Custom, Excise & Service Tax Tribunal
Natwar Lal Sharda vs New Delhi on 6 April, 2026
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. I
EXICSE APPEAL NO. 50198 OF 2025
(Arising out of Order-in-Original No. 144/2024-CE dated 27.09.2024 passed by the
Additional Director of General (Adjudication), New Delhi)
Shri Natwar Lal Sharda, .....Appellant
M-38-39, Mahesh Colony,
Near Tonk Phatak,
Jaipur - 302015
VERSUS
Additional Director of General .....Respondent
(Adjudication)
West Block VIII Wing-6,
2nd Floor, R.K. Puram,
New Delhi
APPEARANCE:
Shri J.C. Patel and Shri Nilesh Choudhary, Advocates for the Appellant
Shri P.R.V. Ramanan, Special Counsel for the Department
WITH
EXICSE APPEAL NO. 50082 OF 2025
(Arising out of Order-in-Original No. 144/2024-CE dated 27.09.2024 passed by the
Additional Director of General (Adjudication), New Delhi)
The Commissioner, .....Appellant
CGST & Central Excise,
GST Building, Dhamtari Road, Tikrapara,
Raipur (C.G.) - 492001
VERSUS
Shri Natwar Lal Sharda, .....Respondent
M-38-39, Mahesh Colony,
Near Tonk Phatak,
Jaipur - 302015 & others
APPEARANCE:
Shri P.R.V. Ramanan, Special Counsel for the Department
Shri J.C. Patel and Shri Nilesh Choudhary, Advocates for the Respondent
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
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Date of Hearing: 19.02.2026
Date of Decision: 06.04.2026
FINAL ORDER NO's. 50669-50670/2026
JUSTICE DILIP GUPTA:
Excise Appeal No. 50198 of 2025 has been filed by Natwar Lal
Sharda 1 to assail that portion of the order dated 27.09.2024 passed by
the Additional Director General (Adjudication), West Block VIII Wing-6, 2nd
Floor, R.K. Puram, New Delhi 2 that confirms the imposition of central
excise duty upon him under section 11A(10) of the Central Excise Act,
1944 3 for the period from April, 2016 to January, 2017 with interest and
penalty after invoking the extended period of limitation contemplated
under section 11A(4) of the Central Excise Act. The order also confiscates
the pan masala and gutkha that were seized under Panchnama dated
30.01.2017 under rule 25 of the Central Excise Rules 2002 4 read with rule
18 of the Pan Masala Packing Machines (Capacity Determination and
Collection of Duty) Rules 2008 5. The order, however, drops the demand of
central excise duty for the period from April, 2015 to March, 2016.
2. Excise Appeal No. 50082 of 2025 has been filed by the
department to assail that portion of the order dated 27.09.2024 passed by
the Additional Director General that drops the demand of central excise
duty raised against the appellant for the earlier period from April, 2015 to
March, 2016.
3. The main issue that arises for consideration in the appeal filed by
the appellant is whether the appellant is the "manufacturer" of pan masala
1. the appellant
2. the Additional Director General
3. the Central Excise Act
4. the 2002 Rules
5. the 2008 Rules
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and gutkha alleged to have been clandestinely manufactured in and
cleared from an unregistered factory located at Khasra No. 1340, Village
Balenga, District Bastar, during the period April, 2016 to January, 2017
and consequently, whether the demand for duty on such goods with
interest from the appellant and imposition of penalty on the appellant are
sustainable in law.
4. The appellant is the Managing Director of Sanwaria Sweets P. Ltd.,
Jaipur, which is engaged in production and sale of sweets, namkeen and
bakery products. The appellant is also the proprietor of a firm Sharda Food
Products having factory at E-1005, RICO Industrial Area, Phase-III, Jaipur,
which the appellant had let out to S.S. Industries, Jaipur, whose proprietor
is Ram Charan Badaya. The said S.S. Industries, Jaipur, manufactured,
pan masala and gutkha under the brand name "Nazar". The registered
proprietor of the said brand name "Nazar" was originally Ashish Sharda,
nephew of the appellant, who in 2006 assigned the said brand name to
Siddheshwar Tobacco Products Ltd, Pandhurna, M.P., in which the nephew
of the appellant, Mukesh Sharda, was a Director. Siddheshwar Tobacco
Products Ltd had given license/franchise to S.S. Industries, Jaipur, for use
of the said brand name "Nazar". Siddheshwar Tobacco Products Ltd had
also given license/franchise to Siddheshwar Fragrances P. Ltd., Jaipur, for
use of the said brand name "Nazar" in respect of pan masala and gutkha.
5. It is the case of the department, acting on intelligence received by
Director General of Central Excise Intelligence, New Delhi, that
manufacture and clandestine clearance of pan masala and gutkha was
being undertaken at an unregistered factory located at Khasra No. 1340,
Village Balenga, District Bastar. Search was carried out at the said factory
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on 30.01.2017 in the presence of two Panchas and it was recorded in a
Panchnama dated 30.01.2017.
6. The Panchnama records that ten Fill Form Seal 6 machines were
found installed in the said factory, out of which nine machines were in
working condition. Two mixers, one coating machine, one separator
machine, one chakri, three large weighing machines, two small weighing
machines and one heater were also found. The Panchnama also records
that about 30 workers were found working in the factory engaged in
packing of pan masala pouches. As per the Panchnama, raw materials,
namely, cut supari, katha powder, perfume, menthol, glycerine and mixed
compound were found in the said factory and finished goods in plastic
bags as detailed in the Panchnama were also found. Packing material for
the brands, Nazar, Vachan, Virat, Bajirao and Nagpuri were also found.
The Panchnama also records that one Nitin Sabaghchandani, who was
present in the factory, stated that his brother-in-law Rajkumar Menghani
gave him instructions for day to day business of the factory and that the
appellant was the actual beneficiary of the business of the said factory
who gave telephonic instructions to Rajkumar Menghani. The Panchnama
also records that samples from the finished goods were drawn under Test
Memo dated 30.01.2017. A hand written pocket diary was also recovered
during the search. Three mobile phones were also resumed during the
search.
7. The ten FFS machines were sealed and placed under seizure. The
other machines and goods were handed over to Seikh Imran, who was the
owner of the land on which the said factory was located and is also
6. FFS
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claimed to be a worker in the factory under a Supurdnama dated
30.01.2017.
8. A second Panchnama was also drawn on 24.01.2018 in which the
same Panchas were witnesses.
9. Statements dated 30.01.2017 and 31.01.2017 of Nitin
Sabaghchandani were recorded. Nitin Sabaghchandani retracted his
statements by a letter dated 08.04.2017. He was then called on
02.06.2017 by Deputy Director (Investigation) to make his submissions,
to which he replied by a letter dated 01.06.2017.
10. Statements of Rajkumar Menghani were recorded on 30.01.2017,
26.08.2017, 03.01.2018 and 04.01.2018.
11. Statement of Yogesh Talreja was recorded on dated 11.05.2017.
12. Statements of the appellant were also recorded on 30.01.2017 and
27.08.2017. The appellant was arrested on 27.08.20217 and the appellant
filed his retraction of the said statement dated 27.08.2017 by a letter
addressed to the Chief Metropolitan Magistrate, Patiala, New Delhi which
was forwarded to Directorate of Central Excise Intelligence 7 by the
department. In view of the said retraction, further statement of the
appellant was recorded on 15.09.2017. Statements of the appellant were
also recorded on 22.09.2017, 05.12.2017, 07.12.2017, 07.01.2020 and
10.01.2020.
13. Statements of Mukesh (alias Dilip) Agarwal were recorded on
16.06.2017, 26.08.2017, 27.08.20177, 19.09.2017 and 04.12.2017.
14. Statements of Naveen Agarwal, Proprietor of Avtar Traders (supplier
of menthol) were recorded on 26.08.2017, 19.09.2017 and 21.09.2017.
7. DCEI
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15. Statement of Santosh Kumar Tripathi, Partner of Pragati Road
Carriers, Bhalswa Dairy, Delhi was recorded on 12.09.2017.
16. Statement of Devender Singh, Owner of Nagpur Delhi Transport Co.
P. Ltd, was recorded on 11.09.2017.
17. Statement of Pravin Ishwar Tagde, Supervisor of Doble Goods
Garage, Wadi, Nagpur was recorded on 28.09.2017.
18. Statement of Mithilesh Yadavraoji Doble, proprietor of Doble Goods
Carriage, Nagpur was recorded on 28.09.2017.
19. Statement of Pankaj Somani, ex-employee of the appellant was
recorded on 11.09.2017.
20. Statement of Saurabh Ravjibhai Patel (supplier of tobacco) was
recorded on 26.08.2017.
21. Statement of Mehboob Gaud was recorded on 23.09.2017.
22. Statements of Jai Tahiliani, were recorded on 13.04.2017,
18.03.2019 and 22.05.2019.
23. Statement of Rakesh Rajendra Prasad Baid, partner of Jain Brothers,
Nagpur, was recorded on 27.08.2017.
24. Statement of Shantilal Baid of Jain Supari Centre, Nagpur, was
recorded on 27.08.2017.
25. Statement of Manoj Kumar Suarana of Surana Supari Centre,
Nagpur, was recorded on 27.08.2017.
26. Statement of Rajendra Prasad Baid of Jain Brothers/Jain Supari
Centre, was recorded on 23.05.2019.
