THE COMMISSIONER OF CENTRAL TAX AND CENTRAL EXCISE BENGALURU NORTH WEST v. NONE

6. SHRI MURILIDHARA T, PROPRIETOR, M/S LIKITHA AGENCY, 38, KSRTC COLONY, HOSUR ROAD, ANEKAL, BANGALORE, KARNATAKA-526106.

7. MAHARAJA INDUSTRIES, 51/A, KIADB INDUSTRIAL AREA, LOKIKERE MAIN ROAD, DEVANAGERE, KARNATAKA-577055. REPRESENTED BY ITS MANAGING DIRECTOR …RESPONDENTS (BY SRI M. S. NAGARAJA, ADVOCATE) THIS CEA IS FILED UNDER SECTION 35G OF THE CENTRAL EXCISE ACT, 1944, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE HON'BLE CESTAT, BANGALORE IN FINAL ORDER No.20414-20420/2025 DATED 28.02.2025 VIDE ANNEXURE-A AND CONFIRM THE ORDER-IN-ORIGINAL DATED 12.09.2013 ORDER PASSED BY THE COMMISSIONER OF CENTRAL TAX, BENGALURU SOUTH BENGALURU. THIS APPEAL, COMING ON FOR ADMISSION THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: - 3 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR CORAM: HON'BLE MR. JUSTICE S.G.PANDIT HON'BLE MR. JUSTICE K. V. ARAVIND ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE K.V. ARAVIND) Heard Sri Aravind V. Chavan, learned counsel for the appellant-Revenue and Sri M.S. Nagaraja, learned counsel for the respondents.

2. This appeal is preferred by the Revenue challenging the order passed by the Central Excise and Service Tax Appellate Tribunal, Bengaluru (hereinafter referred to as “the Tribunal”) in Final Order No.20414–20420/2025 dated

28.02.2025.

3. In the appeal, the following substantial questions of law are raised: the Order-in-Original, without "1. Whether the Hon'ble CESTAT was correct in law in allowing the appeal of the assessee and setting properly examining and appreciating the conclusive evidences of clandestine manufacture and removal including seizure of unaccounted goods and vehicle, supplier and dealer confessions, computer data, and stock statements furnished to banks which were duly relied upon by the Adjudicating Authority while confirming the demand? - 4 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR

2. Whether the Hon'ble CESTAT was justified in setting aside the penalties imposed under Rule 26 of the Central Excise Rules, 2002, by allowing the co- noticees' appeals, despite clear findings by the Adjudicating Authority establishing active participation and abetment of the offence by the Managing Director, Director, suppliers, and dealers in the clandestine manufacture and removal of excisable goods?

3. Whether the Hon'ble CESTAT was justified in disregarding the voluntary and admissible statement of the Managing Director recorded under Section 14 of the Central Excise Act, 1944, duly corroborated by independent evidence, merely on the basis of a belated and unsubstantiated retraction?

4. Whether the findings of the Tribunal to reject the evidences adduced by the department in the form of private records to evidence purchase of excessive raw materials, excessive usage of electricity for the products manufacture packing labour, clandestinely, excess usage of casual statement of production submitted to the Banks, transportation of finished in the vehicle owned by the MD of the unit, confession statements recorded from two dealers viz. M/s Keerthana Enterprises, M/s Likitha agency that they were indulged in illicitly purchasing unaccounted from the assessee under cash & method only on the ground that the department did not follow the procedure under Section 36B(2) read with 36B(4) of the Central Excise Act, 1944 is just and proper? finished good

5. Whether the Hon'ble CESTAT erred in law in treating the computer printouts retrieved from the seized CPU as inadmissible evidence under Section 36B of the Central Excise Act, 1944, despite their authentication by the Managing Director and corroboration by private production records and other independent evidences?

6. Whether the Hon'ble CESTAT was correct in law in holding that manufacture was incomplete until packaging was carried out, contrary to the definition of "manufacture" under Section 2(f) of the Central - 5 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR Excise Act, 1944, and the scope of Chapter Heading 3401 which covers soaps and detergents in all forms, packed or unpacked? respondent's

7. Whether the Hon'ble CESTAT was justified in accepting declarations made to banks were inflated for obtaining credit facilities, contrary to the binding precedent in Coimbatore Spinning & Weaving Co. Ltd. v. CIT [1973-TMI-9094 (Madras HC)], and in law permitting an assessee to disown its own sworn declarations to financial institutions?

8. Whether the Hon'ble CESTAT failed to exercise its jurisdiction as the final fact-finding authority by ignoring material evidences and findings recorded by the Adjudicating Authority, thereby rendering its order perverse, arbitrary, and contrary to law?

