2025 (1) TMI 424 - HC - Central Excise

Clandestine manufacture and removal - circumstantial evidence are clearly brought out or not - evasion of duty is clearly established beyond doubt or not - whether the Tribunal can ignore binding admissions made by the managing partner of the respondent firm and its sole distributors and various other traders? - HELD THAT - So far Section 9D (1) (a) of the Excise Act is concerned it has no application in the instant case. Sub-section (1) (a) can be pressed into service (a) when person who had given the statement is dead (b) when he cannot be found (c) when he is incapable of giving evidence (d) when he is kept out of the way by the adverse party and (e) when his presence cannot be secured without an amount of delay or expense which officer considers unreasonable. In the considered opinion of this Court this provision is based on doctrine of necessity. Admittedly in the instant case sub-section 1 (a) of Section 9D of the Excise Act has no application. The judgment of Jharkhand High Court in Bihar Foundry Casting Ltd s 2022 (3) TMI 694 - JHARKHAND HIGH COURT makes it clear that the statement recorded by the Gazetted Central Excise Officer during enquiry or investigation is in a quasi criminal proceeding. In this view of the matter the word prosecution needs to be understood. The proceeding may lead into imposition of penalty. In some cases it may also result into prosecution . The view taken by Division Bench of Jharkhand High Court in Bihar Foundry Casting Ltd. Thus it is unable to persuade ourselves with the line of argument of revenue that because of use of the word prosecution in Section 9D of the Excise Act the requirement of producing evidence in adjudication proceeding can be done away with. It is clear like noon day that the incriminating material/statements recorded behind the back of the petitioner cannot be used against him unless such witnesses are produced in adjudication proceedings and they were permitted to be cross-examined by the petitioner. Conclusion - In the teeth of Section 9D (1) (b) of the Excise Act unless the incriminating material and witnesses are produced in the adjudication proceedings and are permitted to be cross-examined by the assessee the said incriminating material cannot be used against the assessee. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment revolves around two core legal questions:

1. Whether the CESTAT was justified in setting aside the demands of duty confirmed and the penalties imposed by the adjudicating authority, particularly when admissions were made by the managing partner of the respondent firm and its sole distributors?

2. Whether the appellant is still obligated to prove the clandestine manufacture and clearance of excisable goods when admissions have been made by the managing partner of the respondent firm and its sole distributors?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of CESTAT's Decision

Relevant Legal Framework and Precedents:

The case primarily hinges on the interpretation of Section 9D of the Central Excise Act, 1944, which deals with the relevancy of statements made during the course of any inquiry or proceeding under the Act. The provision outlines circumstances under which such statements can be considered relevant, particularly focusing on whether the person who made the statement is available for cross-examination.

Court's Interpretation and Reasoning:

The court emphasized that under Section 9D(1)(b), statements made during investigations cannot be used against the assessee unless the witnesses are produced in adjudication proceedings and are available for cross-examination. The court referenced several precedents, including decisions from the Punjab and Haryana High Court, Bombay High Court, and Jharkhand High Court, which consistently held that the principles of natural justice necessitate the opportunity for cross-examination.

Key Evidence and Findings:

The evidence included statements from the managing partner and other individuals associated with the respondent firm. However, these statements were not subjected to cross-examination during the adjudication proceedings, which the court found problematic.

Application of Law to Facts:

The court applied the principles from Section 9D and related case law to determine that the CESTAT's decision to set aside the demands and penalties was justified. The lack of opportunity for the respondent to cross-examine witnesses meant that the statements could not be used as evidence against them.

Treatment of Competing Arguments:

The appellant argued that the admissions made by the managing partner and others should suffice to uphold the penalties. However, the court found that without cross-examination, these admissions could not be relied upon as conclusive evidence.

Conclusions:

The court concluded that the CESTAT was correct in its decision, as the procedural requirements under Section 9D were not met, rendering the statements inadmissible.

Issue 2: Obligation to Prove Clandestine Activities

Relevant Legal Framework and Precedents:

Similar to the first issue, this question also involves the application of Section 9D of the Excise Act and the principles of natural justice. The court examined whether admissions alone, without corroborative evidence subjected to cross-examination, could establish the alleged clandestine activities.

Court's Interpretation and Reasoning:

The court reasoned that the burden of proof in such cases cannot be shifted solely based on admissions that were not tested through cross-examination. The procedural safeguards provided by Section 9D are integral to ensuring fairness in adjudication.

Key Evidence and Findings:

The evidence consisted of statements and documents allegedly indicating clandestine manufacture and clearance of goods. However, the absence of cross-examination of key witnesses weakened the evidentiary value of these admissions.

Application of Law to Facts:

The court applied the legal standards from Section 9D and found that the appellant failed to meet the burden of proof due to procedural lapses in the adjudication process.

Treatment of Competing Arguments:

The appellant's reliance on admissions was countered by the respondent's argument that these admissions were not subjected to due process. The court sided with the respondent, emphasizing the necessity of cross-examination.

Conclusions:

The court concluded that the appellant's obligation to prove clandestine activities was not fulfilled, as the evidence was not admissible without the opportunity for cross-examination.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"The incriminating material/statements recorded behind the back of the petitioner cannot be used against him, unless, such witnesses are produced in adjudication proceedings and they were permitted to be cross-examined by the petitioner."

Core Principles Established:

The judgment reinforces the principle that procedural fairness, including the right to cross-examine witnesses, is essential in adjudication proceedings under the Excise Act. Statements made during investigations cannot be used as evidence unless they comply with the requirements of Section 9D.

Final Determinations on Each Issue:

1. The CESTAT's decision to set aside the demands and penalties was upheld due to non-compliance with Section 9D, which necessitates cross-examination of witnesses.

2. The appellant's obligation to prove clandestine activities was not met, as the evidence relied upon was inadmissible without the opportunity for cross-examination.