2025 (10) TMI 965 - AT - Central Excise

Confirmed demand quashed where revenue relied solely on private records and third-party statements without Section 9D procedure

CESTAT KOLKATA - AT allowed the appeal and set aside the impugned order, holding the confirmed demand unsustainable. The Tribunal found the Revenue relied ... Invocation of extended period of limitation - Clandestine removal - 4994.899 MT of sponge iron - allegation based on the private records seized from a third party’s premises and the statement about clandestine removal has been recorded by that third party - Section 9D of CEA 1944 - HELD THAT:- In the present case, it is found that apart from relying on the recorded statements and private records recovered from the transporter’s premises, no other corroborative evidence with reference to excess consumption of Electricity, usage of raw materials for manufacturing of undeclared finished goods, cash transactions with the purported vendors of the raw material, recorded statement of any vendor about cash purchase of the raw materials etc., have been brought in by the Revenue. Therefore, the recovery of private records would at best would point out about certain doubts on the transactions shown therein, but they on their own would not be sufficient to quantify the demand and corroborate the stand of the Dept to confirm the demand. The decision in Surya Wires Pvt. Ltd Vs Principal Commissoner, CGST, Raipur [2025 (4) TMI 441 - CESTAT NEW DELHI] is squarely applicable both in respect of non-following of Section 9D procedure as well as on account of non-bringing in of corroborative evidence towards the alleged clandestine removal. Applying the ratio laid down the impugned Order is set aside and the appeal allowed on merits. Interest and penalties - HELD THAT:- Since the confirmed demand is not sustainable on merits, the question of charging interest and imposing penalty would not arise. The impugned order is set aside - appeal allowed. Issues: (i) Whether statements and private records seized/recorded during investigation (under Section 14/108) can be relied upon in adjudication without following the procedure mandated by Section 9D of the Central Excise Act (and Section 138B of the Customs Act); (ii) Whether a demand for clandestine removal can be sustained in the absence of independent corroborative evidence.Issue (i): Whether statements recorded before investigation officers and private records seized from a third party are admissible and relevant in adjudication without (a) examining the persons who made the statements before the adjudicating authority and (b) the adjudicating authority forming a written opinion under Section 9D(1)(b) that the statements should be admitted in the interests of justice.Analysis: Section 9D(1) prescribes two alternatives for relevancy of statements: clause (a) (where witness is unavailable) and clause (b) (where the person is examined before the adjudicating authority and the authority forms an opinion admitting the statement). Sub-section (2) extends the procedure to adjudication proceedings. Precedent has held the clause (b) procedure to be mandatory where clause (a) is not engaged. Statements recorded during investigation therefore acquire relevance in adjudication only after the statutorily mandated examination and admissibility determination, followed by opportunity for cross-examination.Conclusion: Statements and private records seized/recorded during investigation are not admissible as evidence in adjudication unless the Section 9D(1)(b) procedure (examination before the adjudicating authority and recorded opinion admitting the statement) is complied with; failure to follow this procedure renders such statements irrelevant and inadmissible in the proceedings (conclusion in favour of the assessee).Issue (ii): Whether the revenue can quantify and confirm a demand for clandestine removal solely on the basis of third-party private records and unadmitted statements, without independent corroborative material (e.g., raw material purchases, electricity consumption, weighbridge/transport records, sale proceeds, consignee statements).Analysis: Clandestine removal allegations require detailed investigation and tangible corroborative evidence. Reliance solely on loose/private papers and unadmitted witness statements, without verification of production/consumption metrics, corroborative transport or consignee evidence, or other independent indicia, does not suffice to sustain a quantified demand. Authorities and precedent require corroboration beyond suspicion or uncorroborated entries to confirm clandestine clearances.Conclusion: A demand for clandestine removal cannot be sustained in the absence of independent corroborative evidence; the absence of such corroboration renders the quantified demand unsustainable (conclusion in favour of the assessee).Final Conclusion: The adjudication confirming duty, interest and penalty based primarily on unadmitted statements and third-party private records, and lacking required corroborative evidence, is unsustainable; the impugned demand and associated penalties are set aside and the appeal is allowed.Ratio Decidendi: Where statements are recorded during investigation, they become relevant in adjudication only after the person who made them is examined before the adjudicating authority and the authority records an opinion admitting the statement under Section 9D(1)(b); further, allegations of clandestine removal must be supported by independent corroborative evidence beyond unadmitted third-party records.