Case Law Details
Rallison Electricals Pvt Ltd Vs Principal Commissioner of Central Goods & Services Tax (CESTAT Delhi)
The appeal before CESTAT Delhi concerned confirmation of demand for reversal of CENVAT credit, recovery with interest, and imposition of penalties under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A(4) of the Central Excise Act.
The appellant, engaged in manufacture of electrical wires and cables, came under departmental investigation after scrutiny of its records. The department alleged that part of the raw material had been burnt in a boiler because it was unsuitable for manufacturing, part of the raw material had been cleared “as such,” and certain raw materials had been shown as excess consumption in manufacturing. Based on these allegations, the department issued a show cause notice demanding reversal of CENVAT credit of ₹4.12 crore, invoking the extended period of limitation under Section 11A(4).
The Principal Commissioner confirmed the demand with interest and penalties, holding that the appellant had suppressed facts and wrongly availed credit. The matter reached the Tribunal.
Statements under Section 14 held inadmissible without compliance with Section 9D
A central issue before the Tribunal was whether statements recorded under Section 14 of the Central Excise Act during investigation could be relied upon to confirm demand.
The Tribunal noted that the show cause notice and adjudication order substantially relied upon statements made by the company’s Production Manager, Director, and other persons recorded under Section 14. The appellant had objected to such reliance on the ground that the mandatory procedure under Section 9D had not been followed.
Examining Section 9D, the Tribunal held that statements recorded before Central Excise officers become relevant evidence only in specified circumstances. Where clause (a) of Section 9D(1) does not apply, the adjudicating authority must first examine the person as a witness before it, then form an opinion that the statement should be admitted in evidence in the interests of justice, and thereafter provide opportunity for cross-examination.
The Tribunal emphasized that this statutory procedure is mandatory. Unless followed, statements recorded during investigation cannot be treated as relevant evidence for proving the truth of their contents.
The Tribunal found that in the present case no such exercise was undertaken. The adjudicating authority did not examine the persons whose statements were relied upon, did not determine admissibility in the manner contemplated by Section 9D, and did not follow the statutory evidentiary procedure.
The Tribunal also rejected the reasoning that cross-examination was unnecessary merely because the statements were of employees and directors of the company. It held that compliance with Section 9D is mandatory irrespective of that consideration.
Accordingly, the Tribunal held that statements recorded under Section 14 could not be relied upon.
Since the denial of CENVAT credit was founded on those statements, the impugned order was unsustainable on this ground alone.
Extended period of limitation held not invocable
The Tribunal also examined invocation of the extended limitation period under Section 11A(4).
The period involved was March 2015 to March 2017, while the show cause notice was issued on 26 August 2020. To sustain extended limitation, the department alleged wilful suppression of facts and intent to evade duty.
However, the Tribunal found that the department’s case itself was based on figures reflected in the appellant’s balance sheets for Financial Years 2013-14 to 2016-17. The appellant had also disclosed relevant details in statutory records and monthly ER-1 returns, including declaration of sale of rejected raw materials.
The Tribunal observed that balance sheets are public documents, and where relevant figures are disclosed in such records, allegations of suppression are unsustainable. It noted that the department had access to the disclosed material and could have sought clarification or further details during the relevant period.
It further observed that regular filing of ER-1 returns also undermined the allegation of deliberate concealment.
On these facts, the Tribunal held that ingredients necessary for invoking the extended limitation period—such as wilful suppression or intent to evade—were absent.
Accordingly, invocation of extended limitation under Section 11A(4) was held to be invalid.
Final ruling
The Tribunal concluded that the demand could not be sustained on statements recorded under Section 14 because mandatory requirements of Section 9D had not been complied with. It also held that the extended period of limitation could not be invoked since the department’s case was based on disclosures already reflected in balance sheets and statutory returns.
