Supplier statements cannot sustain an excise demand without compliance with Section 9D.

GYB Steel, a proprietorship manufacturing G.I. Channels, claimed SSI exemption and was not registered with the department.

Following a search on 4 April 2013, the department alleged that GYB Steel had used unaccounted raw materials to manufacture and clandestinely clear goods, resulting in central excise duty evasion of ₹69.86 lakh.

The demand was calculated by combining clearances attributed to GYB Steel and Snowhite Plaster Industries, a separate firm owned by the proprietor’s father.

The adjudicating authority confirmed the demand, interest and penalty and confiscated seized goods.

The Commissioner (Appeals) set aside the demand and related amounts, finding insufficient grounds to club the firms’ clearances, and reduced the confiscation-related penalty to ₹5,000.

The Revenue appealed to the Tribunal.

Whether the statements of the raw-material suppliers could be relied upon to establish that Snowhite Plaster Industries was a dummy unit and that its clearances should be clubbed with those of GYB Steel, when the statutory procedure under Section 9D had not been shown to be followed.

Whether the fact that GYB Steel’s proprietor placed orders for goods supplied to Snowhite Plaster Industries established that Snowhite was a dummy unit.

Section 9D of the Central Excise Act, 1944, read with subsection (2), governs the relevance of statements made before a Central Excise Officer in proceedings under the Act.

The Tribunal treated the statutory conditions for admitting such statements as requiring proof on the record that the statement-makers had been examined as witnesses by the adjudicating authority; absent that, the statements could not support the Revenue’s case.

The Tribunal also applied the principle that common ordering or payment arrangements, without further evidence, do not by themselves establish that a separately constituted firm is a dummy unit or justify clubbing its clearances.

The Revenue relied on suppliers’ statements to argue that goods attributed to Snowhite were actually supplied to GYB Steel and that the two firms’ clearances should be combined.

The Tribunal found no record showing that the suppliers had been examined as witnesses by the adjudicating authority, and therefore rejected the Revenue’s assertion that Section 9D had been complied with.

Independently, even accepting the statements, the fact that GYB Steel’s proprietor placed orders for goods supplied to his father’s firm did not establish that Snowhite was a dummy unit.

The Revenue’s reliance on those statements consequently did not displace the Commissioner (Appeals)’s finding against clubbing.

The demand, interest, penalty and redemption fine set aside by the Commissioner (Appeals) remained set aside, and the confiscation-related penalty remained reduced to ₹5,000.