The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has set aside a ₹25 crore penalty imposed in a case involving the alleged clandestine manufacture and removal of pan masala and scented tobacco. 

The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that the department had failed to establish that he dealt with the excisable goods in a manner covered by Rule 26 of the Central Excise Rules, 2002.

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The department had alleged that the manufacturer produced and cleared goods without paying central excise duty between April 2016 and January 2017. Its show cause notice sought approximately ₹46.70 crore in duty from the manufacturer, along with penalties against several individuals and a supplier.

The adjudicating authority imposed a ₹25 crore penalty on Singh under Rule 26. It relied on findings that he had placed orders for raw materials and packaging material for Maa Bhagwati Foods. The order also referred to a statement by a supervisor at the unit, alleging that Singh was its actual owner and gave instructions about its operations.

Singh challenged the penalty before CESTAT. He maintained that his role was limited to lending money to Jha and helping procure laminates and miscellaneous goods. He argued that he had neither handled the goods allegedly cleared without duty nor taken part in their removal.

The Tribunal said the issue was whether the evidence met the conditions for a penalty under Rule 26. The provision covers a person who possesses, transports, removes, stores, conceals, sells, purchases or otherwise deals with excisable goods while knowing, or having reason to believe, that they are liable to confiscation.

Merely assisting with supplies to a manufacturing unit did not, on the evidence in this case, establish Singh’s involvement in any of those activities, the Tribunal found. It observed that neither the show cause notice nor the documents relied upon by the department demonstrated that he had dealt with the goods allegedly cleared without payment of duty.

The bench also noted a lack of clarity in the adjudicating authority’s account of Singh’s role. The order referred in places to “Manoj Kumar (Singh)”, while another person in the proceedings, the supervisor, was named Manoj Kumar Jha. The Tribunal found that the order had not clearly established the basis for imposing a Rule 26 penalty on Singh.

Statements from a packing worker and a transporter, the Tribunal noted, attributed supervision of manufacturing at the unregistered Bawana premises and directions for transporting the goods to Jha. It also considered that Jha had later retracted an earlier statement, saying it had been made under pressure and that names had been dictated to him. Referring to earlier decisions on the need for evidence supporting a Rule 26 penalty and the treatment of retracted statements, the bench held that the penalty against Singh could not stand.

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