Cross examination of witness is mandatory in terms of Section 9D under Excise Act

Meera Pipes Pvt Ltd Vs C.C.E. (CESTAT Ahmedabad)

Conclusion: In present facts of the case, it was observed that cross examination of witness is mandatory in terms of Section 9D of the Central Excise Act, 1944. Also, it was observed that private notebook relied on without recording statements and its authors there was no legally admissible evidence to draw inference of clandestine removal.

Facts: The brief facts of the case are that the appellant M/s. Meera Pipes Pvt. Ltd. is engaged in the manufacture of SS Pipes falling under Chapter 73 of Central Excise Tariff Act, 1985. They are availing the benefit to SSI Exemption from duty and also from obtaining Central Excise Registration as they claimed that the clearance value not exceed the threshold limit under the exemption notification. On 27.11.2013, the officers of the DGCEI visited and searched the factory of the appellant and also made coordinated search at various premises. The officers have drawn the panchnama on 27.11.2013 at factory premises of the appellant regarding search carried out by them. The officers have also seized stock of finished goods lying in the factory under the belief that the clearance value during 2012-13 & 2013-14 has exceeded the limit of SSI Exemption notification and hence liable to confiscation. Thereafter, two different show cause notices were issued, one for seizure portion and other for demand of duty and proposing penalty on the appellant as well as on others. The Show Cause Notice has relied upon various documents recovered from various places during the investigation.

The Adjudicating Authority i.e. Commissioner passed Order-In-Original confirming the demand with interest and penalty and also imposing redemption fine in lieu of confiscation of the goods.

The matter then reached before the Hon’ble Tribunal, which considered the submission of both sides and have observed that the panchnama drawn in the factory for recovery of the document which included the vital documents i.e. diaries marked as A/2, and A/3, appellant have strongly submitted that it is not shown from where these diaries were recovered and from whose possession. Therefore, to this extent even the recovery of diaries marked A/2 & A/3 was considered to be under suspicion. Further, it was observed that the Director has appeared before the investigation agency and given his statement. There are certain documents recovered from transporter and dealer and their statements were recorded. Since the appellant Director has categorically denied about the diaries A/2 & A/3, the Adjudicating Authority was supposed to cross examine the witness such as transporters and dealers. They being a third party witness and records recovered from a third party evidence however, the Adjudicating Authority has denied the cross examination. Once the Director of the appellant company has clearly disowned the diary and contents therein, it is incumbent of the Adjudicating Authority to cross examine third party witness to bring the truth of the diary on record. However, by not allowing the cross examination, the Adjudicating Authority has violated the basic requirement of cross examination for admitting any evidence such as statement of third part.

After placing its reliance on the Judgment of HI Tech Abrasives Ltd. VS. CCE [(362) E.L.T. 961 (Chhattisgarh)], it was held by the Hon’ble Tribunal that it is the settled law that in terms of section 9D, it is mandatory on the part of the Adjudicating Authority to cross examine the witness or admitting their statements as evidence. It was further observed that in the same judgment it was also held that private notebook relied on without recording statements and its authors there was no legally admissible evidence to draw inference of clandestine removal. In the present case, though the statements of the appellant director was recorded but he has categorically denied the ownership and authorship of the diaries therefore, the diaries cannot be relied upon as admissible evidence.

After relying upon some more Judgments it was observed that, it is settled that statements of dealers and transporters and the documents recovered from them cannot be relied upon as evidence since, no cross examination have been carried out by the adjudicating authority from the dealers and transporters as mandated under Section 9 of the Central Excise Act therefore, without cross examination neither the statements nor the documents recovered from transporter and dealers can be relied upon.

Further, there was no corroboration or investigation in the manufacturing capacity of the plant and electricity consumption to reinforce their case that the appellant has a capacity to manufacture the quantity which was alleged to have been cleared clandestinely. For this reason also, clandestine removal was not established.

