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TaxTMI 
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TaxTMI 
2026 (5) TMI 1
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....rms the demand of central excise duty with interest and penalty after invoking the extended period of limitation contemplated under section 11A(4) of the Central Excise Act, 19444. [the Central Excise Act] 2. Excise Appeal No. 50862 of 2025 has been filed by Jasraaj Singh Kalra, Managing Director of the appellant against that portion of the order 31.01.2025 passed by the Additional Director General that imposes a penalty of Rs. 2 crores upon him under rule 26 of the Central Excise Rules, 2002 [the Central Excise Rules] 3. Excise Appeal No. 50861 of 2025 has been filed by Sarabjit Singh Kalra, Proprietor, Noble Industries that imposes a penalty of Rs. 5 crores upon him under rule 26 of the Central Excise Rules. 4. The appellant is inter alia engaged in the manufacture and clearance of washing machines and LED television sets [the products] of 'Haier', 'BPL' and 'Daenyx' brands. It was initially set up as a partnership firm in the name of M/s. Sun Industries. With effect from 26.08.2019, the appellant was incorporated as a private limited company in the name of Sun Home Appliances Private Limited from 31.08.2015 to 30.06.2017. 5. M/s. Om Sai Enterprises, located at Part o....
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....kee Road, Haridwar [Khasra-83 address] which was also eligible for the benefit of area-based exemption under the Exemption Notification. By an internal letter dated 20.07.2015, the Assistant Manager, DIC requested the General Manager, DIC to provide the requisite permission to Om Sai. The General Manager, DIC, by a letter dated 20.07.2015, granted the requisite permission to Om Sai. 11. For shifting to Khasra-83 address premises, Om Sai entered into a rent agreement dated 26.06.2015 with M/s Maxx Mobile Communications [Maxx Mobile]. The rental period in terms of the said agreement was to begin either from 01.07.2015 or from the date of handing over the premises in the desired condition, whichever was later. 12. Before shifting of the premises, necessary inspection and verification was done by the Chartered Engineer on 24.07.2015 and a certificate was also issued in this regard. After Om Sai shifted its factory premises from F-83 address to Khasra-83 address, the necessary inspection and verification was again done by the Chartered Engineer on 01.08.2015 and a certificate was issued in this regard. 13. Om Sai, by a letter dated 10.08.2015, informed the DIC that it had shift....
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....t dated 14.08.2015 [Business Transfer Agreement] was entered between the appellant and Om Sai whereby ownership of Om Sai was transferred to the appellant. For this, the appellant also entered into a Rent Agreement dated 09.09.2015 with Maxx Mobile for taking the premises on rent from Maxx Mobile, which was previously taken on rent by Om Sai. 18. As the appellant acquired Om Sai, which was availing the benefit of area-based exemption on a going concern basis, the appellant informed the DIC about taking over Om Sai by a letter that was received on 24.08.2015. The appellant further informed the jurisdictional Central Excise Department by a letter that was received on 24.08.2015. 19. The appellant claims that it started availing the benefit of area-based exemption in terms of the Exemption Notification in respect of final products manufactured by it and cleared during the relevant period from 31.08.2015 to 30.06.2017. 20. An intelligence was gathered by the officers of Directorate General of Central Excise Intelligence, New Delhi [DGGI] that the appellant was misusing area-based exemption granted to Om Sai by illegally extending the benefit to itself. It was further gathered ....
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....tant Manager, DIC to clarify the factual position regarding shifting of factory premises from F-83 address to Khasra-83 address. Statement of Shastri was recorded on 15.07.2016. 25. DGGI then issued a show cause notice dated 28.05.2020 to the appellant proposing to demand of central excise duty amounting to Rs. 33,78,13,127 under section 11A(4) of the Central Excise Act, 1944 [the Central Excise Act] with interest under section 11AA and penalty under section 11AC and rule 25 of the Central Excise Rules, 2002 [the Central Excise Rules] 26. This show cause notice were also issued to Jasraj Singh Kalra and Sarabjit Singh Kalra and called upon them to show cause why penalty under rule 26 of the Central Excise Rules may not be imposed upon them. 27. The appellant filed a preliminary reply on 06.03.2024 requesting for cross examination of persons whose statement were relied upon in the show cause notice against the appellant. The appellant filed submissions on 25.04.2024 giving reasons for the said cross examination. Thereafter, the appellant filed a detailed reply to the show cause notice on 10.12.2024, rebutting the allegations contained in the show cause notice along with the....