On these grounds, the order confirming demand of CENVAT credit, interest, and penalties was set aside, and the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
Rallison Electricals Pvt. Ltd.1 has filed this appeal to assail that portion of the order dated 11.02.2022 passed by the Principal Commissioner that confirms the demand for CENVAT credit and orders it to be recovered from the appellant under rule 14 of the CENVAT Credit Rules, 20042 read with section 11A(4) of the Central Excise Act, 19443 with interest and penalties.
2. The appellant is engaged in the manufacture of electrical wires and cables. During the course of investigation of records of the appellant, it appeared to the department that the appellant had destroyed a part of the raw material by putting it into the boiler as it could not be used in the manufacture of the final product. It also came to the notice of the department that part of the raw material was cleared ‘as such’ by the appellant during the period from March 2015 to March 2017. During the course of audit of the records of the appellant for the period from July, 2015 to January, 2017 some discrepancies were also noticed in respect of the consumption of raw material.
3. Accordingly, investigation was initiated against the appellant and, ultimately, a show cause notice dated 26.08.2020 was issued to the appellant, Lalit Babbar (Director of the appellant) and K.C. Sharma, (Authorized Signatory of the appellant). The show cause notice mentions that from a perusal of the balance sheet for the Financial Year 2015-2016 and the Financial Year 2016-2017, it came to notice that the appellant had shown the rejected raw material as used in manufacturing. The show cause notice also refers to the statement of N.K. Verma (Production Manager) and Lalit Babbar (Director of the appellant) made under section 14 of the Central Excise Act. The relevant portion of the show cause notice is reproduced below:
“13. Whereas, on perusal of Balance Sheet for financial Year 2013-14 to 2016-17 (RUD-27) and investigating the matter, it appeared that the assessee have diverted the raw material having book value of Rs.33,38,32,135/- which were not used in manufacturing of final Product and CENVAT Credit thereof have not been reversed, in following the modus given below:-
(1). Burnt the Raw material i.e. PVC Compound in Boiler and Cleared raw material “as such” by reducing their book value;
(2). Declared excess consumption of raw material in manufacturing.
Thus, the assessee appeared to have wrongly availed and utilized Cenvat Credit amounting to Rs.4,12,61,652/- on taxable value of Rs.33,38,32,135/-under the provision of Rule 3 of CENVAT Credit Rules, 2004 as per facts stated below- *****”
4. The show cause notice also proposed to invoke the extended period of limitation contemplated under section 11A(4) of the Central Excise Act in the following manner:
“20. Hence, it appears that the Cenvat credit was required to be reversed by M/s REPL in terms of Rule 3 ibid on the materials so not used in manufacturing but disposed of by them without issuing of invoices. It appears that M/s REPL has willfully suppressed the facts of burning off the raw materials on which Cenvat credit was availed to avail Irregular Cenvat credit with intent to evade the Central Excise Duty. M/s REPL suppressed the facts regarding destroyed raw material and never informed the department that they shall be use the raw material in boiler for fire alongwith details on which Cenvat Credit have been availed. M/s REPL have also shown clearance of the rejected raw material in their ER-1 Returns on the reduced value and misguided the department with intention to evade Central Excise duty. At the same time they have never reversed/ paid any amount attributable to the Cenvat credit availment on such destroyed raw material. Thus, it appears that M/s REPL have deliberately suppressed the fact regarding destroyed raw material with an intention to wrongly avail the Cenvat credit on such materials and not to reverse the Cenvat Credit in terms of Rule 3 of the CENVAT Credit Rules, 2004.
21. In view of the above, extended period for demand is invocable in the instant case and the duty not paid/ reversed by them appears to be recoverable from M/s REPL under Rule 14 of CENVAT Credit Rules, 2004 read with proviso to Section 11A(4) along with the Interest under Section 11AA of Central Excise Act, 1944.”
(emphasis supplied)
5. The appellant filed a reply to the show cause notice which was received by the department on 09.11.2021. The appellant denied the allegations mentioned in the show cause notice and gave an explanation in respect of CENVAT credit on inputs used in boiler, CENVAT credit on inputs on cleared values, and CENVAT credit on inputs shown as excess consumption. The appellant also pointed out that neither the extended period of limitation could have been invoked in the facts and circumstances in the present case nor the statements made under section 14 of the Central Excise Act could be considered as relevant since the procedure contemplated under section 9D of the Central Excise Act had not been followed.
