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TMI Blog2025 (4) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... central excise duty involved in the clandestine removal of finished goods without payment of central excise duty and without issue of valid invoices. The aforesaid demands have been confirmed with interest and penalty. 2. Excise Appeal No. 51096 of 2022 has been filed by Harsh Agrawal, Director of the appellant, to assail the aforesaid order dated 09.06.2020 passed by the Principal Commissioner to the extent it imposes penalty upon him under rule 26 of the Central Excise Rules, 2002 [the Central Excise Rules] for his act of omission and commission leading to evasion of duties. 3. The appellant is engaged in the manufacture of HB Wire, GI Wire, Stay Wire, Barbed Wire and Binding Wires. It availed CENVAT credit of duty paid on the inputs, capital goods and input service under the 2004 Credit Rules and utilized such credit towards payment of duty on the final products. 4. It is stated that on 08.04.2016, the Central Excise Officers of the Preventive Wing of the department conducted an investigation in the factory premises of the appellant. The Officers scrutinized the records found in the premises and some documents were also seized for further scrutiny. A panchanama was dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiously removed GI Wire, HB Wire, Wire Rod & Waste - Scrap weighing 476.206 MT, 7759.274 MT, 245.306 MT & 112.088 MT respectively valued to Rs. 24,33,96,987/- from their factory premises without following the proper procedure and without payment of Central Excise duty of Rs. 3,04,24,623/-. The particulars of duty calculation on the goods, indicating therein the basis of arriving at the assessable value, are summarized in Chart - A below:- ***** 6. It appears that once the quantum of production that is recorded and shown in the books & accounts in not physically found in its entirety during the course of its physical verification, the shortage thereto the said excisable goods, in the lack of any plausible reasoning is deemed to have been removed from the factory in a clandestine manner. It therefore appears to reveal from the above that, the Noticee No. 1 had clandestinely removed excisable goods from its factory premises, which had consequently resulted in shortage in the stock of the goods, ascertained during Panchnama proceedings, supra. Noticee No. 2, who is the Director of Noticee no. 1 and who was phusically present during the entire physical stock verification alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (emphasis supplied) 7. The appellant filed a detailed reply dated 25.07.2019 to the show cause notice and denied the allegations made therein. 8. The Principal Commissioner, by order dated 09.06.2020, confirmed the demand and ordered for its recovery. After referring to the statements of the Director of the appellant, security guard, security-in-charge and loading-incharge recorded under section 14 of the Central Excise Act, the Principal Commissioner recorded the following findings: "8.26 I find that all the aforesaid statements recorded under Section 14 of the Central Excise Act, 1944 which includes the Statement of the Director of Noticee no. 1 who in very unambiguous terms has certified the veracity of the documents recovered from the factory premises of Noticee no. 1 and its authenticity. The stand taken by the Noticee in their defense, disowning the veracity and the details mentioned in these documents at a later stage is nothing but a ploy and an alibi to escape the central excise liability. Further once the quantum of production that is recorded and shown in the books & accounts is not physically found in its entirety during the course of its physical verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above facts, it gets established that Noticee No. 1 had cleared finished goods and raw materials clandestinely without issuing Central Excise Invoice and without payment of Central Excise duty, which is recoverable from it invoking extended period of five years under Section 11A(4) of Central Excise Act, 1944 read with Rule 14 of CENVAT Credit Rules 2004 *****" (emphasis supplied) 9. Shri K. Krishnamohan Menon, learned counsel for the appellant assisted by Ms. Parul Sachdeva and Ms. Prerna Jain made the following submissions: (i) Statements of witnesses recorded under section 14 of the Central Excise Act before a Gazetted Central Excise Officer during the course of investigation cannot be relied upon unless the procedure contemplated under section 9D of the Central Excise Act is scrupulously followed. Such statements would have no evidentiary value if the persons making them are not examined before the adjudicating authority and they are admitted in evidence in the interests of justice as is contemplated under section 9D(1)(b) of the Central Excise Act. In this connection reliance has been placed on the following decisions: (a) Jindal Drugs Pvt. Ltd. vs. Union Of India -20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udication proceedings and, therefore, he cannot allege violation of section 9D(1)(b) of the Central Excise Act. In support of this contention, learned authorized representative placed reliance upon the judgment of the Bombay High Court in Harisons Steel Pvt. Ltd. vs. Union of India-2017 (354) E.L.T. 442 (Bom.) ; (ii) The Director of the Company whose statement was recorded under section 14 of the Central Excise Act was correctly not cross-examined as that would amount to self-incrimination. In support of this contention, learned authorized representative placed reliance upon the following decisions: (a) Silicone Concepts International Pvt. Ltd. vs. Principal Commissioner of Cus., Icd, Tkd (Import), New Delhi-2019 (368) E.L.T. 710 (Tri. - Del.); (b) Conybio Healthcare (India) Pvt. Ltd. vs. Commissioner of Customs, Chennai-(2022) 1 Centax 97 (Mad.); (iii) The right to cross-examine is not an absolute right. It is largely dependent on the facts of each case. In support of this contention reliance has been placed upon the judgment of the Allahabad High Court in Shyam