Dept. Failed to Prove Clandestine Removal In ‘Gold Mohar’ Pan Masala Case: CESTAT Quashes Cash and Goods Confiscation

The Allahabad Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside confiscation of cash and goods and quashed substantial duty demands raised against a pan masala manufacturer and its dealer, holding that the department failed to discharge its burden of proving clandestine manufacture and removal. The bench of P.K. Choudhary (Judicial Member) has observed that the burden lies on the Department to prove that currency represents sale proceeds of clandestinely removed goods. Mere non-accountal or suspicion cannot justify confiscation. The Department cannot shift the burden to the assessee without first discharging its initial onus. The case arose from searches conducted on 20 January 2003 by officers of the Directorate General of Central Excise Intelligence (DGCEI) at the factory premises of M/s Sarin & Sarin, a partnership firm engaged in manufacturing Pan Masala and Gutkha under the brand name “Gold Mohar,” as well as at the premises of dealer M/s Basudeo Prasad & Sons (Tobacconist) and residential premises of the partners. During the search Rs. 3.46 lakh was seized from the factory premises; Rs. 15.97 lakh was seized from the residential premises of the partners; goods worth ₹13.77 lakh were seized from the dealer’s premises; shortages of certain raw materials were allegedly detected. The assessee deposited ₹1.81 lakh during the search. A further ₹25 lakh was deposited under protest during investigation. The Department alleged that the cash represented sale proceeds of clandestinely removed goods and that excess consumption of cut supari (betel nut) indicated large-scale unaccounted manufacture of pan masala and gutkha. Based on these allegations, show cause notices proposed confiscation of ₹19.43 lakh under Section 121 of the Customs Act; confiscation of seized goods; duty demands of ₹1.81 lakh, ₹1.71 lakh, and ₹32.88 lakh; and penalties under Section 11AC and Rule 25 of the Central Excise Rules. The adjudicating authority confirmed the demands and confiscations. The Commissioner (Appeals) upheld the order. Although CESTAT initially allowed the appeals in 2014, the High Court remanded the matter to reconsider the issue of penalties. The Tribunal held that the Department failed to produce any cogent evidence to establish that the seized cash represented sale proceeds of clandestinely removed excisable goods. The assessee had explained that ₹15.97 lakh seized from the residence belonged to various family members. The amounts were supported by income tax certificates, affidavits, agricultural income records, sale of gold bullion, and property transactions. ₹3.5 lakh was received from sale of a Toyota Qualis car, supported by an affidavit from the purchaser. The Tribunal noted that the Department rejected these explanations without disproving them through independent evidence. With respect to goods seized from M/s Basudeo Prasad & Sons, the Tribunal found that fourteen invoices covering the seized goods were produced. Entries were reflected in the manufacturer’s PLA and dealer’s “Pappu Long Books.” The Department did not controvert these documentary records. The allegation that stock registers were maintained in pencil was held insufficient to establish manipulation or connivance. The Tribunal observed that maintenance of records in pencil, by itself, cannot be treated as evidence of clandestine activity. In the absence of proof that the goods were non-duty-paid, the confiscation was set aside. The most significant demand of ₹32.88 lakh was based on the assumption that all cut supari issued for manufacture was fully converted into finished goods. No wastage occurred beyond the first stage. The composition formula submitted by the assessee showed higher consumption than reflected in records. Overtime payments and machine capacity indicated higher production. The Tribunal rejected this approach, observing that the demand was based on theoretical calculations and assumptions. Quantitative tally registers (QTR) were ignored. No corroborative evidence was produced regarding excess production, transport, buyers, electricity consumption, or receipt of sale proceeds. Confessional statements alone, particularly when disputed, cannot sustain a charge of clandestine removal. The Bench emphasized that clandestine manufacture must be established through affirmative, tangible, and positive evidence — not mere suspicion or mathematical extrapolation. In the absence of corroboration, the duty demands of ₹1.71 lakh and ₹32.88 lakh were held unsustainable. The Tribunal reiterated established legal principles the onus to prove clandestine manufacture and removal lies squarely on the Revenue. Confiscation of Indian currency requires proof of nexus with illicit clearance. Strong suspicion cannot replace legal evidence. The ITAT observed that voluntary deposits made during search cannot validate an otherwise unsustainable demand. Case Details Case Title: M/s Sarin & Sarin Versus Commissioner of Central Excise & CGST, Kanpur Citation: JURISHOUR-215-CESTAT-2026(Allah) Case No.: Excise Appeal No.721 of 2007 Date: 03.03.2026 Counsel For Appellant: Rahul Agarwal, Advocate Counsel For Respondent: Santosh Kumar, Authorized Representative Click Here To Read Order Read More: ITAT Slams Income Tax Dept. For on Third-Party Statements Without Independent Inquiry

Dept. Failed to Prove Clandestine Removal In ‘Gold Mohar’ Pan Masala Case: CESTAT Quashes Cash and Goods Confiscation

Membership Required

Latest articles

DGGI Hyderabad | No Custodial Interrogation Where Case Is Predominantly Based On Documentary Evidence: Telangana HC Grants Pre-Arrest Bail in Rs. 97 Crore GST...

Massive NDPS Drug Trafficking Case Involving Commercial Quantity Recovery: Punjab & Haryana High Court Denies Anticipatory Bail

Paytm Payments Bank Licence Cancelled: What It Means for Account Holders and Their Money?

Personal Inspection & Agriculture Dept. Input Not Enough for Technical Micronutrient Classification: Karnataka High Court Faults Commissioner’s Approach

More like this

DGGI Hyderabad | No Custodial Interrogation Where Case Is Predominantly Based On Documentary Evidence: Telangana HC Grants Pre-Arrest Bail in Rs. 97 Crore GST...

Massive NDPS Drug Trafficking Case Involving Commercial Quantity Recovery: Punjab & Haryana High Court Denies Anticipatory Bail

Paytm Payments Bank Licence Cancelled: What It Means for Account Holders and Their Money?

About us

Company

Categories