On the basis of above observations, the Hon’ble Tribunal allowed the Appeal of the Assessee.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The brief facts of the case are that the appellant M/s. Meera Pipes Pvt. Ltd. is engaged in the manufacture of SS Pipes falling under Chapter 73 of Central Excise Tariff Act, 1985. They are availing the benefit to SSI Exemption from duty and also from obtaining Central Excise Registration as they claimed that the clearance value not exceed the threshold limit under the exemption notification. On 27.11.2013, the officers of the DGCEI visited and searched the factory of the appellant and also made coordinated search at various premises. The officers have drawn the panchnama on 27.11.2013 at factory premises of the appellant regarding search carried out by them. The officers have also seized stock of finished goods lying in the factory under the belief that the clearance value during 2012-13 & 2013-14 has exceeded the limit of SSI Exemption notification and hence liable to confiscation. Thereafter, two different show cause notices were issued, one for seizure portion and other for demand of duty and proposing penalty on the appellant as well as on others. The Show Cause Notice has relied upon various documents recovered from various places during the investigation.

The Adjudicating Authority i.e. Commissioner passed Order-In-Original confirming the demand with interest and penalty and also imposing redemption fine in lieu of confiscation of the goods. The Commissioner has also imposed personal penalty on the directors of the appellant and also on the others. The ground for confirmation of demand is that the appellant have clandestinely removed the goods which resulted into exceeding the threshold limit of SSI Exemption due to which the appellant is not eligible for SSI Exemption. The appellant M/s. Meera Pipes Pvt. Ltd along with others being aggrieved by the Order-In-Original filed the present appeals before this tribunal.

02. Shri Vijay B. Joshi, learned counsel appearing on behalf of the appellant submits that the panchnama dated 27.11.2013 is not genuine. Consequently, the evidences/records shown as drawn from the factory as Annexure ‘A’ to panchnama and also record shows as recovered from weighbridge & transporter are also under serious doubts and not genuine. He submits that there is a computer printout of panchnama dated 27.11.2013, the said panchnama shows as started at 12.45 Hrs. On 27.11.2013 at the outside of the factory of the appellant and after completion of some formalities as per Para 1 of the panchnama regarding search the officers and panchas entered in the factory and also did other formalities as mentioned at Para 2 & 3 and took the round in the factory and enquired about the manufacturing. Thereafter, at 15.45 Hrs entry of two other officers from outside shown in the panchnama and only then search proceeding shown as started and recorded the withdrawal of records. Thereafter, it mentioned about physical workout of stock of finished goods and raw materials lying in the factory and noted as per Annexure B & C to the panchnama, he said no variation was found in the stock. He submits that suddenly the officers explained that as per the records found during the search M/s. Meera Pipes Pvt. Ltd. have manufactured and cleared finished goods more than 900 MT. during April-2013 to 27.11.2013 as against sales of approximate 70MT. shown in the invoice and accordingly finished goods placed under seizure stating that SSI exemption from duty and registration not available to the unit assuming the clearance value exceeded the SSI limit.

2.1 He submits that the entire process of panchnama shown to be completed at 22.10 hrs on same day i.e.27.11.2013. In the above backdrop it is his submission that it is not possible to do entire process, formalities, search, stocktaking, segregation of records, alleged calculation of clearance, etc., shown in the panchnama, even the time shown in the panchnama which seems the search was predetermined. He further submits that no statement of any person of the factory of the appellant was recorded. Shri Ashuram Vishnoi, Director of the appellant company shown to be presented during the search in the panchnama and nowhere it is recorded that he has not cooperated during the search. Even subsequently on 13.12.13 he appeared before officer obeying the summon issued to him for his statement, the statement also shows the same and while recording the statement he denied to admit the Diary No. A/2 & A/3 of panchnama and its contents as it was not owned or written by him. Thus, his denial of said diary cannot be said non-cooperation but the officers alleged the same as he has not admitted. He submits that there is no admission by any person of the appellant company about the details of Diary A/2 & A/3 therefore, the same cannot be admitted acceptable as evidence against the appellant.