Lal Biri Merchant vs. Union of India -1993 (68) E.L.T. 548 (All.); (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence and produce documents in inquiries under the Central Excise Act. Any Central Excise Officer duly empowered by the Central Government in this behalf has the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document in any inquiry which such Officer is making for any of the purposes of the Central Excise Act. 18. Section 9D of the Central Excise Act deals with relevancy of statements under certain circumstances and it is reproduced below: "9D. Relevancy of statements under certain circumstances (1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains,- (a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable; or&nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are making. The statements of the persons so summoned are then recorded under these provisions. It is these statements which are referred to either in section 9D of the Central Excise Act or in section 138B of the Customs Act. A bare perusal of sub-section (1) of these two sections makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in the interests of justice, except where the person who tendered the statement is dead or cannot be found. In view of the provisions of subsection (2) of section 9D of the Central Excise Act or sub-section (2) of section 138B of the Customs Act, the provisions of sub-section (1) of these two Acts shall apply to any proceedings under the Central Excise Act or the Customs Act as they apply in relation to proceedings before a Court. What, therefore, follows is that a person who makes a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise Act. It notes that a statement recorded during inquiry/investigation by an Officer of the department has a possibility of having been recorded under coercion or compulsion and it is in order to neutralize this possibility that the statement of the witness has to be recorded before the adjudicating authority. The relevant portions of the judgment are reproduced below: "15. A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein. 16. Section 9D of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.). Para 12 of the said decision clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well. ***** 22. If none of the circumstances contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the gazetted Central Excise Officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests of justice. 26. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which evidence-in-chief has to precede crossexamination, and cross-examination has to precede re-examination. 27. It is only, therefore, - (i) after the person whose statement has already been recorded before a gazetted Central Excise Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts which it contains in case other than those covered in clause (a), only when the person who made the statement is examined as witness in the case before the court (in the present case, Adjudicating Authority) and the court (Adjudicating Authority) forms an opinion that having regard to the circumstances of the case, the statement should be admitted in the evidence, in the interest of justice. 9.4 The legislative scheme, therefore, is to ensure that the statement of any person which has been recorded during search and seizure operations would become relevant only when such person is examined by the adjudicating authority followed by the opinion of the adjudicating authority then the statement should be admitted. The said provision in the statute book seems to have been made to serve the statutory purpose of ensuring that the assessee are not subjected to demand, penalty interest on the basis of certain admissions recorded during investigation which may have been obtained under the police power of the Investigating authorities by coercion or undue influence. 9.5 ***** The provisions contained in Section 9D, therefore, has to be construed strictly and held as mandatory and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent placed reliance upon the statements recorded under section 108 of the Customs Act. The Delhi High Court held that the procedure contemplated under section 138B(1)(b) has to be followed before the statements recorded under section 108 of the Customs Act can be considered as relevant. The relevant paragraphs of the judgment of the Delhi High Court are reproduced below: "76. We are not persuaded to change our view, on the basis of the various statements, recorded under Section 108 of the Act, on which the Learned ASG sought to rely. Statements, under Section 108 of the Act, we may note, though admissible in evidence, acquire relevance only when they are, in fact, admitted in evidence, by the adjudicating authority and, if the affected assessee so chooses, tested by cross-examination. We may, in this context, reproduce, for ready reference, Section 138B of the Act, thus : ***** A Division Bench of this Court has, speaking through A.K. Sikri, J. (as he then was) held, in J & K Cigarettes Ltd. v. Collector of Central Excise [2009 (242) E.L.T. 189 (Del.)] that, by virtue of sub-section (2), Section 138B(1) of the Act would apply, with as much force, to adjudication proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements are not relevant to the proceedings. 