6. The Principal Commissioner, by the order dated 11.02.2022, did not accept the contentions advanced by the appellant in the reply to the show cause notice and confirmed the demand with interest and penalty after holding that the extended period of limitation was correctly invoked.
7. The relevant findings of the Principal Commissioner in respect of burning of PCV compound are reproduced below:
“4.17. M/S REPL neither disclosed the facts nor disclosed the reasons for burning off the PVC Compound during March, 2015 in their ER-1 returns filed with the department periodically. Further, as per statement dated 09.03.2020 of Shri Lalit Babbar, Director it is clear that the input namely PVC Compound and other rejected raw materials could not be taken in use for manufacturing. Therefore, Cenvat Credit availed on these inputs amounting to Rs. 13,67,345/- were required to be reversed but the assessee failed to reverse the same.”
8. In regard to the raw material cleared ‘as such’, the Principal Commissioner recorded the following findings:
“4.18. M/S REPL shown the raw material so cleared as “as such” in their ER-1 Reruns but on reduced value by showing them as Rejected whereas these raw materials were never put to manufacturing process. As per sub-rule (5) of Rule 3 of Cenvat Credit Rules, 2004 they were required to pay amount equal to cenvat credit taken on the said inputs cleared “as such”. Therefore, the assessee is required to pay the amount of Rs.47,65,961/- equal to cenvat credit taken by them.”
9. In regard to the recovery of CENVAT credit on inputs shown as excess consumption, the Principal Commissioner recorded the following findings:
“4.48. Now I come to the proposed recovery of CENVAT credit of Rs. 3,51,28,345/- on inputs shown excess consumption. I find that from facts on record as mentioned in the show cause notice the Noticees have knowingly and wilfully declared excess consumption of raw material whereas the same was diverted elsewhere on which Cenvat credit is to be reversed/paid amounting to Rs. 3,51,28,345/-. Noticees have submitted that the Department, allegation is baseless. To advance their plea they have placed reliance on the statement dated 28-02-2020 of Shri N.K.Verma, Sr. Production Manager who stated, inter-alia, that quantity of raw materials is determined as per specifications of cables. As an example he stated that the cable having specification of 3.5Cx240 Sq mm Al, has three main core with cross section 240 Sq mm in each and one neutral. Al stands for Aluminium. He further calculated that the quantity used in manufacturing as per set formula (per Kilometer) as under:
| Aluminium | 2500 kg/KM |
| XLPE | 500 kg/KM |
| GI Strips | 750 – 1100 kg/KM |
PVC compound Total 1000Kg/km (inner and Outer)
He further stated that he has provided these particulars information as per his experience in the industry for 1718 years; that Shri D.K. Mishra, lab incharge has prepared a chart called as GTP which contain information regarding which type of cable has to be manufactured and the specification of the cable has been given in that chart; that the assessee has shown a quantity as 6095 Kgs. of Aluminium consumed against the standard 2500 Kgs. which is absolute wrong and impracticable and is much excess than real. Sh. Lalit Babbar, in his statement dated 09.03.2020 also agreed with the calculation of raw material made by Sh. N.K. Verma, Investigating officers, therefore, concluded that Noticees have shown excess consumption of raw material in manufacturing of their final products. Item wise excess consumption was calculated by the officers as per details in Para 13.2 (E) of the SCN on which Cenvat amounting to Rs. 3,51,28,345/- was excess taken and was required to be reversed. In para 13.2.D of the show cause notice it has been stated that the Noticees vide e-mail dated 13.06.2020 submitted the same chart as submitted vide earlier e-mail dated 18.02.2020, with revised figure but not mentioned any specification of item so desired with malafide intention to kill the time and delay the investigation. In absence of the same their contention is not acceptable. In the reply the Noticees have submitted that the allegation is incorrect. Their contention is that, in any case, it is admitted that the revised figures of raw material consumption were submitted but that nowhere if the show cause notice have the revised figures been found to be incorrect. They added that neither the Department has appointed any independent technical expert which they could have nor the Department asked the Noticees to get the accounts audited from a cost accountant/chartered accountant inasmuch as Department is fully empowered to do so under Section 14AA of the Central Excise Act, 1944. I find that I am unable to agree to their plea. From the above discussion it is clear that the department has alleged on the basis of the evidence on record. It is based on the record maintained by the Noticee and admitted by their authorised representative and the Director in their voluntary statements recorded under Section 14 of the Central Excise Act, 1944 which were never retracted and the Noticee has failed to establish that whatever earlier stated by them was false and contrary to facts on record of that the revised figures are based on concrete corroborative evidences. In the circumstances what is stated in the show cause notice based on the record and admitted by the Noticee in voluntary statements cannot be brushed aside merely on submission of the revised figures. I have thus come to the conclusion that the Noticee fraudulently taken excess credit of Rs. 3,51,28,345/- which is liable to be reversed.”
