ORDER

These two appeals have been filed under Section 107 of the Central Goods and Services Tax Act, 2017 (hereinafter also referred to as “the CGST Act”) by M/s. Marie Products Pvt. Ltd., H-20A, RIICO Industrial Area, Kukas, Teh-Amer, Distt-Jaipur-302028 (Rajasthan) and Shri Ashok Agarwal, Director of M/s. Marie Products Pvt. Ltd., H-20A, RIICO Industrial Area, Kukas, Teh-Amer, Distt-Jaipur-302028 (hereinafter also referred to as “the appellant”) against the Order-in-Original No. 255/Dem-CE/2019, dated 27-9-2019 (hereinafter referred to as “the impugned order”) passed by the Deputy Commissioner, Central Goods and Services Tax Division-E, Jaipur (hereinafter also referred to as “the adjudicating authority”).

Brief facts of the case :-

2.1 M/s. Marie Products Pvt. Ltd., H-20A, RIICO Industrial Area, Kukas, Teh-Amer, Distt-Jaipur-302028 (Rajasthan) (hereinafter also referred to as “the appellant”) holding Central Excise Registration No.AAGCM4747FEM001/ GSTIN : 08AAGCM474F1ZC are engaged in the manufacture of “Scented Betel Nut” product known as Supari falling under Tariff Item 2106 90 30 of the first schedule to the Central Excise Tariff Act, 1985/GST Tariff.

2.2 A search operation was conducted on 10-11-2017 by the officers of Jaipur Zonal Unit of the Directorate General of GST Intelligence (DGGI), Jaipur at the factory premises of M/s. Marie Products Pvt. Ltd., situated at Plot No.  H-20A, RIICO Industrial Area, Kukas, Tehsil Amer, Jaipur-302028 and residences of the Directors situated at Plot No. 41, Gupta Garden, Behind Amer Hotel, Tilak Marg, Govind Nagar (West), Jorawar Singh Gate, Amer Road, Jaipur and other various premises.

2.3 During the course of search at the residence of Director M/s. MPPL, certain incriminating documents/records relevant to investigation indicating evasion of Central Excise duty and CGST/SGST were recovered and seized. The physical stock of the Raw Material i.e. Perfume/Compound of M/s. MPPL was also lying at the residence premise of Director. The physical stock of the raw material was also carried out by the DGGI Officers in the presence of two independent witnesses and Shri Akash Agarwal, son of Sh. Ashok Agarwal, Director of M/s. MPPL. During physical stock verification, due to non-availability of any relevant documents of such goods, an excess stock of Perfume/Compound valued at ₹ 15,79,200/- was found in the said residential premises. The details of excess stock of raw material found as per panchnama proceedings and order of seizure dated 15-11-2017 (GST INS-02) are as under:-

Raw Materials :

TABLE-1

S. No.	Description of Goods	Quantity of Units (containers in Nos.)	Make/Mark or Model	Remarks Value (in Rs.)
1.	Compound AK (HSN 3302)	11 Units (10 Kgs each)	Gupta & Company (P) Ltd.	Rate per Kg. = 6650/- Total Value = ₹ 7,31,500/-
2.	GK (HSN 3302)	01 Units (10 Kgs each)	Gupta & Company (P) Ltd.	Rate per Kg. = 5150/- Total Value = ₹ 51,500/-
3.	MP-Com-B	08 Units (10 Kgs each)	Gupta & Company (P) Ltd.	Rate per Kg. = 3590/- Total Value  = ₹ 2,87,200/-
4.	PBL (HSN 3302)	04 Units (25 kgs each)	Gupta & Company (P) Ltd.	Rate per Kg. = 5090/- Total Value = ₹ 5,09,000/-
	Total	300 Kgs		₹ 15,79,200/-

2.4 The value of excess raw material as the result of physical stock verification arrived on the basis of price of perfume in the invoices of M/s. Gupta & Company (P) Ltd. in the presence of independent witnesses and Sh. Akash Agarwal, s/o Sh. Ashok Agarwal on 10-11-2017.

2.5 The Panchnama dated 10-11-2017 recorded at residence premises of the Director and the proceedings was drawn on the spot. The excess found goods were detained under detention memo dated 10-11-2017. The detained goods were handed over to Sh. Akash Agarwal, s/o Sh. Ashok Agarwal, under supurdnama for safe custody. Sh. Ashok Agarwal, Director of M/s. MPPL could not submit any plausible reply/document between 10-11-2017 to 15-11-2017 in respect of detained goods, therefore, Panchnama dated 15-11-2017 was drawn in the residence at Plot No. 41, Gupta Garden, Behind Amer Hotel, Tilak Marg, Govind Nagar (West), Jorawar Singh Gate, Amer Road, Jaipur of Director M/s. MPPL, wherein the detained goods were procured without having any valid document/invoice and the same were to be used in the manufacture and supply of finished goods without payment of appropriate tax. The above goods were seized through GST INS-02 dated 15-11-2017 by the officers under Section 67(2) of the CGST Act, 2017 read with Rule 139 of CGST Rules, 2017 on the reasonable belief that the said unaccounted perfume/compound, were meant for clandestine manufacturing of their final product i.e. scented betal nuts and removal without payment of CGST/SGST and the same were liable to confiscation under Section 130 of the CGST Act, 2017. The seized goods were handed over to Sh. Akash Agarwal, s/o Sh. Ashok Agarwal under Supardnama dated 15-11-2017 for safe custody.