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....available till February, 2016. I further find from the impugned SCN that Sh. Sarabjit Singh Kalra under well thought plan created M/s Sun as a proxy of M/s Noble Industries and business transfer of an existing firm, namely, M/s Om Sai Enterprises was engineered in the name of the Noticee, M/s Sun so that time period of area based exemption provided under Notification No. 50/2003-CE dated 10.06.2003 could be extended upto the time period available to M/s. Om Sai Enterprises, i.e., March, 2020." (emphasis supplied) 31. The Additional Director General then examined whether the exemption was correctly claimed by the appellant. In this connection, various statements recorded under section 14 of the Central Excise Act were considered. Regarding the claim of the appellant that he had taken the premises of Maxx w.e.f. 01.07.2017, the Additional Director General observed as follows: "B.13. Regarding claim of M/s Om Sai Enterprises that they had taken premises of M/s Maxx w.e.f. 01.07.2017 without any security deposit and M/s Maxx had not received not received any advance rent from M/s Om Sai Enterprises from 01.07.2015 to 18.08.2015 (period during which M/s Om Sai Enterprises....
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....gineer had asked for such certificate when he visited their premises on 06.08.2015. Thus, I find that the certificate requested on 06.08.2015 was shown to be issued on 25.07.2015 seems to be back dated certificate. This fact was also accepted by Shri D.S. Negi of M/s Maxx Mobile in his statement dated 07.02.2017, who issued this certificate as per directions of Shri Hemanshu Mody." (emphasis supplied) 33. The Additional Director General then recorded the following findings: "B.18. From the above discussions, I find that M/s Om Sai Enterises was not functioning at F-83, Bahadrabad Industrial Area, Haridwar in the month of Jun, 2015 and they have not shifted their plant, machinaries, manpower, etc. Industrial Estate, Sector-3, Village-Bahadarpur Saini, Roorkee Road, Haridwar and that at Khasra No. 83, Vardhman the rent agreement submitted by the Noticee, M/s Sun to various authorities claiming that they had taken over M/s Om Sai Enterprises by claiming to be running at rented premises of M/s Maxx at Vardhman Industrial Area, Sector-3, Vill. Bahadarpur Saini, Roorkee Road, Haridwar was forged and the entire fraud was committed by Sh. Sarabjit Singh Kalra in connivance w....
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....hout dealing with the submissions made by the appellant; (ii) The appellant has correctly availed the benefit of area-based exemption under the Exemption Notification; (iii) The entire proceedings by the department are based on certain assumptions and presumptions. The evidence produced by the department are not sufficient to prove that there was no addition of new products (electrical items) by Om Sai at F-83 address; (iv) Om Sai has correctly applied for addition of new products and documents furnished to the concerned authorities were not forged; (v) Om Sai has manufactured electrical items in the premises located at F-83 address and sold them to different buyers; (vi) Cross-examination of witnesses proves that Om Sai was engaged in the manufacture of new products (i.e., Electrical items); (vii) The confirmation of demand on the basis of allegations in the show cause notice regarding shifting of factory premises by Om Sai from F-83 address to Khasra-83 address, suffer with apparent inconsistencies and such findings and allegations are factually incorrect; (viii) Om Sai legally shifted from the premises located at F83....
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....esigned to secure exemption which was never intended for the manner in which the appellant operated; (iii) The exemption was intended for genuinely established units notified in Uttarakhand. M/s. Noble Industry rightfully availed the benefit of the Exemption Notification which benefit was due to expire in March 2016 but M/s Noble Indutries created the appellant as a proxy manufacturing arrangement to unlawfully continue to avail the benefit beyond the permissible period; (iv) S. Wazid Ali was an wmployee of Noble Industries but he was compelled to sign rent agreements, invoices and chartered engineer certificates on behalf of the appellant; (v) The documentary evidence and the statements of Ashish Dhawan and Sanjeev Khera, partners of the appellant, conclusively established that the appellant was merely a proxy for Noble Industries created solely to wrongfully avail benefit of the area-based Notification; (vi) The investigations revealed that financial transaction as well as rental payments associated with Om Sai Enterprises was subsequently Noble group; (vii) The statements recorded during the investigation reveal that when the exemptio....
