Facts of the Case

The appellant, a proprietorship firm engaged in manufacturing bare copper wires, was subjected to search and seizure operations by Central Excise authorities based on intelligence alleging clandestine removal of goods without payment of duty.

During the search conducted on 8 November 2011 at factory and residential premises, authorities seized unaccounted finished goods and raw materials along with incriminating documents such as kacha parchis and private records indicating unaccounted transactions. Similar searches were conducted at a third-party entity, M/s Reliance Cable Industries, revealing corroborative evidence.

Statements of the proprietor were recorded multiple times under Section 14 of the Act. A Show Cause Notice was issued demanding duty of ₹4.46 crore along with interest and penalty. The Commissioner confirmed the demand, which was upheld by CESTAT. The present appeal was filed before the Delhi High Court under Section 35G.

Issues Involved

  1. Whether searches conducted allegedly without Panch witnesses violate statutory provisions and invalidate proceedings.
  2. Whether documents recovered during such searches can be relied upon for confirming duty demand.
  3. Whether retracted statements recorded under Section 14 can form the sole basis of demand.
  4. Whether denial or failure of cross-examination of witnesses vitiates the adjudication.
  5. Whether corroborative evidence from third parties can be relied upon without confrontation.
  6. Whether the case raises a substantial question of law under Section 35G.

Petitioner’s Arguments

  • Searches were illegal as they were conducted in violation of Section 18 of the Central Excise Act read with Section 100 CrPC due to absence of Panch witnesses.
  • Documents recovered during such illegal searches cannot be relied upon.
  • Statements recorded were involuntary, obtained under coercion, and later retracted.
  • Cross-examination of Panch witnesses and other witnesses was denied; hence their statements should be excluded.
  • Demand was based on unverified charts and third-party documents not confronted during investigation.
  • No corroborative evidence existed regarding manufacture, transportation, or sale of alleged goods.

Respondent’s Arguments

  • The appellant had admitted recovery of documents and clandestine activities in multiple statements.
  • Retraction was an afterthought and unsupported by evidence.
  • Adequate opportunities for cross-examination were provided; appellant chose to proceed without it.
  • Evidence from third parties, transporters, and seized records corroborated clandestine removal.
  • The issue raised was factual and not a substantial question of law. 

Court’s Findings / Order

  • The Court upheld the findings of CESTAT and dismissed the appeal.
  • It held that allegations of coercion were unsupported and contradicted by repeated consistent statements of the appellant.
  • The appellant had voluntarily proceeded without insisting on cross-examination; thus, cannot later challenge it.
  • The issue regarding legality of search and evidentiary value was purely factual and already adjudicated.
  • Reliance on corroborative evidence including third-party statements and transport records was valid.
  • No substantial question of law arose; hence the appeal under Section 35G was not maintainable.

Important Clarifications

  • Retracted statements can still be relied upon if corroborated and repeatedly affirmed.
  • Failure to insist on cross-examination at adjudication stage weakens later challenge.
  • Clandestine removal cases can be established through circumstantial and corroborative evidence.
  • Appeal under Section 35G is limited to substantial questions of law, not factual disputes.
  • Search irregularities become irrelevant if findings are supported by independent evidence.

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:595-DB/CHS28012020CEAC192019_131038.pdf 

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