Cross-Examination and Corroboration in Excise Demands: untested statements and incomplete bank evidence cannot alone sustain clandestine clearance allegations.

Where a central excise demand rests mainly on witness statements, Section 9D requires cross-examination unless the statutory conditions for dispensing with it are satisfied; untested oral evidence cannot safely support a clandestine clearance allegation without independent corroboration. A separate demand based on secret bank deposits and related statements also requires complete and reliable evidence linking the receipts to manufactured clearances, including proper enquiry with all relevant customers and factual findings on disputed entities and goods. The article concludes that incomplete or untested evidence should not be confirmed without fresh adjudication.

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Issues: (i) Whether the demand of duty based only on statements of buyers could be sustained without permitting cross-examination under Section 9D of the Central Excise Act, 1944. (ii) Whether the duty demand based on deposits in the secret bank accounts and related statements could be sustained on the existing evidence.

Issue (i): Whether the demand of duty based only on statements of buyers could be sustained without permitting cross-examination under Section 9D of the Central Excise Act, 1944.

Analysis: The demand of Rs. 23,20,278/- rested essentially on statements of 17 buyers that they had received Batra Henlay brand cables from the trading firm. The statements were relied upon to infer clandestine clearances by the manufacturer. In such a case, where the oral statements formed the main basis of the allegation and were not supported by independent corroboration, cross-examination was necessary. The requirements of Section 9D(1) and 9D(2) were attracted, and if the Department sought to rely on any statement without cross-examination, the statutory conditions had to be examined and specific findings recorded.

Conclusion: The demand could not be sustained on the existing record and the issue was remanded for denovo adjudication after permitting cross-examination or following the statutory procedure if any witness was unavailable.

Issue (ii): Whether the duty demand based on deposits in the secret bank accounts and related statements could be sustained on the existing evidence.

Analysis: The demand of Rs. 66,04,307/- was built on bank deposits, statements of employees and partners, and statements of selected customers. However, the evidence was not complete enough to conclusively show that all deposits represented clearances of goods manufactured by the assessee. The record did not contain a finding that the concern in whose name some receipts stood was a fictitious entity, some invoices related to goods such as aluminium cables for which capability was disputed, and enquiries were not made with all customers whose payments were included in the demand. On these gaps, the existing confirmation of duty could not be sustained without further factual determination.

Conclusion: The demand could not be finally upheld on the present material and the matter was remanded to the Commissioner for fresh adjudication.

Final Conclusion: The impugned order was set aside and both duty demands were returned for fresh consideration in accordance with the Tribunal's directions.

Ratio Decidendi: Where a tax demand is founded mainly on witness statements and the statements are not corroborated by independent evidence, cross-examination is required unless the statutory conditions for dispensing with it are satisfied; a demand based on incomplete or untested evidence cannot be confirmed without fresh adjudication.

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