27. Statement of Manjokumar Surana of Suarana Supari Centre was
recorded on 23.05.2019.
28. Statements of Parichay Lalit Vigh, Partner of Dynasty Aromas,
Mumbai were recorded on 29.09.2017, 13.10.2017 and 16.10.2017.
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29. Statements of Dhananjay Singh, Senior Divisional Manager, Sales
and Marketing of Montage Enterprises P. Ltd, were recorded on
30.11.2017 and 11.12.2018.
30. Statement of Manoj Dubey, Employee of Dixit Roadlines, Jagdalpur,
Bastar, was recorded on 30.01.2017.
31. Statement of Santosh Kumar Dixit, Proprietor of Dixit Road Lines
was recorded on 08.03.2017.
32. It is on the basis of the aforesaid statements and the private diaries
recovered that the show cause notice dated 28.12.2020 was issued by the
Principal Additional Director General alleging that the appellant was
engaged in the manufacture of pan masala and gutkha through 9 pouch
making machines found in factory premises situated at Khasra No.1340,
Village Balenga, District Bastar, Chattisgarh. It called upon the appellant
to show cause as to why:
(i) Central excise duty amounting to Rs.477,32,30,000/- for
the period April, 2015 to January, 2017, should not be
demanded and recovered from the appellant under section
11A (4) of the Central Excise Act read with rule 9, rule 17
(2) and rule 18 of the 2008 Rules;
(ii) Interest at applicable rate, should not be demanded and
recovered from the appellant on the said duty in terms of
rules 9 and 18 of the 2008 Rules; and
(iii) Penalty should not be imposed on the appellant in terms
of rules 17 (1) and 18 of the 2008 Rules read with section
11AC of the Central Excise Act and rule 25 of the Central
Excise Rules.
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33. The appellant denied the allegations made in the show cause notice
by replies dated 30.11.2023 and 16.05.2024 stating:
(i) That the statements recorded under section 14 of the
Central Excise Act could not have been relied upon as the
procedure contemplated in section 9D of the Central
Excise Act had not been followed;
(ii) That opportunity of cross-examination of all such persons
whose statements had been relied upon in the show cause
notice should be provided to the appellant;
(iii) The Panchnamas dated 30.01.2017 and 24.01.2018
claimed to be drawn at the factory at Khasra No.1340,
Balenga, Bastar, cannot be relied upon;
(iv) There is no evidence to establish that the appellant is the
manufacturer of the goods alleged to have been
manufactured and clandestinely removed in the said
factory; and
(v) Without prejudice to the above, in any event, the
quantification of the alleged demand is untenable in law.
34. The two Panch witnesses, Dilip Kumar and Sheikh Shabbir Ali,
named in the Panchnamas dated 30.01.2017 and 24.01.2018 drawn at
factory located at Khasra No.1340, Village Balenga, District Bastar, whose
cross-examination was sought by the appellant, failed to appear before
the adjudicating authority despite being summoned by letters dated
23.02.2024, 26.02.2024, 08.03.2024, 05.04.2024 and 26.04.2024. The
department had also not produced the said Panch witnesses and had not
examined them.
35. The Additional Director General passed an order 27.09.2024
confirming the demand for central excise against the appellant for the
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period April, 2016 to January, 2017 and dropped the remaining demand
for the earlier period from April, 2015 to March, 2016. The order also
directs for payment of interest on the said confirmed duty amount under
section 11AA of the Central Excise Act and also imposes penalty on the
appellant equal to the said duty amount under section 11AC of the Central
Excise Act read with rules 17 (1) and 18 of the 2008 Rules.
36. In respect to non-compliance of the provisions of section 9D of the
Central Excise Act, the Additional Director General observed:
"In this regard, I find that there is settle law
that the cross-examination can be allowed after
considering the circumstantial evidence, but the
adjudicating authority is not bound to allow
cross-examination is a useful procedural
mechanism to arrive at the fact, but at the same
time, cross-examination before a quasi-judicial
authority is fraught with the very real possibility
of its misuse. It is reasonably expected that when
cross examination takes place after a long
passage of time, the chances are bright that the
person concerned has been persuaded to change
his mind and statement. The relevance of the cross-
examination sought has to be carefully examined in
context of the case and importantly in the back through
of the legally acceptable records such as Panchnama,
statements, etc. The instant case pertains to
evasion of huge amount of Central Excise duty
and the Noticee(s) have not provided any specific
reason to cross-examine/examine the
persons/witnesses under Section 9D of the
Central Excise Act, 1944, etc, whose statements
have been relied in the impugned SCN.
I observed that cross-examination is required to be
decided by the adjudicating authority on case to case
basis, depending upon the facts and circumstances of
the case. *****
*****
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In view of above, I am of the opinion that
there is no justification for allowing cross-
examination/examination to all the witnesses
and officers who have recorded the statements of
the witnesses in this case and disallow the
request of the Noticee(s) for valid reasons and
the same can not be viewed as denial of natural
justice to the noticee(s)."
(emphasis supplied)
37. The Additional Director General then examined whether the
appellant manufactured pan masala and gutkha in the unregistered factory
premise at Khasra No. 1340, Village Balenga, and removed the same in a
clandestine manner and the findings are:
"A.6. From the records, I find that the officers
had interrogated Sh. Nitin Sabhagchandani, Sh. Sheikh
Imran, Sh. Surendra Batra, Production Supervisor, Sh.
Vinod Kumar Savita, working as Expert Misture
Preparer of Pan masala, Sh. Shiv Kumar Maurya,
Expert Mixture Preparer of Pan masala who were found
present and working in the said unregistered factory
premises during search conducted on 30.01.2017 under
Panchnama proceedings and the officers had recorded
their statements under Section 14 of the Central Excise
Act, 1944."
38. The Additional Director General then considered the statements of
Nitin Sabhagchandani, Sheikh Imran, Vinod Kumar Savita, Manoj Kumar
Dubey; the statements Proprietor, Partner, concerned person of M/s.
Pragati Road Carriers, M/s. Nagpur Delhi Transport Company Pvt. Ltd.,
M/s. Jai Maharashtra Cargo Movers, M/s. Doble Goods Carrage, Nagpur,
M/s. Vidya Sagar Roadways, Nagpur; the statements of suppliers of raw
material, namely, Parichay Lalit Vigh, Partner, M/s. Dynasty Aromas,
Andheri (W) Mumbai (Perfumery supplier), Dhananjay Sing, Sr. Divisional
Manager, Sales and Marketing of M/s. Montage Enterprises Pvt. Ltd.,
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Noida, Manoj Kumar Indrachand Surana, Nagpur, Rajendra Prasad Baid,
Partner of M/s Jain Brothers, Nagpur; the statement of Anil Pritwani,
Proprietor of M/s. Mohit Traders, Raipur, buyers of furnished goods
manufactured in the unregistered factory; and the statement of Rajkumar
Menghani and of the appellant. All these statements were recorded under
section 14 of the Central Excise Act. The following findings were then
recorded by the Additional Director General:
"A.2. At the time of search, 10 Fill Form Seal
(FFS) Pouch Packing Machines were found
installed in the said factory premises at Khasra
No. 1340, Village Balenga, Distt.-Bastar,
Chhattisgarh by the officers of DGGI. Out of said
10 FFS Pouch Packing Machines, 09 were found
operative and engaged in packing/production of
Pan Masala and Pan Masala containing tobacco
(Gutkha). The officers found that 30 workers
(approximately) were working in the said unregistered
factory premises and engaged in packing of Pan Masala
Pouches/Gutkha with aid of said FFS pouch packing
machines of various brands, namely, Nazar, Vachan,
Virat, Baji Rao, Nagpuri, etc. The officers found
during search that a person, namely, Sh.
Sabhagchandani is supervising the manufacturing
activities who informed them that his brother-in-
law, Sh. Rajkumar Menghani @ Raju instructs him
for carrying out the day-to-day business of the
factory. Sh. Sabhagchandan also informed the
officers that the actual beneficiary of this activity
is Sh. Natwar lal Sharda who manufactures Nazar
brand of Pan Masala in his factory, M/s S.S.
Industries situated at E 1005, Sitapura Industrial
Area, Phase-III, Jaipur.
A.3. In the said unregistered factory premises,
the DGGI officers recovered substantial quanity of raw
materials, such as, Cut supari packed in 121 gunny
bags totally weighing 6776 Kgs., 75 plastic bags of
Kattha powder weighing 1875 Kgs, 6 drums of Perfume
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containing 25 Kgs. each, 35 Kgs. of Menthol, 120 Kgs.
Glycerin (01 drum) and 27 plastic bags of Mix
compound containing 60 Kgs. each (totally weighting
1620 Kgs.). During search, the officers also found
packing materials, viz. 100 rolls of Nazar Pan Masala of
MRP Rs. 2, 40 rolls of Nazar Pan Masala of MRP Rs.1,
150 rolls of Nazar premium Gutkha (without MRP), 75
rolls of Nazar Gutkha of MRP Rs. 1, 120 rolls of Vachan
Premium (without MRP), 300 rolls of Barirao premium
of MRP Rs. 2 & 2 rolls of Nagpuri Prenium (without
MRP). In addition to 10 FFS Pouch Packing Machines
(PPM), the officers also found and recovered some
other machines, such as, 02 nos. of Mixer, Coating
machine-1, Separator machine-01, Chakri-01, Weighing
machines (Large)-3, Weighing machines (small)-2 and
Heatcr-01. Apart from this, the DGGI officers recovered
huge quantity of finished goods, such as, 18,69,000
pouches (108 bags) of Nazar Premium Gutkha, Nazar
Pan Masala-11,89,500 pouches (62 bags), Nazar
Premimum Pan Masala-3,99,750 pouches (23 bags),
Nazar Premium Gutkha-16,380 pouches (2 bags),
Vachan Premimum Pan Masala- 84,500 pouches (10
bags), Virat Premimum 2,520 pouches (01 bag) & Baji
Rao Premium-18,000 pouches (6 bags) totally valued at
Rs. 59,71,800/- from the said unregistered factory
premises during search on 30.01.2017 under
Panchnama proceedings.
