1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the extended period of limitation could be validly invoked to demand an amount under Rule 6(3) of the Cenvat Credit Rules, 2004, for the period April 2007 to March 2009.

1.2 Whether demand of an amount equal to 10% of the value of exempted goods under Rule 6(3) of the Cenvat Credit Rules, 2004, was sustainable on merits where (a) separate records for inputs used in dutiable and exempted goods were maintained, (b) the only common input service was insurance, with credit of Rs. 1,74,190/-, and (c) such credit had been reversed.

1.3 Whether Revenue could unilaterally choose and enforce a particular option under Rule 6(3) of the Cenvat Credit Rules, 2004, and invoke Rule 14 to recover an amount computed at 10% of the value of exempted goods.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Invocation of extended period of limitation under Rule 14 of the Cenvat Credit Rules, 2004

2.1.1 Interpretation and reasoning

(a) The relevant period was April 2007 to March 2009; the first internal audit was conducted on 08.09.2009 and an Internal Audit Report was issued without any objection regarding non-maintenance of separate records or violation of Rule 6(3).

(b) A second audit report dated 15.07.2011, based on the same records, subsequently raised objection under Rule 6(3), and a show cause notice dated 30.04.2012 invoked the extended period.

(c) The Court held that once all relevant facts are within the knowledge of the department, the extended period cannot be invoked on the ground of suppression; a mere change of view by a subsequent audit team does not constitute suppression by the assessee.

2.1.2 Conclusions

The demand invoking the extended period of limitation was held to be time-barred and unsustainable.

2.2 Sustainability of demand under Rule 6(3) on merits where only a small common input service credit was involved

2.2.1 Legal framework (as discussed)

(a) Rule 6(3) of the Cenvat Credit Rules, 2004, prescribes options to an assessee who does not maintain separate accounts for inputs/input services used in dutiable and exempted goods/services.

(b) Rule 14 of the Cenvat Credit Rules, 2004, provides for recovery of Cenvat credit taken or utilised wrongly, along with interest.

2.2.2 Interpretation and reasoning

(a) It was not disputed that the appellant maintained separate records for inputs used in the manufacture of dutiable and exempted goods.

(b) The only common input service was insurance, on which total Cenvat credit availed was Rs. 1,74,190/-, and such credit could not be practically apportioned between dutiable and exempted goods.

(c) The demand under Rule 6(3) was for Rs. 1,21,20,085/-, being 10% of the value of exempted goods, vastly disproportionate to the common credit of Rs. 1,74,190/-.

(d) The Court noted that, as per the judgment of the Telangana High Court in TIARA Advertisement, Rule 6(3) merely gives options to the assessee; if the assessee fails to follow Rule 6(3), the authorities may reject the disputed credit and recover wrongly availed credit under Rule 14, but cannot forcibly select an option under Rule 6(3) and demand a fixed percentage of exempted clearances.

(e) The Court preferred to follow the view of the Telangana High Court, noting absence of contrary jurisdictional High Court authority, and held that Revenue cannot choose an option under Rule 6(3) on behalf of the assessee or use Rule 14 to recover an amount computed as a percentage of the value of exempted goods.

2.2.3 Conclusions

(a) Since separate records for inputs were maintained, and the only common input service credit was limited and already reversed, demand of 10% of the value of exempted goods under Rule 6(3) was not legally sustainable.

(b) The amount demanded under Rule 6(3), along with equal penalty, was held unsustainable on merits.

2.3 Competence of Revenue to select an option under Rule 6(3) for the assessee and raise demand accordingly

2.3.1 Interpretation and reasoning

(a) The Court, relying on the reasoning of the Telangana High Court, held that Rule 6(3) is an enabling provision that confers options on the assessee and does not authorise the department to make that choice on the assessee's behalf.

(b) If credit is wrongly availed, the appropriate course is recovery of such wrongly availed or utilised credit under Rule 14, not imposition of a liability computed as a fixed percentage of the value of exempted goods by unilaterally applying one of the options in Rule 6(3).

2.3.2 Conclusions

Revenue had no authority to select and apply the 10% option under Rule 6(3) on behalf of the assessee; the resultant demand and penalty were therefore invalid.

2.4 Overall conclusion

The impugned order confirming demand of Rs. 1,21,20,085/- under Rule 6(3) of the Cenvat Credit Rules, 2004, along with equal penalty, was held unsustainable both on limitation and on merits, and was set aside with consequential relief to the appellant.

Issues: Whether the Miscellaneous Application for rectification of mistake should be allowed and the earlier final order recalled on account of factual error in the order under challenge.

Analysis: The application pointed out that the earlier final order had proceeded on a different issue from the one arising out of the impugned order-in-appeal. On examination of the records, the Tribunal found that the earlier order contained a factual mistake in its observations. A rectification application is maintainable to correct such an error, and once the mistake is accepted, recall of the earlier order follows to enable the appeal to be heard afresh.

Conclusion: The rectification application was allowed and the final order dated 01.09.2017 was recalled.

Issues: Whether delayed intimation of the option for self-credit under the exemption notification was a mere procedural lapse so as to preserve the assessee's entitlement to the exemption benefit.

Analysis: The Tribunal held that the assessee's eligibility to the exemption was not in dispute and the controversy was confined to delayed compliance with the option/intimation requirement. Relying on prior Tribunal decisions and the principle that procedural requirements should not defeat a substantive benefit otherwise available under an exemption notification, the Tribunal treated the condition as directory rather than mandatory in a manner that would forfeit the benefit. It also followed the consistent view that where the substantive conditions are satisfied, delay in filing the required statement or intimation does not justify denial of exemption.

Conclusion: The delayed intimation was only a procedural lapse and did not disentitle the assessee from the exemption benefit; the Revenue's appeal failed.

ISSUES PRESENTED AND CONSIDERED

1. Whether the Tribunal committed any perversity or illegality in refusing to restore/recall its earlier dismissal order by rejecting the restoration application filed after a gap of seven years, when the only explanation offered was financial crisis and closure of business.