15. It has been held in a catena of judgments including Jindal Drugs Pvt. Ltd. versus Union Of India [2016 (340) E.L.T. 67 (P&H)] that section 9D is a mandatory provision and if the procedure prescribed therein is not followed, statements cannot be used as evidence in the proceedings under Central Excise Act. ***** 16. Therefore, the 35 statements relied upon in the SCN are not relevant and hence also not admissible." (emphasis supplied) 28. It, therefore, transpires from the aforesaid decisions that both section 9D(1)(b) of the Central Excise Act and section 138B(1)(b) of the Customs Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 14 of the Central Excise Act or under section 108 of the Customs Act during the course of an inquiry under the Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross-examination in Silicone Concepts arose during the course of investigation/inquiry by the Officers of the department under section 14D of the Central Excise Act. In the present case, the issue that arises for consideration is as to whether the statements made during the course of inquiry before the Officers of the department can be relied upon without following the procedure contemplated under section 9D(1)(b) of the Central Excise Act. The question of cross-examination would arise only after the statements are recorded before the adjudicating authority and they are admitted in evidence by the adjudicating authority. It is also pertinent to state here that the issue that arose before the Chhattisgarh High Court in Hi Tech Abrasives was in connection with the Director of the Company whose statement was recorded under section 14D of the Central Excise Act by the officers conducting the investigation/inquiry. The Chhattisgarh High Court clearly held that for any relevance to be placed on the said statement, it was absolutely incumbent for the department to have first examined the Director of the Company before the adjudicating authority and it would be for the adjudicating authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant. What weighed with the Principal Commissioner while confirming the demand is that loose papers were perused by Harsh Agrawal and he unequivocally accepted that all the documents pertained to his factory and were prepared by his staff. 36. In the first instance, the adjudicating authority while recording the finding on loose papers has placed reliance upon the statement of Harsh Agrawal made during the inquiry/investigation under section 14D of the Customs Act. The procedure contemplated under section 9D of the Central Excise Act was not followed and, therefore, no reliance can be placed on the statement of Harsh Agrawal in connection with loose papers recovered from the factory premises of the appellant. 37. This apart, the contents of the loose papers would not constitute relevant evidence on clandestine removal, if the author is not examined. 38. In this connection, it would be pertinent to refer to the decision of the Delhi High Court in Commissioner of Central Excise, Delhi-I vs. Vishnu & Co. Pvt. Ltd.- 2016 (332) E.L.T. 793 (Del.). The Delhi High Court held that the statement contained in private documents, without examining the author, would not constitute rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of duty. Once we have held that the statement of the Director could not be admitted as relevant piece of evidence, there is no question of there being any admission on the statement of the Director of the company. Then the only other material left is unverified private document in the form of certain entries made in the note book, seized during search operations. In view of what has been held by the Delhi High Court, with which we are in complete agreement and that the Tribunal has also taken a consistent view in this respect that without recording the statement of the author, the contents of private document would not constitute material, we are left with no legally admissible evidence on record to draw inference of clandestine removal. *****" (emphasis supplied) 40. In the present case, the alleged authors of the loose papers were not examined. The demand of Rs. 1,76,650/- based on loose papers recovered from the factory premises of the appellant, therefore, cannot be sustained and deserves to be set aside. 41. It also needs to be remembered that a demand based solely on shortage of stock cannot be sustained in the absence of corroborative evidence. In this connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions of the Tribunal including the decision in the case of Jai Timber Company v. CCE & C, Bhopal [2009 (234) E.L.T. 457 (Tri.-All.)] and has rightly concluded that mere shortages detected at the time of visit of the officers cannot ipso facto lead to the allegations and findings of clandestine removal." 7. No illegality or perversity could be pointed out in the aforesaid findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal which may warrant interference by this Court. Accordingly, no substantial question of law arises in this appeal." (emphasis supplied) 42. Learned authorized representative appearing for the department has, however, placed reliance upon the decision of the Tribunal in Prinik Steels. This decision would not help the department in view of the law laid down by the Punjab and Haryana High Court in Anand Founders & Engineers. 43. What also needs to be noticed is that an inference regarding clandestine removal can be drawn only after detailed investigation and consideration of relevant incriminating material which could be based on the stock of raw material, finished product, use of consumption of electricity, employment of labour an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Quantity of the manufacturing with reference to the capacity of production by the noticee unit. (d) Quantity of the packing material used. (e) The total number of the employees employed and the payment made to them. In this case, statements of the labourers ought to have been reduced in writing, by the department which ought to refer that over and above of the salary paid by the noticee, some other type of remunerations in cash or kind have been paid by the noticee, such statements are must. (f) Ostensible discrepancy in the stock of raw materials and the finished product. (g) Clandestine removal of goods with reference to entry/exit of vehicles like Trucks, etc. in the factory premises. (h) If there is any proof about the loading of the goods in the Truck, like weight of truck, etc. at the weighbridge, security gate records, transporter documents such as lorry receipts, statements of the truck drivers, entries of the trucks/vehicles at different check-post. Different types of forms which are supplied by the Commercial Tax Department, like Road Permit supplied by the commercial tax department, receipts by the consignees, etc. These documents ou ..... 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