A.4. Similarly, the officers resumed a Pocket
diary Spiral Pad No. 2 containing pages 1 to 73
giving details of inward of raw materials,
outwards of finished goods as well as the stock
lying in the factory. The said diary was
written/maintained by Sh. Raj Kumar, one of
worker/labourer of the unregistered factory.
These details include date and year, name of brands in
coded form, quantity in bags, etc. *****
*****
A.11. From the statement dated 27.08.2017
of Sh. Natwar Lal Sharda, I find that he has
accepted that he had purchased tobacco valued at
Rs. 2.5 crores from Sh. Saurabh Patel in 2016 on
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cash payment. He has clearly accepted that Sh.
Naveen Agrawal supplied Menthol from Delhi to
Raipur on his direction and perfumery, tobacco
were supplied by Sh. Mukesh Agrawal @ Dilip
Agarwal up to Pandhurna and thereafter the same
were sent from Pandhurna to Bastaron his
directions. He admitted that he was controlling
the unregistered factory located at village-
Belenga, Distt.-Bastar through his employees,
namely Sh. Mukesh Agrawal @ Dilip Agarwal and
Sh. Mukesh Agrawal & Sh. Rajkumar Menghani. I
find that Sh. Natwar Lal Sharda in his statement
dated 10.01.2020 has agreed with the statement
dated 26.08.2017 of Shri Saurabh Ravjibhai Patel
(RUD-50), statements dated 19.09.2017 and
21.09.2017 of Shri Naveen Kumar Agrawal (RUD-
131 & 136 respectively), statements dated
23.09.2017 and 19.05.2019 of Shri Memood Gaur,
statements dated 26.09.2017 and 11.03.2019 of
Shri Surendra Kumar Gupta (RUD-157 & 210
respectively), statements dated 28.09.2017 and
06.11.2017 of Shri Anil BabuLal Jain (RUD-166 &
186 respectively), statement dated 29.09.2017,
13.10.2017 and 16.10.2017 of Shri Parichay Lalit
Vigh (RUD-171, 174 & 175 respectively),
statement dated 11.11.2017 of Shri Mahesh
Chawla (RUD-191), statements dated 31.11.2017
and 11.12.2018 of Shri Dhananjay Singh (RUD-
193 & 208 respectively), statement dated
04.12.2017 of Shri Mukesh Agrawal (RUD-197
Supra), statement dated 05.12.2017 of Shri Ajay
Sharda (RUD-83), statement dated 27.12.2017 of
Shri Vijay Kumar Saaboo (RUD-203), statements
dated 03.01.2018 and 04.01.2018 of Shri
Rajkumar Menghani (RUD-206 & 207
respectively), statements dated 18.03.2019 and
22.05.2019 of Shri Jai Tahiliani. Further, I find
from the impugned SCN(s) that the Noticee, Sh.
Natwar Lal Sharda in his statement dated
10.01.2020 has admitted that ownership of the
said unregistered factory at Bastar. From the
impugned SCN, I find that the Noticee had deposited
cash of Rs. 89.54 cores in his name and his son, Sh.
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Ajay Sharda and wife Smt. Mamta Sharda's name
during demonetization (notebandi) period.
*****
A.14. From the above discussions, evidences
in the form of resumed documents placed before
me and the statements of the concerned persons
recorded under section 14 of the Central Excise
Act, 1944, I hold that the unaccounted Pan
Masala and Pan Masala containing tobacco
(Gutkha) have been manufactured in the said
unregistered premises situated at Khasra No.
1340, Village Balenga, Distt. Bastar
(Chhattisgarh) by the Noticee, Sh. Natwar Lal
Sharda with the help of his S/Sh. Rajkumar
Menghani @ Raju Menghani, Sh. Nitin
Sabhagchandani and other persons/employees
without obtaining required Central Excise
registration and cleared the same without
bills/invoices and without payment of Central
Excise Duty."
(emphasis supplied)
39. The Additional Director General, thereafter, examined whether the
appellant was liable to pay central excise duty for the period 01.04.2015
to 30.01.2017 by invoking the extended period of limitation contemplated
under section 11A(4) of the Central Excise Act and held that the extended
period of limitation was correctly invoked. However, the demand for the
period from April, 2015 to March, 2016 was dropped for the reason that
no evidence had been produced by the department to establish the usage
of the generator set for manufacturing pan masala/gutkha during the
period prior to April, 2016. Demand of central excise duty, however, for
the period from April, 2016 to January, 2017 was confirmed.
40. Shri J.C. Patel, learned counsel for the appellant assisted by Shri
Nilesh Choudhary made the following submissions:
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(i) The Panchnamas dated 30.01.2017 and 24.01.2018
claimed to be drawn at Khasra No. 1340, Village Balenga,
District Bastar, are ex-facie unreliable. In first instance,
the Panchas are not inhabitants of the locality and
secondly the Panch witnesses were not examined. In
support of this contention, reliance has been placed on
the following decisions:
(a) Pradeep Narayan Madgaonkar & ors. vs. State
of Maharashtra 8;
(b) Commissioner of Central Excise, Kanpur vs.
Bakul Poly Pack Pvt. Ltd. 9;
(c) Yeduru Sreenivasulu Reddy vs. State of Andhra
Pradesh 10;
(d) Meenu Paper Mills Pvt. Ltd. vs. C.C.E. & S.T.-
Meerut-I 11;
(e) Arya Bhushan Bhandar vs. Union of India 12;
(f) Kamlesh Gupta vs. Commissioner of Customs
(Preventive), Lucknow 13;
(g) Union of India vs. Kisan Ratan Singh 14
(ii) Statements recorded under section 14 of the Central
Excise Act cannot be considered as relevant as the
persons whose statements have been relied upon were
not examined in the adjudication proceeding as required
by section 9D of the said Central Excise Act and
opportunity of cross-examination was not granted to the
appellant. In support of this contention, reliance has been
placed on the following judgments:
8. Criminal Appeal No. 906 of 1994 decided on 12.05.1995 (SC)
9. 2018 (363) ELT 376
10. Criminal Revision Case No. 558 of 1999 decided on 27.11.2001 (AP)
11. Excise Appeal No. 70392 of 2018 decided on 23.04.2019 (Tri.-Allahabad)
12. 2002 (143) E.L.T. 25 (SC)
13. 2023 (386) E.L.T. 581
14. 2020 (372) E.L.T. 714
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(a) M/s Surya Wires Pvt. Ltd. vs. Principal
Commissioner, CGST, Raipur 15;
(b) Ambika International vs. Union of India 16;
(c) Hi Tech Abrasives Ltd. vs. Commissioner of C.
Ex. & Cus., Raipur 17;
(d) Additional Director General (Adjudication) vs.
Its My Name Pvt. Ltd. 18;
(e) Arjun Amla vs. Commissioner of Customs, ICD,
Tughlakabad, New Delhi 19;
(iii) The data extracted in the form of computer printouts,
after cloning of electronic devises, namely, mobile
phones, laptops, pen drives, hard disk drives are
inadmissible in evidence for non-compliance of the
requirements of section 36B of the Central Excise Act. In
support of this contention, reliance has been placed on
the decisions of the Tribunal in M/s. Composite Impex
vs. Principal Commissioner of Customs (Import),
New Delhi 20 and M/s. Trikoot Iron & Steel Casting
Ltd. vs. Additional Director General (Adjn.)
Directorate General of GST Intelligence
(Adjudication Cell) 21;
(iv) Private diaries of third persons cannot be relied upon
against the appellant, particularly when these persons
have not been examined and opportunity to cross-
examine them has not been given to the appellant. In this
connection, reliance has been placed on the decision of
the Tribunal in Bajrangbali Ingots & Steel Pvt. Ltd. vs.
15. Excise Appeal No. 51148 of 2020 decided on 01.04.2025 (Tri.-Del.)
16. 2018 (361) E.L.T. 90 (P&H)
17. 2018 (362) E.L.T. 961 (Chhattisgarh)
18. 2021 (375) E.L.T. 545 (Del.)
19. Customs Appeal No. 291 of 2006 decided on 06.06.2025 (Tri.-Del.)
20. Customs Appeal No. 50955 of 2021 decided on 15.05.2025 (Tri.-Del.)
21. Excise Appeal No. 55779 of 2023 decided on 09.09.2024
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CCE, Raipur 22 and the judgment of the Allahabad High
Court in Continental Cement Company vs. Union of
India 23;
(v) The contention of the department that diesel generator
set was found in the factory during search on 30.01.2017
is not correct as there is no mention of this set in the
Panchnama. This apart, the statements made under
section 14 of the Central Excise Act had been relied upon
which cannot be considered as relevant as the procedure
contemplated under section 138B of the Customs Act,
1962 24 was not followed; and
(vi) In any event, the statements relied upon in the show
cause notice do not establish that the appellant was the
manufacturer of the pan masala and gutkha alleged to
have been clandestinely manufactured in and cleared from
an unregistered factory located at Khasra No. 1340,
Village Balenga, District Bastar.