2.2. He further submits that similarly the document shown as recovered on 27.09.12 from the transporter Jay Bhavani Freight Carriers, Mumbai & Ahmedabad much prior to investigation started against the appellant without ownership or admission by the appellant company not admissible as evidence against the appellant. All records of transporter referred/relied upon in the notice and by the Commissioner are of the transporter only and not of the appellant and therefore, it is not admissible as evidence without any admission by the appellant. He submits that when the Commissioner alleged the clearance without payment of duty through the said transporter, no penal action proposed in the notice alleged by the Commissioner in the Order under Rule 26 of Central Excise Rules even other dealers found from the said document of transporter are penalized by the Commissioner. The Commissioner has also erred in imposing personal penalty on directors, suppliers and dealers on the above grounds as well, while adjudicating they denied the allegation made against them. He further submits that the entire demand of clandestine removal was made mainly on the basis of diaries i.e. A/2 & A/3 seized under panchnama dated 27.11.2013. He submits that there is no mention in the panchnama that from which place these diaries were recovered and from whose possession. The Director of the appellant company has categorically denied the ownership and also doubted their genuineness therefore, these diaries cannot be relied upon for confirming the demand. He submits that the commissioner made the comparison of purchase records and seized diaries and observed that M/s. Meera Pipes Pvt. Ltd. has never disputed procurement of raw material and sales of finished goods through official invoices which are also shown in diaries accordingly, the commissioner has given his finding that is established that the procurement of raw material and clearance of finished goods shown in two diaries hence, it was held that the diaries belong to M/s. Meera Pipes Pvt. Ltd. He submits that since the director categorically denied the ownership or authorship of these two diaries thereafter, the contents of diaries is immaterial. He submits that there is a serious lacuna and doubt in the entire proceedings of panchnama. Since the panchnama itself is not proper and is fabricated one, all the records seized under panchnama particularly the diaries A/2 & A/3 are also under serious doubt. Accordingly, on this basis case of clandestine removal cannot be established. He also pointed out that while drawing the so called panchnama, no statement or admission of director recorded about these two diaries which were heavily relied upon. Even on 13.12.2013 while recording the director’s first statement, the director categorically denied about ownership and the facts of the diaries except the doubtful recovery of these diaries there is no evidence or statement brought on record regarding the ownership of the diaries by the appellant.

2.3 He submits that as regard the documents of Shri Ram Weigh Bridge which were heavily relied upon to establish the illicit procurement of raw material, he submits that the documents of Shri Ram Weigh Bridge are not admitted anywhere by the appellant. Even the comparative chart prepared by the Investigating Officer regarding entries of two diaries and weigh bridge slips also not admitted or confirmed by the appellant. He submits that the investigation at Shri Ram Weigh Bridge is also under serious doubt as for the reason that though the officers visited on 27.11.13 when no document was found subsequently, again on 29.11.2013 during the visit to Shri Ram Weigh Bridge they gathered/created evidences as per their requirement against the appellant. He further submits that the documents and statements procured from Shri Ram Weigh Bridge are not admissible as evidence against the appellant particularly in absence of cross-examination of the person of Shri Ram Weigh Bridge and in absence of any admission about its contents by the appellant.

2.4 He submits that the Commissioner has also erred in relying the documents and statements of raw material suppliers. The language of statements of most of the suppliers is very similar as can be seen from the statement recorded and also reproduced in the Show Cause Notice of the supplier that they have sold goods to various buyers but seems to be got admitted regarding delivery to M/s. Meera Pipes Pvt. Ltd. He submits that the aforesaid statements have not been admitted by the appellant about the delivery of goods directly to M/s. Meera Pipes Pvt. Ltd. without invoices. He submits that enquiry was made from one supplier M/s. Kansara Popatlal Tribhovandas Metal Pvt. Ltd., the Director of the said supplier stated that they have delivered the goods to the appellant with invoices.

2.5 As regard the statement of one of the buyers namely Adooram Devasi, Proprietor of M/s. Priyanka Metal, it is submitted that he has stated about the purchase of goods through Shri SK Devasi however, no enquiry was made with Mr. SK Devasi. The statement of Adooram Devasi, Proprietor of M/s. Priyanka Metal is not admissible as evidence. He submits that most of the statements of the buyers recorded by showing the copy of two diaries and the statement of transporter and admission taken about its correctness but nowhere any specific admission recorded about purchase from M/s.MEERA PIPES P. LTD. without invoice. He submits that all the statements of suppliers as well as buyers relied upon by the Commissioner against the appellant is not correct and not admissible as the same have been retracted through their reply to the notice and also to their cross examination denied by the Commissioner.

