ORDER
P.S. Bajaj, Member, (J)
1. The above captioned appeals have been preferred against the common order-in-original dated 31-10-2000 passed by the Commissioner of Central Excise vide which he had confirmed the duty and imposed penalties on the appellants as detailed in the order itself.
2. The appellant No. 1 is a Proprietorship firm engaged in the manufacture of Pan Masala (Sada and Guthka) in the brand name of Pukar falling under sub-heading No. 2105.00 of CETA. The appellant No. 2, Shri Rajkumar Chaurasia, Prop. of M/s. R.P. Products and appellant No. 5, Shri Uday Chand Chaurasia Prop. of M/s. U.P. Marketing are engaged only in the trading of Pan Masala as well as in the raw materials required for the manufacture of Pan Masala. The appellant No. 3, Shri Pankaj Chaurasia, was the landlord of the premises where pouching machines of the firm, appellant No. 1, were found to have been installed at the relevant time; while appellant No. 4, Shri N.K. Pandey, was the accountant in the firm, at that time. On 24-9-1997, the Officers of the Central Excise visited the manufacturing unit of the firm, appellant No. 1, and discovered certain discrepancies with regard to raw materials as well as finished goods. The Officers found that as against the declaration of the firm, appellant No. 1, that only 16 pouching machines were in operation, another 16 pouching machines (7 installed in the factory and 9 in the unregistered premises) were found to be in operation, at that time. The production made through the extra 7 machines was not accounted for in the record by the firm, during the months of August and September, 1997, Besides this, 9 pouching machines were found to have installed in the premises owned by Shri Pankaj Chourasia, appellant, located just opposite the residence of Smt. Asha Chourasia, Proprietor of the firm, appellant No. 1. No declaration in respect of those machines was made by the firm to the Department.
3. The premises of the two trading firms, of appellants No. 2 and 5, were also searched. During the search of the firm, M/s. R.P, Products, cash amount of Rs. 14,38,480/- was recovered. But out of that, Rs. 8,43,000/- was retained on the belief to be the sale proceeds of the Pan Masala manufactured by the firm, appellant No. 1, while the remaining amount was released to that trading firm on 4-10-1997. After completion of the investigation, show cause notice was issued to the appellants vide which 5 bags of Pukar brand Sada Pan Masala containing 34,375 pouches, and 48.00 kgs of loose Sada Pan Masala both valued at Rs. 58,087/- belonging to the firm, appellant No. 1, recovered from the unregistered premises, 9 pouching machines found installed in the unregistered premises, were proposed to be confiscated under Rule 173Q of the Rules. The duty amounting to Rs. 14,300/- due on 8 bags of branded Pan Masala, found short in the factory premises of the firm, appellant No. 1, was also sought to be confirmed. Similarly, the duty amounting to Rs. 32 lakhs was also proposed to be confirmed under Section 11A of the Act. The penalty was also proposed to be imposed on all the appellants. 3 bags of branded Gutkha and 3 bags of branded Sada Pan Masala as well as sale proceeds amounting to Rs. 8,43,000/- recovered from the premises of the firm, M/s. R.P. Products, of appellant No. 2, were also sought to be confiscated. The confiscation of 5 bags of branded Gutkha recovered from the premises of the firm, M/s. U.P. Marketing of appellant No. 5, was also sought to be confiscated. The penalty under Rule 209A of the Act was also proposed to be imposed on all the appellants except, appellant No. 1. That show cause notice was contested by the appellants. The firm, appellant No. 1, denied its liability to pay duty as well as confiscation of the pouching machines and imposition
of penalty. Similarly, the other appellants also denied the imposition of any penalty under provisions of Central Excise Act and the Rules. The Commissioner who adjudicated the show cause notice, did not accept the version of the appellants and passed the impugned order. He confirmed the duty and penalties as proposed in the show cause notice on the appellants.