41. Shri P.R.V. Ramanan, learned special counsel appearing for the
department made the following submissions:
(i) The principal defence of the appellant that he is not the
owner of the unregistered factory at Village Balenga
cannot be accepted in view of the statements made by
Rajkumar Menghani, Nitin Sabaghchandani and Sheikh
Imran under section 14 of the Central Excise Act. The
appellant also in his statements recorded under section 14
of the Central Excise Act admitted his role as owner of the
factory;
22. Excise Appeal No. 52062 of 2018 decided on 16.11.2018 (Tri.-Del.)
23. 2014 (309) E.L.T. 411 (All.)
24. the Customs Act
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(ii) The appellant is not correct in contending that the two
Panchnamas dated 30.01.2017 and 24.01.2018 are not
reliable and have to be excluded from consideration. The
two Panch witnesses, namely, Dilip Kumar and Sheikh
Shabbir Ali were available when the search party was near
the place and merely because the addresses of these two
persons were shown in the Panchnama as Raipur and
Visakhapatnam would not make the Panchnama
unreliable;
(iii) Panchnama dated 24.01.2018 had to be drawn because
the earlier Panchnama dated 30.01.2017 contained only
broad details and there was no mention of weight and
MRP on some of the pouches seized from the unregistered
premises. At the request of the appellant, the two
Panchas were issued letters to appear for cross-
examination on five dates but they did not appear and,
therefore, their cross-examination could not take place.
These two persons had not given any statements under
section 14 of the Central Excise Act and, therefore, there
was no requirement in law to comply with the provisions
of section 9D of the Central Excise Act;
(iv) It is not correct to state that statements recorded under
section 14 of the Central Excise Act cannot be considered
as relevant if the procedure contemplated under section
9D of the Central Excise Act has not been followed;
(v) The data extracted in the form of computer printouts is
reliable as the information extracted from the mobiles was
shown to the concerned persons and statements were
recorded under section 14 of the Central Excise Act. The
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concerned persons acknowledged the correctness of the
data;
(vi) The appellant was the manufacturer of pan masala and
gutkha at the unregistered factory as the statements of
suppliers of raw material and transporters reveal that they
dealt with the appellant for all the supplies and got their
payments from the appellant;
(vii) The Additional Director General was not justified in
dropping the demand for the period from April, 2015 to
March, 2016. Though, the specific month from which the
diesel generating set was run was not substantiated but in
view of the provision of rule 17(2) of the 2008 Rules it
should be deemed that 10 FFS machines were operative
from April, 2015;
(viii) The goods/machines seized through Panchnama dated
30.01.2017 were not in the possession of the appellant at
the time of seizure and he does not even now claim
ownership of the said goods/machines. He, therefore,
does not have a vested right or locus standi to claim that
his right in terms of the provisions of section 100(4) of
the Code of Criminal Procedure, 1973 25 has been
infringed. As such, he has no right to claim, as a third
party, that the Panchnama should be discarded;
(ix) The non-availability of local witnesses does not render the
search proceeding illegal as the provisions of section
100(4) of the Code of Criminal Procedure are directory
and not mandatory. In this connection, reliance has been
placed on the following judgments of the Supreme Court:
25. the Code of Criminal Procedure
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(a) State of Punjab vs. Balbir Singh 26;
(b) Appabhai and anr. vs. Sate of Gujarat 27;
(c) Anwar Ali and ors. vs. The State of Himachal
Pradesh 28; and
(x) In any view of the matter, no prejudice has been caused
to the appellant since the genuineness of the Panchnamas
can be established with equal effectiveness from the
corroborative evidence available on record.
42. The submissions advanced by the learned counsel for the appellant
and the learned special counsel appearing for the department have been
considered.
43. The first issue that arises for consideration is whether the
Panchnamas dated 30.01.2017 and 24.01.2018 drawn at Khasra No.
1340, Village Balenga, District Bastar can be considered as reliable.
44. The contention of the learned counsel for the appellant is that they
cannot be considered as reliable in view of the provisions of section 18 of
the Central Excise Act and section 100(4) of the Code of Criminal
Procedure. Elaborating this submission, learned counsel submitted that
section 18 of the Central Excise Act provides that all searches made under
the Central Excise Act and the Rules made thereunder shall be made in
accordance with the provisions of the Code of Criminal Procedure relating
to searches and section 100(4) of the Code of Criminal Procedure provides
that the officer making a search shall call upon two or more independent
and respectable inhabitants of the locality in which the place to be
searched is situate or any other locality if no such inhabitant of the said
26. 1994 (70) E.L.T. 481 (SC)
27. 1988 (2) TMI 468 - Supreme Court
28. Criminal Appeal No. 1121 of 2016 decided on 25.09.2020 (SC)
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locality is available or willing to be a witness to search. In this connection,
learned counsel contended that Dilip Kumar, the first Panch witness, is of
Raipur which is 300 Kms away from Bastar and Sheikh Shabbir Ali, the
second Panch witness, is of Visakhapatnam which is more than 300 Kms
away. Learned counsel, therefore, submitted that for this reason the two
Panchnamas should be discarded.
45. Learned special counsel, however, submitted that these two Panchas
were available when the search party was near the place and merely
because these two Panchas resided at Raipur and Visakhapatnam will not
make the Panchnamas unreliable. Learned special counsel also contended
that as the goods/machines seized through the Panchnama dated
30.01.2017 were not in the possession of the appellant at the time of
seizure and he does not also claim to be the owner of the goods/machines,
the appellant does not have a locus standi to claim that his right in terms
of the provisions of section 100(4) of the Code of Criminal Procedure had
been infringed and in any view of the matter no prejudice has been caused
to the appellant since the genuineness of the Panchnamas can be
established from the corroborative evidence available on record. Learned
special counsel also submitted that non-availability of local witnesses will
not render the search proceedings illegal as the provisions of section
100(4) as the Code of Criminal Procedure are directory and not
mandatory.
46. It would, therefore, be necessary to reproduce the relevant portion
of the Panchnama dated 30.01.2017 which is as follow:
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"Panchnama dated 30.01.2017 drawn at Khasra No.
1340, Village BalinGA, District-Bastar, Chhattisgarh.
Pancha 1 - Sh. Dilip Kumar S/o Sh. Gokul, Age -
29 years, R/o 2114/2, Mana Camp, Raipur,
Chhattisgarh.
Pancha 2 - Sheikh Shabbir Ali S/o Sheikh
Subhani, Age - 50 years, R/o Flat No. 207, B -
Block, Varshney Builders, Appanapalam,
Vishakapattnam.
We, the abovementioned panchas, came
across a person near Hanuman Mandir, Village -
Balinga, Raipur - Jagdalpur Highway at around
06:45 a.m. who introduced himself as Kuldeep
Singh Ranga, Intelligence Officer, Directorate
General of Central Excise Intelligence (HQ), West
- Block - VIII, Wing No. - 6, R.K. Puram, New
Delhi and confirmed his identity by showing his
official Identity Card. Sh. Kuldeep Singh Ranga
requested us to witness a Government proceeding
to which we readily agreed.
*****
The search was conducted in a peaceful & cordial
atmosphere. No harm was caused to any person or
property, no religious feelings were hurt during the
Panchnama proceedings. The Panchnama has been
drawn correctly as seen and witnessed by us. The
contents of panchnama have been explained in
vernacular to us. The Panchnama proceedings were
concluded at 5:00 pm on the same day i.e.
30.01.2017."
(emphasis supplied)
47. To examine the contentions, it would be appropriate to reproduce
section 18 of the Central Excise Act which as follows:
"18. Searches and arrests how to be made.-- All
searches made under this Act or any rules made
thereunder and all arrests made under this Act shall be
carried out in accordance with the provisions of the
Code of Criminal Procedure, 1898 (5 of 1898) , relating
respectively to searches and arrests made under that
Code."
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48. Section 100(4) of the Code of Criminal Procedure is also reproduced
below:
"100. Persons in charge of closed place to allow
search.--(1) *****
(2) *****
(3) *****
(4) Before making a search under this Chapter, the
officer or other person about to make it shall call upon
two or more independent and respectable inhabitants of
the locality in which the place to be searched is situate
or of any other locality if no such inhabitant of the said
locality is available or is willing to be a witness to the
search, to attend and witness the search and may issue
an order in writing to them or any of them so to do.
*****"
49. It is clear from a bare perusal of sub-section (4) of section 100 of
the Code of Criminal Procedure that the officers conducting the search
shall call upon two or more independent and respectable inhabitants of the
locality in which the place to be searched is situate. They can, however,
call upon a person of any other locality, if no such inhabitant of the said
locality is available or is willing to be a witness to the search.
50. In the present case, it is not in dispute that one Pancha resided at
Raipur which is 300 Kms away from Bastar and the other resided at
Visakhapatnam which is more than 300 Kms away. These two Panchas are
clearly not inhabitants of the locality in which the place to be searched is
situated. Black's Law Dictionary defines "locality" as "a definite region of
any part of space; geographical position. Place; vicinity; neighborhood;
community". Thus, locality would be a place in the vicinity of the site of
search and, therefore, witnesses must be of that area only. In the instant
case, the two Panchas produced by the department are of places situated
more than 300 Kms. The Panchnama also does not record that inhabitants
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of the locality were not available or willing to be a witness to search, nor
does it record why persons whose addresses were of places situated more
than 300 kms were called upon as witnesses.
