Part IV. Mandatory Compliance of Examination in Chief by adjudicating authorities and Relevancy/admissibility of statements before Custom and indirect tax administration Officers

Part IV Mandatory Compliance of Examination in Chief by adjudicating authorities and Relevancy/admissibility of statements before Custom and indirect tax administration Officers

In Drolia Electrosteel decided on 30.10.2023, a Division Bench of the Tribunal examined the provisions of section 9D of the Central Excise Act and after placing reliance upon the decision of the Punjab and Haryana High Court in Jindal Drugs, observed that if the mandatory provisions of section 9D(1)(b) of the Central Excise Act are not followed, the statements cannot be used as evidence in proceedings under Central Excise Act. The relevant portions of the decision of the Tribunal are reproduced below: 

“14. Evidently, the statements will be relevant under certain circumstances and these are given in clauses (a) and (b) of subsection (1). There is no assertion by either side that the circumstances indicated in (a) existed in the case. It leaves us with (b) which requires the court or the adjudicating authority to first examine the person who made the statement and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence. Of course, the party adversely affected by the statement will have to be given an opportunity to cross examine the person who made the statement but that comes only after the statement is, in the first place, after examination by the adjudicating authority, admitted in evidence. This has not been done in respect of any of the 35 statements. Therefore, all the statements are not relevant to the proceedings.

15. It has been held in a catena of judgments including M/s Jindal Drugs Pvt. Ltd. And Another Versus Union of India And Another - 2016 (6) TMI 956 - PUNJAB & HARYANA HIGH COURT that section 9D is a mandatory provision and if the procedure prescribed therein is not followed, statements cannot be used as evidence in the proceedings under Central Excise Act. *****

16. Therefore, the 35 statements relied upon in the SCN are not relevant and hence also not admissible.”

It must be noted that Hon’ble President CESTAT in the case of M/s Surya Wires Pvt. Ltd. and Shri Harsh Agrawal Versus Principal Commissoner, CGST, Raipur - 2025 (4) TMI 441 - CESTAT NEW DELHI has held that

“It, therefore, transpires from the aforesaid decisions that both section 9D(1)(b) of the Central Excise Act and section 138B(1)(b) of the Customs Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 14 of the Central Excise Act or under section 108 of the Customs Act during the course of an inquiry under the Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportunity has to be provided for cross-examination of such persons. The provisions of section 9D of the Central Excise Act and section 138B(1)(b) of the Customs Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 14 of the Central Excise Act or under section 108 of the Customs Act.”

It must be noted that said relying on said decision, Hon’ble CESTAT has passed more than 20 judgments in quick succession, namely,M/s Esson Furnishing Pvt Ltd. Versus Principal Commissioner, Customs ICD, Tughlakabad - 2025 (8) TMI 510 - CESTAT NEW DELHI; M/s. Bestech Hospitalities Pvt. Ltd. Versus Commissioner of Customs (Preventive), New Delhi - 2025 (8) TMI 509 - CESTAT NEW DELHI; Mahendrakumar Amritlal Jain Versus Principal Commissioner of Customs, (Import) - 2025 (8) TMI 418 - CESTAT NEW DELHI; M/s Ad Adhesive Industries Versus Commissioner of Customs, Delhi-IV - 2025 (7) TMI 1554 - CESTAT CHANDIGARH;M/s Varun Enterprises Versus Commissioner of Customs, Ludhiana - 2025 (7) TMI 1270 - CESTAT CHANDIGARH; M/s Greenwoods Exports Global Pvt. Ltd. Versus Commissioner of Customs, NEW DELHI - 2025 (7) TMI 492 - CESTAT NEW DELHI; Commissioner of Central Excise & CGST Jodhpur Versus M/s Paradise Steels Pvt. Ltd. - 2025 (6) TMI 1961 - CESTAT NEW DELHI; Sh. Deept Swarup Aggarwal Versus Commissioner of Customs, ICD, Tughlakabad New Delhi - 2025 (6) TMI 613 - CESTAT NEW DELHI; Arjun Amla Versus Commissioner of Customs, ICD, Tughlakabad New Delhi - 2025 (6) TMI 553 - CESTAT NEW DELHI; Sh. Ratinder Pal Singh Bhatia Versus Commissioner of Customs, ICD, Tughlakabad New Delhi - 2025 (6) TMI 550 - CESTAT NEW DELHI; M/s. GND Cargo Movers Versus Commissioner of Customs, (Import) New Customs House, Near IGI Airport, New Delhi - 2025 (6) TMI 375 - CESTAT NEW DELHI; Nitin Gupta Versus Commissioner of Customs, New Customs House New Delhi - 2025 (6) TMI 370 - CESTAT NEW DELHI; Shanti Swaroop Sharma Versus The Principal Commissioner of Customs, ICD, Tughlakabad - 2025 (6) TMI 274 - CESTAT NEW DELHI; Orion International and Ashutosh Goenka Versus Commissioner of Customs Preventive- New Delhi - 2025 (5) TMI 1931 - CESTAT NEW DELHI.

