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.