2.6 As regard the document recovered from M/s. JBFC he submits that even from the scanned copy of the documents procured from M/s. JBFC as well as some other transporter reproduced in the impugned Order-In-Original does not contain any name of the appellant or its persons. The commissioner while observing that as per statement of Manager of M/s.JBFC, ‘C-Ahmedabad’ denotes the loading from chhatral where the factory of M/s. Meera Pipes P. Ltd. is located, is also not correct and all the documents as well as statements of M/s. JBFC produced by the Investigation against the appellant are totally baseless and just to prove the production of the appellant. He submits that it is fact that there are so many manufacturers of SS Pipes at Chhatral therefore, ‘C-Ahmedabad’ cannot prove the loading from M/s. Meera Pipes P Ltd. Moreover, the documents procured from M/s.JBFC were much prior to the search made at the place of the premises of the appellant M/s.Meera Pipes P Ltd. as in OIO it is stated that during the search on 27.09.2012 at M/s.JBFC, various documents regarding clearance by M/s. Meera Pipes P Ltd. were also recovered for the period from 22.10.2011 to 20.09.2012. Regarding the clearance of 987.84MT of SS pipes, he submits that nowhere any such documents in the name of M/s. Meera Pipes P Ltd. mentioned or any other supporting evidence of M/s. Meera Pipes P Ltd. found and just on the basis of statement of the persons of M/s. JBFC, the clandestine clearance was confirmed by the Commissioner.

2.7 He also submits that the Commissioner has denied the cross-examination of the persons of M/s.JBFC though the documents and statements are heavily relied upon by the Commissioner therefore, the Commissioner has grossly erred in relying upon the third party evidence by denying their cross-examination and without any admission by the appellant.

2.8 He further submits that normally in the case of clandestine removal, the transporter who indulge in transporting illicit goods are also penalized under Rule 26 of Central Excise Rules, whereas in the present proceeding no Show Cause Notice has been issued to the transporter and particularly to M/s. JBFC for proposing penalty under Rule 26 even though there is alleged clearance of 987.824 MT tons through M/S. JBFC. This act of the Investigating Officer also shows that they have taken the advantage from transporter just to prove their act to book and confirm a case against the appellant. Therefore, the appellant submits that the evidence of M/s.JBFC are not at all admissible particularly, in absence of their cross-examination and their involvement in the present proceeding.

2.9 He submits that the commissioner has also erred in not considering the submission about manufacturing capacity of the factory of the appellant. The appellant submits that being an SSI Unit they have not such a huge manufacturing capacity. Even, no evidence produced by the department for such alleged manufacture by way of evidence of capacity of machine, consumption of electricity, working hours of the factory, etc. there is also no evidence found during the panchnama while taking physical stock of raw material and finished goods regarding illicit quantity of raw material purchased or excess production of goods other than quantity recorded in the private record.

2.10 He submits that whatever documents brought/reproduced at Para 71 of the Order, the said documents have not been referred in the Show Cause Notice. The Commissioner has calculated the huge quantity of 56447.580 Kgs. as illicit clearance of finished goods to Mumbai based buyer during September-2013. In this regard there is no admission by the appellant regarding diaries relied upon as well as any other documents as referred by the Commissioner. There is no single statement recorded from the parties mentioned in the record relied upon by the Commissioner in para 71.

2.11 He submits that in absence of any admission regarding the receipt of material by the so called buyer the said documents are not admissible as evidence against the appellant. He further submits that the Commissioner has wrongly relied upon the statements of various persons of transporters without granting any cross examination of the said persons. Being a third party documents, without cross examination the same cannot be admissible as evidence.

2.12 He submits that the Commissioner has also erred in deciding at para 76 of the order that during the period from 01.04.2013 to 27.11.2013 M/s. Meera Pipes P Ltd. illicitly procured 874268.160Kgs of raw material and illicitly manufactured and clandestinely cleared 940518.224 Kgs of finished goods. It is not possible in the metal industries to produce more quantity of finished goods than the quantity of raw material and on this ground also observation of the Commissioner is totally incorrect and without going through the process of manufacture as there is always a processing loss in the metal industries. He submits that since clandestine removal is not established the confiscation of finished goods placed under seizure at the time of panchnama on 27.11.2013 and imposing redemption fine and penalty on the appellant is totally incorrect and illegal. He submits that since the appellant have not crossed the SSI exemption limit of Rs. 1.5 crore under SSI exemption notification No. 8/2003 the appellant was not required to obtain any Central Excise Registration under Central Excise Rules. Accordingly, the demand, interest, penalty and redemption fine are not sustainable. He prays to set aside the impugned order and allowed the appeal.

