2025 (6) TMI 1008 - HC - Central Excise

Clandestine removal - Statement recorded contrary to provisions of Section 9D qualify to be Statement in Chief or not - reliance placed upon statements recorded contrary to Section 9D and without cross examination of such witnesses - appellant has provided Mandap Keeper Services without evidence of provision of service - abatement in value of service available in terms of N/N.01/2006-ST dated 01.03.2006. HELD THAT - In the instant case it is not the case of the appellant that where any of the circumstances mentioned in clause (a) of sub-section (1) of Section 9D of the Central Excise Act 1944 exist. Therefore clause (b) of sub-section (1) of Section 9D would come into operation. The object beyond enacting clause (b) of sub-section (1) of Section 9D of the Central Excise Act 1944 is explicitly clear. The statement recorded during inquiry/investigation by the Gazetted Central Excise Officer has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that on many occasions the Central Excise Officers or the Service Tax Officers resort to compulsion in order to extract confessional statements and in order to neutralise the effect of compulsion before admitting such a statement in evidence clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating authority so as to eliminate any scope of pressure or undue influence on the part of the investigating agencies. For this the adjudicating authority has to summon the person who had made the statement examine him as witness before him in the adjudication proceeding and arrive at an opinion that having regard to the circumstances of the case the statement should be admitted in the interests of justice. In the matter of Andaman Timber Industries v. Commissioner of Central Excise Kolkata-II 2015 (10) TMI 442 - SUPREME COURT in which the request of the appellant therein seeking cross-examination of witnesses was not dealt with by the adjudicating authority in the order and was not granted by the competent authority their Lordships of the Supreme Court interfering with the order of the adjudicating authority and the appellate authorities held that the assessee disputed the correctness of the statements and wanted to cross-examine the impugned order suffers from serious flaw and is in violation of principles of natural justice. Turning to the facts of the present case it is quite vivid that in the instant case also the statement of Mr. Satish Kumar Pachouri Manager (Operations) was recorded under Section 14 of the Central Excise Act 1944 which was disputed by the appellant/assessee in paragraph 13 of his reply to show cause and specifically demanded opportunity to cross-examine him to unearth the truth as according to the assessee the Revenue has heavily relied upon his statement but the adjudicating authority rejected the same holding that he is the employee of the assessee and no specific reason was attributed requesting for such cross-examination which is in violation of the principles of natural justice as because of non-affording of the opportunity of cross-examination the appellant/assessee was adversely affected as held by their Lordships of the Supreme Court in Andaman Timber Industries. The appellant was entitled to cross-examine Mr. Satish Kumar Pachouri Manager (Operations) the opportunity of which ought to have been given which has not been given and the impugned order came to be passed in violation of the principles of natural justice. Whether Hon ble CESTAT was correct in law in holding that appellant has provided Mandap Keeper Services without evidence of providing service and is liable to pay service tax on total receipts? - HELD THAT - By letter dated 30-6-2014 addressed to the Superintendent (Adj) Central Excise Head Quarters Central Excise Building Raipur it was informed by the Superintendent (STC) Office of the Deputy Commissioner Service Tax Division Raipur that non-relied documents have been returned to the assessee. As such the documents which have been relied upon by the adjudicating authority in paragraph 40(c) of the order in original have been returned to the assessee as not relied upon documents and non-relied documents have been held by the adjudicating authority to show that the noticee has been engaged in rendering services under the category of Mandap Keeper - the documents relied upon in paragraph 40(c) of the order in original had already been returned to the appellant/assessee by the Revenue and same have been held by the adjudicating authority to be the non-relied documents yet they have been considered and on the basis of the same it has been held by the adjudicating authority that the appellant/assessee has been engaged in rendering services under the category of Mandap Keeper as non-relied upon documents which have been returned ought not to have been considered by the adjudicating authority. Conclusion - The order in original dated 20-1-2015 passed by the adjudicating authority and the order impugned dated 26-4-2023 passed by the CESTAT are liable to be set aside and are hereby set aside. The matter is remitted to the adjudicating authority for providing opportunity to cross-examine the witness(es) relied upon by the Revenue to the appellant and to pass order afresh after hearing the parties in accordance with law within three months from the date of receipt of a copy of this order after considering the material available on record. Petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court formulated four substantial questions of law for determination:

(i) Whether statements recorded contrary to the provisions of Section 9D of the Central Excise Act, 1944 qualify as statements in chief and can be relied upon to confirm demand?

(ii) Whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) was correct in law to confirm demand relying upon statements recorded contrary to Section 9D and without allowing cross-examination of such witnesses?

(iii) Whether the CESTAT was correct in law in holding that the appellant provided Mandap Keeper Services without evidence of such service provision and is liable to pay service tax on total receipts?

(iv) Whether CESTAT was correct in confirming the demand without allowing abatement in value of service as per Notification No.01/2006-ST dated 01.03.2006?

For convenience, question (iii) was reformulated as whether the appellant was liable to pay service tax on total receipts for Mandap Keeper Services without evidence of providing such service.

2. ISSUE-WISE DETAILED ANALYSIS

Issues (i) and (ii): Admissibility and Reliance on Statements under Section 9D and Cross-Examination

Legal Framework and Precedents: Section 14 of the Central Excise Act empowers officers to record statements during inquiries, which are deemed judicial proceedings under IPC Sections 193 and 228. Section 9D of the Central Excise Act governs the relevancy and admissibility of such statements. It permits admission of statements in prosecutions only under specific conditions:

• Clause (a) applies when the declarant is dead, cannot be found, is incapable of giving evidence, is kept away by adverse party, or presence causes unreasonable delay or expense.
• Clause (b) applies when the declarant is examined as a witness before the Court (or adjudicating authority) and the Court/opinion-holder admits the statement in the interests of justice.

