Kumar Garg, his connection with SFP or AJP was not established. As far as Mr. Santosh Kumar Garg is concerned, the link between SFP of which he was a partner and AJP as far as manufacturing and sale of gutka and clandestine removal is concerned has not been established. All that was brought on record was that SFP received royalty payments regularly from AJP. As far as Mr. Devi Das Garg is concerned, the Department does not deny that he is a permanent resident of Mathura and there is no evidence on record specifically connecting him with the activities of AJP.
The Court holds that the requisite evidence necessary for levy of penalty on each of the Appellants under Rule26 of the CE Rules 2002 was not brought on record by the Department and, therefore, the levy of penalty was in the first place is unsustainable.
Accordingly appeal of the appellants allowed.