4. We have heard both sides.
4.1 So far as the confirmation of duty of Rs. 14,300/- in respect of 8 bags of Pukar Brand Sada Pan Masala, found short in the premises of the firm, appellant No. 1, confiscation of 5 bags of Pukar Brand Sada Pan Masala valued at Rs. 44,697.50 and 48 kgs. of loose Sada Masala recovered from the unregistered premises owned by the appellant, Shri Pankaj Chaurasia, and belonging to the firm, appellant No. 1, with an option to get the same redeemed on payments of Rs. 11,000/- and 3,600/- respectively; confiscation of 5 bags of Pukar Brand Gutkha valued at Rs. 44,687/- seized from the premises of the firm, M/s. U.P. Marketing, of appellant No. 5; 3 bags of Pukar Gutkha and Pukar Sada Pan Masala seized from the premises of the firm, M/s. R.P. Products, valued at Rs. 33,576/-, under Rule 173Q of the Rules, with an option to get the same redeemed on payment of redemption fines of Rs. 11,000/- and 8,500/- respectively, as ordered by the Commissioner through the impugned order, is concerned, the correctness of the same has not been questioned before us by the learned Counsel. Therefore, the impugned order of the Commissioner in this regard is affirmed.
5. The learned Counsel has, however, contested and questioned the validity of that part of the order of the Commissioner, vide which the duty demand of Rs. 32,00,000/- for the months of August and September, 1997 had been confirmed confiscation of 9 pouching machines redeemable on payment of fine of Rs. 65,000/- and of the cash amount of Rs. 8,43,000/- under Section 121 of the Customs Act and imposition of penalties on all the appellants, has been ordered.
6. The learned Counsel has contended that the duty demand of Rs. 32,00,000/- has been confirmed by the Commissioner not on the basis of actual production and clandestine removal, if any, of the Pan Masala allegedly made by the firm, appellant No. 1, during the months of August and September, 1997, but on the ground that the Department had fixed certain norms which were accepted by the association of the Pan Masala manufacturers and under which the manufacturers agreed to pay duty @ Rs. 1 lakh per machine per month. The duty demand on the basis of such an undertaking which had no legal force and to which even the firm, appellant No. 1, was not a party, could not be legally confirmed. The learned SDR has simply reiterated the correctness of the impugned order in this regard of the Commissioner.
7. We have gone through the impugned order and the record. We find that this demand has been confirmed mainly on the ground that the association of Pan Masala manufacturers had arrived at an understanding with the Department vide which they agreed to pay the duty @ Rs. 1 lakh per machine per month. On the basis of that understanding, the Commissioner has raised the demand by taking into consideration the extra number of machines (16 in number), which were allegedly operated by the firm, appellant No. 1, during the months of August and September, 1997. But, there is nothing on the record to suggest if such an understanding was given a legal force, There is also no evidence to suggest that the firm, appellant No. 1, was also a party to such an understanding. Therefore, no duty demand on the basis of such an understanding could be legally affirmed. The duty could be affirmed only by taking into account the total production of the goods and the clearances of the same made by the firm, appellant No. 1, in these two months without payment of duty in a clandestine manner.
8. Even otherwise, there is no reliable evidence on the record to prove that extra 16 machines on the basis of which the duty @ Rs. 1 lakh per machine per month, had been calculated and affirmed against the firm, appellant No. 1, were used for the manufacture of Pan Masala during the disputed two months. As per the allegations in the show cause notice, 7 extra machines were found to be installed in the factory premises, while the other 9 machines were installed in the unauthorised premises taken on rent by the firm, appellant No. 1, from Shri Pankaj Chourasia, appellant. But there is no reliable evidence on the record to prove the actual user of any of these machines. No evidence has been brought on record regarding the quantity of the extra raw material purchased, electricity consumed by the firm, appellant No. 1, during the months of August and September, 1997. No statement of any buyer had been recorded to whom the Pan Masala was disposed of allegedly without payment of duty by the firm. The total quantity of even the Pan Masala manufactured during these two months and allegedly cleared in a clandestine manner had not been determined and proved on the record. No presumption regarding the user of the 7 machines installed in the factory premises could be drawn from the simple fact that their sale seals were found to be broken. Similarly, regarding the other 9 machines allegedly installed in unauthorised premises, no evidence has been brought on record to establish that those were also used in the manufacture of the branded Pan Masala by the firm, appellant No. 1. No raw material lying in that room for the manufacture of the Pan Masala was found. The finished goods allegedly lying there belonged to the trading firm, M/s. R.P. Products/M/s. U.P. Marketing and not to the firm, appellant No. 1. No evidence regarding the procurement of raw material and consumption of the electricity during the disputed months by the firms, while allegedly operating these machines for manufacture of Pan Masala, had been brought on record. From the mere installation of these machines, no presumption could be drawn that the same must have been used for the manufacture and removal of the Pan Masala in a clandestine manner by the firm, appellant No. 1. It is well settled that no duty demand can be affirmed for clandestine removal of the goods against the assessee on the strength of assumptions and presumptions. Such a demand can be confirmed only on the basis of cogent and tangible evidence. Therefore, for want of any reliable, tangible and convincing evidence, the impugned order of the Commissioner confirming the duty demand of Rs. 32 lakhs against the firm, appellant No. 1, along with equal amount penalty under Section 11AC and 173Q of the Rules, cannot be legally sustained and is set aside.