51. The search was, therefore, not carried out in accordance with the
provisions of section 18 of the Central Excise Act and sub-section (4) of
section 100 of the Code of Criminal Procedure.
52. In Pradeep Narayan, the Supreme Court, after noticing that the
two witnesses did not belong to the locality where the search was
conducted, observed that no serious attempt was made to associate two
or more independent respectable inhabitants of the locality and it was not
the case that no independent respectable witnesses of the locality were
available. The observations of the Supreme Court are:
"6. Section 100(4) of the Cr.P.C. requires that before
making a search, the officer or other person about to
make it, shall call upon two or more independent and
respectable inhabitants of the locality in which the place
to be searched is situate or of any other locality if no
such inhabitant of the said locality is available or is
willing to be a witness to the search, to attend and
witness, the search and may issue an order in writing
to them or any of them so to do. The courts generally
look for compliance of the aforesaid provisions, to the
extent possible in the facts and circumstances of a
given case. Do PW2 and PW5 satisfy the
requirements of Section 100(4) supra? Can they
be called independent respectable witnesses of
the locality? If they did not belong to the locality
where the search was conducted, what was the
occasion from them to be present near building
No. 93 at the crucial time to be joined as panch
witnesses? Answer to these and some other
questions, to be dealt with later on, would decide
whether the conviction and sentence of the
appellants is sustainable.
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7. Admittedly, both PW 2 and PW 5 are not the
witnesses from the locality where the search was
being conducted. *****
8. ***** Obviously no serious attempt was made
by the raiding party to associate with them two or
more independent and respectable inhabitants of
the locality in which the room was located, for
reasons best known to them before conducting
the search. It is not the case of the prosecution
that either no independent respectable witness of
locality was available or was otherwise willing to
join the raid when contacted. *****"
(emphasis supplied)
53. In Yeduru Sreenivasulu Reddy, the Andhra Pradesh High Court
held that it is necessary to follow the procedure contemplated under
section 100(4) of the Code of Criminal Procedure, failing which the search
and seizure would be vitiated.
54. In Meenu Paper Mills, the Tribunal followed the judgment of the
Supreme Court in Pradeep Narayan and the judgment of the Andhra
Pradesh High Court in Yeduru Sreenivasulu Reddy and observed that
since the witnesses were not from the locality, the procedure
contemplated under section 100(4) of the Code of Criminal Procedure was
not followed and so the search and seizure stood vitiated.
55. The submission of the learned special counsel for the department
that it is not open to the appellant to contend that the procedure
contemplated under section 100(4) of the Code of Criminal Procedure was
not followed since the appellant does not claim to be the owner of the
factory where the Panchnamas were drawn or of the goods/machines
cannot be accepted. The duty demand against the appellant is based on
the two Panchnamas and, therefore, it cannot be said that the appellant
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cannot urge violation of the provisions of section 100(4) of the Code of
Criminal Procedure. The appellant would have a right to question the
Panchnamas.
56. Learned special counsel appearing for the department also relied
upon certain decisions to contend that non-availability of local witnesses
would not render the search proceedings illegal.
57. In the present case, as noticed above, the Panchnama does not
record that local respectable inhabitants were either not available or had
refused to join as witnesses. No reason has been given in the Panchnama
as to why the two witnesses who resided at places situated more than 300
Kms were called as witnesses.
58. The judgment of the Supreme Court in Appabhai does not help the
department. It was not a case relating to search of any premises and
Panchnama was also not in issue. Therefore, there was no question of
compliance of the provisions of section 100(4) of the Code of Criminal
Procedure. The Supreme Court also observed that in a criminal matter
civilized people are generally insensitive when a crime is committed even
in their presence and so they keep themselves away from the Court unless
it is inevitable. It is in this context that the Supreme Court observed that
instead of doubting the prosecution case for want of independent
witnesses, the broad spectrum of the prosecution version should be
considered. The present case is not a criminal case.
59. The judgments of the Supreme Court in Balbir Singh and Anwar
Ali are not cases where the Panch witnesses had not been examined and
also do not deal with issue of examination and cross-examination of Panch
witnesses. The Supreme Court also held that the Courts would have to
consider whether any prejudice has been caused to the person who alleges
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violation of the provisions of section 100 (4) of the Code of Criminal
Procedure.
60. Learned counsel for the appellant, however, relied upon the
judgment of the Supreme Court in Aryan Bhushan Bhandar to contend
that where the Panch witnesses have not been examined by the
department or where the Panch witnesses failed to appear for examination
and cross-examination, the Panchnama would have no evidential value
and has to be excluded from consideration. The Supreme Court also
observed that non production of the Panchas for cross-examination is
clearly violation of the principle of natural justice. The Supreme Court also
rejected the observation made by the High Court that no prejudice was
caused by reason of non production of the Panchas. It would, therefore,
imply that non production of the Panchas itself causes prejudice. The
relevant portion of the judgment of the Supreme Court is reproduced
below:
"An issue raised by the appellants was that the search
was conducted both in their shop and in their house
and that the search warrant was limited to the shop.
The Panchas to the search were, therefore,
material witnesses in this behalf. That they were
not produced for cross-examination, though
asked for, is not disputed. There has, therefore, in
our view, clearly been a breach of natural justice.
On this count alone, the order of the High Court
must be set aside. We are unimpressed by the
argument that no prejudice was caused to the
appellants by reason of the non-production of the
Panchas which, it would appear, was what the
High Court seemed to think."
(emphasis supplied)
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61. In Kamlesh Gupta, the Allahabad High Court observed that cross-
examination of a person who is a witnesses to the Panchnama is not for
affirming the Panchnama but is for the purpose of establishing the
genuiness of the document and that cross-examination is necessary. The
relevant portion of the judgment of the Allahabad High Court is:
"4.4 Further, the Commissioner has observed that the
genuineness of the panch witness cannot be questioned
as they are duly receiving the letter of the Department
but due to his personal economical reasons they are
unable to attend the proceeding of cross-examination
and they have stated in their response that the confirm
the genuineness of Punchnama. In my opinion such
confirmation of the punchnama behind the back
of the appellant, is not acceptable evidence in
law. Cross-examination of witness to the
punchnama is not for affirming the punchnama,
but is procedure prescribed by law, to establish
the genuiness of the document sought to be relied
in the proceeding against the appellant. It is by
way of cross-examination appellant would have
disputed the genuiness of the punchnama and the
credibility of witness."
(emphasis supplied)
62. In Kisan Ratan Singh, the Bombay High Court observed that since
the Panchas were of a locality which was 4 to 5 Kms away from the
premises where the search was conducted, it was doubtful as to how the
Panchas landed up at the said premises. The High Court also noticed that
the Panchas were not examined. The relevant portion of the judgment of
the Bombay High Court is:
"8. Admittedly, panch witness of the panchnama
recorded on 4th February, 1991, when the gold and
Indian and Foreign currencies were allegedly seized,
have not testified. Even the persons, who typed the
panchnama, and PW-1 says it was one G.H. Shaikh, has
not testified. Moreover, the panchnama is written in
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English but the panch witnesses have signed in Hindi
and Gujarati. Panchnama also does not record whether
the panch witnesses knew English. PW-1 also says
both panch witnesses are from N.M. Joshi Marg as
per panchnama Exhibit P-2 and that N.M. Joshi
Marg was 4 to 5 km away from the said premises.
How did the panchas then land at the said
premises? That is a mystery. Therefore, I am unable
to believe the panchnama as produced was really
prepared. To add to this, PW-2 says he does not know
the details of panchnama because he was not party to
panchnama. PW-2 also says PW-1 had called the panch
witnesses and they were taken from "our" office to the
said premises. If that was so, why were the panch
witnesses not examined. PW-2 also says, though he
was a member of the search party, he does not
remember the mode of transport that was used to go to
the said premises from their office. One can understand
he may not remember the vehicle details but "mode of
transport" is unbelievable. If I have to accept the
submission of Ms. Mane that dehors the panchnama, in
view of the confession recorded under Section 108, the
Court can still convict the accused, then I ask myself
why should they even take any panch witness and why
should any one go through the trouble of recording of
panchnama and producing the panch witness at the
time of trial. Moreover, if I have to simply accept the
statement recorded under Section 108 as gospel truth
and without any corroboration, I ask myself another
question, as to why should anyone then go through a
trial. The moment the Customs authorities recorded the
statement under Section 108, in which the accused has
confessed about his involvement in carrying contraband
gold, the accused could be straightaway sent to jail
without the trial Court having recorded any evidence or
conducting a trial."
(emphasis supplied)
63. In the present case, the Panchas are of places situated more than
300 Kms away and the Panchnama also does not record as to why they
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were asked to be witnesses and whether any effort was made to have
independent and respectable inhabitants of the locality as witnesses.
