Evidentiary safeguards in central excise search and statement proceedings barred reliance on clandestine manufacture allegations.

Search panchnamas in central excise proceedings were found unreliable where local panch witnesses were not used without explanation and were neither examined nor offered for cross-examination, so the search record could not safely support the case. Statements recorded under section 14 were also held inadmissible as substantive evidence because the mandatory procedure under section 9D was not followed, including examination of the maker before the adjudicating authority. With that evidence excluded, the remaining material did not prove that the appellant was the manufacturer or controlled the alleged clandestine unit, and the duty demand, interest, penalty, and confiscation failed.

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Issues: (i) Whether the panchnamas drawn during search were reliable and legally sustainable when the panch witnesses were not inhabitants of the locality and were not examined or cross-examined; (ii) whether statements recorded under section 14 of the Central Excise Act, 1944 could be relied upon without compliance with section 9D of that Act; and (iii) whether the appellant was proved to be the manufacturer of the alleged clandestinely manufactured pan masala and gutkha, so as to sustain the duty demand, interest, penalty, and confiscation.

Issue (i): Whether the panchnamas drawn during search were reliable and legally sustainable when the panch witnesses were not inhabitants of the locality and were not examined or cross-examined.

Analysis: Section 18 of the Central Excise Act, 1944 requires searches to be carried out in accordance with the Code of Criminal Procedure, 1973, including section 100(4), which contemplates witnesses from the locality where the search is conducted unless such persons are unavailable or unwilling. The panchnamas did not explain why witnesses from places more than 300 kilometres away were chosen, and the panch witnesses were neither examined by the department nor made available for cross-examination. The search record was therefore not proved in the manner required by law, and the panchnamas could not safely be treated as dependable foundational evidence.

Conclusion: The panchnamas were held to be unreliable and excluded from consideration.

Issue (ii): Whether statements recorded under section 14 of the Central Excise Act, 1944 could be relied upon without compliance with section 9D of that Act.

Analysis: Section 9D makes such statements relevant in adjudication only when the maker is examined as a witness before the adjudicating authority and the authority forms an opinion that the statement should be admitted in evidence in the interests of justice, unless the statutory exceptions apply. That procedure was not followed. The statements were therefore not admissible as substantive evidence, and reliance on them without following the statutory mandate was impermissible. The denial of cross-examination in the circumstances further undermined their evidentiary value.

Conclusion: The statements recorded under section 14 were held to be inadmissible for want of compliance with section 9D.

Issue (iii): Whether the appellant was proved to be the manufacturer of the alleged clandestinely manufactured pan masala and gutkha, so as to sustain the duty demand, interest, penalty, and confiscation.

Analysis: Once the panchnamas and the relied-upon statements were excluded, the remaining material did not establish that the appellant financed, owned, or controlled the unregistered factory or that he was the manufacturer within the meaning of the Central Excise Act, 1944. The pocket diary and other materials also lost evidentiary force because their authenticity depended on the discarded evidence. In the absence of reliable proof of manufacture and clandestine clearance by the appellant, the foundation for duty, interest, penalty, and confiscation failed.

Conclusion: The appellant was not proved to be the manufacturer, and the demand, interest, penalty, and confiscation could not be sustained.

Final Conclusion: The impugned adjudication was unsustainable because the core evidentiary foundation for alleging clandestine manufacture and clearance did not survive judicial scrutiny.

Ratio Decidendi: In central excise adjudication, search evidence must satisfy the statutory witness requirements, and statements recorded during inquiry cannot be relied upon unless the mandatory procedure for admissibility under section 9D is followed; where that foundation fails, a clandestine manufacture demand cannot be sustained.

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