9. Since the user of the 9 Pan Masala Pouching Machines by the firm, appellant No. 1, allegedly installed at the rented premises, 1/37 (Ga), Khursheed Bagh, Lucknow, owned by appellant No. 3 for the manufacture of Pan Masala does not stand proved, as observed above, the confiscation of the same as ordered by the Commissioner, cannot be sustained and is set aside.
10. The learned Counsel, regarding the confiscation of cash of Rs. 8,43,000/- under Section 121 of the Customs Act, has contended that there is no evidence on the record to prove that this amount was the sale proceeds of the Pan Masala allegedly sold in a clandestine manner without payment of duty by any of the appellants. The learned SDR has not been able to contest this contention of the learned Counsel on any valid ground. We have also gone through the impugned order and the record, and we find that at the time of taking search of the premises of trading firm, M/s. R.P. Products, in all, Rs. 14,38,480/- were recovered. But out of this amount Rs. 6,45,480/-were released by the Commissioner himself on 4-10-1997. The rest of the amount of Rs. 8,43,000/- had been confiscated on the ground that the same was the sale proceeds of the Pan Masala manufactured by the firm, appellant No. 1, and cleared without payment of duty. But there is no reliable evidence on the record to substantiate the order of the Commissioner in this regard. Section 121 of the Customs Act is attracted only where the smuggled goods are sold by person having knowledge or reason to believe that the goods were smuggled one. It is only in that event, the sale proceeds of the smuggled goods, are liable to be confiscated under the said Section. But, in the instant case, the currency has not been found from the premises of the firm, appellant No. 1, which is manufacturer of the branded Pan Masala and Gutkha, but from the premises of trading firm, M/s. R.P. Products. Shri Rajkumar Chourasia, appellant, in his statement dated 4-10-1997 only stated that this amount was the sale proceeds of the Pan Masala, but he had nowhere conceded that the said Pan Masala was manufactured and cleared by the firm, appellant No. 1, without payment of duty. There is also no evidence on the record to prove his knowledge about the non-payment of duty on the clearances of the Pan Masala during the disputed two months, referred to above, by that firm. Therefore, the confiscation of this amount by invoking the provisions of Section 121 of the Customs Act could not be ordered by the Commissioner and we, accordingly, set aside his order in this regard.
11. Regarding the imposition of penalties, the learned Counsel has contended that no penalties could be imposed on the proprietors (appellants No. 2 and 5) when their firms had been separately penalised. He has also submitted that penalties on other appellants deserve to be reduced. We have gone through the impugned order and the facts on record, and in the light of the discussion made above, in our view, the contention of the learned Counsel deserves to be given due weight. The penalty imposed on the firms, M/s. R.P. Products and M/s. U.P. Marketing is of Rs. 10,000/- each. This penalty, in our view, is quite reasonable and needs no reduction. But the penalties imposed on Shri Rajkumar Chaurasia, appellant No. 2, of Rs. 50,000/- and Shri Udai Chand Chaurasia appellant No. 5, of Rs. 2,00,000/-, deserve to be set aside, as they are proprietors of the firms, M/s. R.P. Products and M/s. U.P. Marketing respectively, on which penalties had already been imposed under Rule 209A of the Act and legally no separate penalties on them, under the law, could be imposed.
12. On Shri Pankaj Chaurasia, appellant No. 3, penalty of Rs. 50,000/- under Rule 209A of the Rules has been imposed. He only rented out his premises to the firm, appellant No. 1. Therefore, keeping in view his role, the penalty on him is reduced to Rs. 25,000/- (Rupees twenty-five thousand only). However, the penalty of Rs. 5,000/- on Shri N.K. Pandey, appellant No. 4, who was accountant of the firm, appellant No. 1, under Rule 209A, is maintained.
13. In view of the discussion made above, the impugned order of the Commissioner partly stands affirmed and partly set aside to the extent, detailed above. The appeals of the appellants stand disposed of in the above terms.