Clandestine manufacture and removal cannot be established through third-party records and successive presumptions alone.

M/s A. J. Sugandhi Pvt. Ltd. (“AJSPL”) manufactured Pan Masala and Scented Jarda Tobacco under the brands “SNK”, “GAGAN” and “GAGAN Strong”. Following investigation by the DGGI, the Department alleged that AJSPL had clandestinely procured printed laminates, manufactured and cleared unaccounted goods, and evaded Basic Excise Duty and NCCD.

The principal evidence was File No. 17 allegedly recovered during a search at the residential premises of Shri Sujeet Kumar Singh, associated with M/s Bharat Transport Company Pvt. Ltd. (“BTCPL”), containing entries relating to transportation of laminate boxes.

The Department quantified alleged clandestine production at approximately 233.95 crore Pan Masala pouches by applying an average weight derived from selected entries in the file. It further presumed an equal quantity of Scented Tobacco pouches on the basis of alleged market practice that Pan Masala and tobacco pouches were sold together.

A show-cause notice proposed Basic Excise Duty of ₹52,94,866 and NCCD of ₹26,47,43,316, besides interest and penalties.

The Adjudicating Authority dropped the proceedings by Order-in-Original dated 20 September 2024. The Commissioner (Appeals) rejected the Department’s appeal and upheld that order on 7 March 2025. The Revenue thereafter filed the present appeal before the Tribunal.

Whether the Revenue established, through legally admissible, cogent and corroborative evidence, that AJSPL clandestinely manufactured and cleared Pan Masala during December 2020 to May 2021?

Whether File No. 17, a third-party document allegedly recovered from the premises of Shri Sujeet Kumar Singh, was sufficiently authenticated and linked to AJSPL to sustain the demand?

Whether the alleged movement of laminates, the estimated weight derived by averaging selected entries, and the presumed conversion of laminate into finished goods established clandestine manufacture and removal?

Whether an equal quantity of Scented Tobacco could be presumed to have been manufactured and cleared solely on the basis of alleged market practice, without independent evidence of its manufacture or clearance?

Whether the concurrent findings of the Adjudicating Authority and Commissioner (Appeals) warranted appellate interference?

The Tribunal applied Sections 11A, 11AA and 11AC of the Central Excise Act, 1944, concerning recovery of duty, interest and penalty, read with the relevant provisions of the Central Excise Rules, 2002.

It held that an allegation of clandestine manufacture and removal must be proved by the Department through positive, cogent, legally admissible and corroborative evidence establishing the complete chain—procurement of excess raw materials, manufacture, capacity and infrastructure, transportation, identification of buyers, clearance and financial flow-back—and cannot rest on suspicion, conjectures, third-party records or mathematical assumptions.

A private document recovered from a third party must be independently authenticated and linked to the assessee before liability can be imposed.

Movement of goods does not by itself prove delivery, receipt, consumption, manufacture or clandestine clearance.

The manufacture and clearance of a distinct excisable commodity cannot be presumed merely from an alleged market practice relating to another commodity.

The Tribunal found that the entire demand originated from File No. 17, whose authorship, provenance, custody and status as a regular business record were not established.

The Department did not verify the alleged transfer and control of BTCPL, examine its existing directors, or explain Shri Sujeet Kumar Singh’s authority to possess the records.

The file was not corroborated by gate registers, unloading records, weighbridge slips, inward registers, stock reconciliation, transport acknowledgements or evidence proving receipt of laminates at AJSPL’s factory.

The Department’s interpretation was also weakened by the fact that an entry concerning the “Sudh Plus” brand related to a manufacturer at Gorakhpur, while the same file was used to allege transportation to Kanpur-based manufacturers.

The Tribunal further held that the conversion of box quantities into laminate weight through an average derived from nine unrelated entries was unreliable, particularly because identical numbers of boxes showed materially different weights. The resulting estimate could not constitute proof of actual receipt or manufacture.

There was also no independent evidence of procurement of other raw materials, additional electricity or labour consumption, transportation of finished goods, identification of buyers, sale proceeds or financial flow-back.

The demand for Scented Tobacco was even more speculative because no evidence established procurement of tobacco-related inputs, manufacture or clearance; the alleged practice of selling Pan Masala with tobacco could not replace proof of a taxable event.

File No. 17 was an unverified third-party document, the laminate-to-production computation was arbitrary and unsupported, and the tobacco demand was based solely on an impermissible presumption of market practice.

Finding no perversity or legal infirmity in the concurrent orders of the Adjudicating Authority and Commissioner (Appeals), the Tribunal upheld the dropping of the proceedings and dismissed the Revenue’s appeal.