2. Whether financial constraint/closure of business, in the facts found, constituted "sufficient cause" to justify restoration after seven years and to warrant interference in writ jurisdiction with the Tribunal's discretionary order on delay/restoration.

3. Whether an order of the Tribunal condoning a much longer delay in another matter could govern the present case, or stood distinguished on material facts so as not to aid the petitioner.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Tribunal's refusal to restore/recall after seven years

Legal framework (as considered by the Court): The Court treated restoration/recall in the context of delay as a discretionary determination dependent on the adequacy of the cause shown, and assessed whether the Tribunal's exercise of discretion suffered from perversity or illegality warranting writ interference.

Interpretation and reasoning: The Court noted as undisputed that the restoration application was filed more than seven years after dismissal. It emphasized that the Tribunal had earlier granted an opportunity to support delay-condonation (for a 98-day delay in filing the appeal) by filing an affidavit; despite representation through an advocate, no affidavit was filed and no one remained present, resulting in dismissal. The Court found continued lack of diligence thereafter: the petitioner did nothing for seven years and then sought restoration on the solitary ground of financial struggle/closure. The Court accepted the Tribunal's assessment that there was no convincing explanation for both the earlier non-compliance and the subsequent seven-year inaction.

Conclusion: The Court held there was no convincing reason to interfere; the Tribunal's rejection of restoration after seven years, given the petitioner's repeated negligence and absence of satisfactory explanation, was upheld.

Issue 2: Whether financial crisis/closure amounted to "sufficient cause" on these facts

Legal framework (as applied by the Court): The Court applied the principle that condonation/restoration turns on the "sufficiency of the cause shown" and the acceptability of the explanation, requiring a distinction between an "explanation" and an "excuse," and that such determinations depend on the facts of each case.

Interpretation and reasoning: The Court was not persuaded that closure of the unit due to financial constraints justified losing track of proceedings already initiated, particularly where the petitioner had legal representation. It treated the asserted financial constraint as an "excuse" rather than a plausible, acceptable explanation for: (i) belated filing of the appeal; (ii) failure to comply with the Tribunal's direction to file an affidavit explaining the 98-day delay; (iii) non-appearance leading to dismissal; and (iv) the seven-year delay in seeking restoration. The Court found no other plausible explanation forthcoming beyond financial constraint.

Conclusion: Financial constraint/closure, without more, was held insufficient in the circumstances to justify restoration after seven years or to displace the Tribunal's discretionary decision.

Issue 3: Effect of reliance on another Tribunal order condoning a long delay

Legal framework (as considered by the Court): The Court evaluated comparability of precedents/factual parity for purposes of claiming similar discretionary relief on delay.

Interpretation and reasoning: The Court distinguished the relied-upon Tribunal order condoning a delay of almost 2000 days on the basis of specific facts recorded there: non-service of the appellate order on the appellant, and deposit of a substantial portion of the recovered amount. Those features were treated as "vital distinguishing features" absent in the present case, where dismissal followed failure to file the directed affidavit and prolonged inaction thereafter.

Conclusion: The other condonation order did not assist the petitioner; it was held factually distinguishable and not a basis to overturn the impugned rejection of restoration.

Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable on the facts of the case. (ii) Whether interest remained payable on the duty amount already paid and appropriated.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable on the facts of the case.

Analysis: The entire duty demand had already been discharged and appropriated. The order below did not record any finding of intent to evade, mala fides, or mens rea, which are essential for invoking penal consequences under Section 11AC. Penalty cannot be imposed mechanically or as an automatic consequence merely because a demand exists. In the absence of deliberate defiance or contumacious conduct, the penal provision was not attracted.

Conclusion: Penalty under Section 11AC was not sustainable and was set aside.

Issue (ii): Whether interest remained payable on the duty amount already paid and appropriated.

Analysis: Although the duty had been paid and appropriated, statutory interest on delayed payment was not displaced by the setting aside of penalty. The liability to pay interest followed the duty payment delay to the extent interest had not already been discharged.

Conclusion: Interest under Section 11AB remained payable at the applicable rate, if not already paid.

Final Conclusion: The appeal succeeded to the extent of relief from penalty, while the statutory liability to interest was maintained.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 requires a finding of intent to evade or equivalent culpable conduct, and cannot be imposed in the absence of such foundational mens rea.

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether Cenvat credit was admissible on specified goods (including scrappers and welding-related items) as "inputs" under Rule 2(k) of the Cenvat Credit Rules, 2004 on the basis of their use in the manufacturing process within the factory.

(ii) Whether Cenvat credit was admissible on specified items (such as oil seal, belt drive, rubber of cleaning idlers, castable refractory, conveyor belt, rubber lagging, liner of chute hopper, brush for coupling RB, etc.) as "capital goods" (including components/spares/accessories) under Rule 2(a) of the Cenvat Credit Rules, 2004, or otherwise as eligible goods used for manufacture.

(iii) Whether, on the facts found by the Tribunal regarding use of the disputed items in manufacture, the denial of credit (and consequential interest and penalty) could be sustained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Eligibility of Cenvat credit on scrappers and welding-related items as "inputs"

Legal framework: The Tribunal addressed eligibility under Rule 2(k) of the Cenvat Credit Rules, 2004 (definition of "input"), as applied to goods used in the factory in relation to manufacture.

Interpretation and reasoning: The Tribunal noted that, in the appellant's own case, credit on welding electrodes had already been allowed, rendering that point no longer open for reconsideration. Beyond welding electrodes, the Tribunal relied on the explanation of the uses of the disputed items in the manufacturing process and recorded a factual finding that the items in question were used for manufacturing the final product within the factory.

Conclusions: The Tribunal held that the appellant was entitled to Cenvat credit on the disputed inputs (including scrappers and welding-related items) as eligible "inputs" within the meaning of Rule 2(k) because they were used for manufacture of the final product.

Issue (ii): Eligibility of Cenvat credit on specified items as "capital goods" (or otherwise eligible goods used in manufacture)

Legal framework: The Tribunal examined entitlement under Rule 2(a) of the Cenvat Credit Rules, 2004 (definition of "capital goods"), in conjunction with the fact-based inquiry into use of the goods in manufacture.