9. Whether the Hon'ble CESTAT's interpretation of evidentiary standards governing clandestine removals, retracted statements, and computer data is contrary to the settled law laid down by the Hon'ble Supreme Court in Pooja Tex Prints Pvt. Ltd. v. Addl. Commissioner [2019 (367) ELT A322 (SC)], Starwire (India) Ltd. v. CCE [2015 (320) ELT A348 (SC)], and Kalvert Foods India Pvt. Ltd. v. CCE [2011 (270) ELT 643 (SC)]?"

4. The brief facts of the case are that the respondent is a Company engaged in the manufacture of ‘detergent cakes’, ‘detergent powder’, and ‘scouring powder’. The goods manufactured by the respondent are excisable under the provisions of the Central Excise Tariff Act, 1985. Acting on specific intelligence that the respondent was engaged in clandestine manufacture and removal of excisable goods - 6 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR without payment of Central Excise duty, the Directorate General of Central Excise Intelligence (DGCEI) conducted search operations at the factory premises as well as the residential premises of the Managing Director of respondent-Company. In the course of such action, various documents and finished excisable goods were recovered. Vehicles loaded with finished detergent cakes and detergent powder, suspected to be intended for removal without payment of duty, were also seized.

4.1 The authorities thereafter verified the physical stock at the factory premises and found that substantial quantities of finished goods available both at the factory premises and in the loaded vehicles were not accounted for in the Daily Stock Account Register. It was further found that the respondent had filed ‘nil’ ER1 returns for the period from February 2010 to February 2011, indicating no manufacture or clearance during the said period, despite evidence of substantial production activity. The investigation further revealed day-to-day manufacturing activity, presence of packaging material, and finished goods in packed condition. The investigating - 7 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR authorities also found that the respondent had procured raw materials without proper invoices, indicating purchases intended for unaccounted production.

4.2 A show-cause notice was issued calling upon the respondent to show cause against the proposed recovery of Central Excise duty along with interest and imposition of penalties. The respondent-assessee submitted a reply to the said show-cause notice. The Commissioner of Central Excise, upon consideration of the material on record, passed the Order- in-Original confirming allegations clandestine manufacture and removal of excisable goods. The Order-in- Original further confirmed the demand of Central Excise duty, ordered confiscation of the goods and the transport vehicles involved, directed appropriation of the amounts recovered, and imposed penalties in accordance with law.

4.3 Aggrieved by the Order-in-Original, the respondent preferred an appeal before the Tribunal. The Tribunal, by the impugned order dated 28.02.2025, held that the respondent was carrying on business in its old unit and that the notebooks seized had been brought by the workmen to the new unit. The - 8 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR Tribunal further held that the computer printouts retrieved from the seized CPU were not admissible in evidence.

4.4 The Tribunal also held that the goods found in the premises were manufactured during a trial run, as the unit was newly established. It was further held that the incidence of excise duty arises at the stage of removal of goods and that mere manufacturing activity, without removal, would not attract the levy of excise duty. For the aforesaid reasons, the Tribunal allowed the appeal and set aside the Order-in-Original dated 12.09.2013.

5. Sri Aravind V. Chavan, learned Senior Standing Counsel appearing for the appellant-Revenue, submits that, in the course of the search, unaccounted finished products as well as vehicles loaded with excisable goods were seized. Learned Senior Counsel submits that packaging materials and packed goods were also found at the premises and that supplies were made to dealers without issuance of invoices. The abnormal consumption of electricity, according to learned counsel, clearly indicated large-scale production activity. - 9 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR

5.1 It is further submitted that the data retrieved from the seized computer revealed invoices raised for supply of goods, thereby demonstrating removal of excisable goods without payment of duty. Learned Senior Standing Counsel also submits that the Managing Director of the respondent- Company, in the statement recorded under Section 14 of the Central Excise Act, 1944 (for short, “the Act”), admitted to unaccounted manufacture and clandestine clearance of goods. It was pointed out that excise duty was subsequently paid on the very same goods, pursuant to which the goods were released.

5.2 It further submitted that unaccounted procurement of raw materials was established, which corroborated the case of clandestine manufacture and supply. Learned counsel contended that the taxable event under the excise law is manufacture itself. According to him, the findings recorded by the Tribunal are contrary to the evidence available on record. - 10 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR

6. Per contra, Sri M.S. Nagaraja, learned counsel appearing for the respondent, submits that the raw materials purchased by the respondent were duly accounted for. It was submitted that the alleged finished goods, packaging materials, loaded vehicles, and other raw materials were found in the new unit, where trial-run manufacturing was being carried out prior to commencement of commercial production.

6.1 Learned counsel further submits that certain machinery, packaging materials, and raw materials used in the old unit were shifted to and utilised in the new factory premises. It is contended that the entire production of the respondent-assessee was duly accounted for by filing statutory returns as required under law.