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....f the rules made thereunder with intent to evade payment of duty, by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant date, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under section 11AA and a penalty equivalent to the duty specified in the notice." 42. The show cause notice was issued on 28.05.2020 proposing duty demand for the period from 31.08.2015 to 30.06.2017. Thus, the entire demand is beyond the normal period of limitation of two years. The contention of the appellant that the extended period of limitation could not be invoked since it had maintained proper records in terms of the Central Excise Act and the Central Excise Rules and had filed the same before the department as was required was not accepted in the impugned order for the reason that the appellant had not adduced any evidence to show that it had not availed benefit under the Notification fraudulently and that the appellant had not produced any documentary evidence to show that the department had gone through such documents relating to the methodolog....
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....ears in order subject to the condition that the new owner exercises his option in writing to avail of the benefit of the exemption Notification before effecting the first clearance." 45. Thus, even though the department was aware in 2015 that the appellant had taken over Om Sai, the show cause notice was not issued within the normal period of limitation of two years, but was issued only on 28.05.2020 after an inordinate delay of almost five years. The department cannot, therefore, urge any suppression on the part of the appellant, much less with an intention to evade payment of duty, since all the material facts were in the knowledge of the department in 2015. 46. The Supreme Court in Collector of Central Excise vs. Chemphar Drugs & Liniments [1989 (40) E.L.T. 276 (S.C.)] held that when the department had full knowledge about manufacture of the goods manufactured by the respondent as the declaration was filed, the extended period of limitation under the proviso to section 11A(4) of the Central Excise Act could not have been invoked. The relevant portions of the judgement are reproduced below: "8. Aggrieved thereby, the revenue has come up in appeal to this Court. In ....
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....herwise, wilful suppression of facts has to be with an intent to evade payment of excise duty. 48. In Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise, Bombay [1995 (78) E.L.T. 401 (SC)] the Supreme Court examined whether the department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since "suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows; "4. Section 11A empowers the Department to reopen proceedings if the levy has been sho....
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....s were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act." (emphasis supplied) 50. These two decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd. were followed by the Supreme Court in the subsequent decision in Uniworth Textile Limited vs. Commissioner of Central Excise, Raipur [2013 (288) E.L.T. 161 (SC)] and the observation are: "18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944." 51. The Supreme Court in Continental Foundation Joint Venture Holding vs. Commis....
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....(emphasis supplied) 53. In the present case, the Additional Director General assumed that Sarabjit Singh Kalra entered into a Business Transfer Agreement in the name of the appellant with Om Sai only with a design to fraudulently extend the exemption period for the appellant. The appellant had contended that the said agreement was in accordance with law and in terms of the Exemption Notification and the Circulars issued by the department. The Additional Director General has not adverted at all to the reply submitted by the appellant to the show cause notice and merely because of the allegations made in the show cause notice has assumed that the Business Transfer Agreement was executed fraudulently to enable the appellant to get some extension in the exemption period. Thus, also the extended period of limitation could not have been invoked in the facts and circumstances of the case. 54. It has, therefore, to be held that the Additional Director General was not justified in holding that the extended period of limitation contemplated under section 11A(4) of the Central Excise Act was correctly invoked. 55. It is not in dispute that the entire demand that has been confirmed is....