Interpretation and reasoning: The Tribunal considered the appellant's explanation of how the listed items (oil seal, belt drive, rubber of cleaning idlers, castable refractory, conveyor belt, rubber lagging, liner of chute hopper, brush for coupling RB, etc.) were used in the manufacturing activity. It accepted that the appellant had demonstrated use of "all the items" for manufacture of the final product and therefore treated them as credit-eligible either as capital goods or as inputs, depending on their character and use.

Conclusions: The Tribunal held that credit was admissible on the listed items either as "capital goods" under Rule 2(a) or as "inputs" under Rule 2(k), since they were used for manufacturing the final product.

Issue (iii): Sustainability of denial of credit (and consequential interest and penalty)

Interpretation and reasoning: Having concluded that Cenvat credit was available on all items in dispute under Rule 2(a) and/or Rule 2(k), the Tribunal found that the basis for denying credit did not survive. As the credit itself was held admissible, the impugned order denying credit could not stand.

Conclusions: The Tribunal set aside the impugned order in full and allowed the appeal with consequential relief, which necessarily displaced the denial of credit and the associated liabilities that flowed from that denial.

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether CENVAT credit is admissible, for the period post 01.04.2011, on input services used in connection with modernization/expansion projects of an existing manufacturing/mining unit, where the Department treated such services as relating to "setting up" and denied credit on the ground that "setting up" stood removed from the inclusive portion of the definition of "input service".

(ii) Whether, upon holding the credit admissible, the confirmed demand of reversal along with interest and equivalent penalty could be sustained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Admissibility of CENVAT credit on disputed input services post 01.04.2011

Legal framework (as deliberated by the Tribunal): The Tribunal examined the post-01.04.2011 definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, noting the structure of the definition into the "means" clause (services used by a manufacturer, directly or indirectly, in or in relation to manufacture and clearance up to the place of removal), the "includes" clause (which expressly covers services used in relation to modernization, renovation or repairs of a factory), and the existence of an "excludes" clause. The impugned order proceeded on the basis that "setting up" was removed from the inclusive part with effect from 01.04.2011, and therefore the services were ineligible.

Interpretation and reasoning: The Tribunal treated the controversy as already settled by its earlier decisions and applied that settled position. It held that input services having a direct nexus with manufacture fall within the "means" clause, and that services used for modernization/expansion (including activities characterized as "setting up" of plant) are directly connected with manufacture. The Tribunal accepted the reasoning that even after 01.04.2011, mere removal of "setting up" from the inclusive portion does not, by itself, deny credit if the services otherwise satisfy the "means" clause and are not specifically excluded. On facts, the Tribunal accepted that the disputed services were received in connection with modernization projects undertaken to increase production to meet enhanced manufacturing requirements, and therefore had the requisite nexus with manufacture.

Conclusion: The Tribunal conclusively held that post 01.04.2011 the services in question were covered within the ambit of the main ("means") clause of the definition of input service, and the appellant qualified to avail CENVAT credit on the disputed input services used for modernization/setting up of the factory/plant after 01.04.2011.

Issue (ii): Sustainability of demand, interest, and penalty

Interpretation and reasoning: Since the Tribunal held the credit to be admissible on merits, the foundational basis for the confirmed demand failed. As a necessary consequence of allowing the credit, the Tribunal found no merit in the impugned order confirming reversal of credit and, correspondingly, the associated interest and equivalent penalty could not survive.

Conclusion: The impugned order confirming demand (to the extent sustained therein) along with interest and equivalent penalty was set aside, and the appeal was allowed with consequential relief.

Issues: Whether the demand of 6% of the value of electricity sold, generated from bagasse and other by-products, could be sustained under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.

Analysis: The issue was treated as covered by an earlier Tribunal order holding that electricity generated from bagasse, a waste or by-product, could not be subjected to a demand of 6% under Rule 6(3)(i). On that basis, the impugned demand was found unsustainable.

Conclusion: The demand under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 was held not sustainable, and the appeals were allowed in favour of the assessee.

Issues: Whether the impugned order, which did not adequately address the appellant's objection that it was not a speaking order, could be sustained, and whether the matter required remand for fresh consideration.

Analysis: The dispute centred on the refusal to accept the refund claims without a reasoned order. It was found that the original authority was required to examine the available records and record reasons, and that the appellate authority could not cure the absence of reasoning by adding new grounds. Since the order under challenge did not properly deal with the appellant's grievance and failed to comply with the requirement of a reasoned decision, the defect amounted to a breach of natural justice.

Conclusion: The impugned order was set aside and the matter was remanded to the original authority for fresh consideration after granting due opportunity and passing a speaking order.

Ratio Decidendi: An adjudication order that fails to give reasons and does not comply with natural justice cannot be sustained, and the proper course is remand for a speaking order on a de novo consideration.

Issues: Whether non-execution of bond under the prescribed procedure for removal of jute products without payment of cess disentitled the appellant from exemption and justified confirmation of the demand.

Analysis: The appellant cleared jute products without following the procedure prescribed under the relevant removal rules and without executing the required bond to safeguard the cess. The procedural requirement was treated as essential to ensure that exempted goods reached the intended recipient and were not diverted. In the absence of compliance, the omission was held to be a clear contravention of the rules and not a mere irregularity.

Conclusion: The demand of cess, along with consequential interest and penalty, was upheld against the appellant.

Final Conclusion: The appeal failed because the statutory procedure governing concessional removal of goods was not complied with, and the impugned order was sustained.

Ratio Decidendi: Where exemption from duty or cess is made conditional upon compliance with a prescribed procedural safeguard such as execution of bond, non-compliance defeats the exemption and sustains the demand.

Issues: Whether the demand of central excise duty, interest and penalty could be sustained on the basis of an income-tax survey and statements allegedly showing undisclosed income, without independent investigation or evidence establishing that such income arose from clandestine clearances by the manufacturing unit.

Analysis: The demand rested on materials gathered in the income-tax survey under Section 133A of the Income-tax Act, 1961 and on statements recorded during investigation. The record did not show any independent inquiry by the Revenue to establish that the alleged undisclosed income was linked to manufacture and removal of excisable goods from the respondent's factory. In the absence of evidence connecting the surveyed income to the manufacturing activity, the burden cast on the Revenue to prove clandestine clearance was not discharged.