2.6 Statement of Sh. Ashok Agarwal, Director M/s. MPPL was recorded on 2-5-2018 under Section 14 of Central Excise Act, 1944 read with Section 70 & 174 of CGST Act, 2017, on being asked regarding documents pertaining to excess stock of perfume/compound found during the panchnama proceedings dated 10-11-2017 in his residence, he replied that the said perfume/compound lying at his residence premise pertained to M/s. Marie Products Pvt. Ltd., Kukas, Jaipur. He further stated that to maintain the secrecy of their technical know-how of the product they carried out certain process of blending of perfume/compound in his residence premises since last one year. He was unable to produce any documents relevant to such seized goods, whatever records available, all such records have been seized by the officers of DGGI under panchnama dated 10/11-11-2017. During the statement all such seized records were shown to Sh. Ashok Agarwal on 2-5-2018 to find out the relevant invoices of seized perfume/compound, Sh. Ashok Agarwal replied that he was unable to find out the relevant records of perfume/compound seized goods.

2.7 Further, regarding said seized goods he stated that they have purchased perfume/compound from M/s. Gupta & Company, Delhi and M/s. Kelkar & Company, Mumbai; that he was looking after all the activities regarding purchase and marketing/supplying in the company.

2.8 As regards, unaccounted stock of perfume/compound valued at  ₹ 15,79,200/- found unaccounted during search on 10-11-2017, no plausible explanation regarding their procurement/non-accountal of the same in the record was put forward by the appellant neither during the time of search on 10-11-2017, nor afterwards.

2.9 Therefore, the said stock of perfume/compound 300 Kgs found unrecorded in their books of accounts/records valued at ₹ 15,79,200/-. The appellant could not produce any plausible reply/documents relating to purchase of perfume/compound seized vide Seizure Memo dated 15-11-2017 under Section 67(2) of the CGST Act, 2017 read with Rules 139(2) of CGST Rules, 2017 on the reasonable belief that those goods were liable for confiscation under the CGST Act, 2017 and the CGST Rules made thereunder and was handed over to Sh. Akash Agarwal s/o Sh. Ashok Agarwal, under Supurdnama dated 15-11-2017 for safe custody.

2.10 From the foregoing, it appeared that at Plot No. 41, Gupta Garden, Behind Amer Hotel, Tilak Marg, Govind Nagar (West), Jorawar Singh Gate, Amer Road, Jaipur, residence of Director M/s. MPPL intentionally in order to avoid of CGST/SGST did not maintain record of the stock of perfume/compound as detailed in INS-02 dated 15-11-2017 and found excess stored in their residence premises, as required under Rule 56 of the CGST Rules, 2017. They did not file monthly/periodically returns in respect of the said goods procured and stored in their factory premises as required under the law. They did not maintain stock details of the aforesaid goods in the stock register and did not file monthly GSTR-1 and GSTR-3B returns as these raw material were procured without bill/invoice and intended for manufacture of finished goods to be cleared without payment of tax and the finished goods were intended for clandestine removal without payment of CGST/SGST.

2.11 Sh. Ashok Agarwal, Director, M/s. MPPL in his statement dated  2-5-2018 and during pachnama proceedings on 10-11-2017 have admitted the unaccounted stock of perfume/compound, but he could not put forward any plausible reply for the non-accountable of these in their books of account/records.

Accordingly, a Show Cause Notice C. No. DGGSTI/JZU/INT/CE/02/ 2017/1442, dated 11-5-2018 was issued proposing confiscation of the seized goods and penal action on the company as well as on the Director to M/s. Marie Products Pvt. Ltd., H-20A, RIICO Industrial Area, Kukas, Tehsil Amer, Jaipur.

3. The adjudicating authority has passed the impugned order as  under :-

(i)      Ordered to confiscate the goods valued at ₹ 15,79,200/-, found to be excess unaccounted stock, as per GST INS-02 dated 15-11-2017, in the residential premises and seized by DGGI vide Seizure Memo dated 15-11-2017 under Section 130 of the CGST Act, 2017 read with Rule 139 of the CGST Rules, 2017 and read with Section 130 of the Rajasthan GST Act, 2017. Also given an option to pay in lieu of confiscation a fine of ₹ 2,00,000/- under Section 130(2) of CGST Act, 2017 and ₹ 2,00,000/- under Section 130(2) of Rajasthan GST Act, 2017. On payment of said redemption fine, the said goods shall be accounted for in the stock register and appropriate tax shall be paid at the time of supply.

(ii)    Imposed a penalty of ₹ 1,42,128/- under Section 122(1)(xvi) and (xviii) and a penalty of ₹ 25,000/- under Section 125 of the CGST Act, 2017 on the appellant, for contravention of the provisions of the CGST Act, 2017 and Rules made thereunder with an intent to evade payment of appropriate CGST/SGST. Also imposed a penalty of  ₹ 1,42,128/- on the appellant under Section 122(1)(xvi) and (xviii) and a penalty of ₹ 25,000/- under Section 125 of the Rajasthan GST Act, 2017 for contravention of the provisions of the Rajasthan GST Act, 2017 and Rules made thereunder with an intent to evade payment of appropriate CGST/SGST.

