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  (i)      Supari	                  :         5.100 Kgs to 5.200 Kgs
(ii)     Mg. Carbonate            :         0.130 Kgs to 0.140 Kgs
(iii)    Tobacco                  :         0.430 Kgs to 0.450 Kgs.
(iv)     Menthol                  :         0.030 Kgs to 0.070 Kgs
(v)      Kimam                    :         0.050 Kgs to 0.070 Kgs
(vi)     Kattha                   :         0.420 Kgs to 0.440 Kgs
(vii)    Flavors                  :         0.090 Kgs to 0.105 Kgs
(viii)   Glyserene                :         0.050 Kgs to 0.060 Kgs
(ix)     Spices                   :         0.001 Kgs to 0.0012 Kgs
(x)      Cardamon                 :         0.060 Kgs to 0.070 Kgs
(xi)     Lime                     :         0.070 Kgs to 0.090 Kgs

 

The said CMD further stated that the proportion of the raw material
consumption given above is inclusive of following losses occurred during

4. The appellants filed their replies dated 9.10.97, 6.01.97, 2.2.97 and 17.2.97 to the show cause notices as on pages 122 to 203. In the replies the appellants have interalia denied all the allegations made in the show cause notice; that there was no materials brought on record on the basis of which the authorities could form reasonable belief; that the evasion of Central excise duty was in respect of "Star Gutkha" manufactured by them; that the percentage of losses and wastage as stated by Shri. S.D. Godhavat was not accepted in the show cause notice while that pertaining to number of pouches being manufactured per kg of PLF is taken as basis for calculation of quantum of clandestine clearance and duty evasion. The production of pouches for one kg of PLF is substantially lower than 2500 or 2200 pouches per kg as stated by CMD. The PLF used upto June 95 was of much thicker variety and larger in size giving only around 1600 pouches per kg; that laminated film is the only raw material apart from perfume on which modvat credit is available and on which at the time of clearance as scrap and waste excise duty is payable, hence only these were accounted for and in respect of other raw materials like Supari, Kattha etc., no modvat is available; that manufacture of Gutkha is a continuous process industry. It is well established principle of accounting in such industries (both in cost accounting & financial accounting) to treat normal process loss as the normal cost of the process and not to account for such normal loss separately. Only the abnormal loss or gain is counted, valued and brought to the accounts; that the raw material particularly Kattha, Supari, Tobacco, the accounting is not done in the manner of Industrial inputs. The receipt, issues, consumption, wastage, opening and closing stocks are all accounted for on a gross basis; that the allegations are based on assumptions and presumptions; that the losses of physical stock of raw material at the beginning of the financial year and closing stock of the same at the financial year, after adjusting raw material received during the year; that this gives the net raw material consumed during the year, from which the weight of the finished Gutkha is deducted to determine the net loss of raw material. This long practice is dictated by the fact that raw materials like Supari and Tobacco (which are brought from Adatiya farms) dealing with agricultural produce of Betelnut and Tobacco Farms, come in bulk quantities which are not amenable to systematic handling, storage, issue and other forms of physical material control. The industry is labour intensive rural industry. The stock measurement procedures and the systems of inventory control such as Bincard system, storage ledger control, perpetual inventory and continuous stock taking are not possible; therefore, the raw material consumed and in process losses of Supari, Tobacco and Kattha etc. are worked out by the rule-of-thumb method as explained by the CMD in his statement; that they have worked out consumption ratio or year to year which gives the gross consumption of different raw materials used in Gutkha production in the years ended 31.3.95, 31.3.96 and 31.3.97; the gross consumption includes the raw materials contained in the final gutkha as well as wastages that occur after receipt in the factory; the fact that the ratio of consumption of each type of raw material from year to year has remained stable and consistent indicates that the consumption of raw material worked out even by the normal rule-of-thumb method is indisputable and reliable; the consumption ratio as well as percentages of wastages and losses have also been accepted in Income-tax assessment orders for the years 1993-94, 1994-95 and 1995-96 (photo copies filed on the record); the percentage of wastage of Supari is of about 22%; Supari comes in raw condition with lots of soil, dust, small pieces as also substantial moisture, there is bound to be weight loss during the processing of Supari in cutting, cleaning, sieving, drying and mixing processes; the said percentage of loss should have been accepted by the department who had opportunity to inspect the nature of raw materials and physical production process during their visit; that the clandestine production and clearance are alleged without producing even single documentary proof establishing beyond doubt or even prima facie that the said Gutkha was manufactured or cleared to a given person or for a given consideration received in the hands of a given person. The appellant has relied on the following case laws:-

