2025 (1) TMI 424 - HC - Central Excise

Telangana HC rules statements from quasi-criminal proceedings inadmissible without witness cross-examination under Section 9D(1)(a) Excise Act

Commissioner of Customs and Central Excise, Hyderabad-IV. Versus M/s. Venkateswara Silk Mills.

Commissioner of Customs and Central Excise, Hyderabad-IV. Versus M/s. Venkateswara Silk Mills. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe judgment revolves around two core legal questions:1. Whether the CESTAT was justified in setting aside the demands of duty confirmed and the penalties imposed by the adjudicating authority, particularly when admissions were made by the managing partner of the respondent firm and its sole distributorsRs.2. Whether the appellant is still obligated to prove the clandestine manufacture and clearance of excisable goods when admissions have been made by the managing partner of the respondent firm and its sole distributorsRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of CESTAT's DecisionRelevant Legal Framework and Precedents:The case primarily hinges on the interpretation of Section 9D of the Central Excise Act, 1944, which deals with the relevancy of statements made during the course of any inquiry or proceeding under the Act. The provision outlines circumstances under which such statements can be considered relevant, particularly focusing on whether the person who made the statement is available for cross-examination.Court's Interpretation and Reasoning:The court emphasized that under Section 9D(1)(b), statements made during investigations cannot be used against the assessee unless the witnesses are produced in adjudication proceedings and are available for cross-examination. The court referenced several precedents, including decisions from the Punjab and Haryana High Court, Bombay High Court, and Jharkhand High Court, which consistently held that the principles of natural justice necessitate the opportunity for cross-examination.Key Evidence and Findings:The evidence included statements from the managing partner and other individuals associated with the respondent firm. However, these statements were not subjected to cross-examination during the adjudication proceedings, which the court found problematic.Application of Law to Facts:The court applied the principles from Section 9D and related case law to determine that the CESTAT's decision to set aside the demands and penalties was justified. The lack of opportunity for the respondent to cross-examine witnesses meant that the statements could not be used as evidence against them.Treatment of Competing Arguments:The appellant argued that the admissions made by the managing partner and others should suffice to uphold the penalties. However, the court found that without cross-examination, these admissions could not be relied upon as conclusive evidence.Conclusions:The court concluded that the CESTAT was correct in its decision, as the procedural requirements under Section 9D were not met, rendering the statements inadmissible.Issue 2: Obligation to Prove Clandestine ActivitiesRelevant Legal Framework and Precedents:Similar to the first issue, this question also involves the application of Section 9D of the Excise Act and the principles of natural justice. The court examined whether admissions alone, without corroborative evidence subjected to cross-examination, could establish the alleged clandestine activities.Court's Interpretation and Reasoning:The court reasoned that the burden of proof in such cases cannot be shifted solely based on admissions that were not tested through cross-examination. The procedural safeguards provided by Section 9D are integral to ensuring fairness in adjudication.Key Evidence and Findings:The evidence consisted of statements and documents allegedly indicating clandestine manufacture and clearance of goods. However, the absence of cross-examination of key witnesses weakened the evidentiary value of these admissions.Application of Law to Facts:The court applied the legal standards from Section 9D and found that the appellant failed to meet the burden of proof due to procedural lapses in the adjudication process.Treatment of Competing Arguments:The appellant's reliance on admissions was countered by the respondent's argument that these admissions were not subjected to due process. The court sided with the respondent, emphasizing the necessity of cross-examination.Conclusions:The court concluded that the appellant's obligation to prove clandestine activities was not fulfilled, as the evidence was not admissible without the opportunity for cross-examination.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'The incriminating material/statements recorded behind the back of the petitioner cannot be used against him, unless, such witnesses are produced in adjudication proceedings and they were permitted to be cross-examined by the petitioner.'Core Principles Established:The judgment reinforces the principle that procedural fairness, including the right to cross-examine witnesses, is essential in adjudication proceedings under the Excise Act. Statements made during investigations cannot be used as evidence unless they comply with the requirements of Section 9D.Final Determinations on Each Issue:1. The CESTAT's decision to set aside the demands and penalties was upheld due to non-compliance with Section 9D, which necessitates cross-examination of witnesses.2. The appellant's obligation to prove clandestine activities was not met, as the evidence relied upon was inadmissible without the opportunity for cross-examination.