(iii)   Imposed a penalty of ₹ 25000/- on Shri Ashok Agarwal, Director of the appellant under Section 122(3) and a penalty of ₹ 25,000/- under Section 125 of the CGST Act, 2017 for his involvement in contravention of the provisions of CGST Act, 2017 and the Rules made thereunder.

4. Being aggrieved with the impugned Order No. 255/Dem-CE/2019, dated 27-9-2019, passed by the Deputy Commissioner, Central Goods and Service Tax Division-E, Jaipur the appellant have filed the appeals on the following grounds which may be summarized as under :-

ALLEGATIONS REGARDING DIFFERENCE IN STOCK OF RAW MATERIAL, SEMI-FINISHED GOODS AND FINISHED GOODS ARE DENIED

(A.1)	In the SCN, it was alleged that the raw material seized under Section 67(2) of the CGST Act, 2017 read with Rule 139 of the CGST Rule, on 15-11-2017 and valued at ₹ 15,79,200/-, subsequent of Detention Memo dated 10-11-2017, liable for confiscation under the provisions of Section 130 of the CGST Act, 2017 read with Rule 139 of CGST Rules, 2017.
(A.2)	The investigation has alleged that the perfume/com-pound were detained on 10-11-2017 as the appellant were not maintaining proper records of stock of raw material. In the detained electronic gadgets the appellant was also maintaining all the accounts in Tally. In the SCN it was wrongly mentioned that no document/record, regarding stock, was being maintained by the appellant in the factory. While recording statement of Shri Ashok Aggarwal on 11-11-2017 in the factory premises of the appellant, the DGGI in question number 5 of his statement, it has referred that the appellant were maintaining accounts of stock in the computer. Further, they also forcibly made him to mention that they were also selling the goods without tax invoice. The statement of Shri Ashok Kumar were recorded by using coercive measures. However, the appellant retracted his statement, well within time (Annexure-1-retraction of statement by Shri Ashok Agarwal).
(A.3)	During the visit, the DGGI officers asked Shri Ashok Aggarwal to deposit Central Excise duty of  ₹ 1,50,00,000/-, which was not due on the appellant. The appellant deposited the amount under protest. The appellant mentioned the word ‘UNDER PROTEST’ in the letter (Annexure – 2 regarding payment of duty under protest), which itself indicates that the DGGI took coercive measures during the search proceedings and appellant was forced to follow.
(A.4)	The detention of the goods was made on 11-11-2017 and they converted the same into seizure on 15-11-2017, alleging therein that the appellant could not produce the reasons regarding difference found in stock. The appellant had sent the desired information on 13-11-2017 (Annexure-3 regarding reasons for difference in stock), mentioning therein the reason for so called excess stock of perfume/compound, but the investigations did not acknowledge this letter on records, wherein the reasons for difference of stock was mentioned, and also did not mention the same in the SCN.
(A.5)	Without prejudice to matter contained above, it is also to mention that the investigation detained and then seized the whole of the stock of perfume/compound. If the investigation found some excess raw material, they could have detained or seized the excess stock, but they detained/seized the complete stock, without considering any plea of the appellant. This big-headed attitude of the investigation has proved their unlawful approach in handling the matter and has put forth the plight of the appellant that how helpless is a businessman in this democratic realm while pursuing his business with honest and truthful pledge.
(A.6)	In light of the facts, it is submitted that the order for confiscation of goods by the adjudicating authority is unlawful and without any grounds. In fact, the charges made in the impugned Show Cause Notice itself were redundant, unlawful and unrealistic. The investigation has in fact succeeded in misleading the adjudicating authority who also, like the investigation, did not take cognizance of the replies and retractions submitted by the appellant. The seizure and confiscation of the complete stock, irrespective of their entries in the books of accounts, was unlawful since only the alleged excess stock was required to be seized by the investigation. In view of the above, the Hon’ble Additional Commissioner (Appeals) is beseeched to set aside the impugned order.
(B)	PANCHNAMA PROCEEDINGS DATED 10-11-2017,  15-11-2017 ARE UNLAWFUL ON VARIOUS SCORES :
(B.1)	Search Panchnama in legal matters remains the main document and it leads to achieve the motto of justice. But in the present case the whole panchnama dated 10-11-2017 and 15-11-2017 are based on illegal/baseless premises and misinterpretation of the evidences to hold the appellants unlawfully liable to pay huge amount of Central Excise/GST, which is not due on them. During the panchnama proceedings the appellants were forced to deposit the Central Excise duty without extending them any chance to defend themselves. The meticulous study of the panchnama & other evidences will overtly establish that how the things were manipulated during the investigations and the innocent taxpayers i.e. appellants were subjugated to accept all the written proceedings verbatim without offering any opportunity to raise their voice. In the succeeding paragraphs, it has been demonstrably endeavored to bring to light the misleading specifics of the panchnama, which will categorically prove the innocence of the appellants.
(B.2)	Panchnama proceedings dated 10-11-2017 at address Plot No. 41, Hanuman Bhawan, Gupta Garden, Behind Amer Hotel, Tilk Marg, Jaipur are unlawful and deserves to be quashed at preliminary stage on grounds enumerated below :
(B.2.1)	The panch witnesses did not offer their personal search before entering the premises : As per Section 100 of CrPC, before the start of the search proceedings the team of officers conducting the search and the accompanying witnesses should offer themselves for their personal search to the person in charge of the premises being searched. Whereas, on preliminary perusal of the Search Panchnama dated 10-11-2017, it is observed that the officers called the witnesses at 1630 hrs. at the premises Plot No. 41, Hanuman Bhawan, Gupta Garden, Behind Amer Hotel, Tilk Marg, Govind Nagar (West), Amer Road, Jaipur and per panchnama the search was started at 1630 hrs. After entering the premises, the officers offered themselves for their personal search to Shri Shambhu Mandal, caretaker of the building. However, the Panch witnesses, arranged by the DGGSTI, did not offer their search. Moreover, as per panchnama some more officers joined the Search proceedings at 1900 hrs but they did not offer their personal search. Thus, before initiating the search the Panch witnesses did not offer themselves for their personal search and the officers who joined the search proceedings at a later stage also did not offer their personal search before entering the premises. In light of the facts, it is evident that the panchnama proceedings failed to follow the procedures of search in light of provisions of CrPC. Similarly during the search proceedings on 15-11-2017, the panch witnesses arranged by the DGGSTI did not offer their personal search before entering the premises.
