2022 (3) TMI 694 - HC - Central Excise

Court upholds admission under Central Excise Act, penalties impact liability.

The court dismissed the appeal, ruling that the statement recorded under Section 14 of the Central Excise Act, 1944, is admissible without re-examination ... Relevancy of statements under Section 9D of the Central Excise Act - Admissibility of statements recorded under Section 14 of the Central Excise Act - Right to cross examination in quasi judicial adjudication proceedings - Effect of suo moto deposit on admission of liability - Use of private diary entries and need for independent corroboration in clandestine removal cases - Personal penalty on company director and its evidential/estoppel impact on the company - Requirement of scrutiny under Section 24 of the Evidence Act for inculpatory statementsAdmissibility of statements recorded under Section 14 of the Central Excise Act - Relevancy of statements under Section 9D of the Central Excise Act - Requirement of scrutiny under Section 24 of the Evidence Act for inculpatory statements - The statement of the Managing Director recorded under Section 14 could be relied upon by the adjudicating authority without separate examination in chief under Section 9D(1)(b), subject to scrutiny for voluntariness under Section 24 of the Evidence Act. - HELD THAT: - The Court held that statements recorded under Section 14 are, as a general rule, admissible and may be acted upon in adjudicatory proceedings; their evidentiary use requires the adjudicating authority to be satisfied that the inculpatory portions are voluntary and not vitiated by threats, inducement or coercion (Section 24, Evidence Act). Section 9D preserves relevance in specified circumstances (dead, cannot be found, incapable, kept away or unreasonable delay/expense); Section 9D(2) applies 'so far as may be' to proceedings other than courts. The authority need not routinely re summon the maker of a Section 14 statement for examination in chief under Section 9D(1)(b) before relying on it; however, if the noticee seeks to test the statement, cross examination must be afforded unless one of the narrow exceptions in Section 9D(1)(a) applies. The safeguards of Section 9D and Section 24 are complementary: the adjudicating authority must apply its mind to voluntariness and, on request, permit cross examination unless the statutory exceptions obtain.Statement under Section 14 was admissible as relied upon evidence without formal re examination under Section 9D(1)(b), subject to voluntariness scrutiny and right of cross examination.Right to cross examination in quasi judicial adjudication proceedings - Relevancy of statements under Section 9D of the Central Excise Act - A noticee has the right to seek cross examination of persons whose statements recorded under Section 14 are relied upon; cross examination may be denied only on the limited grounds enumerated in Section 9D(1)(a). - HELD THAT: - The Court reiterated that when a statement recorded under Section 14 is used against a party in adjudication, the party may request cross examination of the maker; the adjudicating authority must consider such request and allow it unless the maker falls within the exceptional categories in Section 9D(1)(a) (dead, cannot be found, incapable, kept away, or unreasonable delay/expense). Denial of a bona fide request for cross examination where no statutory exception applies vitiates reliance on the statement.Cross examination must be permitted on request unless a Section 9D(1)(a) exception applies.Effect of suo moto deposit on admission of liability - Private diary entries and need for independent corroboration in clandestine removal cases - Suo moto deposit of alleged differential duty, in the factual matrix of this case, amounted to an admission supporting the Department's conclusion of clandestine clearances where the deposit was not made under protest and the assessee consistently treated a large part of liability as admitted during proceedings. - HELD THAT: - The Court examined the timing and manner of the deposit and the conduct of the appellant in proceedings: the deposit by cheque was intimated to the department, was not accompanied by a protest under the statutory rule for payment under protest, and the appellant accepted and sought only a modest refund of an excess amount. Seen together with the entries in the seized private diary and contemporaneous statements, the suo motu deposit was held to be evidence of acceptance of liability in respect of the majority of the transactions; however, the Court noted that such deposits do not dispense with the need for adjudication and are relevant in the factual context where the assessee's conduct and admissions are consistent with acceptance of the liability.The suo moto deposit (not made under protest and followed by conduct treating most liability as admitted) was properly treated as evidential of acceptance of clandestine clearances in this case.Private diary entries and need for independent corroboration in clandestine removal cases - Standard of proof for clandestine removal and corroboration - Entries in the Managing Director's private diary, when accepted as his handwriting and corroborated by other materials and conduct, may be used as material; but clandestine removal cannot be established solely by private entries absent other corroborative evidence unless the surrounding material and admissions render the entries reliable. - HELD THAT: - The Court recognised that entries in private books are relevant but, under Section 34 Evidence Act principles, cannot alone suffice to charge a person without independent corroboration. The Court assessed the totality of evidence - diary entries, statements of company officers, the MD's own statement and the manner of payment - and concluded that in the present factual matrix there was sufficient material to support the demand; nevertheless, the general principle remains that private entries require corroboration and cannot by themselves sustain a finding of clandestine removal.Private diary entries are admissible evidence but ordinarily require independent corroboration; in the facts of this case the diary together with other materials supported the demand.Personal penalty on company director and its evidential/estoppel impact on the company - Vicarious and alter ego principles in corporate liability - Finality of a penalty order against the Managing Director attained in separate proceedings is relevant and may be used against the company where the foundational facts are common and the director's conduct is attributable to the company; the company cannot automatically avoid the consequences by pointing to separate legal personality where evidence shows the