CESTAT Sets Aside CENVAT Credit Demands as Cross-Examination Was Denied

Vimal Alloys Pvt. Ltd. Vs Commissioner of Central Excise and Service Tax (CESTAT Chandigarh)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh disposed of nine appeals arising from a common investigation by the Directorate General of GST Intelligence (DGGI) alleging fraudulent availment of CENVAT credit through forged invoices without actual receipt of goods. The investigation concerned four Delhi-based units alleged to be non-functional entities without manufacturing facilities, purchases, or electricity consumption. Searches were conducted at various premises, incriminating documents were seized, and statements of several persons connected with the transactions were recorded. Based on these statements and documents, the Department concluded that fake invoices had been issued for passing inadmissible CENVAT credit to furnace units in Punjab. The adjudicating authorities confirmed duty demands and penalties against the appellants.

The appellants challenged the orders mainly on the ground that statements of various persons were heavily relied upon, but despite repeated requests, no opportunity was granted to cross-examine those witnesses. The appellants argued that denial of cross-examination violated Section 9D of the Central Excise Act and principles of natural justice. They submitted that the authorities wrongly relied upon the Supreme Court decision in Kanungo & Co. v. Collector of Customs, even though that judgment was delivered before insertion of Section 9D into the Central Excise Act. The appellants relied upon several decisions, including Jindal Drugs Pvt. Ltd. v. UOI, where the Punjab and Haryana High Court held that cross-examination of material witnesses whose statements are relied upon is mandatory.

The Tribunal examined Section 9D of the Central Excise Act, which prescribes conditions under which statements recorded before Central Excise officers may be admitted in evidence. Referring extensively to the Punjab and Haryana High Court judgment in Jindal Drugs Pvt. Ltd., the Tribunal observed that the procedure under Section 9D is mandatory. It noted that unless circumstances under Section 9D(1)(a) exist, the adjudicating authority must first examine the witness before the authority, form an opinion regarding admissibility of the statement in the interests of justice, and thereafter provide opportunity for cross-examination.

The Tribunal also relied upon the Supreme Court judgment in Andaman Timber Industries, where denial of cross-examination of witnesses whose statements formed the basis of the demand was held to be a serious flaw amounting to violation of principles of natural justice. It observed that the adjudicating authority could not presume that cross-examination would serve no useful purpose.

The Department argued that the right to cross-examination was not absolute and that documentary evidence independently established the fake invoice transactions. However, the Tribunal held that the facts of the present case squarely attracted the ratio laid down in Jindal Drugs Pvt. Ltd. since specific requests for cross-examination had been made before both authorities and were rejected without sufficient reasons.

The Tribunal concluded that denial of cross-examination of material witnesses rendered the impugned orders unsustainable in law. Accordingly, all impugned orders were set aside and the matters were remanded back to the adjudicating authority for fresh adjudication after complying with Section 9D and granting opportunity to cross-examine material witnesses. The adjudicating authority was directed to complete the process and pass reasoned orders within three months from receipt of the certified copy of the Tribunal’s order.

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

These 09 appeals are directed against the different impugned orders passed by the Commissioner (Appeals) whereby the Commissioner (Appeals) has rejected the appeals of the appellants and confirmed the Order-in-Original. All these are arising out of the same investigation and allegations against the appellants are also identical that they have been taking CENVAT credit against the forged invoices without getting the material. Since the relief in all the appeals sought by all the appellants is identical therefore it would be appropriate to take up all the appeals together for the purpose of discussion and disposal. The details of all the appeals are given herein below:

2. Briefly, the facts of the present case are that acting on the information that few manufacturing units located in Delhi were engaged in fraudulently passing of CENVAT credit of duty to various furnace units of Punjab, investigation was initiated by Directorate General of GST Intelligence (DGGI). DGGI conducted investigation in respect of four manufacturing units viz. Citizen Steel Forge, Bhartam Industries, Glico Industries and Universal Industries all located in Delhi. Simultaneous search was conducted at the residential premises of Sh. Rohit Garg at Mandi Gobindgarh, Sh. Amit Goyal at Mandi Gobindgarh and Sh. Robin Jain at Malerkotla on 08.02.2018.

