2016 (6) TMI 919 - HC - Central Excise

Demand of duty of excise - Relevancy of statements under certain circumstances u/s 9D of CEA, 1944 - Wrong availment of Area Bases Exemption at Jammu - Concededly, all the 4 petitioners, claimed, and were granted, the benefit of Notification 56/2002-CE - investigations were stated to have revealed that they were not engaged in the manufacture of finished products at all. Held that - the case of the petitioners is essentially premised on Section 9D of The Central Excise Act, 1944 - the procedure prescribed in sub-section (1) of Section 9D is required to be scrupulously followed, as much in adjudication proceedings as in criminal proceedings relating to prosecution. The order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby. If none of the circumstances contemplated by clause (a) of Section 9D (1) exists, clause (b) of Section 9D (1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word shall in Section 9D (1), makes it clear that, the provisions contemplated in the sub-Section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory. It is clear, from a reading of the Orders-in-original dated 19.05.2016 and 01.06.2016 supra, that Respondents No.2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to Respondent No.2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub-section. The Orders-in-Original, dated 19/05/2016 and 01/06/2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby. - Demand set aside - Decided in favor of petitioner.

Issues Involved:
1. Eligibility of the petitioners for area-based exemption under Notification 56/2002-CE.
2. Validity of the Show Cause Notices issued under Section 11A of the Central Excise Act, 1944.
3. Admissibility of statements recorded under Section 14 of the Central Excise Act as evidence.
4. Compliance with the mandatory procedure prescribed by Section 9D of the Central Excise Act.
5. Justification for invoking writ jurisdiction under Article 226 of the Constitution of India.

Detailed Analysis:

1. Eligibility of the petitioners for area-based exemption under Notification 56/2002-CE:
The petitioners, manufacturers of menthol and related products, claimed the benefit of area-based exemption from payment of duty under Notification 56/2002-CE due to their location in Jammu and Kashmir. They were initially granted this benefit on the clearances of their products to downstream manufacturers.

2. Validity of the Show Cause Notices issued under Section 11A of the Central Excise Act, 1944:
Subsequently, Show Cause Notices were issued to the petitioners alleging wrongful availment of the exemption as investigations revealed that they were not engaged in the manufacture of the finished products. These notices covered the periods from November 2007 to 2010 and were based on identical evidence, primarily statements recorded under Section 14 of the Act.

3. Admissibility of statements recorded under Section 14 of the Central Excise Act as evidence:
The petitioners contended that the adjudicating authority relied on these statements without admitting them in evidence as per Section 9D of the Act, thereby depriving them of the opportunity to cross-examine the witnesses. The court noted that the statements recorded under Section 14 could only be relevant if admitted following the procedure in Section 9D, which includes examining the person who made the statement as a witness and forming an opinion that the statement should be admitted in the interests of justice.

4. Compliance with the mandatory procedure prescribed by Section 9D of the Central Excise Act:
The court emphasized that the procedure under Section 9D is mandatory and must be followed in adjudication proceedings. The adjudicating authority had not invoked clause (a) of Section 9D(1) and had not followed the procedure under clause (b), making the reliance on the statements recorded during the investigation invalid. The Orders-in-Original were thus vitiated due to non-compliance with Section 9D.

5. Justification for invoking writ jurisdiction under Article 226 of the Constitution of India:
The petitioners argued that the Orders-in-Original were passed in violation of Section 9D, justifying the invocation of writ jurisdiction despite the availability of an appellate remedy, which required a pre-deposit of 7.5% of the duty demand. The court acknowledged the writ jurisdiction under Article 226 in appropriate cases, as upheld by the Allahabad High Court in Ganesh Yadav vs. U.O.I.

Judgment:
The court set aside the Orders-in-Original dated 19/05/2016 and 01/06/2016, and remanded the Show Cause Notices to the adjudicating authority for de novo adjudication following the procedure prescribed by Section 9D and the principles of natural justice. The court directed that if the Revenue intends to rely on any statements recorded under Section 14, it must summon the makers for examination-in-chief before the adjudicating authority, provide a copy of the record to the assessees, and allow cross-examination if requested. Statements not examined in chief would be eschewed from evidence. The writ petitions filed by M/s Ambika International and M/s Jay Ambey Aromatics were allowed, and the pending Show Cause Notices for M/s Fine Aromatics and M/s Shiva Mint Industries were directed to be adjudicated similarly.

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