64. The foundation of the case set up by the department is the
Panchnama dated 30.01.2017. It is on the basis of the said Panchanama
that the department alleges that 9 pouch filling machines were being
operated in the premises at Khasra No. 1340, Village Balenga, District
Bastar for manufacture of Pan masala and Gutkha. The Panchnama
records that raw materials, finished goods and packaging laminates were
found in the premises. This Panchnama, which is the very foundation, has
been found to be unreliable and has not been proved by examination of
the Panch witnesses and the Panch witnesses have not been made
available for cross-examination. The decision of the Tribunal in
Commissioner of C. Ex., Ahmedabad-I vs. Mukesh Industries Ltd.29
supports this observation and the relevant portion of the decision of the
Tribunal is reproduced below:
"5. Apart from the above, Commissioner (Appeals)
also observed that the adjudicating authority himself
has held that panchnama so recorded, cannot be relied
upon as the same was found to be recorded by unfair
means. If the drawal of panchnama was itself doubtful,
the entire case booked by preventive branch cannot be
allowed to stand on its own legs. What falls in part,
cannot be upheld in whole. Inasmuch as the
adjudicating authority himself has disbelieved the story
of investigation and drawal of panchnama, the
allegations of shortages and resultant clandestine
removal cannot be upheld. *****"
65. The contention of the learned special counsel appearing for the
department is that various letters were sent to the Panchas to appear for
cross-examination on five dates but they did not appear and, therefore,
29, 2009 (235) E.L.T. 527 (Tri.-Ahmd.)
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the cross-examination did not take place. It needs to be noted that the
two Panchas did appear at the behest of the department on 24.01.2018 to
witness the search again. Non appearance on subsequent dates when
called for cross-examination by the appellant raises a serious doubt that
the Panchas were not ready for cross-examination and in any case it was
also incumbent upon the department to have examined the Panchas and
also permitted the appellant to cross-examine them.
66. The Panchas of the second Panchnama dated 24.01.2018 are the
same as of the first Panchnama dated 30.01.2017. For the same reasons
as noted for the first Panchnama, the second Panchnama would have to be
discarded.
67. The inevitable conclusion that follows is that the Panchnamas dated
30.01.2017 and 24.01.2018 have to be excluded from consideration as
not only were the two Panchas resident of places situated more than 300
kms away but they were also not examined by the department nor they
could be cross-examined by the appellant.
68. Reliance has also been placed on the statement dated 31.01.2017
made by Nitin Sabhagchandani under section 14 of the Central Excise Act.
Nitin Sabhagchandani is said to have stated that his brother-in-law,
Rajkumar Menghani, provided him work and the plan to set up the factory
at Bastar was made by Rajkumar Menghani on being told by the appellant.
It is stated that he also stated that directions regarding manufacture were
received by him from Rajkumar Menghani and that the appellant used to
give instructions to Rajkumar Menghani. Statements of the appellant and
various other persons recorded under section 14 of the Central Excise Act
have also been considered by the Additional Director General for recording
a finding that pan masala and gutkha were manufactured at the
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unregistered factory situated at Khasra No. 1340, Village Balenga, District
Bastar by the appellant with the help of Rajkumar Menghani, Nitin
Sabhagchandani and other persons/employees.
69. The issue that would arise for consideration is whether the
statement made by the appellant under section 14 of the Central Excise
Act and the statements made by other persons under section 14 of the
Central Excise Act can be considered as relevant if the procedure
contemplated under section 9D of the Central Excise Act has not been
followed.
70. It is not in dispute that the appellant and other persons whose
statements were recorded under section 14 of the Central Excise Act were
not examined by the Additional Director General as was required to done
under section 9D of the Central Excise Act.
71. Section 14 of the Central Excise Act deals with power to summon
persons to give evidence and produce documents. It provides that any
Central Excise Officer empowered by the Central Government shall have
the power to summon any person whose attendance he considers
necessary either to give evidence or to produce a document or any other
thing in any inquiry, which such officer is making under the Central Excise
Act.
72. Section 9D of the Central Excise Act deals with relevancy of
statements under certain circumstances and it is reproduced below:
"9D. Relevancy of statements under certain
circumstances.
(1) A statement made and signed by a person before
any Central Excise Officer of gazette rank during the
course of any inquiry or proceeding under this Act shall
be relevant, for the purpose of proving, in any
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prosecution for an offence under this Act, the truth of
the facts which it contains, --
(a) when the person who made the
statement is dead or cannot be found, or is
incapable of giving evidence, or is kept out of
the way by the adverse party, or whose
presence cannot be obtained without an
amount of delay or expense which, under the
circumstances of the case, the court considers
unreasonable; or
(b) when the person who made the
statement is examined as a witness in the case
before the court and the court is of opinion
that, having regard to the circumstances of the
case, the statement should be admitted in
evidence in the interests of justice.
(2) The provisions of sub-section (1) shall, so far as
may be, apply in relation to any proceeding under this
Act, other than a proceeding before a court, as they
apply in relation to a proceeding before a court."
73. It would be seen that section 14 of the Central Excise Act enables
the concerned Officer to summon any person whose attendance he
considers necessary to give evidence in any inquiry which such Officer is
making. The statements of persons so summoned are then recorded under
these provisions. It is these statements which are referred to in section 9D
of the Central Excise Act. A bare perusal of sub-section (1) of section 9D
makes it evident that the statement recorded before the concerned Officer
during the course of any inquiry or proceeding shall be relevant for the
purpose of proving the truth of the facts which it contains only when the
person who made the statement is examined as a witness before the
Court and such Court is of the opinion that having regard to the
circumstances of the case, the statement should be admitted in evidence,
in the interests of justice, except where the person who tendered the
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statement is dead or cannot be found. In view of the provisions of sub-
section (2) of section 9D of the Central Excise Act, the provisions of sub-
section (1) of section 9D shall apply to any proceedings under the Central
Excise Act as they apply in relation to proceedings before a Court. What,
therefore, follows is that a person who makes a statement during the
course of an inquiry has to be first examined as a witness before the
adjudicating authority and thereafter the adjudicating authority has to
form an opinion whether, having regard to the circumstances of the case,
the statement should be admitted in evidence, in the interest of justice.
Once this determination regarding admissibility of the statement of a
witness is made by the adjudicating authority, the statement will be
admitted as an evidence and an opportunity of cross-examination of the
witness is then required to be given to the person against whom such
statement has been made. It is only when this procedure is followed that
the statements of persons making them would be of relevance for the
purpose of proving the facts which they contain.
74. Section 138B of the Customs Act is almost identical to section 9D of
the Central Excise Act.
75. It would now be appropriate to examine decisions interpreting
section 9D of the Central Excise Act and section 138B of the Customs Act.
76. In the case of M/s Surya Wires Pvt. Ltd. vs. Principal
Commissioner, CGST, Raipur 30, a Division Bench of this Tribunal
examined the provisions of section 108 and 138B of the Customs Act as
also the provisions of section 9D and 14 of the Central Excise Act which
are similar to the provisions of section 108 and 138B of the Customs Act,
and the observations are :
30. Excise Appeal No. 51148 of 2020 decided on 01.04.2025 (Tri.-Del.)
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"28. It, therefore, transpires from the aforesaid
decisions that both section 9D(1)(b) of the Central
Excise Act and section 138B(1)(b) of the Customs Act
contemplate that when the provisions of clause (a) of
these two sections are not applicable, then the
statements made under section 14 of the Central Excise
Act or under section 108 of the Customs Act during the
course of an inquiry under the Acts shall be relevant for
the purpose of proving the truth of the facts contained
in them only when such persons are examined as
witnesses before the adjudicating authority and the
adjudicating authority forms an opinion that the
statements should be admitted in evidence. It is
thereafter that an opportunity has to be provided for
cross-examination of such persons. The provisions of
section 9D of the Central Excise Act and section
138B(1)(b) of the Customs Act have been held to be
mandatory and failure to comply with the procedure
would mean that no reliance can be placed on the
statements recorded either under section 14D of the
Central Excise Act or under section 108 of the Customs
Act. The Courts have also explained the rationale
behind the precautions contained in the two sections. It
has been observed that the statements recorded during
inquiry/investigation by officers has every chance of
being recorded under coercion or compulsion and it is
in order to neutralize this possibility that statements of
the witnesses have to be recorded before the
adjudicating authority, after which such statements can
be admitted in evidence."
77. In Ambika International vs. Union of India 31 decided on
17.06.2016, the Punjab and Haryana High Court examined the provisions
of section 9D of the Central Excise Act. The show cause notices that had
been issued primarily relied upon statements made under section 14 of
the Central Excise Act. It was sought to be contended by the Writ
Petitioners that the demand had been confirmed in flagrant violation of the
mandatory provisions of section 9D of the Central Excise Act. The High
31. 2018 (361) E.L.T. 90 (P&H)
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Court held that if none of the circumstances contemplated by clause (a) of
section 9D(1) exist, then clause (b) of section 9D(1) comes into operation
and this provides for two steps to be followed. The first is that the person
who made the statement has to be examined as a witness before the
adjudicating authority. In the second stage, the adjudicating authority has
to form an opinion, having regard to the circumstances of the case,
whether the statement should be admitted in evidence in the interests of
justice. The judgment further holds that in adjudication proceedings, the
stage of relevance of a statement recorded before Officers would arise
only after the statement is admitted in evidence by the adjudicating
authority in accordance with the procedure contemplated in section
9D(1)(b) of the Central Excise Act. The judgment also highlights the
reason why such an elaborative procedure has been provided in section
9D(1) of the Central Excise Act. It notes that a statement recorded during
inquiry/investigation by an Officer of the department has a possibility of
having been recorded under coercion or compulsion and it is in order to
neutralize this possibility that the statement of the witness has to be
recorded before the adjudicating authority. The relevant portions of the
judgment are reproduced below:
"15. A plain reading of sub-section (1) of Section
9D of the Act makes it clear that clauses (a) and
(b) of the said sub-section set out the
circumstances in which a statement, made and
signed by a person before the Central Excise
Officer of a gazetted rank, during the course of
inquiry or proceeding under the Act, shall be
relevant, for the purpose of proving the truth of
the facts contained therein.
