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The first search on 5th July 2003

7. According to the Department, the searches resulted in the recovery and seizure of incriminating records or documents from such premises which was annexed to the respective panchnamas drawn on the spot by the search team. The documents recovered pertained to the period from 1st April 2002 to 5th July 2003. The officers of the DGCEI also seized finished goods/Vimal brand gutka at several places since valid documents showing the payment of duty were not available in respect of the finished goods. They also seized raw materials/inputs and packing materials from the factory of VCPL and other places, including godowns of some of the transporters and their vehicles. The quantities of inputs found in excess of the recorded balances were in respect of both supari and tobacco. It was further observed that no account was being maintained in the factory in respect of other inputs and packing material. In the absence of any stock register for these inputs or packing material, the actual physical balances were recorded under the panchnama drawn and the goods found unaccounted were seized. No stock of either jute bags, used for packing their products or menthol, one of the important ingredients, was found in the factory of VCPL. The goods after seizure were handed over to Mr. H. Sunder, Director of VCPL (who is also the Respondent in CEAC No. 80 of 2014). Searches were also carried out in the premises of M/s. Ashoka Tobacco, M/s. Lalwani Convertors, M/s. Pragati International (P) Ltd. from whose premises further seizures were made of unbranded loose chewing tobacco and printed laminated rolls meant for packing Vimal brand gutka.

10. Annexed to the SCN was the report of the Shri Ram Institute of Industrial Research (SIIR), the findings of which when compared with the consumption of various raw materials as shown by VCPL in its records, revealed that there was excess consumption of supari and menthol, the two essentials ingredients of gutka.

11. The SCN had noted that VCPL had voluntarily deposited a sum of Rs. 6,93,000 towards payment of duty on 210 bags of Vimal gutka seized on 9th July 2003 and total of Rs. 1.96 crore voluntarily deposited on 5th July 2003, 15th July 2003 and 4th August 2003 towards duty not paid on past clearances. It also proposed to appropriate the said deposits towards the duty demand of Rs. 12,92,90,241.

(iii) The charges of clandestine removal cannot be proved on the basis of third party documents without there being any positive evidence on record to link the third party documents with VCPL. Though the factory of VCPL was searched by the officers of the Department, nothing incriminating was recovered except the allegations of the shortages of menthol and gunny bags.

(iv) There was no justification in relying upon the report of SIIR since only a small quantity of 1.8 grams gutka was tested which possibly could not give correct results particularly in case of a volatile substance like menthol, which evaporates over a period of time. The content of supari, lime, tobacco, kattha and menthol, in terms of the report of SIIR, was 68%, 2%, 5%, 15.5% and 0.013% respectively. This totalled to about 90%. These five ingredients were the main ingredients and the percentages of other ingredients were supposed to less than 1%. Therefore, the remaining 9% of ingredients were not accounted for. Gutka is a heterogeneous mixture, prepared manually. Therefore, it was unsafe to rely upon a small quantity of gutka 1.8 grams for testing.

Report of the SIIR

30. It was submitted on behalf of the Department that the report of SIIR was a clinching piece of evidence. It was proved by the oral evidence of Mr. S. K. Chib, who had prepared the report. Mr. Chib was cross-examined at length but was unable to be discredited by the Respondents. As regards 9% ingredients not accounted for in the report, Mr. Chib in his cross- examination explained that this would include "moisture, cardamom flavouring material etc. which was not analysed." A reference was also made to the explanation of Mr. Chib with reference to 1.90 gms, was in fact average weight of the 10 pouches and which constituted the set of the represented sample. The panchnama drawn at the time of drawing of the sample on 22nd July 2003 substantiated this fact. Mr. Chib had explained that menthol was used only in traces and did not undergo any process during manufacturing where it is exposed to severe heat conditions. Once the mixture was ready, it was packed in pouches made of plastic film which were heat sealed to avoid any leakage or the contents absorbing moisture. A reference is made to the analysis undertaken by the CCE in the order-in- original which tried to show that the explanation for the gap between 450 gm of menthol claimed by the Assessee to be present in the representative sample and 13 grams which was actually found in the report of the SIIR could not be attributed only to evaporation since it would then be 97.2% which was in the "realm of impossible." It is urged that all of the above evidence was overlooked by the CESTAT.