In support of his above submission, he placed reliance on the following judgments:-

• HI TECH ABRASIVES LTD. VS. COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, RAIPUR-2018 (362) E.L.T. 961 (CHHATTISGARH)
• COMMISSIONER OF CENTRAL EXCISE DELHI-I VS. GOLDY ENGINEERING WORKS- 2017 (345) E.L.T. 149
• RAMA SPINNERS PVT. LTD. VS. COMMISSIONER OF CUS. AND C.EX.HYDERABAD-I-2017 (348) E.L.T. 321
• NABHA STEELS LTD. VS. COMMR. OF C.EX.CHANDIGARH-2016 (344) E.L.T. 561.
• FACT PAPER MILLS LTD. VS. COMMR. OF C.EX. BHAVNAGAR – 2014 (314) E.L.T. 449.
• OF C.EX. AHMEDABAD – II VS. CHHAJUSINGH S. KANWAL-2011 (272) E.L.T. 202 (GUJ.)
• OF C.EX. RAIPUR VS. DURGA ENGINEERING AND FOUNDARY WORKS -2017 (358) E.L.T. 1165 (TRI.- DEL.)
• OF C.EX. AHMEDABAD –II VS. GUJARAT CYPROMET LTD. – 2017 (345) E.L.T. 520 (GUJ)
• KUBER TOBBACO PRODUCTS LTD. VS. COMMR. OF C.EX. DELHI – 2013 (290) E.L.T. 545.
• SHRI KRISHNA INDUSTRIES VS. C.C.E. & S.T. VADODARA-II 2020 (372) E.L.T. 121 (TRI. AHMD.)
• SYNERGY STEELS LTD. VS. C.C.E. ALWAR-2020 (372) E.L.T. 129 (TRI. DEL)
• SUPER SMELTERS LTD. VS. C.C.E. & S.T. DURGAPUR -2020 (371) E.L.T. 751.

03. Shri. S.N. Gohil, Learned Superintendent (Authorized Representative) appearing on behalf of the revenue reiterates the finding of the impugned order he also filed a written submission dated 15.12.2020 which is taken on record. In his written submission he placed reliance on the following judgments:-

• 2010 (261) ELT (MAD)- A L JALALUDEEN VS. DY. DIR. OF ENFORCEMENT DIRECTORATE, CHENNAI
• 2006 (194) ELT 290 (TRI-DEL) – JAGDISH SHANKER TRIVEDI CC, KANPUR
• 2002 (142) ELT 224 (G.O.I) – G SUBRAMANIAN
• 2014 (307) ELT 862 (BOM) –PATEL ENGINEERING LTD VS. UNION OF INDIA
• 1993 (68) ELT 548 (ALL.) SHYAM LAL BIRI MERCHANT VS. UNION OF INDIA
• 2014 (300) ELT 119 (TRI-MUM) – AHMEDNAGAR ROLLING MILLS P LTD VS. CCE, AURANGABAD
• 2018 (360) ELT 255 (AP)- MANIDHARI STAINLESS WIRE P LTD VS. UNION OF INDIA
• 2019 (365) ELT 42 (GUJ) POOJA TEX PRINTS P LTD VS. CCE, SURAT-I
• 2017 (355) ELT 451 (TRI-DEL) HARYANA STEEL & ALLOYS LTD VS. CCE, NEW DELHI
• 2007 (215) ELT 46 (TRI-AHMD) MOONTEX DYEING & PRINTING WORKS VS. CCE, SURAT
• 2008 (225) ELT 57 (ALL)- GLOBAL SPIN WEAVE LTD VS. CESTAT
• 2006 (193) ELT 478 (TRI-DEL)- GLOBAL SPIN WEAVE LTD VS. CCE, GHAZIABAD
• 1983 (13) ELT 1546 (SC) – CC, MADRAS & OTHERS VS. D. BHOORMULL
• 2017 (358) ELT 2014 (TRI-BANG) – USMAN SULEIMAN DARVESH VS. CCE, CALICUT
• 2020 (372) ELT 321 (CHATTISGARH)- N R SPONGE P LTD VS. CCE, RAIPUR
• 2019 (368) ELT A155 (SC)- ERODE ANNAI SPINNING MILLS P LTD VS. COMMISIONER
• 2019 (366) ELT 647 (MAD)-CCE, SALEM VS. CESTAT, CHENNAI
• 2018 (362) ELT 559 (MAD)-LAWN TEXTILE MILLS P LTD VS. CESTAT CHENNAI
• 2015 (316) ELT 534 (GUJ) –KRISHNA SCREEN ART VS. CCE
• 2015 (316) 417 (GUJ)- TULIP LAMKRAFT PVT LTD VS. CCE
• 2010 (258) ELT 198 (GUJ)- R A SHAIKH PAPER MILLS PVT LTD VS. UNION OF INDIA
• 2010 (256) ELT 20 ( GUJ )- BHAVIN IMPEX PVT LTD VS. UNIO OF INDIA
• 2009 (239) ELT 429 (GUJ)- UMIYA CHEM INTERMEDIATE VS. CCE