6.2 It is further submitted that excise duty is payable on excisable goods at the time of their removal and that mere manufacture or loading of excisable goods would not attract the levy of excise duty. According to learned counsel, evasion cannot be alleged unless it is established that excisable goods were actually removed from the factory premises. He submits - 11 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR that, in the present case, the goods were seized prior to their removal and that excise duty was paid only to secure release of the seized goods. Such payment, according to him, cannot be construed as an admission of clandestine manufacture or removal of excisable goods.

6.3 Learned counsel lastly submitted that the Tribunal, after considering all the aforesaid aspects, has recorded findings of fact, and therefore, no substantial question of law arises for consideration by this Court.

7. Having considered the submissions of learned counsel for the parties and upon perusal of the record, it is evident that, based on an intelligence report, a search was conducted at the manufacturing unit of the respondent as well as at the residential premises of its Managing Director. The Revenue has sought to make out a case that, during the course of the search, it was found that the respondent was engaged in clandestine manufacture and removal of excisable goods without payment of excise duty. In support of such contention, it is stated that, during inspection, raw materials, manufactured goods, packaging materials, and trucks loaded with excisable - 12 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR goods were found at the premises. It is contended that the material gathered during investigation establishes unaccounted manufacture and sale of excisable goods.

7.1 The Tribunal examined the material relied upon by the Commissioner in the Order-in-Original. The Tribunal recorded that the sister concern of the respondent was engaged in the manufacture of similar products and that the finished goods were cleared on payment of duty, with statutory returns having been duly filed. The Tribunal also referred to the statements recorded from the suppliers of raw materials and held that there was no investigation conducted to establish unaccounted procurement of raw materials or production by the respondent.

7.2 The Tribunal further recorded that the packing machines had been shifted from the old unit to the new factory premises of the respondent, which was evidenced by the relevant challans. It is also recorded that along with the packing machines, packaging materials were likewise shifted. Insofar as the notebooks recovered during the search are concerned, the Tribunal held that the entries pertained to the - 13 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR old unit and that the notebooks were brought to the new factory premises along with the machinery and packaging materials.

7.3 With regard to the computer printouts seized during the search, the Tribunal held that the same were not admissible in evidence in view of non-compliance with the requirements of Section 36B(2) read with Section 36B(4) of the Act.

7.4 The Tribunal further held that the allegation of clandestine manufacture and removal of goods is not established by cogent evidence. It is also held that, in respect of the respondent’s earlier Units I and II, statutory returns were duly filed and the goods were cleared only after payment of duty. The Tribunal observed that the allegation regarding use of unaccounted raw materials and unaccounted production was based merely on presumption, in the absence of any supporting material on record.

7.5 The Tribunal finally held that there was no commercial production of detergent cakes and that the goods found at the premises were manufactured during trial - 14 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR production and were loaded in the vehicle in that context. It was also held that excise duty becomes payable on removal of the goods in terms of Rule 4 and Rule 8 of the Central Excise Rules, 2002 (for short, “the Rules”). The Tribunal noticed that the seized goods were provisionally released upon payment of excise duty. The Tribunal further held that the monthly ER-1 return submitted for the month of February 2011 confirmed that there was no production or clearance of detergent cakes and detergent powder up to February 2011.

8. The Tribunal has recorded findings of fact based on the evidence available on record as well as the findings recorded in the Order-in-Original. Learned Senior Standing Counsel appearing for the Revenue sought to suggest, or rather contend, that but for the search operations, the unaccounted purchase of raw materials and unaccounted manufacture and removal of goods would have continued. Such a submission is wholly devoid of any basis and is not supported by evidence.

8.1 If, in fact, raw materials had been procured in an unaccounted manner and finished goods had been manufactured and sold without payment of duty, it was - 15 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR incumbent upon the Revenue to establish such transactions by cogent evidence. The Revenue has failed to do so, and no material has been brought on record in that regard. Mere statements of certain alleged suppliers or purchasing dealers admitting to unaccounted transactions with the respondent, unless corroborated by independent and reliable evidence, cannot, by themselves, be relied upon to sustain the charge of clandestine manufacture and removal of excisable goods.

9. A scrutiny of the order passed by the Tribunal indicates that the findings recorded therein are based on the material available on record and the facts of the case. No evidence has been placed to contradict the findings so recorded or to demonstrate any perversity therein.

10. As the findings recorded by the Tribunal are purely findings of fact, they do not give rise to any substantial question of law, unless perversity is specifically pleaded and established. In the present case, no perversity is either pleaded or made out. - 16 - NC: 2026:KHC:4744-DB CEA No. 43 of 2025 HC-KAR

11. In the light of the foregoing discussion, we hold that no substantial question of law arises for consideration in this appeal. Accordingly, the appeal stands dismissed. Sd/- (S.G.PANDIT) JUDGE Sd/- (K. V. ARAVIND) JUDGE DDU List No.: 1 Sl No.: 9