Retracted Statements, No Corroboration: CESTAT Quashes ₹49.62L Excise Demand in Gutkha Manufacturing Case [Read Order]

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), set aside a substantial central excise duty demand after holding that allegations of clandestine gutkha manufacturing were founded entirely on retracted statements without independent corroborative evidence, rendering the case legally unsustainable.

The appellant, Naresh Chandra Dwivedi, was proceeded against following a search conducted in March 2017 at certain premises in Orai, Uttar Pradesh, where finished goods, raw materials and packing materials allegedly related to gutkha and tobacco were found. Based on statements recorded during the search and subsequent investigation, the Department alleged that the appellant was the mastermind behind clandestine manufacture and clearance of gutkha from the said premises.

Show cause notices were issued proposing confiscation of goods and cash seized from the appellant’s residence, imposition of penalties, and recovery of central excise duty amounting to ₹49.62 lakh. These demands and penalties were confirmed by the adjudicating authority and later upheld by the Commissioner (Appeals), leading to the present appeals before the Tribunal.

The appellant was represented by Advocate, Nishant Mishra,who contended that he had no connection with the premises alleged to be used for manufacturing gutkha and that the same was independently occupied by another individual on rent. It was argued that the entire case of the Department rested on statements recorded during search, all of which were subsequently retracted, alleging coercion and pressure.

The appellant further submitted that none of these statements were examined or admitted in evidence in accordance with the mandatory procedure prescribed under Section 9D of the Central Excise Act, 1944. It was also pointed out that no manufacturing machinery, sealing equipment or evidence of actual production was found during the search, and mere possession of certain goods at the residence could not establish clandestine manufacture.

The Bench comprising Judicial Member P.K. Choudhary, allowed both appeals and set aside the impugned orders. The Tribunal held that once statements relied upon by the Department were retracted, they could not be treated as substantive evidence unless supported by independent corroboration. The Tribunal found that the adjudicating authority had failed to examine whether the statements were voluntary and had also not followed the mandatory procedure under Section 9D of the Central Excise Act, 1944, before relying upon them.

The Tribunal observed that no manufacturing activity was detected during the search, no machinery or sealing equipment was found, and there was no evidence establishing actual production or clandestine removal of gutkha. Loose papers and materials seized from the appellant’s residence were held insufficient to sustain serious allegations of clandestine manufacture without proper investigation and linkage.

In the absence of tangible and reliable evidence, the Tribunal concluded that the demand of ₹49.62 lakh, penalties, and confiscation of goods and cash could not be sustained. Accordingly, the Tribunal quashed the excise duty demand, set aside penalties and confiscation orders, and allowed the appeals with consequential relief to the appellant.