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Later film taken at 4.01pm on the day Mrs Chaggar disappeared shows her near the back of the Sani Globe food store, but Islam said the man captured in that footage was not him.
Asked if it was him who had his arm stretched out, he said it was not and that he did not know who it was.
The footage showed 69-year-old Mrs Chaggar walking towards the man.
The court also heard that in his police interview Islam told officers he had never been in the area behind the cold store in the storeroom where Mrs Chaggar's body was found down a hatch.
Islam, 28, was being questioned by his defence barrister Andrew Orchard QC.
Speaking through a Bengali interpreter, he said he had worked at the Sani Globe store, Luton Road, since 2008 after coming to Britain in 2004.
When asked by Mr Orchard, if he had ever been in the freezer area, he replied: "Yes."
When asked why, he added: "There was a pipe in the cold room that was damaged and water would leak from there.
"We had to put a bucket there and when it was full, we have to empty the bucket, that's why I have to go there."
He added the only other time he had been in that area was when his boss Abdul Hannan had asked him to find out where a bad smell was coming from.
Islam added: "When the boss asked me to find the source of the smell then I went there.
"That was about three or four days before we got arrested."
When asked if he could smell the smell, Islam said: "No, my nose is always blocked so no I did not."
Islam was asked why he had told the police he had never been to the area and he said it was because he was still shocked at being arrested.
Mr Orchard asked: "Were you trying to mislead the police?" Islam replied: "No."
On the day Mrs Chaggar's body was found, the court heard the smell in the shop was stronger and Abdul Hannan, who is also accused of her murder, asked his staff to find the source of it as customers were commenting.
Islam and Rasad Miah went to investigate the cellar area and Islam climbed down the hatch and discovered Mrs Chaggar's body.
Islam told the court it was dark in the area and he used a torch on a mobile phone and spotted what he thought was the head and shoulders of a person. The police were then called.
The court also heard Islam was married but did not have any children and was a British citizen.
When he was asked how he got his citizenship, he said: "Through my father. He was a major in the British Army."
Before working at the Sani Globe, Islam, of Windmill Road, Gillingham, had worked at various Indian restaurants in Strood and Gillingham.
Another of the accused, Murshed Miah, decided not to give evidence - but several of his friends and one of his cousins gave evidence about his character to Canterbury Crown Court.
They said he was a shy, gentle person who was a family man and had a caring nature and would help them if they needed it.
Mrs Chaggar's body was found 12 days after she went missing after leaving the Kings Family Practice in Magpie Hall Road on September 2 last year.
The prosecution claims Mrs Chaggar had been assaulted and bled to death in the basement store room of the shop before being thrown through a hatch while still alive.
Islam; Hannan, 44, of Aldon Close, Maidstone; and Murshed Miah, 38, of Wheeler Street, Maidstone, have pleaded not guilty to murdering Mrs Chaggar.
They, along with Rasad Miah, 27, of Otway Street, Chatham, also deny preventing lawful burial or cremation.
The trial continues.
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