(B.2.2)	Documents/equipments resumed on 10-11-2017 from the premises Plot No. 41, Tilak Marg, Govind Nagar, Amer Road, Jaipur have not been relied upon in the SCN : In the panchnama dated 10-11-2017 resumed significant quantum of documents (As per Annexure A to the Panchnama) which contained the complete business proceedings of the years of the appellant. However, in this Show Cause Notice, neither any document has been relied upon by the investigation nor the non-relied upon documents have been returned to the appellant. The investigation could not make out any mala fide intent of the appellant from the documents/equipments resumed during the panchnama proceedings. This fact is enough to establish that the documents/equipments resumed from the premises did not carry anything unlawful and unaccounted. In the detained electronic gadgets the appellant was also maintaining all the accounts in Tally. In the SCN it has been wrongly mentioned that no document/record, regarding stock, was being maintained by the appellant. The DGGI wrongly & unlawfully resumed the documents/equipments from the premises without examining the facts and further wrongly alleged that it did not contain any stock position.
(B.2.3)	The Panch witnesses did not offer their personal search when they left the premise after search : As per Section 100 of Cr PC, after the completion of search proceedings the team of officers conducting the search and the accompanying witnesses should offer themselves for their personal search to the person-in-charge of the premises being searched. However, in the matter the panch witnesses did not offer their personal search while leaving the premises after completion of the search.
(B.2.4)	The officers of DGGI, joined the Search proceedings at 1900 hrs did not offer themselves for his personal search before entering the premises : As per Section 100 of CrPC, before the start of the search proceedings the team of officers conducting the search and the accompanying witnesses should offer themselves for their personal search to the person in-charge of the premises being searched. Whereas, on preliminary perusal of the Search Panchnama dated 10-11-2017, it is observed that the officers called the witnesses at 1630 hrs at the premises Plot No. 41, Tilak Marg, Govind Nagar, Amer Road, Jaipur, and per panchnama the search was started at 0910 a.m. However, the Panchnama confirms that in the premises following officers i.e. Shri R.C. Meena, Shri Manoj Meena, Shri Ravinder Singh Meena, joined the search proceedings after 19 hrs, but they did not offer themselves for their personal search before entering the premises.
(B.3)	In view of the above, the Hon’ble Additional Commissioner (Appeals) would appreciate that the base of the case, i.e. the panchnama proceedings, are not sound and show lack of abidance of legal provisions relating to searches. Therefore, the flaw in the panchnama proceedings make the resultant panchnamas also questionable.
(C)	SEIZURE DATED 15-11-2017 IS UNLAWFUL AS THE APPELLANT PROVIDED ALL THE DETAILS OF STOCK IMMEDIATELY AFTER THE DETENTION OF THE GOODS :
(C.1)	In the SCN, it has been wrongly alleged that on the date of search i.e. 10-11-2017 the appellant was having excess stock of Raw Material i.e. Perfume/Compound. During the course of search proceedings, the DGGI resumed significant number of documents as detailed in Annexure A to the Panchnama dated 10-11-2017. It contained VAT invoices. Purchase invoices, Vouchers, TDS Traces, Sales register, Cash book etc. However, the DGGI failed to make out any flaw from these documents and did not rely in the SCN.
(C.2)	Further, the appellant had submitted the stock position in writing on 13-11-2017 (Annexure-3 details of stock) to the DGGI immediately after the detention, but the DGGI did not acknowledge the same on record and wrongly converted the detention into seizure. The stock position submitted by the appellant contained every minute details and also reasons for shortage/excess (if any). However, the DGGI has not relied upon that submission and violated the principle of natural justice.
(D)	STATEMENT DATED 2-5-2018 OF SHRI ASHOK AGGARWAL, DIRECTOR OF MSPPL, RECORDED UNDER SECTION 14 OF THE CENTRAL EXCISE ACT, 1944 AND SECTION 70 & 174 OF CGST ACT, 2017:
(D.1)	Statement of Shri Ashok Aggarwal were also recorded under Section 14 of the Central Excise Act, 1944 and Section 70 & 174 of CGST Act, 2017 on 2-5-2018.
(D.2)	In the statement dated 2-5-2018, Shri Ashok Aggarwal tendered that the flavourant/compound lying at the premises ‘Gupta Garden’ belong to M/s. Marie Products Pvt. Ltd., and building belongs to Shri Ashok Agarwal, Director M/s. MPPL. It was also tendered that owing to trade secrets the blending of flavourants/compound is done at ‘Gupta Garden’ and the activity is carried out for the last one year. Further, Shri Ashok Agarwal was forcibly made to write that in respect of compound found at ‘Gupta Garden’ he was not having any purchase documents.
(D.3)	In this regard, it is vital to submit that, the appellant had submitted the stock position in writing on 13-11-2017 (Annexure-3 details of stock) to the DGGI immediately after the detention, but the DGGI did not endorse the written submission and forcibly made Shri Ashok Agarwal tender that he was not having any purchase documents in respect of perfume/compound found in the premises ‘Gupta Garden’. Thus the department violated the principle of natural justice. Therefore, the impugned order passed without appreciating the material evidence on record is liable to be set aside.
(E)	PENALTY UNDER SECTION 122(l)(xvi) AND SECTION 125, SECTION 122(3) OF THE CGST ACT, 2017 IS NOT IMPOSABLE IN THE MATTER –
(E.1)	In the SCN, it has been invoked that penalty should be imposed on the appellants in terms of Section 122(1)(xvi) and (xviii) and Section 125 of the CGST Act, 2017 for contravention of the provisions of CGST Act, 2017 and the Rules made thereunder with an intent to evade payment of appropriate CGST/SGST as discussed above. In this regard, it shall be imperative to peruse the provisions of these Sections to construe the intent of the statute F.2. In this regard, it is imperative to peruse the provisions of these Sections to construe the intent of the statute –