04. We have carefully considered the submissions made by both the sides and perused the records. The department’s case is that the appellant have clandestinely removed the goods consequently the value of SSI exemption limit has exceeded and appellant is not entitle for the SSI exemption therefore, there is a demand of duty, penalty, interest and redemption fine. The entire case was made out mainly on the basis of diaries which is marked as A/2 &A/3, said to have been recovered from the appellant’s factory. The entries in the said diaries include the entries of removal in respect of which the invoices were issued. The investigation agency have also recovered certain documents from the transporters, various statements were recorded mainly of Mr. Ashuram, Director of the appellant company and also of transporters and dealers, documents from weighbridge also recovered/withdrawn under panchnama. On the basis of these documents department has come to the conclusion that appellant have cleared the goods clandestinely. We find as regard the panchnama drawn in the factory for recovery of the document which included the vital documents i.e. diaries marked as A/2, and A/3, appellant have strongly submitted that it is not shown from where these diaries were recovered and from whose possession.

Therefore, to this extent even the recovery of diaries marked A/2 & A/3 is under suspicion. As regard this diaries the statements of Shri. Ashuram of the company was recorded, he categorically denied about the diaries author thereof and any contents appearing in the diaries. The adjudicating Authority has recorded this admitted fact that the Director has denied the ownership and authorship of the diary whereby, he has not cooperated with the investigation agency. We do not endorse this contention of the learned Adjudicating Authority for the reason that denial of the diary and the information record therein cannot be said to be a non-cooperation with investigation agency. We find that the Director has appeared before the investigation agency and given his statement. There are certain documents recovered from transporter and dealer and their statements were recorded. Since the appellant Director has categorically denied about the diaries A/2 & A/3, the Adjudicating Authority was supposed to cross examine the witness such as transporters and dealers. They being a third party witness and records recovered from a third party evidence however, the Adjudicating Authority has denied the cross examination. Once the Director of the appellant company has clearly disowned the diary and contents therein, it is incumbent of the Adjudicating Authority to cross examine third party witness to bring the truth of the diary on record. However, by not allowing the cross examination, the Adjudicating Authority has violated the basic requirement of cross examination for admitting any evidence such as statement of third part. It is the settled law that in terms of section 9D, it is mandatory on the part of the Adjudicating Authority to cross examine the witness or admitting their statements as evidence. Some of the judgments and relevant orders are reproduced below:-

• HI TECH ABRASIVES LTD. VS. COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, RAIPUR-2018 (362) E.L.T. 961 (CHHATTISGARH)

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 assesseeare 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 Undoubtedly, the proceedings are quasi criminal in nature because it results in imposition of not only of duty but also of penalty and in many cases, it may also lead to prosecution. 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.

Reliance has been placed by the Counsel for the Revenue on the decision in the matter of Commissioner of Central Excise v. Kalvert Foods India Private Limited (Laws (SC) 2011 838) = 2011 (270)  E.L.T. 643 (S.C.). That decision turned on its own facts. In para 19 of the judgment, it was concluded as below :

“19. We are of the considered opinion that it is established from the record that the aforesaid statements were given by the concerned persons out of their own volition and there is no allegation of threat, force, coercion, duress or pressure being utilized by the officers to extract the statements which corroborated each other. Besides the Managing director of the Company of his own volition deposition the amount of Rs. 11 lakhs towards excise duty and therefore in the facts and circumstances of the present case, the aforesaid statement of the Counsel for the Respondents cannot be accepted. This fact clearly proves the conclusion that the statements of the concerned persons were of their volition and not outcome of any duress.”