Section 9D(2) extends these provisions to proceedings before adjudicating authorities under the Act.

Supreme Court precedents (T. Ashok Pai v. CIT; Vinod Solanki v. Union of India; Kothari Filaments v. Commissioner of Customs) establish that adjudication under the Act is quasi-judicial and bound by principles of evidence and natural justice.

Section 138 of the Indian Evidence Act mandates that evidence-in-chief precedes cross-examination, which precedes re-examination.

The Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise held that denial of opportunity to cross-examine witnesses whose statements formed the basis of the order violates natural justice and renders the order nullity.

The Chhattisgarh High Court in Hi Tech Abrasives Ltd. v. Commissioner of Central Excise & Customs emphasized strict and mandatory compliance with Section 9D, requiring examination of the declarant before the adjudicating authority and formation of an opinion to admit the statement in the interest of justice, to prevent coercion or undue influence during investigation.

Court's Interpretation and Reasoning: The Court noted that the appellant disputed the statement of Mr. Satish Kumar Pachouri, Manager (Operations), recorded under Section 14 during search and investigation. The appellant sought cross-examination of this witness, which was denied by the adjudicating authority on the ground that the witness was an employee of the appellant and no specific reason was given for cross-examination. The CESTAT did not address this issue.

The Court held this denial to be a violation of natural justice principles, referencing the Supreme Court's decision in Andaman Timber Industries. The Court emphasized that Section 9D(b) requires the declarant to be examined as a witness before the adjudicating authority and that the authority must form an opinion to admit the statement in the interest of justice. The denial of cross-examination prevented the appellant from effectively challenging the statement, adversely affecting the appellant.

The Court further distinguished the decision in Commissioner of Central Excise v. Kalvert Foods India Pvt. Ltd., noting that the facts there involved voluntary statements without coercion, which is not the case here.

Key Evidence and Findings: The statement of Mr. Pachouri was heavily relied upon by the Revenue. The appellant specifically requested cross-examination, which was refused. The adjudicating authority also relied on documents which were subsequently returned as non-relied upon.

Application of Law to Facts: Since none of the conditions in Section 9D(1)(a) applied, the procedural safeguards under Section 9D(1)(b) were mandatory. The failure to allow examination and cross-examination of the declarant before the adjudicating authority violated these provisions and principles of natural justice.

Treatment of Competing Arguments: The Revenue argued that the statements were admissible and the demand rightly confirmed, relying on the employee status of the witness and prior precedent. The Court rejected this, emphasizing the mandatory nature of Section 9D and the necessity of cross-examination to ensure fairness.

Conclusion: The Court held that reliance on the statements recorded under Section 14 without allowing cross-examination and without compliance with Section 9D was impermissible. The adjudicating authority and CESTAT erred in confirming the demand on this basis.

Issue (iii): Liability for Mandap Keeper Services Without Evidence of Service Provision

Legal Framework and Precedents: Service tax liability arises only upon provision of taxable services as defined under the Finance Act, 1994. Mere receipt of amounts without evidence of rendering service does not constitute taxable service. The appellant relied on the returned documents (bills, bank statements, payment vouchers) which were held as non-relied upon by the Revenue and returned to the appellant.

Court's Interpretation and Reasoning: The Court observed that the adjudicating authority relied on documents seized during search but later returned as non-relied upon. Despite this, the authority treated these documents as evidence that the appellant rendered Mandap Keeper Services and confirmed the demand on total receipts.

Key Evidence and Findings: The documents relied upon to establish provision of Mandap Keeper Services were returned to the appellant as non-relied upon, undermining their evidentiary value. No independent evidence was produced to establish that such services were actually provided.

Application of Law to Facts: Since the documents considered were not relied upon and were returned, and the statement of the key witness was inadmissible for reasons discussed above, the demand based on total receipts for Mandap Keeper Services lacked evidentiary foundation.

Treatment of Competing Arguments: The Revenue maintained that the statement and documents sufficed to confirm the demand. The Court rejected this, emphasizing the inadmissibility of the statement without cross-examination and the non-reliance on the returned documents.

Conclusion: The Court held that the demand for service tax on total receipts for Mandap Keeper Services without evidence of rendering such service was unsustainable.

Issue (iv): Abatement in Value of Service

This issue was raised but not specifically addressed in detailed reasoning by the Court. The focus was primarily on the admissibility of evidence and the existence of service. Since the demand itself was set aside for lack of evidence and procedural violations, the question of abatement did not require separate adjudication at this stage.

3. SIGNIFICANT HOLDINGS

"The statement, recorded during inquiry/investigation, by the Gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the Central Excise Officers or the Service Tax Officers resort to compulsion in order to extract confessional statements and in order to neutralise the effect of compulsion before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating authority so as to eliminate any scope of pressure or undue influence on the part of the investigating agencies."

"Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected."

"The provisions contained in Section 9D have to be construed strictly and are mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the adjudicating authority."

"The documents which have been relied upon by the adjudicating authority and subsequently returned to the appellant as non-relied upon documents ought not to have been considered."

"The appellant was entitled to cross-examine Mr. Satish Kumar Pachouri, Manager (Operations), the opportunity of which ought to have been given which has not been given and the impugned order came to be passed in violation of the principles of natural justice."

"Consequently, the order in original and the order impugned passed by the CESTAT are liable to be set aside. The matter is remitted to the adjudicating authority for providing opportunity to cross-examine the witness(es) relied upon by the Revenue to the appellant and to pass order afresh after hearing the parties, in accordance with law."