2022 (3) TMI 694 - HC - Central Excise

Clandestine removal - Jurisdiction - Power to summon persons to give evidence and produce documents in inquiries - reliability of statements - statement of Managing Director of the appellant-company recorded under Section 14 of the Central Excise Act, 1944 could be treated as a relevant piece of material without complying with the provisions of Section 9D of Central Excise Act, 1944 - suo-moto deposit of differential duty liability, whose details have been mentioned in SCN issued to the appellant as well as to its Managing Director can be said to be an admission on the part of the appellant regarding clandestine removal of goods - penalty imposed by the adjudicating authority upon the Managing Director of the Company, having attained finality, can itself be used against the appellant or not - impugned order was passed solely on the statement of the Managing Director of the Company recorded under Section 14 of the Central Excise Act, 1944 or otherwise - entries made in private diary of the Managing Director of the Company could have been a basis for passing the impugned order or not. As per Aparesh Kumar Singh, J HELD THAT - The order of learned Tribunal cannot be sustained in the eye of law. It is accordingly set aside. The substantial questions of law framed for adjudication in this appeal are accordingly answered in favour of the Appellant Assessee. Let the Lower Court Records be sent to the concerned Tribunal and Authorities. As per Anubha Rawat Choudhary J HELD THAT - It can be concluded as follows - i. the statement recorded under Section 14 is per-se admissible in evidence by the adjudicatory authority under Central Excise Act, 1944 subject to scrutiny by the adjudicating authority in the light of Section 24 of the Indian Evidence Act. ii. Such scrutiny is required to be done by the adjudicating authority on the basis of materials available before him including the evidences collected and statements recorded under Section 14, before relying upon such statements and treating them as relied upon evidence while issuing show-cause notice. iii. Upon scrutiny under Section 24 of the Evidence Act, such statement recorded under Section 14 of the Act of 1944 can be relied upon by the adjudicating authority while issuing show-cause notice without calling upon the person to depose as a witness in terms of Section 9D (1) (b) read with Section 9D (2) of the Act of 1944. The moment the adjudicating authority relies upon the statement recorded under section 14 of the Central Excise Act, it is indicative of the fact that necessary scrutiny in terms of Section 24 of the Evidence Act has been done and no separate order is required to be passed to this effect and this is also subject to any objection to be raised by the noticee/ person whose statement has been recorded. This is because the recording of evidence is permissible under Section 14 of the Act of 1944 by issuing summons by a Central Excise Officer duly empowered by the Central Government in this behalf and the person concerned is under statutory legal obligation to disclose the truth and there are penal consequences for giving false evidence and the recording of evidence under section 14 of the Act of 1944 is deemed to be a judicial proceeding under Section 193 and Section 228 of Indian Penal Code. iv. This will not be the position with regards to the statements under other provision of the Act of 1944 which are not recorded pursuant to summons under Section 14, including those of arrested persons under Section 21 of the Act of 1944. They would require compliance of Section 9D (1) (b) read with Section 9D (2) of the Act of 1944, if they are to be relied upon by the adjudicating authority and the only exception are those circumstances as provided under Section 9D (1) (a) of the Act of 1944. v. In case of any objection with regards to the statements recorded under Section 14 of the Act of 1944, the person can be called upon at the instance of the noticee for cross-examination and the adjudicating authority is bound to consider such request and pass an appropriate order, failing which such statement recorded under Section 14 of the Act of 1944 is to be eschewed. On account of situation covered under Section 9D(1)(a), the statement becomes relevant in terms of Section 9D(1)(a) read with Section 9D (2) of the Act of 1944 as the person need not be produced for cross- examination. vi. It is the right of the noticee to have the statements excluded from relied upon evidence by the adjudicating authority in light of Section 24 of the Indian Evidence Act and equally the duty of the adjudicating authority to exclude it even suo-moto if the vitiating circumstances appear from the records, as Section 24 of the Evidence Act uses the word appears to the court . When the noticee alleges that the statement recorded under Section 14 of the Act of 1944 was a result of threat or undue pressure of the authority, he must prove his allegation to be true, though the burden of this proof on the noticee is not very heavy, but certainly such allegation should be based on some material. vii. Admittedly in the instant case no request was made before the adjudicating authority to cross examine any witness whose statements were recorded under section 14 of the Act of 1944 including that of the Managing Director of the appellant company. Admittedly no objection whatsoever was made in connection with the relied upon statements before the adjudicating authority and there was no material before the adjudicating authority to discard the statements in the light of Section 24 of the Evidence Act. The retraction by the Managing Director for the first time at appellate stage after expiry of more than four years was clearly an afterthought. The statement of the Managing Director recorded under Section 14 of the Act of 1944 could be relied upon and treated as a relevant piece of material while issuing the show-cause notice to the Managing Director as well as the appellant company and the same could be relied upon without calling upon the Managing Director to again depose as a witness before the adjudicating authority in terms of Section 9D (1) (b) read with Section 9D (2) of the Act of 1944. Application disposed off.

