Revenue's demand set aside as third-party statement lacked cross-examination under Section 9D Central Excise Act

CESTAT Ahmedabad set aside demand based on alleged clandestine manufacture and clearance of finished goods. Revenue's case relied solely on third-party accountant's statement without cross-examination under Section 9D of Central Excise Act, 1944. Tribunal found no evidence of clandestine manufacture, sale proceeds, or transport of goods. Following SC precedent in Andaman Timber Industries, statements without cross-examination lack evidentiary value and violate natural justice principles. Appeal allowed, impugned order set aside.

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Issues Involved:
1. Whether the allegation of clandestine manufacture and clearance of finished goods can be established based on private records of a third party and statements of persons not cross-examined.
2. Whether the principles of natural justice were violated by not allowing cross-examination of witnesses.
3. Whether the demand for Central Excise duty and the imposition of penalties were justified.

Issue-wise Detailed Analysis:

1. Establishing Allegations Based on Private Records and Statements:

The principal issue in this appeal was whether the allegation of clandestine manufacture and clearance of finished goods could be established merely on the basis of private records of a third party (TFCWRL) and statements of individuals who were not cross-examined. The Appellant was accused of receiving 96.45 M.Tons of Billets clandestinely from TFCWRL and manufacturing and clearing 96.45 M.Tons of Structural Items/Rolled Products without payment of duty. The department's case relied heavily on private records maintained by Motilal Junwal, an accountant of TFCWRL, and statements recorded during the investigation.

The Appellant argued that the entire demand was based on private records and statements without any corroborative evidence of transportation, buyers, or payments for the alleged clandestine goods. The Appellant cited several judicial precedents, such as Bajrangbali Ingots & Steel P. Ltd v CCE and Raipur Forging P. Ltd v CCE, to support their contention that clandestine manufacture and removal cannot be established based on third-party documents and unexamined statements.

2. Violation of Principles of Natural Justice:

The Appellant contended that the reliance on statements recorded by the department was not tenable in law because the deponents were not examined as required by Section 9D of the Central Excise Act, 1944. The adjudicating authority's failure to allow cross-examination of witnesses was a significant violation of the principles of natural justice. The Appellant cited various judgments, including Commissioner v Motabhai Iron & Steel Industries and Andaman Timber Industries v. Commissioner of C. Ex. Kolkata-II, to argue that statements cannot be relied upon without cross-examination.

The Tribunal agreed with the Appellant, noting that the adjudicating authority had erred by not conducting cross-examination, thereby violating the principles of natural justice. The Tribunal emphasized that Section 9D mandates the cross-examination of witnesses, and in its absence, the statements lose their evidentiary value.

3. Justification of Demand and Penalties:

The Tribunal found that there was no independent evidence from the Appellant to support the Revenue's allegation of clandestine manufacture and clearance. The entire case was based on the alleged receipt of clandestinely removed Billets from TFCWRL, and no evidence was provided regarding the transportation, buyers, or payments for the finished goods. The Tribunal concluded that the Revenue could not establish a single piece of evidence to support their allegations.

The Tribunal cited several judgments to reinforce that in the absence of cross-examination, the statements cannot be relied upon as evidence. The Tribunal concluded that the Revenue's case of clandestine removal was not established, and therefore, the demand for Central Excise duty and the imposition of penalties were not justified.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal with consequential relief. The Tribunal pronounced that the demand for Central Excise duty of Rs. 3,55,650/- and the equivalent penalty under Rule 25 of the Central Excise Rules, 2002, would not sustain due to the lack of corroborative evidence and the violation of principles of natural justice.

(Pronounced in the open court on 06.09.2024)

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