            122. (1) Where a taxable person who –

            ………………………….

            (xvi) fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;

            ………………………….

            (xviii) supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;

            ………………………….

            he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under Section 51 or short deducted or deducted but not paid to the Government or tax not collected under Section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.

            122(3) Any person who –

(a)        aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);

(b)        acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;

(c)        receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;

(d)       fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;

            125. Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided for in this Act, shall be liable to a penalty which may extend to twenty-five thousand rupees.

	From the perusal of the provisions of Section 122(1)(xvi) & (xvii), 122(3) and Section 125 it is evident that the penalty is imposable if there is intent or mens rea on the part of appellant to evade the tax. However, in the matter, there had neither been any intent of the appellant to evade the tax and nor the investigation has put forth any evidence in respect of intent of the appellant. Merely non-entry of stock of the current day in the books of accounts cannot be made a serious allegation to invoke provisions of referred sections of the Act.
(E.2)	Without prejudice to the submissions earlier made, it is submitted that it is an undeniable fact that the appellant neither suppressed any fact from the department nor there has been any intentional contravention of the provisions of the Central Goods & Services [Tax] Act, 2017 or the rules made thereunder with intent to evade payment of duty. The appellant was regularly filing periodical returns under the Act ibid & Rules made thereunder, which carried all the information in respect of purchase & sales of the appellant. This sufficiently proves that there has not been a mens rea on the part of the appellant.
(E3)	It is also submitted that it is a well settled position that penalty cannot be imposed in the absence of mens rea. The appellant again relies on the following cases in their support :
(E.3.2)	In the case of Commissioner of Central Excise, Chandigarh v. Pepsi Foods Ltd. reported at 2010 (260) E.L.T. 481 (S.C.), the Hon’ble Supreme Court has held that :

            Penalty – Mens rea – Section 11AC of Central Excise Act, 1944 – In order to attract penalty provision under Section 11AC ibid, criminal intent or mens rea is a necessary constituent. [para 19]

(E.3.3)

In the case of Commissioner of Sales Tax, UP v. Sanjiv Fabrics reported at 2010 (258) E.L.T. 465 (S.C.), the Hon’ble Supreme Court has held that :

            Penalty – Mens rea whether an essential ingredient for imposing penalty under Section 10(b) read with Section 10A of U.P. Trade Tax Act, 1948 – Object of statute, language of relevant section and nature of penalty are relevant factors to be considered – Prevention of misuse of registration certificate is object of Section 10(b) of U.P. Trade Tax Act, 1948 but words “falsely represents” used as against “wrongly represents” – Use of words “falsely represents” indicating that offence under Section 10(b) ibid comes into existence only when dealer acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct – Burden on Revenue to prove existence of circumstances leading to offence for imposing penalty under Section 10A ibid – Prosecution provided for breach of any provision as per heading in Section 10A ibid – Mens rea is an essential ingredient for penalty under Section 10(b) read with Section 10A ibid in view of language used in section and nature of penalty provided – Sections 10(b) and 10A ibid. [paras 8, 17, 18, 22]