16. Section 9D of the Act came in from detailed
consideration and examination, by the Delhi High
Court, in J.K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T.
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189 (Del.). Para 12 of the said decision clearly holds
that by virtue of sub-section (2) of Section 9D, the
provisions of sub-section (1) thereof would extend to
adjudication proceedings as well.
*****
22. If none of the circumstances contemplated
by clause (a) of Section 9D(1) exists, clause (b)
of Section 9D(1) comes into operation. The said
clause prescribes a specific procedure to be
followed before the statement can be admitted in
evidence. Under this procedure, two steps are required
to be followed by the adjudicating authority, under
clause (b) of Section 9D(1), viz.
(i) the person who made the statement has to
first be examined as a witness in the case before the
adjudicating authority, and
(ii) the adjudicating authority has, thereafter,
to form the opinion that, having regard to the
circumstances of the case, the statement should be
admitted in evidence in the interests of justice.
23. There is no justification for jettisoning this
procedure, statutorily prescribed by plenary
parliamentary legislation for admitting, into
evidence, a statement recorded before the
gazetted Central Excise Officer, which does not
suffer from the handicaps contemplated by clause
(a) of Section 9D(1) of the Act. The use of the
word "shall" in Section 9D(1), makes it clear that,
the provisions contemplated in the sub-section
are mandatory. Indeed, as they pertain to conferment
of admissibility to oral evidence they would, even
otherwise, have to be recorded as mandatory.
24. The rationale behind the above precaution
contained in clause (b) of Section 9D(1) is
obvious. The statement, recorded during inquiry/
investigation, by the gazetted Central Excise
Officer, has every chance of having been recorded
under coercion or compulsion. It is a matter of
common knowledge that, on many occasions, the
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DRI/DGCEI resorts to compulsion in order to extract
confessional statements. It is obviously in order to
neutralize this possibility that, before admitting
such a statement in evidence, clause (b) of
Section 9D(1) mandates that the evidence of the
witness has to be recorded before the
adjudication authority, as, in such an atmosphere,
there would be no occasion for any trepidation on
the part of the witness concerned.
25. Clearly, therefore, the stage of relevance, in
adjudication proceedings, of the statement,
recorded before a gazetted Central Excise Officer
during inquiry or investigation, would arise only
after the statement is admitted in evidence in
accordance with the procedure prescribed in
clause (b) of Section 9D(1). The rigour of this
procedure is exempted only in a case in which one or
more of the handicaps referred to in clause (a) of
Section 9D(1) of the Act would apply. In view of this
express stipulation in the Act, it is not open to
any adjudicating authority to straightaway rely on
the statement recorded during
investigation/inquiry before the gazetted Central
Excise Officer, unless and until he can
legitimately invoke clause (a) of Section 9D(1). In
all other cases, if he wants to rely on the said
statement as relevant, for proving the truth of the
contents thereof, he has to first admit the statement in
evidence in accordance with clause (b) of Section
9D(1). For this, he has to summon the person who had
made the statement, examine him as witness before
him in the adjudication proceeding, and arrive at an
opinion that, having regard to the circumstances of the
case, the statement should be admitted in the interests
of justice.
26. In fact, Section 138 of the Indian Evidence Act,
1872, clearly sets out the sequence of evidence, in
which evidence-in-chief has to precede cross-
examination, and cross-examination has to precede re-
examination.
27. It is only, therefore, -
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(i) after the person whose statement has
already been recorded before a gazetted
Central Excise Officer is examined as a witness
before the adjudicating authority, and
(ii) the adjudicating authority arrives at a
conclusion, for reasons to be recorded in
writing, that the statement deserves to be
admitted in evidence,
that the question of offering the witness to the
assessee, for cross-examination, can arise.
28. Clearly, if this procedure, which is statutorily
prescribed by plenary parliamentary legislation, is
not followed, it has to be regarded, that the
Revenue has given up the said witnesses, so that
the reliance by the CCE, on the said statements,
has to be regarded as misguided, and the said
statements have to be eschewed from
consideration, as they would not be relevant for
proving the truth of the contents thereof."
(emphasis supplied)
78. In Hi Tech Abrasives Ltd. vs. Commissioner of C. Ex. & Cus.,
Raipur 32 decided on 04.07.2018, the Chhattisgarh High Court also
examined the provisions of section 9D of the Central Excise Act. The
allegation against the appellants was regarding clandestine removal of
goods without payment of duty and for this purpose reliance was placed
on the statement of the Director of the Company who is said to have
admitted clandestine removal of goods. The contention of the appellants
before the High Court was that the statement of the Director could be
admitted in evidence only in accordance with the provisions of section 9D
of the Central Excise Act. After examining the provisions of sub-sections
(1) and (2) of section 9D of the Central Excise Act, and after placing
32. 2018 (362) E.L.T. 961 (Chhattisgarh)
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reliance on the judgment of the Punjab and Haryana High Court in
Ambika International, the Chhattisgarh High Court held:
"9.3 A conjoint reading of the provisions
therefore reveals that a statement made and
signed by a person before the Investigation
Officer during the course of any inquiry or
proceedings under the Act shall be relevant for
the purposes of proving the truth of the facts
which it contains in case other than those covered
in clause (a), only when the person who made the
statement is examined as witness in the case
before the court (in the present case,
Adjudicating Authority) and the court
(Adjudicating Authority) forms an opinion that
having regard to the circumstances of the case,
the statement should be admitted in the evidence,
in the interest of justice.
9.4 The legislative scheme, therefore, is to
ensure that the statement of any person which
has been recorded during search and seizure
operations would become relevant only when
such person is examined by the adjudicating
authority followed by the opinion of the
adjudicating authority then the statement should
be admitted. The said provision in the statute
book seems to have been made to serve the
statutory purpose of ensuring that the assessee
are not subjected to demand, penalty interest on
the basis of certain admissions recorded during
investigation which may have been obtained
under the police power of the Investigating
authorities by coercion or undue influence.
9.5 ***** The provisions contained in Section 9D,
therefore, has to be construed strictly and held as
mandatory and not mere directory. Therefore,
unless the substantive provisions contained in Section
9D are complied with, the statement recorded during
search and seizure operation by the Investigation
Officers cannot be treated to be relevant piece of
evidence on which a finding could be based by the
adjudicating authority. A rational, logical and fair
41
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interpretation of procedure clearly spells out that before
the statement is treated relevant and admissible under
the law, the person is not only required to be present in
the proceedings before the adjudicating authority but
the adjudicating authority is obliged under the law to
examine him and form an opinion that having regard to
the circumstances of the case, the statement should be
admitted in evidence in the interest of justice.
Therefore, we would say that even mere recording
of statement is not enough but it has to be fully
conscious application of mind by the adjudicating
authority that the statement is required to be
admitted in the interest of justice. The rigor of
this provision, therefore, could not be done away
with by the adjudicating authority, if at all, it was
inclined to take into consideration the statement
recorded earlier during investigation by the
Investigation officers. Indeed, without examination
of the person as required under Section 9D and opinion
formed as mandated under the law, the statement
recorded by the Investigation Officer would not
constitute the relevant and admissible
evidence/material at all and has to be ignored. We
have no hesitation to hold that the adjudicating
officer as well as Customs, Excise and Service Tax
Appellate Tribunal committed illegality in placing
reliance upon the statement of Director Narayan
Prasad Tekriwal which was recorded during
investigation when his examination before the
adjudicating authority in the proceedings
instituted upon show cause notice was not
recorded nor formation of an opinion that it
requires to be admitted in the interest of justice.
In taking this view, we find support from the decision in
the case of Ambica International v. UOI rendered by the
High Court of Punjab and Haryana."
(emphasis supplied)
79. In M/s. Drolia Electrosteel P. Ltd. vs. Commissioner, Customs,
Central Excise & Service Tax, Raipur 33 decided on 30.10.2023, a
33. Excise Appeal No. 52612 of 2018 decided on 30.10.2023
42
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Division Bench of the Tribunal examined the provisions of section 9D of
the Central Excise Act and after placing reliance upon the decision of the
Punjab and Haryana High Court in Jindal Drugs Pvt. Ltd. vs. Union Of
India 34, observed that if the mandatory provisions of section 9D(1)(b) of
the Central Excise Act are not followed, the statements cannot be used as
evidence in proceedings under Central Excise Act. The relevant portions of
the decision of the Tribunal are reproduced below:
"14. Evidently, the statements will be relevant under
certain circumstances and these are given in clauses
(a) and (b) of subsection (1). There is no assertion by
either side that the circumstances indicated in (a)
existed in the case. It leaves us with (b) which
requires the court or the adjudicating authority to
first examine the person who made the statement
and form an opinion that having regard to the
circumstances of the case, the statement should
be admitted in evidence. Of course, the party
adversely affected by the statement will have to
be given an opportunity to cross examine the
person who made the statement but that comes
only after the statement is, in the first place, after
examination by the adjudicating authority,
admitted in evidence. This has not been done in
respect of any of the 35 statements. Therefore, all the
statements are not relevant to the proceedings.
