Excise Act | Statements Recorded During Probe Not Admissible Without Following Mandatory Procedure: CESTAT Delhi

The Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi, has held that statements recorded during investigation (Section 14) under the Central Excise Act cannot be relied upon unless the mandatory procedure governing their admissibility (Section 9D) is followed, and any penalty based solely on such statements is unsustainable

Section 14 of the Central Excise Act, 1944, empowers authorized Central Excise Officers to summon any person to give evidence or produce documents during inquiries.

Section 9D of the Central Excise Act, 1944, governs the admissibility of witness statements recorded during investigations, mandating that such statements can only be used in evidence if the person who made the statement is cross-examined by the assessee or if they are dead, missing, or unavailable, acting as a crucial safeguard.

The matter arose from a show-cause notice alleging that Raj Kumar Menghani was involved in the operation of an unregistered pan masala manufacturing unit in Bastar and had facilitated the procurement of raw materials and sale of finished goods.

During the investigation, statements were recorded under Section 14 of the Central Excise Act and certain documents, including printouts and WhatsApp messages, were recovered from his residence. Based on these, the Department imposed penalty alleging that he was controlling the business activities of the said unit.

The appellant denied any connection with the unit, stating that he neither owned nor operated it, that the statements were retracted, and that there was no independent evidence linking him to the alleged activities.

The Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that the Department's case was primarily based on statements recorded during investigation, but the procedure mandated under Section 9D, requiring examination of the person as a witness and allowing cross-examination, was not followed.

The Tribunal further noted that the impugned order failed to record any finding that the appellant had knowledge or reason to believe that the excisable goods were liable to confiscation, which is a mandatory requirement for invoking penalty under Rule 26 of the Central Excise Rules, 2002. In the absence of such a crucial finding, the essential ingredient of Rule 26 was not satisfied.

The bench stated that "The impugned order does not record that the appellant knew or had reason to believe that the excisable goods were liable to confiscation, which is a pre-requisite condition for imposing penalty under rule 26 of the 2002 Rules. The order imposing the penalty upon the appellant under rule 26 of the 2002 Rules, therefore, deserves to be set aside for the reason."

The Tribunal emphasized that compliance with Section 9D is a pre-condition for treating such statements as relevant evidence, and failure to do so renders them inadmissible.

The bench opined that "A statement made under section 14 of the Central Excise Act cannot be relied upon if the procedure contemplated under section 9D of the Central Excise Act has not been followed."

It was further noted that apart from these statements, no corroborative evidence was brought on record to establish any nexus between the appellant and the alleged unregistered unit. In absence of admissible evidence and proof of involvement, the Tribunal held that the penalty could not be sustained.

The bench stated that "To arrive at the finding that the appellant was controlling the business activities of the unregistered factory through Nitin Sabhagchandani who was working on the direction of Natwar Lal Sharda and Mukesh Agrawal, reliance has been placed on the statement of Natwar Lal Sharda made under section 14 of the Central Excise Act. This statement cannot be considered as relevant as the procedure contemplated under section 9D of the Central Excise Act was not followed."

Accordingly, the impugned order was set aside and the appeal was allowed.

For Appellant:  Advocate Kamal Jeet Singh

For Respondent: P.R.V Ramanan, special counsel and Rakesh Kumar, authorized representative