CESTAT Delhi Quashes DGGI Excise Demand for Relying on Investigation Statements Without Mandatory Section 9D Compliance
Pranav B Prem
The Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside the excise duty demand and penalties imposed on Sagar Freshners Pvt. Ltd.—a Jaipur-based manufacturer of scented supari—as well as on its Director, after finding that the Directorate General of GST Intelligence (DGGI) had relied on investigation statements without following the mandatory procedure under Section 9D of the Central Excise Act, 1944. The Tribunal held that the Commissioner’s order was fundamentally flawed because it treated statements recorded during investigation as substantive evidence without satisfying the statutory precondition of examining the makers of those statements before the adjudicating authority.
The Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Member – Technical) observed that Section 9D(1) provides a clear and exhaustive framework governing the evidentiary value of statements. It clarified that although statements recorded under Section 14 during investigation can be used, they cannot automatically be treated as evidence unless the adjudicating authority either (i) examines the person who made the statement in the course of adjudication, or (ii) records a written satisfaction that the circumstances under Section 9D(1)(a) exist (such as death, illness, or inability to appear). Only after these steps is the assessee to be granted an opportunity of cross-examination. The Tribunal found that none of these mandatory requirements were fulfilled in the present case.
The DGGI had carried out searches at the factory premises and at the residence of the Director, alleging (a) excess stock of scented supari, (b) loose sheets recovered from the residence, and (c) the capability of 16 automatic pouch packing machines. Based on these findings, the department concluded that the company’s true production was nearly five times higher than declared and that the assessee had cleared goods without invoices while wrongly availing SSI exemption despite crossing the ₹400-lakh limit. A show cause notice dated 30 October 2019 invoked the extended period of limitation and proposed recovery of excise duty, along with interest and penalties.
The adjudicating authority confirmed the demand and the Commissioner (Appeals) upheld it, relying primarily on the statements of the Director, the Supervisor and suppliers of packing material recorded under Section 14 during investigation. Retractions were brushed aside, and requests for cross-examination were rejected on the reasoning that cross-examination would not dilute the evidentiary value of the statements. This approach was rejected in its entirety by CESTAT.
The Tribunal noted that the adjudicating authority neither examined the Director and the Supervisor as witnesses nor recorded any written satisfaction under Section 9D(1)(b) that justified dispensing with such examination. As a result, the Tribunal held that the statements could not be treated as legally admissible evidence and must be ignored altogether. Since the entire demand rested on those statements, the Tribunal found that there was no independent corroboration of clandestine manufacture or removal. It emphasised that loose sheets seized from the Director’s residence, absence of consumption records, and theoretical machine-capacity calculations cannot, in isolation, establish clandestine removal and held that the department had not discharged the burden of proving suppression of production.
CESTAT also observed that the Commissioner had invoked the extended period of limitation without demonstrating deliberate suppression when the entire investigation was based on documents and statements available with the department. As a corollary, the penalties imposed on the Director were also found unsustainable.
Finding that the impugned order was built entirely on statements rendered inadmissible due to non-compliance with Section 9D, and that there was no independent evidence of clandestine removal, the Tribunal set aside the order-in-appeal in full and allowed both appeals filed by the assessee and the Director, granting consequential relief in accordance with law.
Appearance
Counsel For Appellant: Arun Goyal, Advocate
Counsel For Respondent: Bhagwat Dayal, Authorized Representative
Cause Title: M/s. Sagar Fresheners Pvt. Ltd. Versus The Principal Commissioner
Case No: Excise Appeal No. 51451 Of 2022
Coram: Justice Dilip Gupta (President), P.V. Subba Rao (Member – Technical)