Conclusion: The demand was not sustainable and the impugned order dropping the proceedings was upheld in favour of the assessee.

Issues: (i) Whether alleged excess consumption of Master Batches, LDPE and LLDPE over Standard Input Output Norms justified confirmation of duty demand; (ii) whether the demand was hit by limitation; (iii) whether the penalties imposed were sustainable.

Issue (i): Whether alleged excess consumption of Master Batches, LDPE and LLDPE over Standard Input Output Norms justified confirmation of duty demand

Analysis: The dispute turned on whether deviation from Standard Input Output Norms, by itself, established that duty-free inputs were not used for manufacture or had been diverted. The record showed that the appellant was a 100% EOU manufacturing export goods, that UV master batch and colour master batch were distinct inputs, and that the earlier appellate order in a connected matter had already treated colour master batch as requiring separate norm fixation. The Tribunal also noted that the notifications permitted duty-free procurement for export manufacture and that the issue required a fresh factual and legal examination rather than a presumption based only on norm deviation.

Conclusion: The duty demand on merits was not finally sustained and the matter was remanded for fresh adjudication.

Issue (ii): Whether the demand was hit by limitation

Analysis: The Tribunal found that invocation of the extended period required re-examination in light of the records, the repeated departmental audits, the returns filed, and the authorities cited on suppression and knowledge of facts. The show cause notices and the impugned order did not reflect a full examination of whether the ingredients for extended limitation were actually established. The limitation issue was therefore left for reconsideration by the original authority along with the merits.

Conclusion: The question of limitation was remanded for de novo consideration.

Issue (iii): Whether the penalties imposed were sustainable

Analysis: Penalty was held to be unsustainable where the dispute was interpretational, the factual basis for wilful suppression or mala fide intent was not established, and the matter arose in the context of audit-based detection and regular returns. The Tribunal held that, on the existing record, penalty could not be justified in the facts of the case.

Conclusion: The penalties were set aside.

Final Conclusion: The matter was sent back for fresh decision on duty demand and limitation, while the penalty portion was annulled.

Ratio Decidendi: Deviation from Standard Input Output Norms, without proof of diversion or misuse of duty-free inputs, is insufficient by itself to sustain duty demand, and penalty cannot be imposed absent clear evidence of wilful suppression or mala fide conduct.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether services relating to collection of receivables / "cash management services" used by a manufacturer qualify as "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, entitling availment of CENVAT credit.

1.2 Whether the Revenue's appeal challenging the admissibility of such CENVAT credit, on the ground that the services are availed post-clearance and do not form part of the cost of final products, is sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Eligibility of CENVAT credit on collection of receivables / cash management services and sustainability of Revenue appeal

Legal framework (as discussed)

2.1 The dispute turns on the scope of the expression "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, and whether financial / cash management / collection services used for realization of sale proceeds can be regarded as used, directly or indirectly, in or in relation to manufacture of final products or clearance of final products, or as services used in relation to the business of manufacture.

Interpretation and reasoning

2.2 The Tribunal notes that the department itself treats "collection of receivables" / "cash management services" as taxable financial services for levying service tax on the service providers, but simultaneously contends that the same do not qualify as financial/input services when credit is claimed by the recipient. This inconsistency was correctly addressed by the adjudicating authority.

2.3 The Tribunal accepts the finding that the assessee incurs cost for obtaining financial services, namely "collection of receivables" through a private company offering "cash management services", and that this cost is part of the overall cost structure of the manufacturing business.

2.4 It is held that a prudent manufacturer necessarily factors in all expenditure incurred in the course of business, including expenditure for collection of receivables, while arriving at the price of the product. The contention that such expenses, being incurred after clearance of goods, are not included in costing of final products is characterized as a fallacy.

2.5 The Tribunal emphasizes that determination of nexus for "input service" credit is not to be based on a one-to-one correlation between each service and each clearance, but on the overall expenditure incurred in the course of business over a period of time. In absence of any costing analysis by the Revenue, it is held naïve to presume exclusion of such expenses from the assessable value of goods.

2.6 Reliance is placed on a prior Tribunal decision which held that services of recovery / collection agents engaged for timely collection of dues from customers are imperative input services directly used in relation to provision of output services, and that such services are not merely "posterior in nature". By analogy, the Tribunal treats collection of receivables / cash management services for a manufacturer as having a direct and integral nexus with the business of manufacture and clearance.

Conclusions

2.7 Services relating to collection of receivables / "cash management services", being financial services whose cost forms part of the overall cost of manufacturing and is factored into pricing, qualify as "input services" within the meaning of Rule 2(l) of the CENVAT Credit Rules, 2004.

2.8 CENVAT credit availed on service tax paid on such services is admissible to the manufacturer, and the adjudicating authority's decision allowing credit is upheld.

2.9 The Revenue's appeal, premised on the arguments that (a) the services are availed post-clearance, (b) they do not impact the predetermined sale price of goods, and (c) pre-1.7.2012 jurisprudence is inapplicable, is rejected as devoid of merit. The appeal is dismissed.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the statements recorded from various persons, subsequently retracted, and not subjected to the procedure under Section 9D of the Central Excise Act, 1944, could be relied upon as substantive evidence to link the appellant with the alleged factory premises and the alleged clandestine manufacture and clearance of gutkha and tobacco.

1.2 Whether there was sufficient admissible and corroborative evidence on record to establish that the appellant was the owner or controller of the premises at 105, Baldau Chowk, Orai and was engaged in manufacture and clandestine removal of excisable goods therefrom, so as to justify the demand of central excise duty, interest and penalties.

1.3 Whether the goods and currency seized from the appellant's residence and the goods and materials seized from the alleged factory premises were liable to confiscation, and whether any legal nexus was established between them and any alleged clandestine manufacturing activity.

