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2025 (7) TMI 411 - AT - Central ExciseClandestine removal - recording of statement of director u/s 14 of the Central Excise Act - Statements made by various persons can be used as evidence or not - HELD THAT - There is nothing in the impugned order to show that the Commissioner examined Shri Mahendra Choudhary as a witness and admitted his statement as evidence. Therefore his statement (RUD-9 to the SCN) cannot be relied upon. The income tax officers are empowered to examine persons on oath and to record statements under the above sections. The sections also make it explicit that the statements so made can be used for the purpose of proceedings under the Income Tax Act 1961 or its predecessor Act namely Income Tax Act 1922 - Nothing in any of the sections of the Income Tax Act states that the statements so recorded can also be used as evidence to prove any case under the Central Excise Act 1944. Nothing in the Central Excise Act 1944 also says that the statements record under the Income Tax Act by the income tax officers can be used as evidence in the proceedings under the Central Excise Act. In this case the allegation is of clandestine manufacture removal and sale of goods. While the information or documents provided by the income tax authorities could have been used to start an investigation clandestine manufacture and removal must be established to demand Central Excise duty. While it is true that clandestine activities cannot be established to mathematical accuracy there must at least be sufficient evidence to establish the alleged clandestine manufacture. In this case none is found. The Central Excise officers could have used the information received from the income tax and conducted an investigation as per the provisions of the Central Excise Act and could perhaps have made out a case. However no investigation was conducted and the SCN was issued relying on the statements recorded under and documents seized under the Income tax Act 1961. Penalties on other appellants - HELD THAT - Since it is found that the demand of duty interest and penalties on Emgee cannot be sustained these consequential personal penalties also need to be set aside. It is also found that the Rules under which the penalties were imposed also do not provide for penalties even if the demand against Emgee was upheld. Rule 209A of the Central Excise Rules 1944 and Rule 26 of the Central Excise Rules 2001 provided for imposing penalty on persons for acts which rendered goods liable to confiscation. Rule 26 of the Central Excise Rules 2002 in addition also provided for imposing penalty if any documents are issued without delivering goods so as to enable the recipient to avail ineligible CENVAT credit. In this case no goods have been confiscated nor have any goods been held liable to confiscation. There is also no allegation that any invoices were issued without supplying goods so as to enable the recipient to take ineligible CENVAT credit. Therefore no penalty can be imposed under any of the three Rules. The confirmation of demand of duty with interest and penalties on Emgee cannot be sustained and need to be set aside - Appeal allowed.
The core legal questions considered in this judgment are:
1. Whether the statements and documents obtained by the Income Tax Department can be used as evidence to establish liability for Central Excise duty and penalties under the Central Excise Act, 1944. 2. Whether the demand of Central Excise duty on the appellant company for alleged clandestine removal and under-valuation of goods is sustainable in the absence of an independent investigation by the Central Excise Department. 3. Whether the penalties imposed on the appellant company and other individuals under Rule 209A of the Central Excise Rules, 1944 and its corresponding provisions in the Central Excise Rules, 2001 and 2002 are legally tenable. 4. The evidentiary value and admissibility of statements recorded under the Income Tax Act, 1961, and their applicability in Central Excise proceedings. 5. The applicability and scope of penalties under the relevant Central Excise Rules in the absence of confiscation of goods or issuance of false invoices to claim ineligible CENVAT credit. Issue-wise Detailed Analysis 1. Use of Income Tax Department's Statements and Documents as Evidence in Central Excise Proceedings The legal framework involves Section 9D of the Central Excise Act, 1944, which governs the relevancy and admissibility of statements made before Central Excise officers in inquiries or proceedings under the Act. It requires that such statements be recorded by a Gazetted Central Excise officer and be admitted in evidence after following prescribed procedures. None of the statements recorded by the Income Tax authorities satisfy these conditions. The Income Tax Act, 1961 provisions (Sections 131, 132, 133A, and 133H) empower Income Tax officers to record statements and seize documents during their investigations. These statements are admissible in proceedings under the Income Tax Act but there is no provision permitting their use as evidence in Central Excise proceedings. The Court