2.1. During the search, various incriminating documents were resumed and statements of Sh. Rohit Garg and Sh. Amit Goyal was recorded. In follow up action, statement of Sh. Ramanpreet Singh Waraich, Proprietor of M/s Universal Industries and Sh. Rishi Pal, land owner of the property shown as M/s Universal Industries was also recorded and further statement of various other persons such as Sh. Ravinder Bajaj, accountant of Kansal Sons Steels Ltd., Mandi Gobindgarh, Sh. Vipin Kumar Kansal, Smt. Pooja Kansal was also recorded.

2.2. Thereafter, on the basis of various statements and the document, DGGI has formed an opinion that above mentioned four units was not having any manufacturing facility, had no purchases, had no electricity consumption and therefore, did not actually manufactured and sold the goods to various dealers. Thereafter, show cause notices were issued to various appellants and after following the due process, both the authorities below have confirmed the demand as stated in the table above. Aggrieved by the said order, the appellants have filed these appeals.

3. Heard both sides and perused the material on record.

4. Learned Counsel for the appellant submits that the impugned orders are not sustainable in law as the same has been passed without properly appreciating the facts, the law and the binding judicial precedents. He further submits that during the course of investigation, statements of various persons from whom the appellants have made purchases have been recorded but cross-examination of those witnesses, whose statements have been relied upon to build the cases against the appellants have not been granted despite of the request made by the appellants in their reply to the show cause notice as well as during the hearing before authorities. He further submits that considering the contradictory and disputed circumstances of the case, it is a fit case for allowing cross-examination. He further submits that cross-examination was rejected by both the authorities on the basis of the judgment of Hon’ble Supreme Court in the case of Kanungo & Co. Vs Collector of Customs, Calcutta and others – 1983 (13) ELT 1483 (SC). He further submits that the said decision is not applicable in the facts and circumstances of the case because the judgment in the said case was delivered prior to the introduction of Section 9D of the Central Excise Act. He further submits that this Tribunal has consistently been holding on the basis of the judgment of Hon’ble jurisdictional High court, in the case of Jindal Drugs Pvt. Ltd. Vs UOI – 2016 (340) ELT 67 (P&H) and has remanded the case back to the Adjudicating Authority for the purpose of granting cross-examination of the material witnesses. In support of his submission, learned counsel relied upon the following decisions:

• M/s Mittal Ceramics –Final Order No. 60593/2024 dated 07.11.2024
• Madhav Alloys Pvt. Ltd. Vs Commissioner of CGST, Ludhiana (Final Order No. 60627-60632/2024 dated 28.11.2024),
• Regal Alloys Pvt. Ltd. Vs. Commissioner of CGST and Central Excise, Ludhiana (Final Order No. 60145-146/2025 dated 20.02.2025)
• Bhawani Castings Pvt. Ltd. Vs. Commissioner of CGST and Central Excise, Ludhiana (Final Order No. 60479­480/2025 dated 11.04.2025)

5. Learned counsel further submits that the Honb’le Apex Court in the case of Kranti Associates Pvt. Ltd. and Ors. Vs. Masood Ahmed Khan & Ors., MANU/SC/0682/2010 has held that quasi-judicial authority must record reasons for its conclusion and violation of the same is epitome of arbitrary exercise of judicial and quasi- judicial power. He further submits that the respondent has raised and confirmed the demand on presumption and surmises and same are not supported with cogent evidence of manufacture and clandestine removal of goods. He further submits that the respondent has not given any finding with evidence to the fact that if the appellant has not received such goods, then from where the appellant had procured the inputs to manufacture final product on which they have paid the duty. Learned counsel further submits that the extended period of limitation can be invoked to issue the show cause notice or order only in cases where fraud, collusion, wilful misstatement, suppression of facts or contravention of provisions with the intent to evade payment of tax is established.