Summary

Issues Involved:

1. Relevance of the statement recorded under Section 14 of the Central Excise Act, 1944 without complying with Section 9D.
2. Whether the duty demand was contested by the appellant before the authorities.
3. Whether the suo-moto deposit of differential duty liability can be said to be an admission of clandestine removal of goods.
4. Effect of the finality of the penalty imposed on the Managing Director on the appellant.
5. Basis of the impugned order: whether solely on the statement of the Managing Director or further material.
6. Basis of passing the impugned order: whether on the entries made in the private diary of the Managing Director.

Analysis:

Issue 1: Relevance of the Statement under Section 14 without Complying with Section 9D

The court held that the statement recorded under Section 14 of the Central Excise Act, 1944 is per se admissible in evidence and does not require the formal proof of examination-in-chief before the adjudicating authority. The statement is subject to scrutiny by the adjudicating authority in the light of Section 24 of the Indian Evidence Act, which deals with the voluntariness of the statement. The court emphasized that the person making the statement under Section 14 is already under a statutory obligation to state the truth and is liable to penal consequences for making false statements. Therefore, the statement recorded under Section 14 can be relied upon by the adjudicating authority without the need for re-examination under Section 9D(1)(b). The court distinguished between statements recorded under Section 14 and other statements, such as those recorded under Section 21, which would require compliance with Section 9D(1)(b).

Issue 2: Contesting the Duty Demand

The court found that the appellant did not contest the duty demand related to the clandestine removal of goods before the adjudicating authority. The appellant's defense was primarily focused on the calculation of the duty amount and the treatment of the sale price as cum-duty price. The court noted that the appellant admitted the clandestine removal of goods by stating that the invoices could not be issued due to inadvertence. The appellant's claim for a refund of excess payment further indicated that the duty liability was accepted.

Issue 3: Suo-Moto Deposit as Admission of Clandestine Removal

The court held that the suo-moto deposit of the differential duty before the issuance of the show-cause notice, coupled with the appellant's specific stand and conduct during the adjudication proceedings, amounted to an admission of clandestine removal of goods. The court noted that the appellant did not dispute the clandestine removal of goods but contested the calculation of the duty amount. The court also observed that the payment was not made under protest, and the appellant claimed a refund of only the excess amount, indicating acceptance of the duty liability.

Issue 4: Effect of Finality of Penalty on Managing Director

The court held that the finality of the penalty imposed on the Managing Director of the appellant company has a significant bearing on the appellant. The court noted that the penalty on the Managing Director was imposed under Rule 209A of the erstwhile Central Excise Rules, 1944, read with Rule 26 of the Central Excise Rules, 2001, for his involvement in the clandestine removal of goods. The court emphasized that the foundational facts for imposing the penalty on the Managing Director and the appellant company were identical. The court concluded that the finality of the penalty on the Managing Director, who was responsible for the sales and purchases of the appellant company, directly impacts the appellant company's liability.

Issue 5: Basis of the Impugned Order

The court found that the impugned order was not based solely on the statement of the Managing Director recorded under Section 14 of the Central Excise Act, 1944. The court noted that there were further materials, including the private diary maintained by the Managing Director and the appellant's admission of clandestine removal of goods. The court observed that the appellant's defense focused on the calculation of the duty amount and the treatment of the sale price as cum-duty price, indicating acceptance of the duty liability.

Issue 6: Basis of Passing the Impugned Order on Private Diary Entries

The court held that the entries made in the private diary of the Managing Director, coupled with other materials on record, formed a valid basis for passing the impugned order against the appellant. The court noted that the private diary was maintained by the Managing Director, who was responsible for the sales and purchases of the appellant company. The court emphasized that the appellant did not dispute the clandestine removal of goods and claimed that the invoices could not be issued due to inadvertence.

Conclusion:

The court dismissed the appeal, holding that the statement recorded under Section 14 of the Central Excise Act, 1944, is admissible in evidence without the need for re-examination under Section 9D(1)(b). The court found that the appellant did not contest the duty demand related to the clandestine removal of goods and that the suo-moto deposit of the differential duty amounted to an admission of clandestine removal. The court also held that the finality of the penalty imposed on the Managing Director has a significant bearing on the appellant and that the impugned order was based on further materials, including the private diary entries and the appellant's admission of clandestine removal.