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Issues: (i) Whether the panchnamas drawn at the searched premises were reliable and could be acted upon; (ii) Whether statements recorded under section 14 of the Central Excise Act, 1944 were admissible and could be relied upon without compliance with section 9D of the Central Excise Act, 1944 and without cross-examination; (iii) Whether the appellant was proved to be the manufacturer of the alleged clandestinely manufactured pan masala and gutkha, and whether the demand of duty, interest, penalty and confiscation could survive.
Issue (i): Whether the panchnamas drawn at the searched premises were reliable and could be acted upon.
Analysis: The search witnesses were not inhabitants of the locality in which the premises were situated, and the panchnamas did not record any reason why local respectable inhabitants were not available or unwilling to witness the search. The witnesses were also not examined, though their cross-examination was sought. The search procedure was held not to be in accordance with section 18 of the Central Excise Act, 1944 read with section 100(4) of the Code of Criminal Procedure, 1973. In these circumstances, the panchnamas were found unreliable and excluded from consideration.
Conclusion: The panchnamas were held to be unreliable and incapable of supporting the demand against the assessee.
Issue (ii): Whether statements recorded under section 14 of the Central Excise Act, 1944 were admissible and could be relied upon without compliance with section 9D of the Central Excise Act, 1944 and without cross-examination.
Analysis: The statements were recorded during inquiry, but the persons who made them were not examined before the adjudicating authority as required by section 9D. The statutory procedure under section 9D was treated as mandatory, and the absence of examination and cross-examination rendered those statements inadmissible for proving the truth of their contents. The private diary also could not independently sustain the case once the foundational statements were excluded.
Conclusion: The statements were held to be inadmissible and incapable of being relied upon against the assessee.
Issue (iii): Whether the appellant was proved to be the manufacturer of the alleged clandestinely manufactured pan masala and gutkha, and whether the demand of duty, interest, penalty and confiscation could survive.
Analysis: After excluding the panchnamas and the statements, there remained no reliable evidence establishing that the appellant financed, owned, controlled, or manufactured the goods at the unregistered premises. The material on record did not prove manufacture by the appellant within the meaning of section 2(f) of the Central Excise Act, 1944. Once the foundational evidence failed, the demand of duty, the consequential interest, the penalty, and the confiscation could not be sustained.
Conclusion: The appellant was not proved to be the manufacturer, and the demand, interest, penalty, and confiscation were set aside.
Final Conclusion: The adjudication order could not be sustained on the evidence relied upon, and the appellant succeeded while the departmental challenge failed.
Ratio Decidendi: Where search witnesses are not local inhabitants without recorded justification and the witnesses to relied-upon statements are not examined in accordance with the mandatory statutory procedure, the resulting panchnama and statements lose evidentiary value and cannot form the basis of a demand for duty, interest, penalty, or confiscation.
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