6. Learned counsel further submits that proving fraud or wilful misstatement requires a positive act done with mala fide intent by the Appellant, as clarified by the Supreme Court in Uniworth Textiles Ltd. v. CCE reported in 2013(288) ELT 161 (SC). He further submits that the Hon’ble jurisdictional High Court of Punjab & Haryana in the case of Jindal Drugs Pvt. Ltd. (supra) has categorically held in Para 19 that it is mandatory to allow the cross-examination of material witnesses whose statement is relied upon against the assessee. He further submits that this Tribunal by following the ratio of the decision of the Hon’ble jurisdictional High Court in the case Jindal Drugs Pvt. Ltd. (supra) has held in the case of M/s Lauls Ltd. Vs CCE (Final Order No.,60192-60194/2023 dated 19.07.2023) as under:

8. We find that the appellants have made a request to the Adjudicating Authority to give an opportunity to cross-examine particularly, Shri Ram Bilas Bansal, Shri Abhay Gupta and Shri D.K. Gupta, the witnesses. However, the Adjudicating Authority has not accepted the request. Adjudicating Authority finds that: M/s Lauls Ltd, Faridabad (Noticee No. 1) in their reply dated 30.9.2009 had asked for cross-examination of the witnesses whose statements had been relied upon in the show cause notice, but thereafter they did not stress for cross-examination of said witnesses. Even during the personal hearing held on 23.11.2009 before the then Commissioner of Central Excise, Delhi-IV, Faridabad, no such request for cross-examination of witnesses was stressed either by the Advocate or S/Shri Sudhir Gupta and Abhay Gupta, Directors of Noticee No. 1, who had appeared for personal hearing for and on behalf of M/s Lauls Ltd and Noticee No. 2-Shri Abhay Gupta. However, the Noticee No. 1 again made the request for cross-examination of witnesses during the course of personal hearing held on 25.5.2011, which was the IVth date of hearing and the Noticee No. 1 had already been specifically informed vide office letter C. No. V(72)15/Commr/CE/2008/4027-28 dated 16.5.2011 that 25.5.2011 was the last and final date of hearing and accordingly the Counsel of Noticee No.1 as well as S/Shri Abhay Gupta and Sudhir Gupta, Directors of Noticee No.1 who had appeared for personal hearing on 25.5.2011 were informed that their request for cross-examination of witnesses at this stage cannot be allowed. I find that cross-examination of witnesses in this case and that too at this late stage, is not warranted. He relies on the Judgment of the Hon’ble Supreme Court of India in the case of Kanungo & Co. Versus Collector of Customs, Calcutta and Others-1983(13)ELT1486 (SC).

9. We find that the Adjudicating Authority has rejected the request of cross-examination for the reason that though they had requested for cross-examination vide their Letter dated 30.09.2009, they did not stress for cross-examination. We find that this argument is not acceptable as it was incumbent upon the Adjudicating Authority to follow the provisions of Section 9D of Central Excise Act, 1944. We find that the provisions of Section 9D of Central Excise Act, 1944 are as follows:

“Section 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

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.”

10. We find that Hon’ble Punjab & Haryana High Court observed in the case of Jindal Drugs Pvt. Limited (supra) held that:

“15.Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is self-evident inference that the decision flowing from the exercise of such discretion, i.e., the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of sub-section (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioners have also invited attention to an unreported short order of the Supreme Court in UOI and Another v. GTC India and Others in SLP (C) No. 2183/1994, dated 3-1­1995 wherein it was held that the order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.

16. 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.

17. 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.

18. 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 adjudicating authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.

19. 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.

20. 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 re-examination.

21. 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.

We find that the Hon’ble High Court has followed the above in the case of G.Tech Industries (supra) also.

11. We find that Hon’ble Supreme Court in the case of Andaman Timber Industries- 2015 (324) ELT 641 (SC) observes that:

” 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17-3­2005 [2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

12. With due difference to the Hon’ble Supreme Court and Hon’ble High Court of (Punjab & Haryana), we find that not allowing the cross-examination of key witnesses vitiates the proceedings even under the quasi-judicial proceedings. Therefore, as requested by the learned Counsel for the appellants, we are inclined to accept the contention and the request of learned Counsel for the appellants that the interest of justice would be properly served if the case goes back to the Adjudicating Authority to adjudicate the case afresh after giving the opportunity to the appellants to cross-examine the key witnesses whose statements have been relied upon by the impugned order.