Accordingly, on the first and second question of law, we hold that the statement of the Director could not be treated as relevant piece of evidence nor could be relied upon without compliance of Section 9D of the Act. The two questions of law accordingly, stand answered in that manner.

4.1 In the above judgment it was categorically held by the Hon’ble High Court that cross examination of witness is mandatory in terms of Section 9D. In the present case, when the appellant’s director has disowned the diaries Recovered on the basis of which the entire demand was made. It is more important that the adjudicating authority should have examined other witnesses. On the basis of third party statement and documents demand cannot be fastened on the appellant. In the same judgment it was also held that private notebook relied on without recording statements and its authors there was no legally admissible evidence to draw inference of clandestine removal. In the present case, though the statements of the appellant director was recorded but he has categorically denied the ownership and authorship of the diaries therefore, in view of the observations made by the hon’ble High Court, in this case also the diaries cannot be relied upon as admissible evidence.

4.2 In the case of GOLDY ENGINEERING WORKS-2017 (345) E.L.T. 149 (Tri.Del) the fact was that demand was confirmed on the basis of recovery of challan books from the assessee’s premises and notebook from job workers premises, no investigation conducted as to author of notebook, the demand was set aside. In the present case also first of all it was not established that who is the author of the diaries particularly, when the appellant’s director disowned the diaries. Therefore, those diaries cannot be relied upon as evidence to establish the clandestine removal.

4.3 In the case of NABHA STEELS LTD. VS. COMMR. OF C.EX.CHANDIGARH-2016 (344) E.L.T. 561, the demand was confirmed on the basis of kachchi slips found on premises of the assessee however, demand was not sustained by the tribunal on the ground that witnesses were not cross examined during the investigation.

4.4 In the case of FACT PAPER MILLS LTD. VS. COMMR. OF C.EX. BHAVNAGAR – 2014 (314) E.L.T. 449, the charge of clandestine removal was made on the basis of Director’s statements which was subsequently retracted in cross examination of buyers and suppliers of raw material, the tribunal set aside the demand and allowed the appeal. Applying the ratio of the above judgment in the present case also even there is no confessional statement of the director who categorically disowned the diaries which was heavily relied upon by the revenue and also the witness like buyers and transporters were not cross examined. This judgment was affirmed by the hon’ble Gujarat High Court as reported in 2015 (322) ELT 283 (Guj. High Court).

4.5 In the case of CHHAJUSINGH S. KANWAL-2011 (272) E.L.T. 202 (GUJ.), since the demand was raised mainly on the statements of dealers and transporters who were not examined and the demand was set aside. Therefore, it is a trite law that any statement can be admissible evidence only when the person who has given any statement is cross examined by the Adjudicating Authority.

4.6 In the case of GUJARAT CYPROMET LTD. -2017 (345) E.L.T. 520 (GUJ), the hon’ble High Court has held that without giving the cross examination even though statements were not retracted, confirmation of demand and imposition of penalty without the opportunity of cross examination found to be violative of Natural Justice accordingly, the revenue’s appeal was dismissed. In the present case particularly, when the director of the appellant company himself has out rightly denied the authorship, ownership and the contents of the diaries. The dealers and transporters should have been cross examined therefore, without cross examination their statements and records cannot be admitted as admissible evidence.

4.7 In the case of KUBER TOBBACO PRODUCTS LTD. VS. COMMR. OF C.EX. DELHI – 2013 (290) E.L.T. 545 among other evidence there was seizure of certain documents specifically mentioned to have writing on them. In the said case, the department produced loose sheets with various writings about the production and supply of various goods. The view taken was that they have to disclose from where they were produced. It was more so as panchnama did not describe them for ascertaining that documents sought to be relied upon by department were same is recorded by them also, none of the documents were signed by panchas and authorized signatory of assessee. In the present case also the diaries recovered from the appellant’s premises are not known who is the author of the same and the same was not signed. The department have not made any effort to find out the author of the diaries therefore, the same cannot be admitted as evidence for clandestine removal.