12. Bill No. 621 dt. 2.6.96-400.000 kgs.

13. Bill No. 1472/7.9.96- 1210.000 kgs.

14. Bill No. 1698 dt 30 - 1854/9.96 - 185.000 kgs

15. Bill No. 1800dt. 10.10.96-465.000 kgs

16. Bill No. 1854 dt. 16.10.96 - 200.000 kgs.

17. Bill No. 2034 dt. 2.11.96 - 300.000 kgs

7. Thus from the above, it may be seen that wastage had been declared from time to time to Central Excise authorities. The total raw material consumed by the appellant No. 1 in the production of Star Gutkha is worked out in Annexure B-VI to the show cause notice which was confirmed by them in their letter dated 28.6.97. It appears from the said annexure that the appellant consumed raw material of 26,701.000 kgs during 93-94, 3,21,141,925 kgs. during 1994-95, 10,31,582.500 kgs. during 1995-96 and 8,85,165 kgs during 1996-97 (upto 15.11.96). Thus between the period from 1993-94 to 1996-97 they have consumed 22,64,590.425 kgs of raw material in the manufacture of Star Gutkha. In respect of PLR consumed between the period from 1993-94 to 1996-97 it has been already shown in Annexure B-V that out of PLR consumed 96,81,90,709 pouches were generated as packing material i.e. 3,87,274 carton bags were generated. Now Gutkha required to fill in these carton bags @ 5 kgs. Per carton bag (i.e. carton bag of 2500 pouches, each pouch of 2 gms. Weight) is worked out to 5x3,87,274 = 19,36,370 kgs. This weight is compared with the total raw material consumed it appears that 22,64,590.425 - 19,36,370 = 3,28,220.425 kgs. of raw material is waste which accounts for 14.49% for which no recorded evidence is available and out of the principal raw material by weight viz. Supari, PLR etc. 19% to 20% weight is lost due to various natural and normal reasons.