            Penalty – Imposition of – Factors to be considered while imposing penalty – Object of statute, language of relevant section and nature of penalty are relevant factors to be considered for imposition of penalty, [para 17]

(E.4)	In the matter it is forcefully contested that in the show cause notice, there has not been any evidence to prove that the appellant were clearing the goods without payment of GST and there has not been any evidence to prove that there was any intent to evade the tax. The allegation were superfluous and in light of the facts and judgments cited above the penal actions invoked against the appellant was liable to be dropped.
(F.)	PENALTY UNDER SECTION 122(3) AND SECTION 125 OF THE CGST ACT, 2017 ON THE DIRECTOR IS NOT IMPOSABLE IN THE CASE –
(F.1)	It is submitted that the show cause notice proposed imposition of penalty on Shri Ashok Agarwal, Director of M/s. MPPL under Section 122(3) and Section 125 of the CGST Act, 2017. From a bare perusal of the above Sections (reproduced supra), it is evident that Section 122(3) contains four clauses under which penalty is imposable. Each of the clauses contemplates different situation under which penalty is imposable. Ingredients for invoking each of the clauses are different. The impugned SCN does not indicate as to which of the sub-section is sought to be invoked in the present case.
(F.2)	Without prejudice to the above, the appellant submits that none of clauses of Section 122(3) is invocable in the present case.
(F.3)	Section 122(3)(a) deals with, if a person aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1); .In the instant case, there is no allegation regarding goods abetment of any offence under the Act ibid. Accordingly, this provision is not applicable.
(F.4)	Section 122(3)(b) deals with, if a person acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder. In the instant case, the appellant did not commit any such offence under the Act ibid. Accordingly, this provision is not applicable.
(F.5)	Section 122(3)(c) deals with, if a person receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder. In the instant case, there is no allegation regarding receipt or supply of service, which made him liable for penalty under the Act ibid. Accordingly, this provision is not applicable.
(F.6)	Section 122(3)(d) deals with, if a person fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry. In the instant case, there is no allegation regarding non-appearance before the authority in compliance of summons. Accordingly, this provision is not applicable.
(F.7)	Thus, none of the provisions of Section 122(3) are applicable in the present case. Hence the proposal in the SCN for imposition of penalty under Section 126(3) on Shri Ashok Aggarwal are clearly unsustainable.
(F.8)	Moreover, the penalty under Section 122(1) and Section 125 of the Central Goods and Services Tax Act, 2017 has been proposed on the company, thus imposing penalty on the Director separately under Section 122(3) and Section 125 is not justified as there has not been any such direct allegation on Shri Ashok Aggarwal.
(G)	GOODS ARE NOT LIABLE TO BE CONFISCATED UNDER SECTION 130 OF THE CGST ACT, 2017 READ WITH RULE 139 OF THE CGST RULES, 2017-
(G.1)	In the SCN, it has been alleged that goods seized on  15-11-2017 are liable to be confiscated under the provisions of Section 130 of the Central Goods and Services Tax Act, 2017 and Rule 139 of the CGST Rules, 2017. Section 130 of the Act stipulates as under :

            130. (1) Notwithstanding anything contained in this Act, if any person –

(i)         supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(ii)        does not account for any goods on which he is liable to pay tax under this Act; or

(iii)       supplies any goods liable to tax under this Act without having applied for registration; or

(iv)       contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(v)        uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person-in-charge of the conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under Section 122.

            (2) Whenever confiscation of any goods or conveyance is authorised by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit :

            Provided that such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon :

            Provided further that the aggregate of such fine and penalty leviable shall not be less than the amount of penalty leviable under sub-section (1) of Section 129 :

            Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

            (3) Where any fine in lieu of confiscation of goods or conveyance is imposed under sub-section (2), the owner of such goods or conveyance or the person referred to in sub-section (1), shall, in addition, be liable to any tax, penalty and charges payable in respect of such goods or conveyance.

            (4) No order for confiscation of goods or conveyance or for imposition of penalty shall be issued without giving the person an opportunity of being heard.

            (5) Where any goods or conveyance are confiscated under this Act, the title of such goods or conveyance shall thereupon vest in the Government.

            (6) The proper officer adjudging confiscation shall take and hold possession of the things confiscated and every officer of Police, on the requisition of such proper officer, shall assist him in taking and holding such possession.

            (7) The proper officer may, after satisfying himself that the confiscated goods or conveyance are not required in any other proceedings under this Act and after giving reasonable time not exceeding three months to pay fine in lieu of confiscation, dispose of such goods or conveyance and deposit the sale proceeds thereof with the Government.

