Facts of the Case

The dispute arose from proceedings concerning allegations of clandestine manufacture and clearance of “Sir” brand Gutkha and Pan Masala without issuance of invoices and without payment of Central Excise duty.

Searches were conducted on 1 December 2007 and 9 May 2008 at various premises connected with the business activities of three manufacturers, including M/s Shankar Enterprises. During the investigation, the Department relied upon materials allegedly recovered from different premises, third-party transport records, railway-related records, seizures of goods, and statements of various persons, including employees, transporters, dealers, railway booking agents, buyers and authorised representatives.

Show cause notices dated 28 May 2008 and 7 November 2008 were issued proposing confiscation of finished goods, raw materials and vehicles, together with imposition of penalties upon the concerned parties.

The Adjudicating Authority, by its original order dated 7 September 2020, proceeded to confirm demands of duty, interest and penalties on the basis of the material collected during investigation.

The matter subsequently reached the Customs, Excise and Service Tax Appellate Tribunal, Allahabad. By order dated 18 January 2022, the CESTAT interfered with the findings of the Adjudicating Authority and set aside the demands and penalties to the extent considered unsupported by reliable and corroborative evidence.

Aggrieved by the CESTAT order, the Revenue preferred appeals before the Allahabad High Court under Section 35G of the Central Excise Act, 1944.

Central Excise Appeal No. 15 of 2022, concerning M/s Shankar Enterprises, was connected with Central Excise Appeal No. 14 of 2022. The High Court dismissed the appeal and directed that the detailed reasons be seen in the order of the same date passed in Central Excise Appeal No. 14 of 2022.

Issues Involved

The principal issues arising in the connected proceedings were:

  1. Whether a retracted confessional statement requires corroboration from independent evidence before it can sustain a demand of Central Excise duty.
  2. Whether a demand based upon third-party documents, supported by statements recorded during investigation, could legally be sustained.
  3. Whether the CESTAT was justified in its appreciation of the evidence, including statements of witnesses and other concerned persons.
  4. Whether the CESTAT was justified in setting aside or reducing the demand, redemption fine and confiscation of goods.
  5. Whether statements recorded by Departmental officers under Section 14 of the Central Excise Act, 1944 could, by themselves, establish statutory violations.
  6. Whether the findings of the CESTAT gave rise to any substantial question of law warranting admission of an appeal under Section 35G of the Central Excise Act, 1944.

Appellant’s Arguments — Revenue

The Revenue contended that the searches conducted at the premises connected with the manufacturers had resulted in seizure and detention of incriminating documents, unaccounted raw materials and finished goods.

It was argued that searches were also carried out at the premises of transporters, dealers and railway stations, where consignments of “Sir” brand Gutkha and Pan Masala allegedly cleared clandestinely were seized.

The Revenue relied upon statements of various persons, including persons connected with M/s Shankar Enterprises. Particular reliance was placed upon statements concerning alleged dispatches of Gutkha and Pan Masala without bills through rail and road transport.

The Revenue submitted that the material gathered during investigation was sufficient to establish clandestine clearance of excisable goods without issuance of invoices and without payment of duty.

It was further contended that the Adjudicating Authority was entitled to rely upon statements recorded during investigation and that the CESTAT had erred in treating retracted statements as requiring independent corroboration.

According to the Revenue, the CESTAT had wrongly ignored the cumulative effect of the evidence, witness statements, third-party documents and alleged corroborative circumstances.

The Revenue also argued that statements recorded under Section 14 of the Central Excise Act, 1944 were legally relevant and could be taken into consideration as evidence of statutory violations.

Respondent’s Arguments — Assessee

The assessee contended that the demands and penalties were founded mainly upon third-party records, particularly transport-related records, and upon statements of persons connected with transporters, manufacturers, dealers, purchasers, railway booking operations and buyers or re-sellers.