6. Learned Counsel has also produced on record the judgment in the case of M/s Mittal Ceramics Vs Commissioner of CGST, Ludhiana (Final Order No.60592-60593/2024 dated 07.11.202) and Madhav Alloys Pvt. Ltd. Vs Commissioner of CGST, Ludhiana (Final Order No.60627-60632/2024 dated 28.11.2024) decided by this Tribunal wherein by following the ratio of the law laid down by the Hon’ble Punjab & Haryana High Court, in the case of Jindal Drugs Pvt. Ltd. and other decisions, set aside the impugned order and remanded the matter back to the Adjudicating Authority.

7. On the other hand, learned AR for the Department reiterates the findings of the impugned order and submits that in this case besides the documentary evidences, statements of various persons have also been recorded which clearly established that the appellants have been taking the CENVAT credit on the basis of fake invoices. He further submits that right to cross-examine is not an absolute right and it has to be seen from facts and circumstances of each case as held by various benches of the Tribunal in a catena of judgments. In support of his submission, he relied upon the following decisions:

• Century NF Castings Vs UOI – 2011 (269) ELT 221 (P&H)
• Shri Himanshu Gupta Vs CCE, New Delhi- 2026 (1) TMI 1579- Delhi High Court
• Annai Poly Packs Vs DD, DGCEI, Madurai – (2024) 25 Centax 28 (Mad.)
• M/s Shiva Castings Pvt. Ltd. Vs CCE, Ludhiana – Final Order No.60484-60488/2025 dated 16.04.2025 (CESTAT-Chandigarh)
• M/s Unipearl Alloys Vs CCE, Ludhiana – Final Order No.60452/2024 dated 30.07.2024 (CESTAT – Chandigarh)

8. Learned AR further submits that the issue of fake invoices can be proved on the basis of documentary evidences on record, which are self-speaking and cross-examination, if allowed, will not serve any useful purpose.

9. I have considered the submissions of both the parties and perused the material on record as well as the judgments relied upon by both the parties cited supra. Further, I find that the identical issue has been decided by the Hon’ble Punjab & Haryana High Court in the case of Jindal Drugs Pvt. Ltd. (supra) as well as in other cases cited supra wherein it has been consistently held that the assessee has right of cross-examination of material witnesses whose statements were relied upon by the Revenue to make out a case against the assessee. The ratio of the said decisions relied upon by the appellant are squarely applicable in the facts and circumstances of the present case and in this case, a specific request was made for grant of cross-examination of material witnesses before both the authorities but the same was denied without giving any sufficient grounds.

10. Further, I find that the decision relied upon by the learned AR for the Revenue is not applicable in the facts and circumstances of the case because in all the decisions cited by learned AR, it has been consistently held by the Courts that for grant of cross-examination to an assessee, facts of each and every case has to be seen. Further, I find that the decision of the Tribunal as well as the Hon’ble jurisdictional High Court in the case of Jindal Drugs Pvt. Ltd. (supra) is squarely applicable in the present case and by following the ratio of the said decisions, I am of the considered view that the impugned orders are not sustainable in law and hence, I set aside the same and remand the cases back to the adjudicating authority for a fresh decision after affording the opportunity of cross-examination of material witnesses and by following the procedure as prescribed under Section 9D of the Central Excise Act.

11. In view of the above, all the appeals are allowed by way of remand to the original authority who will comply with the requirement of Section 9D and will afford an opportunity of cross-examination and thereafter will pass a reasoned order in accordance with law. The adjudicating authority is directed to do the same within a period of 03 months after the receipt of the certified copy of this order. All the appeals are, accordingly, disposed of by way of remand.

(Order pronounced in the open court on 29/04/2026)