10. As regards the submission of the appellant that the statements made under section 14 of the Central Excise Act could not be considered as relevant since the procedure contemplated under section 9D of the Central Excise Act had not been followed, the Principal Commissioner recorded the following findings:
“4.55. I find that their further submission is that in respect of the statements recorded by the officers under Section 14 of the Central Excise Act, 1944. They have contended that it is incumbent upon the adjudicating authority to admit the said evidence upon examination in chief and then offering the same for cross-examination by the Noticees against whom the said statements are intended to be used. Noticees, therefore, pray to the Adjudicating Authority to summon the said persons for examination and cross-examination. Section 9D of the Central Excise Act, 1944 in this regard may be referred to. It statutorily requires the procedure of admission of such statement to be followed. I do not find any force in their plea fine cross-examination of the persons whose statements were recorded and relied on in this case. The Statements are of employees and Director of the Company and the allegations are based on documentary evidences. In the circumstances I am of the view that no purpose is going to be served in allowing cross examination of employees and Director of the Company. The contention for cross examination is, therefore, not acceptable.”
(emphasis supplied)
11. Regarding the invocation of the extended period of limitation, the Principal Commissioner recorded the following findings:
“4.59. Now I come to their further contention that extended period is not applicable in this case as there was no suppression of facts with an intent to evade payment of duty. The contention is not tenable. I find that as discussed above, M’s REPL in their Balance Sheets had shown raw material as burnt in the boiler, cleared as such and diverted the said inputs by showing excess consumption of quantity of raw material therefore, there is no chance to use this raw material in manufacturing process subsequently. Thus, they were required to reverse the impugned amount of credit. They did not reverse the Cenvat credit on the amount on which they availed the credit instead paid CE duty on the reduced value declaring the raw material as Rejected Raw Material Scrap and wrongly declared to be used in excess for manufacturing. The impugned rejected raw material were admittedly neither used in the manufacture of the final product nor even issued for the manufacture. Hence M/s REPL willfully suppressed the facts of burning off the raw materials and diversion of input without payment of duty and without issue of invoice. The said wrong Cenvat credit was availed with intent to evade the payment of Central Excise Duty. They also suppressed the facts regarding destroyed raw material and never informed the department that they shall use the raw material in boiler for fire along with details on which Credit have been availed and cleared the inputs without payment of duty/without reversal of Cenvat credit availed thereon. They had also shown clearance of the rejected raw material in ER-1 Returns on the reduced value and misstated to the department with intention to evade Central Excise duty. At the same time they did not reverse amount attributable to the Cenvat credit availed on such destroyed raw material. Thus, they deliberately suppressed the fact regarding destroyed raw material with an intention to wrongly avail the Cenvat credit on such materials.”