1.4 Whether, in the facts found, mere presence of raw materials and finished pouches without any machinery for sealing could establish "manufacture" of marketable gutkha/tobacco pouches attracting duty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility and evidentiary value of statements (retractions and Section 9D)

Legal framework

2.1 The judgment considers Section 9D(1) of the Central Excise Act, 1944, which prescribes the conditions under which statements recorded before a gazetted Central Excise Officer become relevant for proving the truth of their contents, and mandates, where clause (a) is not attracted, that the maker be examined as a witness before the adjudicating authority before such statement can be admitted as evidence.

2.2 The Court refers to the principles laid down in decisions explaining that: (i) the burden lies on the department to establish that a confession/statement is voluntary; (ii) statements recorded under duress or coercion cannot be relied upon; and (iii) retracted statements, even if admissible, cannot be safely relied upon as substantive evidence without independent corroboration.

Interpretation and reasoning

2.3 The revenue's case primarily relied on the initial statement of Shri Ram Kumar Parihar recorded on 08.03.2017, the statement of the appellant's wife recorded on the same date, and the statements of Shri Ramesh Soni and Shri Manoj Chaurasiya, to link the appellant to the alleged factory and the brands in question.

2.4 Shri Ram Kumar Parihar, by letter dated 28.03.2017, categorically retracted his earlier statement, claiming it was recorded under pressure, and asserted that he himself had taken the premises at 105, Baldau Chowk, Orai on rent from the owners and was using it as a godown. He also explained the presence of empty pouches.

2.5 The appellant, by letter dated 26.03.2017, asserted that his wife was coerced during the search to sign blank papers and that her statement was recorded under pressure and coercion.

2.6 Shri Ramesh Soni also retracted his statement via letter dated 28.03.2017, alleging incorrect recording of facts. Shri Manoj Chaurasiya's first statement dated 03.04.2017 did not name the appellant, and his later statement dated 13.02.2020 merely relayed what agents allegedly told him, which the Court treated as hearsay.

2.7 Despite these retractions and allegations of coercion, the adjudicating authority treated the statements as voluntary without undertaking any examination or analysis to determine voluntariness or to address the allegations of pressure, contrary to the principles laid down by higher courts.

2.8 The Court finds that the adjudicating authority did not comply with Section 9D(1)(b). None of the persons whose statements were relied upon were examined as witnesses in adjudication proceedings; nor was clause (a) of Section 9D(1) invoked. In the absence of following the statutory procedure, such statements could not be treated as relevant for proving the truth of their contents.

2.9 The Court, relying on the interpretation of Section 9D, holds that failure to admit the statements in evidence in the prescribed manner renders reliance on them as substantive material legally impermissible and vitiates the adjudication.

2.10 Further, even as retracted statements, they required independent corroboration by reliable, independent material, which was absent in the present case.

Conclusions

2.11 The statements of Shri Ram Kumar Parihar, the appellant's wife, Shri Ramesh Soni and Shri Manoj Chaurasiya, being retracted and not admitted in evidence as mandated under Section 9D(1)(b), are held to be inadmissible as substantive evidence and are required to be eschewed from consideration.

2.12 In the absence of compliance with Section 9D and in view of retractions and allegations of coercion, the statements cannot be relied upon to link the appellant with the alleged factory premises or to establish clandestine manufacture or clearance.

Issue 2: Sufficiency of evidence linking appellant to alleged factory and clandestine manufacture/removal

Interpretation and reasoning

2.13 Once the statements are excluded, the remaining material relied on by the revenue comprised: (i) seizure of goods and raw materials at the alleged factory premises; (ii) seizure of goods, currency and loose papers from the appellant's residence; and (iii) certain test reports on samples.

2.14 The Court notes that the owner/co-owner of the premises at 105, Baldau Chowk, Orai confirmed, by letter dated 09.09.2017 and rent receipts, that the premises was rented to Shri Ram Kumar Parihar, not the appellant. This supported Parihar's own retracted statement that he had taken the premises on rent for storage.

2.15 No independent or admissible evidence was produced to show that the appellant had any proprietary, possessory, or managerial connection with the premises at 105, Baldau Chowk, Orai.

2.16 Regarding alleged clandestine manufacture and removal, the Court stresses that the charge of clandestine removal is a "serious charge" which must be established by "tangible and sufficient evidence".

2.17 The department did not establish, through admissible evidence, any: (i) records of purchase of raw materials by the appellant for the alleged factory; (ii) factory workforce under the appellant's control; (iii) transport or movement of material between the appellant's residence and the alleged factory; (iv) details of purchasers, recipients or buyers; or (v) corroborative documents evidencing manufacture and clandestine clearance.

2.18 The loose papers resumed from the appellant's residence were consistently disputed by the appellant as planted and not in his handwriting. Despite this, the department neither conducted any handwriting examination nor verified the details therein by tracing recipients or corroborating any alleged transactions.

2.19 Instead, the adjudicating authority presumed that the entries in the loose papers represented clandestine clearances by the appellant and quantified duty solely on that basis, without corroboration.

2.20 The Court finds that this approach is contrary to the requirement that the department must prove the truth of the contents of such documents by independent evidence and investigation, particularly when their very recovery and authorship are disputed.

Conclusions

2.21 There is no admissible and corroborative material linking the appellant to the alleged factory premises at 105, Baldau Chowk, Orai.

2.22 The revenue has failed to establish, by tangible and sufficient evidence, any clandestine manufacture or removal of gutkha/tobacco by the appellant.

2.23 Consequently, the demand of duty of Rs.49,62,028/-, interest thereon, and the penalties imposed on the appellant and on Shri Ram Kumar Parihar, based on alleged clandestine manufacture/clearance, are unsustainable and are set aside.

Issue 3: Confiscation of goods and currency seized from residence and alleged factory premises

Interpretation and reasoning

2.24 Goods including raw materials and packing materials were seized from the alleged factory premises at 105, Baldau Chowk, Orai, and goods, raw materials and currency of Rs.16,72,000/- were seized from the appellant's residence.

2.25 The appellant's consistent plea was that the goods at his residence were procured for starting a trading business during Navratri. He could not produce purchase documents, but apart from the inadmissible statements, there was no evidence to show that these goods were intended for or were in fact transferred to or used at the alleged factory premises.

