The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that statements recorded during investigation cannot be relied upon to confirm demands unless tested in accordance with Section 9D of the Central Excise Act, 1944.
Abhinav Agrawal, Sunil Agrawal, and Krishna Iron Strips & Tubes Pvt. Ltd., the appellants, were issued a show cause notice alleging clandestine manufacture and removal of excisable goods such as MS Ingots, MS Flats, and galvanized pipes. The case arose from a search conducted by the DGCEI at the factory, office, and residence of the directors, during which documents, computers, handwritten ledgers, and Rs. 19 lakh in unaccounted cash were seized.
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Based on these materials and the recorded statements of company officials under Section 14 of the Central Excise Act, the department alleged that the appellants evaded excise duty to the tune of Rs. 68,08,978. The company voluntarily paid this amount during the investigation. However, further demand was confirmed by the adjudicating authority along with interest and penalties on the company and its directors.
Aggrieved by the order, the appellants approached the Tribunal, arguing that while they admitted and paid Rs. 68,08,978, the remaining demand was baseless and unsupported by corroborative evidence. The appellant’s counsel argued that the alleged clandestine removals were inferred solely from unverified documents like daily sheets and notebooks, without any independent inquiry from transporters or buyers. They also pointed out that the department did not verify production capacity, raw material procurement, electricity consumption, or labor payments to substantiate their claims.
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A critical argument raised by the appellant’s counsel was that the statements recorded during the investigation were not tested through the procedure prescribed in Section 9D of the Central Excise Act. The section requires that any such statement must be examined in chief by the adjudicating authority, and the assessee must be given the opportunity to cross-examine the person making the statement. Since this procedure was not followed, the appellants argued that the statements could not be used as evidence against them.
The revenue counsel countered that the demand was based on detailed scrutiny of recovered documents and admissible statements under Section 14. The department relied on multiple judicial precedents to argue that the evidence on record was sufficient to sustain the demand and penalties.
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The two-member bench comprising Justice Ashok Jindal (Judicial Member) and P. Anjani Kumar (Technical Member)found that the allegations of clandestine removal were primarily based on assumptions and unverified documents. The tribunal further explained that the statements relied upon by the department were not validated through Section 9D procedures and could not be treated as admissible evidence.
The tribunal held that the demand could only be sustained to the extent of the amount voluntarily admitted and paid by the appellants. The remaining demand, all penalties imposed on the appellants, were also quashed. The tribunal directed the department to release the seized Rs. 19 lakh in cash and disposed of the appeal with these findings.
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