8. The learned consultant Shri. Z.B.Nagarkar appearing on behalf of the appellants contended that there is no evidence supporting the case of the department that an excess quantity of Star Gutkha were removed clandestinely without payment of Central Excise duty. He contended that the case of the department is based totally on presumption. The department has totally gone by the theoretical calculation of PLR and on that basis the department has presumed clandestine removal. Main contention of the department is that out of 1 kg of PLR so much number of pouches would have been produced. The department has roughly taken the physical 2400 pouches out of 1 kg PLR and has multiplied the same by the total number of Kgs PLR to arrive at the estimated figure of pouches. As already mentioned, the theoretical calculation arrived at by the department is mentioned in Annexure B-V to the show cause notice. His contention is that the raw material used in the preparation of Star Gutkha i.e. Supari, Tobacco, Kattha and the wastage and scrap in manufacturing the said star gutkha have not been taken into account by the department to arrive at the actual figure. Had the department gone by the actual raw material used in the preparation of Star Gutkha and the wastage and scrap as claimed by the appellants, the question of clandestine removal as alleged by the department would not have arisen. He submitted that the wastage which normally occurs in preparation of the Star Gutkha out of the said raw material as mentioned above is over 22%. He also submitted that though the appellants do not maintain the records of wastage and scrap as it was not incumbent upon them being non dutiable goods, wastage could be ascertained from the appellants balance sheets itself as the consumption of all raw material is mentioned therein, raw materials over and above the said star gutkha have not specified laid along quantities, mode of receipt, disposal. He further contended that the investigating official never shown any interest in undertaking any experiment with regard to the wastage and scrap although the management of the appellants has managed to do so. Input/out put of all major raw materials was available to the department in terms of the balance sheet. No attempt has been made by the department to establish that much short quantities of inputs were brought in by the appellants as compared to the quantity of received finished products, the declared value was much less. The investigation was hampering upon the PLR as though the appellant was engaged in the manufacture of PLR only. He, therefore, submitted that the theory of suppression alleged and clandestine removal of Star Gutkha is merely based on assumed arithmetical calculation of the department and the department neither has any direct nor indirect evidence in this regard. With regard to the confessional statements given by Shri. Raju Bardiya dated 12.7,1997 and 16.11.1996, before the Excise Officer he submitted that in letter dated 18.11.1996 addressed to the Superintendent with a copy to the Asst. Commissioner, Central Excise, Pune, he has categorically stated that he was interrogated upto 3.30 AM on 17.11.97. His two sons aged 7 yrs and two years who had high temperature and he wanted with the children. In order to avoid tension he ultimately stated that some of the entries related to the Star Gutkha which were sent to him without bill and without payment of excise duty. He stated that all these as per the directions of the investigation officer. He denied that these statement and stated that Star Gutkha pouches were received accounted properly. As regards R.K.Transport, the main transporter, who admitted in his statement that they delivered 4/5 gunny bags per consignment free of cost said to have been containing advertisement material received from the Appellant No. 1 which were not recorded in the lorry Receipt and no charges were recovered for the said 4/5 gunny bags as a matter of goodwill from the appellant No. l. However when he was confronted as to whether they ever checked such gunny bags to confirm the contents that they were advertisement material only and not Star Gutkha, Shri. V.M.Ranjane, Manager of the R.K.Transport said that they never checked the contents therein. Other transporters also never checked the contents and few extra gunny bags which were definitely containing star gutkha. Advertisement was required to be given to the distributor of the retailers. He also contended that the loss of raw material during cutting, cleaning, sieving, drying and mixing process as also during grinding Kattha and filling and handling of finished products were not taken into account which accounted to over 22% as claimed by Shri. Sanjay Ghodavat in his statement. He also contended that the input/output receipt of the finished viz. Star Gutkha was never seriously studied by the Investigating Officer or else they could have easily allowed the wastage of 22% and thereby there was no need for issue of show cause notice. The gauge of plastic film was little thicker and therefore only 1600 pouches were produced per kgs. Suppliers of PLR were questioned as to the capability of production of pouches per kg. The figures given are between 2400 to 1600 pouches per kg. Normally on the assumption of such quantity should have been manufactured which was much higher than the initially declared quantity. The Commissioner has confirmed the huge demand merely on presumption. He also submitted that the appellant referred to the investigation carried out by them with the help of some officers of Central Excise, Pune Commissionerate on 13.8.1998. The officers consist of Shri. R.N.Medhekar, Inspector, Shri. D.D. Kadam, Inspector, Shri.Y.P.Gaikwad, Preventive Supdt. All from the said divisions and also different witnesses and in their own hand writing Shri.Medhekar had shown of ranging between 1.85 gm to 2.25 gm. These figures and the comparative chart (page 182 of the Paper Book) falsify the revenue case based on the assumption, average weight and arithmetic calculation. He also contended that it was necessary on the part of the department to have brought some strict, direct, positive and corroborative evidence particularly when the statements which should have been relied on by the department had been retracted immediately by the persons who made such statements. The department neither brought any primary evidence nor any other proof in the form of sale proceeds; cash etc to support their contention of clandestine removal. He contended that the impugned order is against the evidence if any available on record and as such the same is not sustainable. To support his contention he relied on the following case laws:-