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....g the course of ten year period of exemption benefit. Thus, Circular 939 clarifies that any eligible unit would continue to enjoy the benefit of area-based exemption even with respect to new products which were not initially being manufactured, whether manufactured with or without installation of new plant/ machinery. 61. This view was again clarified by CBEC by Circular 960. In Circular 960, the clarification sought by trade representations pertains to admissibility of exemption benefit where an eligible unit already availing area-based exemption expands by acquiring a plot of land adjacent to its existing premises and installing new plant/ machinery on such land. It clarifies that expansion of an eligible unit by acquiring adjacent plot and installing new plant and machinery was akin to expansion by way of installing new plant and machinery on the existing plot itself; and since the latter had already been clarified as permissible by earlier Circular 939, expansion by acquiring adjacent premises was also permissible and such units shall continue to enjoy the exemption benefit for the residual period. 62. Circular 960 as clarifies that transfer of ownership will not prejudic....
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....s. The permission for shifting of premises was granted by DIC to Om Sai on 20.07.2015 and a certificate of Chartered Engineer dated 01.08.2015 that verifies the shifting of the premises, was also issued. Om Sai shifted its premises to a location at Khasra-83 address, which was also a specified area under the Exemption Notification. These facts have not been disputed by the department. The shifting was duly intimated to the concerned authorities and as per the requirement of Circular 960, the relocation of premises was duly verified and approved by a certificate of Chartered Engineer. Thus, the said shifting of premises was also permissible law and could not have prejudiced the eligibility of exemption under the Exemption Notification. Om Sai was, therefore, eligible for exemption from payment of central excise duty with respect to the new products manufactured and cleared from the new premises located at Khasra-83 address. 67. Consequent to the shifting of premises to new location, Om Sai was acquired by the appellant in August 2015. The area-based exemption under the Exemption Notification is granted to an industrial 'unit' established in the specified area. 68. The three ev....
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....egard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. (2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court." 74. It would be seen that section 14 of the Central Excise Act enables the concerned Officer to summon any person whose attendance he considers necessary to give evidence in any inquiry which such Officer is making. The statements of persons so summoned are then recorded under these provisions. It is these statements which are referred to in section 9D of the Central Excise Act. A bare perusal of sub-section (1) of section 9D makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in th....
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.... witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportunity has to be provided for cross-examination of such persons. The provisions of section 9D of the Central Excise Act and section 138B(1)(b) of the Customs Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 14D of the Central Excise Act or under section 108 of the Customs Act. The Courts have also explained the rationale behind the precautions contained in the two sections. It has been observed that the statements recorded during inquiry/investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence." 78. In Ambika International vs. Union of India [2018 (361) E.L.T. 90 (P&H)] decided on 17.06.2016, the Punjab and Haryana High Court examined the provisions of section 9D of the....
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....to adjudication proceedings as well. ***** 22. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz. (i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and (ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. 23. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word "shall" in Section 9D(1), makes it clear that, the provisions contemplated ....
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....e-examination. 27. It is only, therefore, - (i) after the person whose statement has already been recorded before a gazetted Central Excise Officer is examined as a witness before the adjudicating authority, and (ii) the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence, that the question of offering the witness to the assessee, for cross-examination, can arise. 28. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof." (emphasis supplied) 79. In Hi Tech Abrasives Ltd. vs. Commissioner of C. Ex. & Cus., Raipur [2018 (362) E.L.T. 961 (Chhattisgarh)] decided on 04.07.2018, the Chhattisgarh High Court also examined the provisions of section 9D of the Central Excise Act. The allegation a....
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....f evidence on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitu....
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....al Drugs Pvt. Ltd. versus Union Of India [2016 (340) E.L.T. 67 (P&H)] that section 9D is a mandatory provision and if the procedure prescribed therein is not followed, statements cannot be used as evidence in the proceedings under Central Excise Act. ***** 16. Therefore, the 35 statements relied upon in the SCN are not relevant and hence also not admissible." (emphasis supplied) 81. It is, therefore, not possible to accept the contention of the learned special counsel for the department that it was not necessary in law for the adjudicating authority to examine the persons whose statements were recorded under section 14 of the Central Excise Act. Section 9D of the Central Excise Act deals with all persons whose statements have been recorded under section 14 of the Central Excise Act and, therefore, it is also not possible to accept the contention of the learned special counsel appearing for the department that the appellant was not required to be examined by the Additional Director General under section 9D of the Central Excise Act. 82. In this view of the matter, the Additional Director General could not have placed reliance upon the statements made by persons und....