M/S Arunaday Tobacco Industries , Kalahandi Vs Union of India

-------------------------------------------------------------------------------------------- Dates of Hearing: 6^th August, 2024 and 21^st November, 2024 Date of Judgment: 21^st November, 2024

¶16

ARINDAM SINHA, J.

¶17

1. Mr. Behura, learned advocate appears on behalf of petitioner and submits, under challenge is order in original dated 24^th April, 2019 directing recovery of Central Excise duty amounting to ₹2,70,52,503/under mentioned therein provisions. He submits, the demand is without

¶18

basis. There was a machine purchased by his client for automatic

¶19

Page 1 of 7

¶20

Form, Fill and Seal (FFS) regarding manufacture of chewing tobacco. That machine was never used. His client himself invited the authority to seal the machine. It remained sealed. After one year of the sealing there was inspection made. Second inspection was made after two years of the sealing. There was allegation that the seal was broken. Panchnama dated 27^th July, 2014 was drawn up. His client was not given opportunity to cross-examine the panchanama witnesses.

¶21

2. Purported basis for the demand is alleged discovery of the seal broken. There is no corroborative evidence regarding corresponding or any purchase of raw materials, sales or evidence from his client’s bank account or otherwise to show operation of the machine given rise to the demand.

¶22

3. He submits further, on 17^th July, 2012 officers from the department came to his client’s factory and inspected the machine. It was found to be in un-sealed condition as alleged. He reiterates, there was no evidence to assert the seal was broken. The two independent witnesses, who had signed the panchanama could not be crossexamined as not permitted. It renders the evidence as not tested and, therefore, unreliable. There is no basis for impugned show cause notice and demand.

¶23

4. Mr. Mishra, learned advocate, Senior Standing Counsel appears

¶24

on behalf of the department and submits, additional affidavit has been

¶25

W.P.(C) no. 13468 of 2019 Page 2 of 7

¶26

filed pursuant to direction earlier given by us on order dated 6^th August, 2024. He relies on rules 3 and 6(4) in Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010. On surprise inspection pursuant to intelligence had, it was found that the machine seal was broken. There was available electric connection. In the circumstances it was clear case of fraud practiced by petitioner in the matter of evading payment of excise duty on operating machine in clandestine manner. Petitioner having held out that he is not using the machine, by doing so had thereby practiced fraud. It is an ingredient in section 11A of Central Excise Act, 1944 for recovery of livable excise duty, not paid. There be no interference.

¶27

5. We have ascertained that the panchanama witnesses were not allowed to be cross-examined by petitioner. At this stage Mr. Mishra points out from cross-examination of petitioner himself that he gave vague reply regarding the seal having been broken. Reproduced below is question-5 and answer thereto given by petitioner in crossexamination.

¶28

“Q.5. The officers of Central Preventive Unit, Bhubaneswar-I made a surprise visit to the premises of your firm on 27.7.2014. On verification of your premises, an automatic electrical pouch packing machine was found in the adjacent room to the garage. The machine

¶29

W.P.(C) no. 13468 of 2019 Page 3 of 7

¶30

was not sealed with Central Excise seal. What do you want to say in this regard?

¶31

Ans. This machine has been sealed by the Range Officer, Therubali Range on 16.3.2011, which was subsequently found sealed by the officers of DGCEI, Rourkela on 17.10.2012. Copy of Panchanama dated 17.10.2012 made by the DGCEI submitted for your perusal. We have not manufactured any pouch by using the said machine since then. On 27.7.2014, the machine was also in sealed condition, however, I do not know how the machine found un-sealed . Moreover, there is no shoot (the mechanical part of the machine over which the pouch packing roll moves on during manufacturing process) and pouch packing roller available either with the machine or in the whole premises which shows the machine was not in use condition. From the above circumstances, it is clear that the said machine was not in use.”

¶32

(emphasis supplied)

¶33

6. In impugned order the Commissioner relied on rule 9 and

¶34

section 11-A. Rule 9 provides for manner of payment of duty and interest. It is obvious that the demand of, inter alia, duty made for period commencing from 17^th October, 2012 to 27^th July, 2014 was broken up into smaller periods by application of the rule. Power invoked to recover excise duty was under section 11-A.