reasoned that the statements and documents seized by Income Tax authorities cannot be directly used to prove Central Excise violations. The absence of any independent investigation or examination under the Central Excise Act further weakens the Revenue's case. The Court emphasized the distinction between the purposes and procedures of the two Acts and held that the statements under the Income Tax Act have no evidentiary value in Central Excise matters. Consequently, the Court rejected the Revenue's reliance on Income Tax records and statements to establish clandestine removal or duty evasion under the Central Excise Act. 2. Sustainability of Demand for Central Excise Duty Based on Income Tax Investigation The demand of Rs. 68,16,137/- Central Excise duty with interest and penalty was based on the allegation that the appellant clandestinely removed goods without paying duty, supported by documents and statements obtained during Income Tax searches and surveys. The Court highlighted the essential elements for charging excise duty: a taxable event (manufacture or production), clear identification of the person liable to pay duty, the applicable rate, and the measure of duty. The taxable event for excise is manufacture or production, whereas income tax is levied on income irrespective of manufacture. The Court found that the Revenue's case lacked evidence of clandestine manufacture or removal established through an independent Central Excise investigation. The mere availability of documents from Income Tax searches was insufficient to prove the excise liability. The Court noted that while clandestine activities cannot be established with mathematical precision, there must be sufficient evidence to support the charge, which was absent here. The Court concluded that the demand of duty, interest, and penalties against the appellant could not be sustained and must be set aside. 3. Penalties Imposed under Central Excise Rules on Appellant and Other Individuals The Commissioner imposed penalties on the appellant and other individuals under Rule 209A of the Central Excise Rules, 1944, read with Rule 26 of the Central Excise Rules, 2001 and 2002. These Rules impose penalties on persons who deal with excisable goods liable to confiscation or who issue invoices/documents enabling ineligible CENVAT credit claims. The Court examined the text of these Rules and found that:
In the present case, no goods were confiscated nor held liable to confiscation. There was also no allegation or evidence that false invoices were issued to claim ineligible CENVAT credit. Therefore, the conditions for imposing penalties under these Rules were not fulfilled. The Court further noted that the Commissioner's findings imposing penalties were based on the same flawed evidence derived from Income Tax investigations, which was inadmissible. The penalties imposed on the appellant and other individuals were thus legally untenable and deserved to be set aside. 4. Treatment of Competing Arguments The appellant argued that the documents and statements from Income Tax investigations were inadmissible in Central Excise proceedings and that no independent investigation was conducted by Central Excise authorities. The appellant also contended that the amounts received pertained to trading activities, not manufacture, and hence not liable to excise duty. The Revenue relied heavily on the Income Tax investigation materials and statements to establish clandestine removal and under-valuation of goods. The Revenue contended that the statements and documents were sufficient to confirm the demand and penalties. The Court rejected the Revenue's arguments on the admissibility and sufficiency of Income Tax evidence, emphasizing the need for independent Central Excise investigation and proper adherence to evidentiary rules. The Court also rejected the penalty imposition due to the absence of confiscation or false invoicing allegations. 5. Conclusions The Court concluded that:
Significant Holdings "Nothing in any of these sections of the Income Tax Act states that the statements so recorded can also be used as evidence to prove any case under the Central Excise Act, 1944. Nothing in the Central Excise Act, 1944 also says that the statements record under the Income Tax Act by the income tax officers can be used as evidence in the proceedings under the Central Excise Act." "While it is true that clandestine activities cannot be established to mathematical accuracy, there must at least be sufficient evidence to establish the alleged clandestine manufacture. In this case, we find none." "No goods have been confiscated nor have any goods been held liable to confiscation. There is also no allegation that any invoices were issued without supplying goods so as to enable the recipient to take ineligible CENVAT credit. Therefore, no penalty can be imposed under any of the three Rules." "The penalties imposed on Shri Kushal Raj Jain, Shri Jayesh Mehta and Shri Sanjay Punjwani deserve to be set aside." "The impugned order is set aside and all appeals are allowed with consequential relief, if any, to the appellants."
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