(emphasis supplied)
12. Shri Devesh Tripathi, learned counsel for the appellant made the following submissions:
(i) Findings have been recorded against the appellant in the impugned order merely on the basis of statements made under section 14 of the Central Excise Act but these statements cannot be considered as relevant as the procedure contemplated under section 9D of the Central Excise Act was not followed. To support this contention, learned counsel placed relevance upon the decision of this Tribunal in M/s Surya Wires Pvt. Ltd. Principal Commissioner, CGST, Raipur4;
(ii) In the balance sheet for Financial Year 2014-15, an amount of Rs. 25,67,340 /- was reflected under the head ‘transfer rejected (unused) for self-use in boiler for fire’. The appellant had, therefore, reflected the consumption of such inputs in the balance sheet and also declared the same in the monthly returns submitted before the appropriate officer, but neither this objection was raised nor any further information was sought by the department. The appellant was, therefore, entitled to avail CENVAT credit and denial of CENVAT credit of Rs. 13,67,345/- is, therefore, not justified;
(iii) The appellant had correctly claimed CENVAT credit of Rs. 47,65,962/- on inputs cleared on reduced value. The appellant had shown raw material correctly ‘as such’ in the ER-1 returns;
(iv) The finding of the Principal Commissioner for disallowing CENVAT credit of Rs. 3,51,28,345/- on alleged excess consumption inputs is only on assumption. N.K. Verma, Production Manager, had explained the quantity used for manufacturing with reference to cables having particular specification and cross-section but there are numerous grades of cables, which fact the appellant had informed the department but this has not been considered by the Principal Commissioner solely for the reason that N.K. Verma, Production Manager, had given the quantity used in manufacturing in the statement made under section 14 of the Central Excise Act;
(v) The extended period of limitation could not have been invoked in the facts and circumstances of the case; and
(vi) Neither interest could be charged nor could penalties be imposed on the appellant.
13. Shri Bhagwat Dayal, learned authorized representative appearing for the department, however, supported the impugned order and made the following submission:
(i) The Principal Commissioner was justified in denying credit for the PVC compound that is said to have been burned by the appellant;
(ii) The Principal Commissioner was also justified in denying credit to the PVC compound removed ‘as such’ without reversal of CENVAT credit;
(iii) The Principal Commissioner was also justified in denying credit for the excess consumption of raw materials;
(iv) The statements made under section 14 of the Central Excise Act were correctly relied upon by the Principal Commissioner as the statement made by the Production Manager cannot be ignored; and
(v) The extended period of limitation was correctly invoked.
14. The contentions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
15. The first issue that arises for consideration is whether the statements made under section 14 of the Central Excise Act can be considered as relevant if the procedure contemplated under section 9D of the Central Excise Act has not been followed.
16. To examine this issue, it would be appropriate to refer to the relied upon documents enclosed with the show cause notice. Some of the relied upon documents relate to correspondence during the course of investigation, including summons and e-mails. Serial number 9, 11, 15, 17(A), 17(B), 18, 22, 24, 30 and 38 are the statements made by various persons under section 14 of the Central Excise Act. The appellant had specifically contended that the statements made under section 14 of the Central Excise Act cannot be considered as relevant in the facts of the present case but this contention has been rejected by the Principal Commissioner for the reason that the statements are of employees and Directors of the company and as they are based on documentary findings, no purpose would be served by allowing cross examination of the employees and the Directors of the company.
17. The Principal Commissioner completely failed to appreciate that the contention that was advanced on behalf of the appellant was that it was incumbent upon the adjudicating authority, in terms of section 9D of the Central Excise Act, to first conduct the examination-in-chief of the person whose statements were recorded under section 14 of the Central Excise Act and if the evidence was admitted, then to permit cross-examination such persons whose statements had been recorded. It is also seen from the findings recorded in paragraph 4.48 of the order that the contention of the appellant that they had submitted revised figures of raw material consumption was not accepted for the reason, that they were admitted by the authorized representative and Directors in their voluntary statements. These statements were never retracted. The Principal Commissioner also held that the voluntary statements cannot be brushed aside merely on submissions of the revised figures.
18. Section 14 of the Central Excise Act deals with power to summon persons to give evidence 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.