¶35

W.P.(C) no. 13468 of 2019 Page 4 of 7

¶36

7. Apart from petitioner’s contention that no corroborative evidence, inter alia, in respect of any finished product found in the inspection as said to have been manufactured by operation of the machine was produced, he himself in cross-examination had asserted, the machine stood sealed but he did know how it could be found unsealed. There is no dispute that petitioner was not present when the inspection took place. There were two persons, who signed the panchanama as witnesses.

¶37

8. Mr. Mishra submits, refusal to allow cross-examination of the panchanama witnesses is not fatal to impugned order being sustained. He relies on judgment of the Supreme Court in Telstar Travels (P) Limited v. Enforcement , reported in (2013) 9 SCC 549 , paragraphs 25 to 28. Paragraph 28 is reproduced below.

¶38

“28. Coming to the case at hand, the adjudicating authority has mainly relied upon the statements of the appellants and the documents sized in the course of the search of their premises. But, there is no dispute that apart from what was seized from the business premises of the appellants, the adjudicating authority also placed reliance upon the documents produced by Miss Anita Chotrani and Mr Raut. These documents were, it is admitted, disclosed to the appellants who were permitted to inspect the same. The production of the documents duly confronted to the appellants was in the nature of

¶39

W.P.(C) no. 13468 of 2019 Page 5 of 7

¶40

production in terms of Section 139 of the Evidence Act, where the witness producing the documents is not subjected to cross-examination. Such being the case, the refusal of the adjudicating authority to permit crossexamination of the witnesses producing the documents cannot even on the principles of the Evidence Act be found fault with. At any rate, the disclosure of the documents to the appellants and the opportunity given to them to rebut and explain the same was a substantial compliance with the principles of natural justice. That being so, there was and could be no prejudice to the appellants nor was any demonstrated by the appellants before us or before the courts below. The third limb of the case of the appellants also in that view fails and is rejected.

¶41

(emphasis supplied) 9. To better understand above declaration of law we reproduce

¶42

below section 139 from since repealed Indian Evidence Act, 1872.

¶43

“ 139. Cross-examination of person called to produce a document .- A person summoned to produce a document does not become a witness by the mere fact that he produces it, and cannot be cross-examined unless and until he is called as a witness .”

¶44

(emphasis supplied) The panchanama witnesses were not persons called to produce document(s) from their custody. Section 139 in the Evidence Act does not apply to the panchanama witnesses. They were said to be witnesses

¶45

W.P.(C) no. 13468 of 2019 Page 6 of 7

¶46

as had signed the panchanama. Clear case of petitioner made out is, he

¶47

was not allowed to cross-examine the witnesses, who had signed the panchanama, it carrying statement that the seal was broken. It turns out

¶48

that the department is relying on documentary evidence of the panchanama, contents of which were not tested by cross-examination of the witnesses to it.

¶49

10. In view of aforesaid, we must intervene. Impugned adjudicating order is set aside and quashed. The department may proceed afresh but will be required to prove that the seal was found to be broken and the machine was used, before there can be presumption and application of rule 9 regarding manner of payment. Mr. Mishra submits, the rules do not require establishment of the machine being in use. All that is necessary is its installation. The objection would have held good if it was a matter of installation. The case is of a machine not in use, alleged to be used.

¶50

11. The writ petition is disposed of.

¶51

(Arindam Sinha) Judge

¶52

Signature Not Verified (M.S. Sahoo) Digitally Signed Judge

¶53

Digitally Signed Signed by: SISIR KUMAR SETHI Reason: Authentication Location: ORISSA HIGH COURT Sks Date: 22-Nov-2024 14:41:26

¶54

W.P.(C) no. 13468 of 2019 Page 7 of 7

M/S Arunaday Tobacco Industries , Kalahandi v. Union of India

Case brief

What is this about?

What did the court decide?

M/S Arunaday Tobacco Industries , Kalahandi v. Union of India

Case brief

What is this about?

What did the court decide?

Why is it important?

What the court decided

Issues for consideration

Cases cited

Statutes considered

Procedural history

Parties & counsel

Coram

Case details

Similar cases

Sridhara Kumar Acharya Vs State of Odisha

Manini Sahoo Vs State of Odisha

Minati Mahalik@Jena Vs State of Odisha

Principal Commissioner of Income Tax (Central) Vs Indrani Patnaik

Narmada Sahoo Vs Rajesh Kumar Behera

Gouri Mantri Vs State of Odisha