Excise Dept. Failed To Establish Pouch Packing Machines Used For Manufacturing Gutka Installed And Operational Prior To May 2011: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai Bench held that the department failed to establish that the pouch packing machines used for manufacturing gutka were installed and operational prior to May 2011, thereby invalidating the basis for the duty demand. The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has set aside a demand of ₹8.75 crore in central excise duty raised against individuals and entities allegedly involved in clandestine manufacture of gutka. The dispute arose from a search conducted by Central Excise officers on 19 May 2011 at a farmhouse in Kolhapur allegedly used for clandestine manufacture of gutka. During the search, officers found five pouch packing machines, gutka premix, laminated rolls, and finished pouches bearing the brand names “Zee” and “Speed.” Following the search, the department alleged that the premises had been used to manufacture gutka illegally since February 2011 without obtaining central excise registration. It invoked the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, which determine duty liability based on the number of packing machines installed and operational. Relying on Rule 17(2) of the 2008 Rules, the department presumed that the machines were operational from 1 April 2010 and computed duty accordingly, resulting in a demand of ₹8.75 crore along with interest and penalties. The appellants argued that the pouch packing machines were purchased only on 11 May 2011 and transported from Kanpur to Kolhapur thereafter. According to them, the machines were installed only on 16 May 2011 and were used merely for trial runs between 16 May and 18 May 2011 before the departmental search took place. To support their case, they produced several documents, including: invoice issued by the machine supplier dated 11 May 2011; Transport documents and lorry receipts evidencing dispatch from Kanpur; Statements of the transporter and vehicle driver confirming transportation of the machines; a municipal transit receipt showing the vehicle’s movement; and Statement of the electrician confirming that electrical connections for the machines were installed only on 13–14 May 2011 The appellants also contended that the department relied on statements of traders who allegedly received gutka earlier, but those witnesses were not made available for cross-examination. After reviewing the evidence on record, the Tribunal found that the department’s case lacked credible proof to support its allegation of prolonged clandestine manufacture. The Tribunal noted that the electrician’s statement clearly indicated that electrical points for the pouch packing machines were installed only in mid-May 2011 and the machines were connected on 16 May 2011. This indicated that the machines could not have been operational before that date. Further, statements from the supplier, transporter, and driver confirmed that the machines were dispatched only in May 2011. These documents collectively supported the appellants’ claim that the machines were brought to the premises shortly before the search. The adjudicating authority had rejected the transport documents citing discrepancies in the vehicle number. However, the transporter clarified that the discrepancy was a clerical mistake. The Tribunal held that such a minor error could not be used to discard otherwise reliable evidence. The Tribunal also found fault with the adjudicating authority for relying on statements of certain traders without granting cross-examination to the appellants. It observed that when statements are relied upon to establish clandestine manufacture or clearance, cross-examination becomes an essential safeguard under Section 9D of the Central Excise Act. In the absence of such opportunity, the evidentiary value of those statements becomes questionable. The Tribunal further noted that no workers or labourers were found at the premises during the search and there was no independent evidence demonstrating large-scale production activity. The department also failed to produce corroborative evidence of clandestine removal of gutka. The Tribunal held that the department’s case was based largely on assumptions rather than concrete proof. Concluding that the department failed to prove that the packing machines were operational before May 2011, the Tribunal ruled that the excise duty demand calculated on presumed production from April 2010 was unsustainable. Accordingly, the Tribunal set aside the demand of ₹8.75 crore along with the interest and penalties imposed on the appellants, and allowed the appeals. Case Details Case Title: M/s Zemini Marketing Company Versus Commissioner of Central Goods and Service Tax, Kolhapur Citation: JURISHOUR-383-CES-2026(MUM) Case No.: Excise Appeal No. 86026 of 2013 Date: 13/03/2026 Counsel For Appellant: J.C. Patel, Advocate Counsel For Respondent: Shambhoo Nath, Special Counsel Click Here To Read Order Read More: Despatch Money for Faster Cargo Unloading Not Taxable as ‘Port Service’: CESTAT

Excise Dept. Failed To Establish Pouch Packing Machines Used For Manufacturing Gutka Installed And Operational Prior To May 2011: CESTAT

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