19. 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 gazette 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
(b) when the person who made the statement is examined as a witness in the case before the court and the court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court.”
20. It would be seen section 108 of the Customs Act and section 14 of the Central Excise Act enable the concerned Officers to summon any person whose attendance they consider necessary to give evidence in any inquiry which such Officers 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 138B of the Customs Act or in section 9D of the Central Excise Act. A bare perusal of subsection (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 sub-section (2) of section 9D of the Central Excise Act or sub-section (2) of section 138B of the Customs Act, the provisions of subsection (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 statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain.
21. It would now be appropriate to examine certain decisions interpreting section 138B of the Customs Act and section 9D of the Central Excise Act.
22. In Ambika International Union of India5 decided on 17.06.2016, the Punjab and Haryana High Court examined the provisions of section 9D of the Central Excise Act. The show cause notices that had been issued primarily relied upon statements made under section 14 of the Central Excise Act. It was sought to be contended by the Writ Petitioners that the demand had been confirmed in flagrant violation of the mandatory provisions of section 9D of the Central Excise Act. The High Court held that if none of the circumstances contemplated by clause (a) of section 9D(1) exist, then clause (b) of section 9D(1) comes into operation and this provides for two steps to be followed. The first is that the person who made the statement has to be examined as a witness before the adjudicating authority. In the second stage, the adjudicating authority has to form an opinion, having regard to the circumstances of the case, whether the statement should be admitted in evidence in the interests of justice. The judgment further holds that in adjudication proceedings, the stage of relevance of a statement recorded before Officers would arise only after the statement is admitted in evidence by the adjudicating authority in accordance with the procedure contemplated in section 9D(1)(b) of the Central Excise Act. The judgment also highlights the reason why such an elaborative procedure has been provided in section 9D(1) of the Central 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 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. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.
(i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and
(ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
23. 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.
24. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. The statement, recorded during inquiry/ investigation, by the gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudication authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.
25. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a gazetted Central Excise Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps 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 cross-examination, and cross-examination has to precede reexamination.
27. It is only, therefore, –
(i) after the person whose statement has already been recorded before a gazetted Central Excise Officer is examined as a witness before the adjudicating authority, and
(ii) the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence,
that the question of offering the witness to the assessee, for cross-examination, can arise.
28. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.”
(emphasis supplied)
23. The Punjab and Haryana High Court in Jindal Drugs Pvt. Ltd. vs. Union Of India6 that was decided on 21.06.2016 also held that unless and until one of the circumstances contemplated by clause (a) of section 138B(1) of the Customs Act applies, the adjudicating authority is bound to strictly follow the procedure contained in clause (b) of section 138B(1) of the Customs Act, before treating a statement recorded under section 108 of the Customs Act as relevant.
24. In Hi Tech Abrasives Ltd. vs. Commissioner of C. Ex. & Cus., Raipur7 decided on 04.07.2018, the Chhattisgarh High Court also examined the provisions of section 9D of the Central Excise Act. The allegation against the appellants was regarding clandestine removal of goods without payment of duty and for this purpose reliance was placed on the statement of the Director of the Company who is said to have admitted clandestine removal of goods. The contention of the appellants before the High Court was that the statement of the Director could be admitted in evidence only in accordance with the provisions of section 9D of the Central Excise Act. After examining the provisions of sub-sections (1) and (2) of section 9D of the Central Excise Act, and after placing reliance on the judgment of the Punjab and Haryana High Court in Ambika International, the Chhattisgarh High Court held:
“9.3 A conjoint reading of the provisions therefore reveals that a statement made and signed by a person before the Investigation Officer during the course of any inquiry or proceedings under the Act shall be relevant for the purposes of proving the truth of the 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 not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. In taking this view, we find support from the decision in the case of Ambica International v. UOI rendered by the High Court of Punjab and Haryana.”
(emphasis supplied)
25. In Additional Director General (Adjudication) vs. Its My Name Pvt. Ltd.8 decided on 01.06.2020, the Delhi High Court examined the provisions of sections 108 and 138B of the Customs Act. The department 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 proceedings, as to criminal proceedings.