It was argued that the manufacturers sold their goods on an ex-factory basis at ex-factory prices and that, after taking delivery, the buyers themselves arranged transportation.

The assessee maintained that the manufacturers were neither consignors nor consignees in the relevant third-party transport records, including railway records.

It was further argued that almost all persons whose statements had been relied upon either retracted their earlier statements or their statements failed to withstand cross-examination during adjudication proceedings.

The assessee submitted that statements allegedly obtained under threat, pressure, coercion or duress could not constitute reliable evidence for confirming a serious charge of clandestine removal.

Reliance was also placed upon Section 9D of the Central Excise Act, 1944 regarding the statutory manner in which statements may be admitted and relied upon in evidence.

The respondent further argued that clandestine removal is a serious allegation and must be established through sufficient, tangible and cogent evidence. A duty demand could not be confirmed merely on presumptions, assumptions, retracted statements or unsupported third-party records.

Court Order / Findings

The Allahabad High Court found no basis to interfere with the findings recorded by the CESTAT.

The Court observed in the connected lead judgment that persons whose statements had been relied upon had retracted their statements during cross-examination before the Adjudicating Authority and had alleged that their earlier statements were recorded under duress.

The Court found that the question was essentially one concerning the weight and appreciation of evidence.

The High Court reiterated that clandestine removal is a serious charge and that the Revenue must produce clinching evidence to discharge the burden of establishing such an allegation against a manufacturer.

The Court noted the absence of sufficient independent incriminating material capable of substantiating the allegation of clandestine removal. No adequate discrepancy in accounting of raw materials or finished goods, or other cogent evidence independently establishing clandestine manufacture and clearance, was demonstrated before the Court.

The Court further found no perversity in the CESTAT’s conclusion that the manufacturers were neither consignors nor consignees in the alleged third-party transportation records.

The findings of the CESTAT that the persons whose statements were relied upon had either retracted their earlier statements or that such statements did not withstand cross-examination were held not to suffer from an error of law.

The High Court held that no question of law, much less any substantial question of law, arose for consideration under Section 35G of the Central Excise Act, 1944.

Accordingly, the connected appeals were dismissed as being devoid of merit.

In the specific order concerning Commissioner, Central GST and CX vs M/s Shankar Enterprises, Central Excise Appeal No. 15 of 2022, the High Court expressly recorded:

“The appeal is dismissed.”

The Court further directed that, for the detailed reasons, reference be made to the order of the same date passed in Central Excise Appeal No. 14 of 2022.

Important Clarification

The order in Central Excise Appeal No. 15 of 2022 is a short connected order and does not independently reproduce the complete factual and legal reasoning. Its dismissal expressly follows the detailed order passed on the same date in the connected lead matter, Central Excise Appeal No. 14 of 2022.

Therefore, the legal reasoning applicable to the dismissal must be understood in the context of the connected judgment.

The ruling should not be interpreted as laying down that every statement recorded under Section 14 of the Central Excise Act, 1944 is inadmissible or incapable of evidentiary use. The crucial distinction concerns the evidentiary weight to be attached to statements where they are subsequently retracted, challenged in cross-examination, alleged to have been obtained under coercion or duress, and are not supported by sufficient independent corroborative evidence.

The High Court’s central finding was that a serious allegation of clandestine removal cannot be sustained merely through presumptions and assumptions or solely on retracted confessional statements and unsupported third-party records where sufficient tangible and clinching evidence is absent.

Sections Involved

Section 35G of the Central Excise Act, 1944 — Appeal to the High Court where the case involves a substantial question of law.

Section 14 of the Central Excise Act, 1944 — Power to summon persons to give evidence and produce documents in inquiries under the Act.

Section 9D of the Central Excise Act, 1944 — Relevancy and evidentiary treatment of statements made and signed before a Central Excise Officer, subject to statutory conditions.

Link to Download the Order  https://mytaxexpert.co.in/uploads/1783401360_1064compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.