2.26 The Court observes that once the statements are excluded, there is "absolutely no material" to link the goods found at the appellant's residence with those at the alleged factory premises.

2.27 The department did not undertake any matching or comparative analysis between the goods found at the residence and those at the alleged factory to establish such linkage.

2.28 As regards the loose papers seized from the residence, since their recovery and authorship were specifically disputed, and no handwriting or other corroborative investigation was conducted, and no independent verification of the contents was made, the Court holds that they cannot be treated as reliable evidence of clandestine removal or of the nature of the currency seized.

2.29 In the absence of any proved connection between the appellant, the alleged factory, and the alleged clandestine manufacture, there is also no basis to treat the seized currency as sale proceeds of illicitly manufactured gutkha/tobacco.

Conclusions

2.30 In the absence of any legally acceptable evidence linking the goods and currency seized from the appellant's residence with any clandestine manufacture or with the alleged factory premises, confiscation of those goods and of the currency of Rs.16,72,000/- is unsustainable and is set aside.

2.31 The penalties imposed on the appellant in relation to such confiscation, including the penalty of Rs.1,50,000/- under Rule 25 of the Central Excise Rules, 2002, are also unsustainable and are set aside.

Issue 4: Existence of "manufacture" and marketability in absence of sealing machinery

Interpretation and reasoning

2.32 The revenue's case was that gutkha/tobacco products were manufactured at the alleged factory premises by mixing raw materials by hand.

2.33 The Court notes that neither the panchnama nor the show cause notice records presence of any sealing machine or even a hand sealer at the alleged factory premises.

2.34 The Court considers it a matter of common knowledge that merely mixing raw materials does not render gutkha/tobacco marketable; such mixture becomes marketable excisable goods only when filled into pouches and sealed.

2.35 In the absence of any evidence of machinery or equipment for sealing pouches at the alleged factory premises, the allegation of actual "manufacture" of marketable gutkha/tobacco pouches at that site is found to be doubtful and unsupported by necessary evidence.

Conclusions

2.36 The department has failed to prove existence of manufacturing activity at the alleged factory premises in the sense of producing marketable excisable goods in sealed pouches.

2.37 Even assuming the presence of mixture or intermediate material, this alone, without evidence of sealing/packaging facility, is insufficient to fasten excise duty liability on the appellant.

Issues: Whether Section 11D of the Central Excise Act, 1944 applies retrospectively so as to require payment of amounts collected before 20-09-1991.

Analysis: Section 11D obliges a person who has collected an amount as excise duty to pay it to the Central Government, but the provision was introduced only on 20-09-1991. The Court held that the word "collected" cannot be read to fasten liability upon collections made prior to the commencement of the provision. The scheme then in force permitted sugar factories to retain the differential amount, and a provision having penal character or substantive liability is ordinarily prospective in the absence of clear contrary indication.

Conclusion: Section 11D does not operate retrospectively and cannot be applied to amounts collected before 20-09-1991; the issue is answered in the negative in favour of the assessee.

Issues: (i) Whether the demand could be sustained by invoking the extended period of limitation on the basis of alleged suppression or clandestine removal. (ii) Whether deductions towards pro rata recovery, cash discount, trading turnover, freight and sales tax were allowable while determining the assessable value.

Issue (i): Whether the demand could be sustained by invoking the extended period of limitation on the basis of alleged suppression or clandestine removal.

Analysis: The clearances were made under invoices, payments were received through account payee cheques, and the sales were to a Government undertaking. In the absence of material showing clearance without invoices or any suppression or misstatement, invocation of the extended period could not be justified.

Conclusion: The extended period of limitation was not available to the Revenue and the demand on that basis failed.

Issue (ii): Whether deductions towards pro rata recovery, cash discount, trading turnover, freight and sales tax were allowable while determining the assessable value.

Analysis: The purchase terms and payment records supported the prompt payment discount and the deductions on account of pro rata recovery. The evidence also established trading activity and freight-related deductions. The assessee had paid duty on the actual transaction value after allowing the eligible deductions, and the valuation had to be made in accordance with the transaction value principles under the central excise law.

Conclusion: The claimed deductions were allowable and the confirmation of duty, interest and penalty was unsustainable.

Final Conclusion: The impugned order confirming duty, interest and penalty was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Where clearances are made under invoices, payments are traceable through banking channels, and contractual deductions are supported by contemporaneous records, the extended period cannot be invoked and only the actual transaction value after permissible deductions can be assessed to duty.

Issues: (i) Whether the demand could be sustained by invoking the extended period of limitation on the basis of alleged suppression and clandestine removal; (ii) whether the assessee was entitled to deductions from assessable value towards pro rata recovery, cash discount, trading turnover, freight and sales tax for valuation under excise law.

Issue (i): Whether the demand could be sustained by invoking the extended period of limitation on the basis of alleged suppression and clandestine removal.

Analysis: The clearances were made under proper invoices and payments were received through account payee cheques. The sales were to a Government undertaking, and there was no allegation or evidence that goods were removed without invoicing. In the absence of material showing suppression or misstatement, the extraordinary limitation period could not be applied.

Conclusion: The invocation of the extended period of limitation was not justified and the demand could not be sustained on that basis.

Issue (ii): Whether the assessee was entitled to deductions from assessable value towards pro rata recovery, cash discount, trading turnover, freight and sales tax for valuation under excise law.

Analysis: The purchase orders and letter of intent provided for prompt payment discount and other contractual deductions. The assessee produced invoice-wise and payment-wise details showing that cash discount was actually passed on, and the pro rata recovery was supported by the contractual terms though adjusted in lump sum form. The evidence also supported the claim that part of the turnover related to trading activity and that freight and VAT-related deductions were allowable in determining the transaction value. The valuation had to be made on the actual consideration received after permissible deductions.

Conclusion: The claimed deductions were allowable, and the confirmation of duty, interest and penalty on the disallowed amounts was unsustainable.

Final Conclusion: The demand and penalty failed both on limitation and on merits of valuation, and the assessee was entitled to relief on the disputed deductions.