*****
We express our respectful concurrence with the above elucidation of the law which, in our view, directly flows from Section 138B(1) of the Act – or, for that matter, Section 9D of the Central Excise Act, 1944.
77. The framers of the law having, thus, subjected statements, recorded under Section 108 of the Act, to such a searching and detailed procedure, before they are treated as relevant in adjudication proceedings, we are of the firm view that such statements, which are yet to suffer such processual filtering, cannot be used, straightaway, to oppose a request for provisional release of seized goods. The reliance, in the appeal before us, on various statements recorded during the course of investigation in the present case cannot, therefore, in our view, invalidate the decision, of the Learned Tribunal, to allow provisional release of the seized 25400.06 grams of gold jewellery, covered by Bill of Entry No. 107190, dated 20th April, 2019.”
(emphasis supplied)
27. In M/s. Drolia Electrosteel P. Ltd. vs. Commissioner, Customs, Central Excise & Service Tax, Raipur9 decided on 30.10.2023, a Division Bench of the Tribunal examined the provisions of section 9D of the Central Excise Act and after placing reliance upon the decision of the Punjab and Haryana High Court in Jindal Drugs, observed that if the mandatory provisions of section 9D(1)(b) of the Central Excise Act are not followed, the statements cannot be used as evidence in proceedings under Central Excise Act. The relevant portions of the decision of the Tribunal are reproduced below:
“14. Evidently, the statements will be relevant under certain circumstances and these are given in clauses (a) and (b) of subsection (1). There is no assertion by either side that the circumstances indicated in (a) existed in the case. It leaves us with (b) which requires the court or the adjudicating authority to first examine the person who made the statement and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence. Of course, the party adversely affected by the statement will have to be given an opportunity to cross examine the person who made the statement but that comes only after the statement is, in the first place, after examination by the adjudicating authority, admitted in evidence. This has not been done in respect of any of the 35 statements. Therefore, all the 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. A Division Bench of this Tribunal in Surya Wires after examining the aforesaid decisions of the High Court held that the statements made under section 108 of the Customs Act during the course of an inquiry under the Customs Act 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.
29. It, therefore, transpires from the aforesaid decisions that both section 138B(1)(b) of the Customs Act and section 9D(1)(b) of the Central Excise 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 opportunity has to be provided for cross examination of such persons. The provisions of section 138B(1)(b) of the Customs Act and section 9D of the Central Excise Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 108 of the Customs Act or under section 14D of the Central Excise Act. The Courts have also explained the rationale behind the precautions contained in the two sections. It has been observed that the statements recorded during inquiry/investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence.
30. It is, therefore, clear that the availment of CENVAT credit has been denied to the appellant on the basis of statements made under section 14 of the Central Excise Act. As the procedure contemplated under section 9D E/51613/2022 of the Central Excise Act was not followed, the statements made under section 14 of the Central Excise Act cannot be considered as relevant. The impugned order, therefore, deserves to be set aside on this ground alone.
31. The next issue that arises for consideration is whether the extended period of limitation contemplated under section 11A(4) of the Central Excise Act could have been invoked in the facts and circumstances of the case.
32. The period involved is from March, 2015 to March, 2017. The show cause notice was issued to the appellant on 26.08.2020. It refers to the balance sheet of the appellant for the Financial Years 2013-14 to 20162017. It further mentions that the appellant wilfully suppressed the facts of burning the raw materials on which CENVAT credit was availed to avail irregular CENVAT credit with intent to evade payment of duty. It also mentions that the appellant showed clearance of rejected raw material in the ER-1 returns on the reduced value with an intention to evade payment of duty.
33. The Principal Commissioner has merely reproduced the allegations made in the show cause notice to hold that the extended period of limitation was correctly invoked.
