No Proof of Gutka Manufacture Before Machines were Installed, Trial Run Not Liable to Excise Duty: CESTAT in Maruti Tobacco Matter [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai Bench, in a matter related to Maruti Tobacco Products Private Limited, held that if there is no proof of manufacture of gutka/pan masala before the installation of machines then the trial run would not be liable to excise duty.

The officers of the Central Excise department visited the farm house situated at Kolhapur based on the intelligence that Rajendra Babulal Malu, Managing Director of Shree Venkateshwara Pan Masala Industries Pvt. Ltd. (SVPMIPL) was engaged in illicit manufacture of ‘Pan Masala’ containing Tobacco in such premises. The officers also visited the factory premises of SVPMIPL at Kolhapur. Sunil Bhattad, acting as an agent of SVPMIPL stated that the goods were sent to him by Rajendra Malu and he did not receive any bill/invoice/cash memo with the goods.

The show cause notice issued relied on the statement of Bhattad, owner of Maruti Trading Company, that they had received ‘Zee’ and ‘Speed’ brand Gutka from Malu, without any documents and the same was purchased in February 2011. The Commissioner of Central Excise passed an order confirming the proposals made in the SCN.

The counsel for the appellants argued that merely because the appellant-Malu is the Director of SVPMIL, he does not become the manufacturer since the company is a separate legal entity, different and distinct from its Director. It was also contended that the machines were run on trial basis only for three days. Further, reference was made to the inspection report of FDA authorities dated 21.04.2011 stating that during their visit, they did not find any Gutka/Pan masala in the factory premises.

The tribunal observed that the supervisor was supposed to know the actual installation of the machines and it would be erroneous on the part of the department to merely assume that the manufacturing activity commenced on a date prior to 16.05.2011 as claimed by the appellants. CESTAT noted that the statements recorded from Malu cannot be considered as false or incorrect.

Due to lack of corroborative evidence, the bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) made clear the position that if the manufacturer is found to be operating without obtaining registration and there is no clearance of goods owing to the reason of trial production, then penalty cannot be imposed.

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