15. It has been held in a catena of judgments
including Jindal Drugs Pvt. Ltd. versus Union Of
India [2016 (340) E.L.T. 67 (P&H)] that section
9D is a mandatory provision and if the procedure
prescribed therein is not followed, statements
cannot be used as evidence in the proceedings
under Central Excise Act. *****
16. Therefore, the 35 statements relied upon in the
SCN are not relevant and hence also not admissible."
(emphasis supplied)
34. 2016 (340) E.L.T. 67 (P & H)
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80. It is, therefore, not possible to accept the contention of the learned
special counsel for the department that it was not necessary in law for the
adjudicating authority to examine the persons whose statements were
recorded under section 14 of the Central Excise Act. Section 9D of the
Central Excise Act deals with all persons whose statements have been
recorded under section 14 of the Central Excise Act and, therefore, it is
also not possible to accept the contention of the learned special counsel
appearing for the department that the appellant was not required to be
examined by the Additional Director General under section 9D of the
Central Excise Act.
81. The Additional Director General was, therefore, not justified in
holding that there was no requirement in law for compliance of the
provisions of section 9D of the Central Excise Act. The Additional General
even went to the extent of observing that "cross-examination before a
quasi-judicial authority is fraught with the very rare possibility of its
misuse. It is reasonably expected that when cross-examination takes
place after long passage of time, the chances are bright that the person
concerned has been persuaded to change his mind and statement." This
observation not only goes against the settled principles of law but even
otherwise cross-examination cannot be denied merely because a person
may change his view. The purpose of cross-examination is to test the
authenticity of the statement made, more particularly when the statement
is made under section 14 of the Central Excise Act.
82. The impugned order has also placed reliance upon a pocket diary
that is said to provide inward details of raw materials, outward details of
finished goods as well as stock lying in the factory. The said diary was
claimed to have been written and maintained by Rajkumar Menghani, a
44
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labour in the unregistered factory. This pocket diary was verified by Nitin
Sabhagchandani who was present during the search and he admitted the
authenticity of the said diary and accepted the details written in the diary
were correct. As stated above, statement of Nitin Sabhagchandani made
under section 14 of the Central Excise cannot also be relied upon as the
procedure contemplated under section 9D of the Central Excise Act.
83. As per section 2 (f) of the Central Excise Act, a manufacturer is one
who employs hire labour in production or manufacture of excisable goods
as well as one who engages in their production or manufacture on his own
account. From the statements of Nitin Sabhagchandani and Rajkumar
Menghani, it is evident that they purchased the land having Khasra No.
1340 at Balenga, Bastar and they set up the factory and employed hired
labour for manufacture. There is no evidence whatsoever to show that the
appellant contributed to the finance for the purchase of land and setting
up of factory or for payment of the salaries of the labourers. The
appellant, therefore, is not the manufacturer.
84. Though the statement of the appellant under section 14 of the
Central Excise Act could not have been considered as relevant, but even if
the statement of the appellant is examined, it does not show that the
appellant was in anyway connected with the manufacturer of pan masala
and gutkha at Bastar.
85. The appellant in his statement dated 30.01.201, when asked
whether he knew Nitin Sabaghchandandi, stated that he did not know any
person by the name of Nitin Sabaghchandani. On being shown the
statement dated 30.01.2017 of Nitin Sabaghchandani and on being asked
whether he agrees with his statement that the machines for the factory at
Khasra No.1340, Balenga, Bastar were sent by the appellant and that the
45
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appellant bore the entire expense of running the said factory and the
appellant is the owner of the said factory, the appellant stated that neither
the appellant knows Nitin Sabaghchandani nor has the appellant ever sent
any machines to Bastar. The appellant further stated that the appellant
has no business of manufacturing pan masala and gutkha in Bastar.
86. However, the show cause notice, while summarizing statement
dated 30.01.2017 of the appellant, omitted the aforesaid portion of the
said statement of the appellant in which he categorically stated that he
does not know Nitin Sabaghchandani nor had he ever sent any machines
to Bastar and that the he had no business of manufacturing pan masala
and gutkha in Bastar.
87. The statement dated 27.08.2017 of the appellant was retracted by
the appellant by a letter addressed to the Chief Metropolitan Magistrate,
Patiala, New Delhi. It is the case of the department that in view of the said
retraction, further statement dated 15.09.2017 of the appellant was
recorded and, therefore, the retraction is not of any significance. This
conclusion is incorrect as would be evident from the statement dated
15.09.2017. This statement has been misconstrued as being a statement
wherein the appellant agreed with the entire statement dated 27.08.2017
that on being asked whether his identification and other description given
in the driving license provided by him for were correct, he stated that the
description given by him were correct. This statement has been
misunderstood as an agreement with the entire statement given on
27.08.2017, when in fact, the appellant had only expressed agreement
with his description given in the statement dated 27.08.2017.
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88. Further, portion of the statement dated 10.01.2020 of the appellant
has not been completely reproduced as would be seen from the
reproduced portion:
"On being further explained that from all the
statements and evidences (documents) confronted to
him and all the statements tendered by him till that
day, it was evident that the unregistered factory of
manufacturing Pan masala and gutkha which was
running at village Balenga, Distt. Bastar, Chhattisgarh
was owned by him and he was controlling the same
through Rajkumar Menghani and Shri Nitin
Sabaghchandani."
89. The said reproduction is an incomplete sentence. What is reproduced
is only the question and the same is sought to be projected as a reply
given by the appellant. The reply to the question has not been reproduced.
A perusal of the actual statement dated 10.01.2020 would show that on
being asked whether based on the statements and evidence shown to him,
it stands established that he was the owner of the unregistered factory at
Village Balenga, District Bastar which manufactured pan masala and
gutkha and that he was controlling the same through Rajkumar Menghani
and Nitin Sabaghchandani, he replied that he did not take part in
controlling the said factory. He further categorically stated that he
disagreed with statements dated 11.10.2017 and 23.05.2019 of Anil
Prithwani.
90. It, therefore, follows from the statements of Nitin Sabaghchandani,
Rajkumar Menghani and the appellant that it does not stand established
that the appellant was the manufacturer of the goods alleged to have been
manufactured in the factory at Khasra No.1340, Balenga, Bastar.
91. The conclusion that follows from the aforesaid discussion is that
neither the Panchnamas dated 30.01.2017 and 24.01.2018, nor the
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statements recorded under section 14 of the Central Excise Act nor the
pocket diary can be taken into consideration. If these are discarded, there
is no evidence which may suggest that unaccounted pan masala and
gutkha were manufactured in the unregistered premises situated at
Khasra No. 1340, Village Balenga, District Bastar by the appellant with the
help of Rajkumar Menghani, Nitin Sabhagchandani and other persons and
the same were cleared without bills/invoices and without payment of
central excise duty.
92. The confirmation of demand of central excise duty with interest upon
the appellant for the period April, 2016 to January, 2017, and its recovery
cannot, therefore, be sustained and is set aside. The imposition of penalty
and confiscation of the goods is also, accordingly, set aside.
93. The department has filed Excise Appeal No. 50082 of 2025 to assail
that portion of the order dated 27.09.2024 passed by the Additional
Director General that drops the demand for the prior period from April,
2015 to March, 2016. As the demand for the subsequent period from April,
2016 to January, 2017 cannot be sustained, the appeal filed by the
department deserves to be dismissed.
94. In the result, Excise Appeal No. 50198 of 2025 filed by the appellant
is allowed and Excise Appeal No. 50082 of 2025 filed by the department is
dismissed.
(Order pronounced on 06.04.2026)
(JUSTICE DILIP GUPTA)
PRESIDENT
(P.V. SUBBA RAO)
MEMBER (TECHNICAL)
Shreya
48
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CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. I
EXICSE APPEAL NO. 50198 OF 2025
(Arising out of Order-in-Original No. 144/2024-CE dated 27.09.2024 passed by the
Additional Director of General (Adjudication), New Delhi)
Shri Natwar Lal Sharda, .....Appellant
M-38-39, Mahesh Colony,
Near Tonk Phatak,
Jaipur - 302015
VERSUS
Additional Director of General .....Respondent
(Adjudication)
West Block VIII Wing-6,
2nd Floor, R.K. Puram,
New Delhi
APPEARANCE:
Shri J.C. Patel and Shri Nilesh Choudhary, Advocates for the Appellant
Shri P.R.V. Ramanan, Special Counsel for the Department
WITH
E/52354/2024 E/50199/2025 E/50200/2025
E/50201/2025 E/50202/2025 E/50217/2025
E/50218/2025 E/50220/2025 E/50592/2025
E/50593/2025 E/50597/2025 E/50598/2025
E/50599/2025 E/50600/2025 E/50610/2025
E/50751/2025 E/51241/2025
AND
E/50082/2025
APPEARANCE:
Shri P.R.V. Ramanan, Special Counsel for the Department
Shri J.C. Patel and Shri Nilesh Choudhary, Advocates for the Respondent
CORAM:
HON'BLE MS. BINU TAMTA, MEMBER (JUDICIAL)
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 19.02.2026
Date of Decision: 06.04.2026
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ORDER
Order pronounced.
(BINU TAMTA) MEMBER (JUDICIAL) (P.V. SUBBA RAO) MEMBER (TECHNICAL) Shreya