Ratio Decidendi: Where clearances are fully invoiced and paid through banking channels, extended limitation cannot be invoked without evidence of suppression, and valuation must exclude contractually and evidentially established permissible deductions from the actual consideration.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether exemption under Notification No. 67/95-CE is available on relays captively consumed in the manufacture of control panels, when such control panels are partly cleared on payment of duty, partly under Notification No. 12/2012-CE without payment of duty, and partly for export under LUT.

1.2 Whether the manufacturer has discharged the "obligation under Rule 6 of the CENVAT Credit Rules, 2004" so as to fall within proviso (vi) to Notification No. 67/95-CE and thereby preserve eligibility to captive exemption.

1.3 Consequentially, whether the demand of duty, interest under Section 11AA of the Central Excise Act, 1944, and penalty under Rule 25 of the Central Excise Rules, 2002 are legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Availability of exemption under Notification No. 67/95-CE on relays captively consumed in manufacture of control panels cleared partly on duty-paid basis, partly under exemption, and partly for export

Legal framework

2.1 The Court examined Notification No. 67/95-CE, which grants exemption to specified goods manufactured in a factory and used within the factory of production in or in relation to the manufacture of final products, subject to a proviso denying exemption where the final products are exempted or chargeable to nil rate of duty, except in specified situations including proviso (vi) relating to manufacturers of dutiable and exempted final products who discharge obligations under Rule 6 of the CENVAT Credit Rules, 2004.

Interpretation and reasoning

2.2 It was found that relays are manufactured within the same factory and used captively in the manufacture of control panels, that they fall under the tariff coverage mentioned in column (1) of the table to Notification No. 67/95-CE, and that they are not among the excluded inputs listed in the notification. On a plain reading of the main body of the notification, the relays fulfill the basic conditions for captive-consumption exemption.

2.3 The only objection raised was based on the proviso to Notification No. 67/95-CE, on the ground that the control panels, being final products, are also cleared under an exemption (Notification No. 12/2012-CE), and hence the bar relating to exempted/nil-rated final products would apply.

2.4 The Court held that, on a harmonious reading, the bar in the proviso is not absolute because proviso (vi) specifically saves the benefit for a manufacturer of dutiable and exempted final products who discharges the obligation prescribed in Rule 6 of the CENVAT Credit Rules, 2004. Thus, where both dutiable and exempt clearances are made and Rule 6 obligations are complied with, captive exemption under Notification No. 67/95-CE is preserved.

2.5 The Court noted that captive exemption under Notification No. 67/95-CE is part of a scheme intended to avoid cascading of duty on in-house intermediates, and this scheme cannot be defeated merely because some final clearances avail a separate general exemption notification, when the saving clause in the proviso itself provides for coexistence of dutiable and exempt clearances.

2.6 It was also observed that, in earlier proceedings involving the same pattern of clearances, this Tribunal had already held that clearances under such project/specific exemptions do not by themselves deprive the manufacturer of the benefit under Notification No. 67/95-CE, and those decisions had been accepted by the Department.

Conclusions

2.7 The Court concluded that the relays captively consumed in the manufacture of control panels are, in principle, covered by the main body of Notification No. 67/95-CE. The only remaining question is whether the manufacturer satisfies proviso (vi) through compliance with Rule 6 of the CENVAT Credit Rules, 2004.

Issue 2 - Whether the obligation under Rule 6 of the CENVAT Credit Rules, 2004 has been discharged so as to fall within proviso (vi) to Notification No. 67/95-CE

Legal framework

2.8 The Court considered Rule 6 of the CENVAT Credit Rules, 2004, particularly the general requirement to reverse or proportionately pay back credit when common inputs are used for dutiable and exempted final products, and the exceptions enumerated under Rule 6(6), including clause (vii) which carves out specific supplies (such as to certain power projects) from the operation of Rule 6(2) and 6(3).

Interpretation and reasoning

2.9 The appellate authority had concluded that the manufacturer had not "discharged the obligation under Rule 6" because no 10% amount on the value of exempt goods was paid, separate accounts for dutiable and exempted final products were not maintained, and credit was not foregone on inputs used in exempt goods.

2.10 The Court held that this reasoning failed to consider Rule 6(6)(vii) of the CENVAT Credit Rules, 2004, which specifies scenarios in which the reversal/payment obligations under Rule 6(2) and 6(3) do not apply, including supplies to specified projects covered by Notification No. 12/2012-CE. In such cases, the requirement of payment of 10% or maintenance of separate accounts is expressly inapplicable.

2.11 It was noted that in earlier, identical disputes involving the same assessee and the same pattern of clearances, this Tribunal had already accepted that the assessee was within the Rule 6 framework, and that the specific exception under Rule 6(6)(vii) applied, thereby negating the contention that obligations under Rule 6 had not been met. Those earlier orders had been accepted by the Department.

2.12 Applying the doctrine of consistency and judicial discipline, the Court held that, in the absence of any new material or changed circumstances, it was not open to depart from the settled position already taken by the Tribunal in the assessee's own earlier cases.

Conclusions

2.13 The Court rejected the finding of the lower authority that the manufacturer had not discharged obligations under Rule 6 of the CENVAT Credit Rules, 2004. It held that, in view of Rule 6(6)(vii) and prior consistent Tribunal decisions, the manufacturer satisfies the requirement under proviso (vi) to Notification No. 67/95-CE.

2.14 Consequently, the manufacturer is entitled to the benefit of Notification No. 67/95-CE for relays captively consumed in the manufacture of control panels, notwithstanding that some final clearances are under Notification No. 12/2012-CE or for export under LUT.

Issue 3 - Sustainability of duty demand, interest and penalty

Interpretation and reasoning

2.15 Having held that the relays are eligible for captive exemption under Notification No. 67/95-CE, and that proviso (vi) read with Rule 6 of the CENVAT Credit Rules, 2004 stands satisfied, the Court held that the very basis of the demand raised on the relays captively consumed ceases to exist.

2.16 As the principal duty demand does not survive on merits, the consequential interest under Section 11AA of the Central Excise Act, 1944 automatically falls.

