CESTAT Delhi Sets Aside ₹33.78 Crore Excise Demand On Sun Home Appliances Over Limitation

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a central excise duty demand of Rs. 33.78 crore against Sun Home Appliances Private Limited.

It held that the extended period of limitation was wrongly invoked and that statements recorded during investigation could not be relied upon without following the mandatory procedure under Section 9D of the Central Excise Act, 1944 (which requires that statements be tested through examination of the witness before being relied upon).

The tribunal also held on merits that Sun Home Appliances was entitled to the benefit of the area-based exemption for manufacture and clearance of goods from its Uttarakhand unit.

A coram of Tribunal President Justice Dilip Gupta and Technical Member P.V. Subba Rao allowed all three appeals. It set aside the order of the Additional Director General (Adjudication), New Delhi, in its entirety.

Sun Home Appliances Private Limited manufactures washing machines and LED televisions. It had acquired Om Sai Enterprises, a Haridwar-based unit eligible for area-based excise exemption under the 2003 notification. The acquisition was on a going concern basis in August 2015. The company continued to claim the exemption on goods manufactured and cleared from that unit between August 2015 and June 2017.

The Directorate General of GST Intelligence had alleged that the arrangement was a proxy structure. According to the department, it was devised to extend the benefit of area-based exemption beyond the period available to Noble Industries, a related entity.

A show cause notice dated May 28, 2020 proposed recovery of duty along with interest and penalties. The adjudicating authority confirmed the demand in full. It also imposed penalties of Rs. 2 crore and Rs. 5 crore on Jasraaj Singh Kalra and Sarabjit Singh Kalra, respectively, under Rule 26 of the Central Excise Rules, 2002.

Before the Tribunal, Sun Home Appliances and the other appellants argued that the department had been fully aware of the takeover since 2015. They pointed out that the transaction had been internally examined at the time without any objection.

On this basis, they contended that the show cause notice issued in 2020 was time-barred. They also argued that reliance on statements recorded under Section 14 was impermissible without complying with Section 9D.

The tribunal accepted these contentions. On limitation, it noted that internal departmental communications from 2015 showed that the takeover had been examined. It also recorded that nothing objectionable was found at that stage. The Tribunal observed:

"The department cannot, therefore, urge any suppression on the part of the appellant, much less with an intention to evade payment of duty, since all the material facts were in the knowledge of the department in 2015."

Relying on Supreme Court decisions in Chemphar Drugs & Liniments, Pushpam Pharmaceutical Co. and Continental Foundation Joint Venture Holding, the Tribunal held that suppression must be deliberate.

It also emphasised that it must be with an intent to evade duty. It held that where facts are known to both parties, extended limitation cannot be invoked.

On admissibility of statements, the tribunal reiterated that Section 9D is mandatory. It noted that the maker of a statement must first be examined as a witness before the adjudicating authority, which must then decide whether the statement can be relied upon. Since this procedure was not followed, the statements relied upon by the department could not be considered. The Tribunal observed:

"It is, therefore, not possible to accept the contention of the learned special counsel for the department that it was not necessary in law for the adjudicating authority to examine the persons whose statements were recorded under section 14 of the Central Excise Act. Section 9D of the Central Excise Act deals with all persons whose statements have been recorded under section 14 of the Central Excise Act and, therefore, it is also not possible to accept the contention of the learned special counsel appearing for the department that the appellant was not required to be examined by the Additional Director General under section 9D of the Central Excise Act."

The tribunal also examined the case on merits. It held that manufacture of new products was permissible under the 2003 notification. It further held that shifting of factory premises within the notified area was allowed.

It also held that transfer of ownership of the unit did not affect eligibility. The tribunal found that the contrary findings in the impugned order were unsustainable.

In view of these findings, the tribunal set aside the entire demand along with interest and penalties. All three appeals were allowed.