(G.2)	From the above, reading it is explicitly clear that the Section 130 of the CGST Act, 2017 provides ‘seven’ sub-section, which further contained offences, which make the seized goods liable for confiscation. The investigation has carelessly proposed the goods for confiscation under Section 130 read with Rule 139 of the CGST Act and CGST Rules, without specifically mentioning the offence made under sub-section. Confiscation cannot be proposed so casually, without invoking the specific offence. However, in the matter the appellant has examined all the sub-sections and can affirm that the appellant has not committed any offence, which makes the goods liable for confiscation under the provisions of Section 130(1) to 130(7) of the CGST Act, 2017 read with Rule 139 of the CGST Rules, 2017. In light of the facts, the allegations on this score were liable to be dropped, however, the adjudicating authority did not appreciate the contentions of the appellant and went on to order confiscation of goods. In view of the above, the impugned order is liable to be set aside.
(H)	JUDICIAL DISCIPLINE IS REQUIRED TO BE FOLLOWED WHILE ADJUDICATING THE CASE-
(H.1)	Further, in the matter, it is implored that while adjudicating the Show Cause Notice, principle of natural justice should have been followed and in the process it is also required to follow the judgments of various Courts. Therefore, it would, be appreciated if judicial discipline is followed in the matter.
(H.2)	Article 141 of the Constitution of India states that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The judicial discipline requires that while deciding the case, the judicial pronouncements of the appellate forums and superior Courts are followed, especially when they are cited and relied upon by the appellant/noticee. The principle of judicial discipline requires that irrespective of own view, the authorities subordinate in judicial hierarchy must follow the decision of the judicial forums superior to them in hierarchy.
(H.3)	In this regard, the appellant relies on the following decisions of the Hon’ble Supreme Court :
(H.3.1)	A three Judge Bench of Hon’ble Supreme Court in the case of South Central Railway Employees Co-operative Credit Society Employees Union v. B. Yashodabai and others [(2015) 2 SCC 727)]
	Union of India v. Topland Engines Pvt. Ltd. – 2010 (253) E.L.T. A17 (S.C.), the Hon’ble Supreme Court while dismissing the revenue appeal upheld the decision of the Gujarat High Court reported at 2006 (199) E.L.T. 209 (Guj.) = 2008 (9) S.T.R. 331 (Guj.) (Topland Engines Pvt. Ltd v Union of India).
	The Hon’ble Supreme Court in the case of IDL Industries Ltd. v. Commissioner of Central Excise & Customs reported at 2016 (337) E.L.T. 496 (S.C.)
	Commissioner v. Jain Vanguard Polybutlene Ltd. – 2015 (326) E.L.T. A86 (S.C.)
	Commissioner v. Jain Vanguard Polybutlene Ltd. reported at 2010 (256) E.L.T. 523 (Bom.)
	Birla Corporation case [2005 (186) E.L.T. 266 (S.C.)]
	Karnataka High Court in 2006 (201) E.L.T. 559 = 2008 (10) S.T.R. 101 (Kar.) as approved by Supreme Court [2008 (223) E.L.T. A170 (S.C.)
	Kamakshi Trad Exim (India) Pvt. Ltd. v. Union of India-2017 (351) E.L.T. 102 (Guj.) – the Hon’ble High Court of Gujarat
	Mycon Construction Ltd. v. Union of India – 2017 (350) E.L.T. 514 (Bom.)
	Apex Court against judgment in 2014 (309) E.L.T. 469 (Bom.)
	Padmavati Tubes v. Commissioner of Central Excise & Service Tax, Vapi – 2017 (351) E.L.T. 38 (Guj.)
	Ram Pratap v. Union of India – 2017 (350) E.L.T. 375  (P & H) – the Hon’ble High Court of Punjab & Haryana at Chandigarh

5. Personal Hearing in the case was held on 25-9-2020. Shri Arvind Birla, Advocate appeared for personal hearing through video conference. He explained the case in detail and reiterated the submission made in the grounds of appeal and requested to decide the case at the earliest.

6. I have carefully gone through the facts of the case and submissions made by the appellant in their appeal memorandum and also during personal hearing. I find that during search on 10-11-2017, at the factory premises of the appellant, certain incriminating documents/records relevant to investigation indicating evasion of Central Excise duty and CGST/SGST were recovered and seized. Further, at the residence of Director of M/s. MPPL physical verification of stock of perfume/compound was also carried out by the DGGI officers in the presence of two independent witnesses and Shri Akash Agarwal Son Sh. Ashok Agarwal, Director of M/s. MPPL. During physical stock verification an excess/ unaccounted stock of 300 Kgs perfume/compound valued at ₹ 15,79,200/- was also found without any relevant documents. The excess/unaccounted found goods were seized under Section 67(2) of the CGST Act, 2017 read with Rule 139 of the CGST Rules, 2017 and confiscated under the provisions of Section 130 of the CGST Act, 2017 read with Rule 139 of CGST Rules, 2017 and read with Section 130 of the Rajasthan GST Act, 2017. Also given an option to pay in lieu of confiscation a fine of 2,00,000/- (Rs. Two Lakhs) under Section 130(2) of CGST Act, 2017 and Two Lakhs under Section 130(2) of Rajasthan GST Act, 2017 and imposed a penalty amounting to ₹ 1,42,128/- in terms of Section 122(1)(xvi) and (xviii) and a penalty of ₹ 25,000/- in terms of Section 125 of the CGST Act, 2017 on the appellant. Also imposed a penalty of ₹ 1,42,128/- in terms of Section 122(1)(xvi) and (xviii) and a penalty of ₹ 25,000/- in terms of Section 125 of the Rajasthan GST Act, 2017 on M/s. Marie Products Pvt. Ltd., H-20A, RIICO Industrial Area, Kukas, Tehsil Amer, Jaipur- 302028 and also imposed a penalty amounting to ₹ 25,000/- under Section 122(3) and penalty of ₹ 25,000/- under Section 125 of the CGST Act, 2017 on Shri Ashok Agarwal, Director of M/s. Marie Products Pvt. Ltd., H-20A, RIICO Industrial Area, Kukas, Tehsil Amer, Jaipur-302028.