director acted for and on behalf of the company. - HELD THAT: - The Court held that where the same foundational facts underlie penalty orders against both a company and its director, and where the director has been found responsible for the acts (and that finding has attained finality), that finality is material in proceedings against the company. The company, being represented and controlled by the director whose penalty has become final, cannot disown those findings where the managerial acts were the very basis of the company's liability.Penalty finality against the Managing Director on the same foundational facts was admissible and relevant against the company; it did not bar proceedings but was material evidence.Final Conclusion: The appeal is dismissed. The adjudicatory orders up to the Tribunal are maintained: statements recorded under Section 14 were admissible subject to voluntariness scrutiny and the right to cross examine, the suo moto deposit and the entries in the Managing Director's private diary (viewed with other material and admissions) supported the duty demand, and the penalty findings against the Managing Director were relevant to the company on the common foundational facts. Issues Involved:1. Relevance of the statement recorded under Section 14 of the Central Excise Act, 1944 without complying with Section 9D.2. Whether the duty demand was contested by the appellant before the authorities.3. Whether the suo-moto deposit of differential duty liability can be said to be an admission of clandestine removal of goods.4. Effect of the finality of the penalty imposed on the Managing Director on the appellant.5. Basis of the impugned order: whether solely on the statement of the Managing Director or further material.6. Basis of passing the impugned order: whether on the entries made in the private diary of the Managing Director.Analysis:Issue 1: Relevance of the Statement under Section 14 without Complying with Section 9DThe court held that the statement recorded under Section 14 of the Central Excise Act, 1944 is per se admissible in evidence and does not require the formal proof of examination-in-chief before the adjudicating authority. The statement is subject to scrutiny by the adjudicating authority in the light of Section 24 of the Indian Evidence Act, which deals with the voluntariness of the statement. The court emphasized that the person making the statement under Section 14 is already under a statutory obligation to state the truth and is liable to penal consequences for making false statements. Therefore, the statement recorded under Section 14 can be relied upon by the adjudicating authority without the need for re-examination under Section 9D(1)(b). The court distinguished between statements recorded under Section 14 and other statements, such as those recorded under Section 21, which would require compliance with Section 9D(1)(b).Issue 2: Contesting the Duty DemandThe court found that the appellant did not contest the duty demand related to the clandestine removal of goods before the adjudicating authority. The appellant's defense was primarily focused on the calculation of the duty amount and the treatment of the sale price as cum-duty price. The court noted that the appellant admitted the clandestine removal of goods by stating that the invoices could not be issued due to inadvertence. The appellant's claim for a refund of excess payment further indicated that the duty liability was accepted.Issue 3: Suo-Moto Deposit as Admission of Clandestine RemovalThe court held that the suo-moto deposit of the differential duty before the issuance of the show-cause notice, coupled with the appellant's specific stand and conduct during the adjudication proceedings, amounted to an admission of clandestine removal of goods. The court noted that the appellant did not dispute the clandestine removal of goods but contested the calculation of the duty amount. The court also observed that the payment was not made under protest, and the appellant claimed a refund of only the excess amount, indicating acceptance of the duty liability.Issue 4: Effect of Finality of Penalty on Managing DirectorThe court held that the finality of the penalty imposed on the Managing Director of the appellant company has a significant bearing on the appellant. The court noted that the penalty on the Managing Director was imposed under Rule 209A of the erstwhile Central Excise Rules, 1944, read with Rule 26 of the Central Excise Rules, 2001, for his involvement in the clandestine removal of goods. The court emphasized that the foundational facts for imposing the penalty on the Managing Director and the appellant company were identical. The court concluded that the finality of the penalty on the Managing Director, who was responsible for the sales and purchases of the appellant company, directly impacts the appellant company's liability.Issue 5: Basis of the Impugned OrderThe court found that the impugned order was not based solely on the statement of the Managing Director recorded under Section 14 of the Central Excise Act, 1944. The court noted that there were further materials, including the private diary maintained by the Managing Director and the appellant's admission of clandestine removal of goods. The court observed that the appellant's defense focused on the calculation of the duty amount and the treatment of the sale price as cum-duty price, indicating acceptance of the duty liability.Issue 6: Basis of Passing the Impugned Order on Private Diary EntriesThe court held that the entries made in the private diary of the Managing Director, coupled with other materials on record, formed a valid basis for passing the impugned order against the appellant. The court noted that the private diary was maintained by the Managing Director, who was responsible for the sales and purchases of the appellant company. The court emphasized that the appellant did not dispute the clandestine removal of goods and claimed that the invoices could not be issued due to inadvertence.Conclusion:The court dismissed the appeal, holding that the statement recorded under Section 14 of the Central Excise Act, 1944, is admissible in evidence without the need for re-examination under Section 9D(1)(b). The court found that the appellant did not contest the duty demand related to the clandestine removal of goods and that the suo-moto deposit of the differential duty amounted to an admission of clandestine removal. The court also held that the finality of the penalty imposed on the Managing Director has a significant bearing on the appellant and that the impugned order was based on further materials, including the private diary entries and the appellant's admission of clandestine removal.