Clandestine-removal demand cannot be sustained on unproduced and unreliable seized documents.

The appellant manufactured evaporating air coolers classifiable under sub-heading 8479 60 00 of the First Schedule to the Central Excise Act, 1944.

A search was conducted on 26 March 2010 at the appellant’s factory, godowns and premises connected with its proprietor. The Department alleged that the documents and statements collected during the investigation established clandestine removal of excisable goods and issued show-cause notices proposing confiscation and recovery of Central Excise duty.

In the first round of litigation, the Tribunal remanded the matter with directions that the statements relied upon by the Department must be admitted in evidence in accordance with Section 9D of the Central Excise Act before being used against the appellant, and that the adjudicating authority should reconsider the evidentiary basis of the demand.

During the de novo proceedings, the appellant sought cross-examination of ten witnesses; only three were cross-examined. The adjudicating authority nevertheless confirmed a duty demand of ₹72,33,463 for 2008–09 and 2009–10, along with interest and an equivalent penalty, based substantially on the alleged “Neel Gagan Ledger” and other documents said to have been seized during the search.

The appellant contended that the Neel Gagan Ledger and other relied-upon documents were never supplied to it or produced before the adjudicating authority despite repeated requests. The appellant further relied on the testimony of the panch witnesses, the occupant of the searched premises and the seizing officer to challenge the recovery and authenticity of those documents.

1. Whether the demand for Central Excise duty based on the Neel Gagan Ledger and other documents allegedly seized during the search could be sustained when those documents were neither supplied to the appellant nor produced in the adjudication proceedings and their recovery was disputed?

2. Whether the statements relied upon by the Department could be used against the appellant without full compliance with Section 9D of the Central Excise Act, 1944 and effective cross-examination of the persons who made those statements?

3. Whether the appellant’s clearances, after excluding the unreliable and unproved figures, exceeded the SSI exemption limit under Notification No. 8/2003-C.E. dated 1 March 2003, thereby attracting Central Excise duty, interest and penalty?

The Tribunal applied Section 9D of the Central Excise Act, 1944, which requires statements recorded during investigation to be properly admitted in evidence before they can be relied upon against an assessee, ordinarily involving examination and cross-examination in the circumstances prescribed by the provision.

It relied on the principles stated in G. Tech Industries v. Union of India, 2016 (339) E.L.T. 209 (P&H), Jindal Drugs Pvt. Ltd. v. Union of India, 2016 (340) E.L.T. 67 (P&H), Manek Chemicals Pvt. Ltd. v. Union of India, 2016 (334) E.L.T. 302 (Guj.), and Ambika International Pvt. Ltd. v. Union of India, 2018 (36) E.L.T. 90 (P&H), that statements cannot be relied upon without compliance with Section 9D and an adequate opportunity of cross-examination.

The Tribunal also applied the evidentiary principle that an adjudication cannot rest on documents that are not produced, disclosed or proved, particularly where their recovery and contents are disputed.

Finally, it applied Notification No. 8/2003-C.E. dated 1 March 2003, under which clearances within the prescribed SSI exemption limit of ₹1.5 crore were exempt from duty.

The Tribunal found that the Neel Gagan Ledger constituted the principal basis of the demand, but the Department neither supplied it to the appellant nor produced it before the adjudicating authority or the Tribunal.

The panch witness disputed the recovery of the documents, and the evidence concerning the timing and preparation of the panchnama was materially contradictory, rendering the panchnama and the alleged seized documents unreliable.

The Tribunal also held that the proprietor’s statement was not an inculpatory admission because he had stated that he had not been shown the documents and that the entries were merely rough entries whose origin he did not know.

Consequently, the documents and statements could not lawfully support the clandestine-removal allegation.

After excluding the clearances attributed to the unreliable Neel Gagan Ledger and the disputed dispatch records, the remaining clearances for both financial years fell within the SSI exemption limit under Notification No. 8/2003-C.E.

Since the primary evidence failed and the remaining turnover did not exceed the exemption threshold, the statutory basis for the duty demand disappeared. The associated interest and penalty also could not survive.

The Neel Gagan Ledger and other disputed documents could not be relied upon because they were not produced or supplied to the appellant, their recovery was doubtful, and the statements relied upon were not established in accordance with Section 9D of the Central Excise Act.

After excluding the unsupported clearances, the appellant remained within the SSI exemption limit for both 2008–09 and 2009–10.

Accordingly, the demand of ₹72,33,463, interest and equivalent penalty were set aside, the impugned order was quashed, and the appeal was allowed with consequential relief, if any.