IV.        CONCLUSION

As elucidated supra, the adjudication proceedings contemplated under the act when read with Section 138B/9D necessarily mandates the Section 108/ 14 statement to be admitted in evidence either under Section 138B/9D (1) (a) or under Section 138B/9D (1)(b), by establishing the evidentiary prerequisites elaborated supra and at the bare minimum by examining the witnesses, other than in the scenarios elaborated under Section 138B/9D (1) (a), by an examination in chief by the adjudicating authority as it is only after such examination in chief, that the adjudicating authority can arrive at a decision whether or not to declare the witness appearing before it as a hostile witness or not and then to decide in the facts and circumstances whether to rely on the earlier statement or not, as more elaborately elucidated supra. It is also the mandate of law to answer the test of fairness and reasonableness and to avoid any semblance of arbitrariness, that while invoking Section 138B/9D of the Act, the concerned adjudicating authority is to form an opinion on the basis of material on record that a particular ground, as stipulated in the said Section, exists and is established; such an opinion has to be supported with reasons; and before arriving at this opinion, the authority would give opportunity to the affected party to make submissions on the available material on the basis of which the authority intends to arrive at the said opinion.

Courts have held in innumerous cases that the adjudicating authorities are repeatedly violating statutory provisions enshrined in Section 9D (2)/Section 138B by not giving an opportunity to the affected party to make submissions post intimation of his intent to rely on such materials duly stating the reasons why he intends to arrive at the said opinion. Revenue suffers since the adjudicating authorities grossly err in placing reliance on the statements recorded under Section 14/108 without following the mandate of Section 9D/138 of the CEA1944/CA1962. The reliance placed by the adjudicating authority on all these untested statements cannot withstand judicial scrutiny as held by Constitutional Courts.

The Parliament of India representing the largest democratic electorate in the world has incorporated substantive provisions related to Relevancy of statements in relation to the proceedings under the Act. The issue has been settled in catena of decisions by the Constitutional Courts and benches of CESTAT across India. In view of above, it appears that necessary instructions should be issued by CBIC at earliest. Customs Act provides for recovery of duties, confiscation and penalties based on adjudication proceedings. It must be noted that most of Investigation reports/SCN carry Annexures containing list of Statements as RUDs. It is irony that hardly these statements are examined by adjudicating authority as per statute. Without examination of these statements, reliance on such statement is anathema to explicit statutory provisions. It must be noted that anything and everything recorded in a statement doesn’t becomes a gospel truth and unimpeachable fact. It may not stand judicial scrutiny when confronted with the legal concepts/definitions of terms like facts, relevant fact, evidence, admissible evidences, proof, manner of proof etc. What is the use of separate set of designated senior officers manning appeal Commissionerate etc when statements are not even examined as mandated by statute? On one hand revenue officers expect a person to file retraction immediately to demonstrate threat, coercion, duress etc while on other hand even copy of statement is not shared with concerned person for filing retraction nor such statements are subjected to examination as stipulated in tax statute. In absence of mandatory compliance of substantive provision in statute on aspects of relevancy of statements; law declared by Constitutional Courts and recent decisions of Tribunals, the very survival of various Notices banking on such confessions before Custom Officers will remain in question. Such Orders relying on statements without any examination in chief may not stand judicial scrutiny. Tax statute has to be clear, explicit and unambiguous. Cost of unwarranted litigation and the financial burden should be avoided. Good Tax administration ecosystem should ensure that statutory provisions are complied not only by taxpayers but by adjudicating authorities also. It is the mandate of tax law to answer the test of fairness and reasonableness and to avoid any semblance of arbitrariness.