7. On going through the content of the show cause notice, statements recorded on 2-5-2018 under Section 14 of Central Excise Act, 1944 read with Section 70 & 174 of CGST Act, 2017 of Shri Ashok Agarwal, Director of the appellant as mentioned in the show cause notice as well as in the impugned order, I find that on being asked by the officers of DGGI regarding documents pertaining to excess stock of perfume/compound found in his residence, Sh. Ashok Agarwal, Director of M/s. MPPL, Jaipur stated that the said perfume/compound were lying at his residence premise is pertained to M/s. MPPL, Jaipur and was kept to maintain the secrecy of their technical know-how of the product as they had to carry out certain process of blending perfume/compound in his residence premises since last one year. During the statement of Sh. Ashok Agarwal, Director of M/s. MPPL, Jaipur all seized records were shown to find out the relevant invoices of seized perfume/compound but he replied that he was unable to find out the relevant records of perfume/compound, seized by the officers of DGGI under panchanama dated 10/11-11-2017. Further, he had stated that they had purchased perfume/compound from M/s. Gupta & Company, Delhi and M/s. Kelkar & Company. Regarding excess/unaccounted stock of perfume/compound valued at ₹ 15,79,200/- found unaccounted during search on 10-11-2017, no plausible explanation regarding their procurement/non-accountal of the same in their records/books of account was put forward by the appellant neither during the time of search nor afterwards. Sh. Ashok Agarwal, Director of the appellant company who was looking after the day-to-day affairs of the company and also personally supervised daily activities also admitted the unaccounted stock of perfume/compound and agreed to pay the applicable tax. Further, he has abetted and assisted the clandestine manufacture and removal of taxable goods by acquiring possession, removing, depositing, keeping, concealing and dealing in goods which he knew were liable to confiscation.

8. When panchnama was drawn in the presence of independent panchas and in the presence of Sh. Akash Agarwal son of Sh. Ashok Agarwal, Director of M/s. MPPL and same was duly signed by them, no fault can be find in the procedure of drawal of panchnama. Further, if they were maintaining accounts in tally the Director Sh. Ashok Agarwal should have stated in his statement but he never recorded such facts during the whole proceedings. Therefore, appellant’s contention that proper procedure for panchnama was not followed by the officers and they were maintaining accounts in tally is not acceptable at this stage and it is an afterthought.

9. In view of the above, it is clear that the appellants have acted intentionally in order to avoid payment of CGST/SGST and did not maintain proper record of the stock of raw material perfume/compound found excess stored in their residence premises, as required under Rule 56 of the CGST Rules, 2017. Further, they did not file monthly/periodically return in respect of the said goods procured and stored in their factory premises as required under the law. They did not maintain stock details of the aforesaid goods in the stock register and did not file monthly GSTR-1 and GSTR-3B returns which also shows that these perfume/compound were procured without any valid documents and intended for manufacture of finished goods to be cleared without payment of tax and the finished goods were intended for clandestine removal without payment of Tax.

10. As per Section 35 of the CGST Act, 2017 and Rule 56 of the CGST Rules, 2017 that every assessee shall keep and maintain proper records, on a daily basis, in a legible manner indicating the particulars regarding description of goods procured, produced or manufactured, opening balance, quantity produced or manufactured, inventory of goods, quantity removed, assessable value, the amount of tax payable and particulars regarding amount of tax actually paid.

11. As per Rule 57(2) of CGST Rules, 2017 that every registered person maintaining electronic records shall produce, on demand, the relevant records or documents, duly authenticated by him, in hard copy or in any electronically readable format.

12. Further, as per Rule 61 of the CGST Rules, 2017 that every assessee shall submit to the Department a monthly return in the form specified by notification by the Board, of production and removal/clearance of goods and other relevant particulars on their monthly returns.

13. In view of the discussion and findings above and as per legal provisions, I find that the appellants were required to comply the provisions of law and to follow the procedure as prescribed under CGST Act/Rules but the appellants have completely failed to do so. Therefore, the goods found in excess/unaccounted were liable for confiscation under Section 130 of the CGST Act, 2017 read with Rule 139 of CGST Rules, 2017 and read with Section 130 of the Rajasthan GST Act, 2017 and the appellants were also liable for penal action under Section 122(1)(xvi) and (xviii)/125 of the CGST Act, 2017 and the Rajasthan GST Act, 2017. Sh. Ashok Agarwal, Director of the Company was responsible for day-to-day affairs of the company had consciously and deliberately indulged in activities of clandestine manufacture and clearance/supply of taxable goods. Therefore, he is also liable to penalty under Section 122(3)/125 of the CGST Act, 2017. The reliance placed by the appellants in their defence is squarely not applicable in the instant case. I do not find any infirmity in the impugned order passed by the adjudicating authority.

14. Accordingly, I reject both the appeals filed by the appellants.