34. It is clear that the case of the department is based on the balance sheet for the Financial Years 2013-14 to 2016-17. The contention of the appellant is that the documents required during investigation were provided to the department including the balance sheet. The appellant had also reflected and accounted for inputs in the statutory records and monthly ER-1 returns. The appellant had declared the sale of inputs as rejected raw materials in the ER-1 returns. The officers could have sought details or raised objections on the information furnished by the appellant in the returns.
35. The invocation of extended period of limitation under section 11A(4) of the Central Excise Act has to be examined in the light of the aforesaid facts.
36. The issue as to whether the extended period of limitation could be invoked when the position was reflected in the balance sheet was examined by the Tribunal in Mega Trends Advertising Ltd. Commr. of C. Ex. & S.T., Lucknow10 and it was held:
“6. Apart from the merits of the case, we also find that the demand is squarely barred by limitation having been raised by invoking the longer period. The Revenue has picked up the figures from the balance sheet and profit and loss account maintained by the assessee. The balance sheet and profit and loss account has been held to be public documents by various decisions and it stands concluded that when the income arising from various activities stand reflected in the said public documents, it cannot be said that there was any suppression or misstatement on the part of the assessee so as to invoke the longer period of limitation. Reference can be made to Tribunal’s decision in the case of C.S.T., New Delhi v. Kamal Lalwani [2017 (49) S.T.R. 552 (Tri.- Del.)], laying down that extended period is not invokable if services rendered are reflected in balance sheet and income tax returns and no evidence stands produced that non-payment of duty was due to any mala fide. Reference can also be made to Hon’ble Allahabad High Court’s decision in the case of Commissioner of Central Tax v. Zee Media Corporation Ltd. [2018 (18) G.S.T.L. 32 (All.)]. The Hon’ble High Court observed that the show cause notice itself shows that every details was maintained by the assessee in usual course of business, the ingredients of proviso to section 73(1) of the Finance Act, 1994, establishing any suppression of facts to evade payment of tax cannot be held to be present and invocation of extended period of limitation was not correct on the part of the Revenue.”
37. This view was also taken by the Tribunal in Hindalco Industries Ltd. Commissioner of C. Ex., Allahabad11 and it was held:
“6. ***** Further, the finding of suppression of facts against the assessee is wholly unfair, apart from being incorrect. Balance Sheets of companies is a publicly available document. Therefore, the allegation that data stated in the Balance Sheet was suppressed from Central Excise authorities is not a viable allegation. The demand has to fall on the ground of limitation itself.”
38. The appellant had also been regularly filing the ER-1 returns. Nothing prevented the officers from seeking further information from the appellant regarding the avaliment of the CENVAT credit. For this reason also, the extended period of limitation could also not have been invoked.
39. The inevitable conclusion that follows from the aforesaid discussion is that neither could the demand have been confirmed on the basis of statements made under section 14 of the Central Excise Act nor the extended period of limitation could have been invoked under section 11A(4) of the Central Excise Act.
40. In this view of the matter, as the show cause notice is based on the figures obtained from the balance sheet, the extended period of limitation could not have been invoked.
41. It will, therefore, not be necessary to examine the contentions raised by the learned counsel of the appellant on merits.
42. The impugned order dated 11.02.2022 passed by the Principal Commissioner confirming the demand of CENVAT credit and ordering it to be recovered from the appellant by invoking the extended period of limitation with interest and penalties, therefore, deserves to be set aside and is set aside. The appeal is, accordingly, allowed.
(Order pronounced on 21.04.2026)
Notes:
1 the appellant
2 the 2004 Credit Rules
3 the Central Excise Act
4 Excise Appeal No. 51148 of 2020 decided on 01.04.2025
5 2018 (361) E.L.T. 90 (P&H)
6 2016 (340) E.L.T. 67 (P & H)
7 2018 (362) E.L.T. 961 (Chhattisgarh)
8 2021 (375) E.L.T. 545 (Del.)
9 Excise Appeal No. 52612 of 2018 decided on 30.10.2023
10 2020 (38) G.S.T.L. 57 (Tri.-All.)
11 2003 (161) E.L.T. 346 (Tri.-Del.)
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