4.8 In the case of SYNERGY STEELS LTD. VS. C.C.E. ALWAR-2020 (372) E.L.T. 129 (TRI. DEL), same view was expressed by the hon’ble Tribunal therefore, statements of consignment agent also not reliable evidence in absence of his cross examination in terms of Section 9D of Central Excise Act.

4.9 In the case of SUPER SMELTERS LTD. VS. C.C.E. & S.T. DURGAPUR – 2020 (371) E.L.T. 751, the tribunal observed that statement relied upon by the department without following mandate of Section 9D of Central Excise Act, 1944 charge of clandestine removal cannot be established.

As per the above all judgments, it is settled that statements of dealers and transporters and the documents recovered from them cannot be relied upon as evidence since, no cross examination have been carried out by the adjudicating authority from the dealers and transporters as mandated under Section 9 of the Central Excise Act therefore, without cross examination neither the statements nor the documents recovered from transporter and dealers can be relied upon. The learned counsel also taken us to some sample documents which are heavily relied upon by the adjudicating authority for confirmation of demand. Some of the same documents are scanned below:

4.10 As regard the above diary which was recovered from M/s. JBFC Transport Company, the adjudicating authority only on the basis of name ‘Assu’ which Department refered to Ashuram, Director of M/s. Meera Pipes P Ltd. is mentioned on the documents concluded that these are related to the appellants. This conclusion of the adjudicating authority is on the basis of confirmation made by employees of M/s. JBFC.

As we stated above since the statements on these persons have not been examined their statements cannot be relied upon. Therefore, neither the appellant’s/company’s name nor the full name of the director is appearing, merely because word ‘Assu’ is appearing on the document cannot be concluded that this detail mentioned in the said document is related to the appellant. Sample transport document is scanned below:-

From the above documents also it is clear that the appellant’s name is not appearing anywhere in the said documents. This document was admitted as evidence by the Adjudicating Authority accepting the version given by the M/s. JBFC and on the basis of the same appearing in the diary A/1 & A/2. Since the director Shri Aashuram has categorically denied the diaries and the transporter was not cross examined, the version of the transporter cannot be admitted as evidence. Similarly, We have gone through various documents which were relied upon but in none of the documents the name is appearing therefore, without any detail of appellant correlating the document, only on the basis of the statements of third party who were not examined under Section 9D cannot be accepted as admissible evidence.

4.11 It is settled law that in absence of cross examination of witnesses whose statements were recorded under Section 14 of the Central Excise Act, 1944, unless and until those witnesses are cross examined, the statements given by them are not admissible evidence for deciding a case. Therefore, in the present case firstly all the evidences are third parties’ evidence and no cross examination in terms of Section 9D was allowed of the witnesses therefore, such evidences could not have been used for confirming the demand.

4.12 We also find that the department has not further corroborated or investigated the manufacturing capacity of the plant and electricity consumption to reinforce their case that the appellant has a capacity to manufacture the quantity which was alleged to have been cleared clandestinely. For this reason also, clandestine removal is not established.

4.13 Summarizing the above discussion, we find that the entire demand was made on the basis of documents recovered from appellant’s premises, statement of director of the appellant company, document from weighbridge and documents from transport and dealers and their statements recorded under Section 14 of the Central Excise Act, 1944. As we discussed above, the documents recovered from the appellant’s premises i.e. Diaries in A/2 & A/3 were not accepted by the appellant’s director. The department also could not establish who is the author of that diary and no contents of the documents was revealed either by the Director of the company or any employee. As regard the documents recovered from the dealers/weighbridge, and transporters, firstly, no name of the appellant is appearing in the documents, secondly, the statements given with regard to those documents by dealers/transporters cannot be admitted as evidence for the reason that the person, witnesses who had given the statements were not examined under Section 9D therefore, the charge of clandestine removal in the present case is not established beyond doubt.

4.14 Since the charge of clandestine removal against the main appellant M/s. Meera Pipes P. Ltd. are not established, the consequential penalties imposed against various persons will also not sustain.

05. As per our above discussion and finding. We set aside the impugned order and allow all the appeals with consequential relief, if any, in accordance with law.

(Pronounced in the open court on 11.10.2021)