2.17 On penalty under Rule 25 of the Central Excise Rules, 2002, the Court noted that the dispute turned entirely on interpretation of overlapping notifications and the interplay with Rule 6 of the CENVAT Credit Rules, 2004; that all transactions were duly recorded in statutory records and returns; and that the pattern of clearances had previously been scrutinised and decided in favour of the assessee by the Tribunal. There was no evidence of fraud, suppression, wilful misstatement, or any contumacious conduct.

Conclusions

2.18 The Court held that the demand of duty is unsustainable on merits and is set aside.

2.19 The corresponding demand of interest under Section 11AA is unsustainable and is also set aside.

2.20 Penalty under Rule 25 of the Central Excise Rules, 2002 is held to be unwarranted in the facts and circumstances and is set aside.

2.21 In view of the Tribunal's consistent decisions on the same issue for earlier periods, and in adherence to judicial discipline, the impugned appellate order is set aside and the appeal is allowed with consequential reliefs as per law.

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the findings of clandestine manufacture and removal of excisable goods, and the consequent duty demand, interest, and penalties, could be sustained when they were based substantially on statements recorded under section 14 of the Central Excise Act, 1944 without compliance with section 9D.

1.2 Whether, in the absence of compliance with section 9D of the Central Excise Act, statements recorded during investigation could be treated as relevant and admissible evidence for proving the truth of their contents.

1.3 Whether, in the facts of the case, the denial of cross-examination and reliance on such statements resulted in violation of the mandatory statutory procedure and vitiated the order of the appellate authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Admissibility and evidentiary relevance of statements recorded under section 14 in the absence of compliance with section 9D; sustainability of findings of clandestine removal and consequential demands/penalties

Legal framework

2.1 The Tribunal examined sections 14 and 9D of the Central Excise Act, 1944. Section 14 empowers Central Excise Officers to summon persons to give evidence or produce documents in any inquiry, and statements are recorded under this provision. Section 9D governs the "relevancy of statements under certain circumstances" and prescribes when such statements can be treated as relevant to prove the truth of the facts they contain.

2.2 Section 9D(1)(a) provides that a statement made and signed before a gazetted Central Excise Officer shall be relevant in prosecution when the maker is dead, cannot be found, is incapable of giving evidence, is kept out of the way by the adverse party, or cannot be produced without unreasonable delay/expense. Section 9D(1)(b) applies in other cases and requires that the person who made the statement be examined as a witness before the court/adjudicating authority and that the authority form an opinion that, in the interests of justice, the statement should be admitted in evidence.

2.3 By virtue of section 9D(2), the requirements of section 9D(1) apply equally to adjudication proceedings under the Central Excise Act. The Tribunal also noted that section 9D is substantially identical to section 138B of the Customs Act, 1962, both of which have been judicially held to be mandatory.

Interpretation and reasoning

2.4 The Tribunal held that statements recorded under section 14 become relevant for proving the truth of their contents only if the procedure in section 9D is followed. Where the circumstances in section 9D(1)(a) do not apply, section 9D(1)(b) mandates a two-step process: (i) examination of the maker of the statement as a witness before the adjudicating authority, and (ii) a reasoned opinion of the adjudicating authority that, having regard to the circumstances, the statement should be admitted in evidence in the interests of justice, followed by an opportunity for cross-examination.

2.5 The Tribunal relied on judicial precedents interpreting section 9D and section 138B, including decisions wherein High Courts and the Tribunal had consistently held that: (a) section 9D is mandatory, not directory; (b) statements recorded during investigation have a possibility of being obtained under coercion or compulsion; (c) to neutralize such risk, the statute requires examination before the adjudicating authority and a conscious decision on admissibility; and (d) if this procedure is not followed, such statements cannot be treated as relevant evidence and must be eschewed from consideration.

2.6 Applying these principles, the Tribunal noted that the Commissioner (Appeals) had explicitly founded the conclusions of clandestine manufacture and removal on the statements of the Director and Supervisor recorded under section 14, treating them as reliable and sufficient evidence, and further held that denial of cross-examination did not vitiate the proceedings.

2.7 The Tribunal found that in the present case: (i) the two persons whose statements were relied upon (Director and Supervisor) were not examined as witnesses before the adjudicating authority; (ii) there was no finding or assertion that any of the conditions under section 9D(1)(a) existed; and (iii) there was no recorded opinion by the adjudicating authority on the admissibility of such statements under section 9D(1)(b). Consequently, the mandatory procedure under section 9D had not been followed.

2.8 In light of the above, the Tribunal held that the statements of the Director and Supervisor, recorded under section 14, could not be treated as relevant or admissible evidence for proving the alleged clandestine removals. Any finding sustained solely or substantially on such statements, without compliance with section 9D, was legally unsustainable.

Conclusions

2.9 The Tribunal concluded that the statements recorded under section 14, in the absence of examination of the makers as witnesses before the adjudicating authority and without a determination under section 9D(1)(b), had no evidentiary relevance for proving the truth of the alleged clandestine manufacture and removal.

2.10 As the findings regarding clandestine removal were based on such inadmissible statements, the Tribunal held that the conclusions on clandestine clearances, and the resulting demand of duty, interest, and penalties, could not be sustained.

Issue 3: Effect of non-compliance with section 9D and denial of cross-examination on validity of the appellate order

Interpretation and reasoning

3.1 The Tribunal noted that the Commissioner (Appeals) had rejected the assessee's challenge to the evidentiary value of the statements and to the denial of cross-examination, holding that there was no violation of natural justice and that the statements were reliable under section 14.

3.2 However, the Tribunal, following the binding interpretation of section 9D, held that the very foundation of relying on such statements in adjudication was vitiated due to non-compliance with the mandatory statutory procedure. Where section 9D is not followed, such statements are to be excluded from consideration, and findings based on them cannot stand.

Conclusions

3.3 The Tribunal held that the order of the Commissioner (Appeals), to the extent it upheld the demand, interest and penalties on the basis of statements recorded under section 14 without following section 9D, was legally unsustainable.

3.4 Consequently, the impugned appellate order was set aside in its entirety, and the appeals were allowed.