By TIOL News Service

CHANDIGARH, JUNE 29, 2016: FACTS of the case : The petitioners, claimed, and were granted, the benefit of Notification 56/2002-CE, on the clearances, effected by them, of the products stated to have been manufactured in their premises and cleared to down stream manufacturers.

Subsequently, SCNs were issued alleging that the petitioners had wrongfully availed the benefit of exemption, under Notification 56/2002-CE supra, as investigations were stated to have revealed that they were not engaged in the manufacture of finished products at all.

All the said Show Cause Notices relied on the same evidence, which was, primarily, in the form of statements, recorded under Section 14 of the Act.

Respondent CCE, Chandigarh has, by Orders-in-Original dated 19/05/2016 and 01/06/2016, adjudicated the SCNs issued to Ambika and Jay Ambey confirming the entire duty demand, with interest, and also imposed equivalent amounts as penalties.

The aforesaid two petitioners contend, in the writ petitions filed by them, that Respondent CCE, Chandigarh has committed a fatal error in adjudicating the Show Cause Notices issued to them, by relying on the statements, recorded from the persons, under Section 14 of the Act, without first admitting the said statements in evidence in accordance with the procedure prescribed, in this regard, by Section 9D of the Act.

Owing to the flawed procedure that Respondent has chosen to follow, by relying on statements recorded under Section 14 of the Act without admitting them in evidence, it is the said petitioners' submission that they have been deprived of the opportunity to test the said evidence by cross-examining the makers of the said statements.

While candidly acknowledging the fact that the Orders-in- Originalare appealable, u/s 35B of the CEA, 1944 to the CESTAT the petitioners seek to justify invocation of the writ jurisdiction of this Court essentially on the ground that any appeal, to the Tribunal would, by virtue of the amended provisions of Section 35F, had to be accompanied by pre-deposit of 7 ½% of the duty demand confirmed against them which, they contend, would, in view of the fact that the said Orders-in- Original had been passed in flagrant violation of the mandatory provisions of Section 9D of the Act, be entirely unjustified. [ Ganesh Yadav vs. U.O.I., - 2015-TIOL-1490-HC-ALL-ST refers].

The High Court extracted the said provision, in extenso, and observed:

+ a plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein.

+ para 12 of the Delhi High Court decision in J.K. Cigarettes Ltd. dated 28.08.2009 [ WP (C) No. 1854 of 1992, 1895/1992, 1896/1992, 1897/1992 and 1898/1992] clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well.

+ in the absence of the circumstances specified in Section 9D(1), the truth of the facts contained in any statement, recorded before a gazetted Central Excise Officer, has to be proved by evidence other than the statement itself. The evidentiary value of the statement, insofar as proving the truth of the contents thereof is concerned, is, therefore, completely lost, unless and until the case falls within the parameters of Section 9D(1).

+ the consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating authority relies on the statement, recorded during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.

+ it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.

+ if none of the circumstances contemplated by clause (a) of Section 9D (1) exists, clause (b) of Section 9D (1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence.

+ there is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word "shall" in Section 9D (1), makes it clear that, the provisions contemplated in the sub-Section are mandatory.

+ in view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the gazetted Central Excise officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudicating 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.

+ clearly, if this procedure, which is statutorily prescribed by plenary Parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.

+ the Orders-in-Original, dated 19/05/2016 and 01/06/2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.

Conclusion:

++ insofar as the writ petitions filed by M/s Ambika International CWP 12615 of 2016 and M/s Jay Ambey Aromatics CWP 12617 of 2016 are concerned, they are allowed by setting aside the Orders-in-Original, dated 19/05/2016 and 01/06/2016, passed by Respondent No 2 and impugned therein.

++ resultantly, the Show Cause Notices, issued to Ambika and Jay Ambey, are remanded, to Respondent No 2 for adjudication de novo , by following the procedure contemplated by Section 9D of the Act, and the law laid down by various judicial authorities in this regard, including the principles of natural justice, in the following manner:

(i) In the event that the Revenue intends to rely on any of the statements, recorded under Section 14 of the Act and referred to in the Show Cause Notices issued to Ambika and Jay Ambey, it would be incumbent on the Revenue to apply to Respondent No 2 to summon the makers of the said statements, so that the Revenue would examine them in chief before the adjudicating authority, i.e. before Respondent No 2.

(ii) A copy of the said record of examination-in-chief, by the Revenue, of the makers of any of the statements on which the Revenue chooses to rely, would have to be made available to the assessee, i.e. to Ambika and Jay Ambey in this case.

(iii) Statements recorded during investigation, under Section 14 of the Act, whose makers are not examined in chief before the adjudicating authority, i.e. before Respondent No 2, would have to be eschewed from evidence, and it would not be permissible for Respondent No 2 to rely on the said evidence while adjudicating the matter. Neither, needless to say, would be open to the Revenue to rely on the said statements to support the case sought to be made out in the Show Cause Notice.

(iv) Once examination-in-chief, of the makers of the statements, on whom the Revenue seeks to rely in adjudication proceedings, takes place, and a copy thereof is made available to the assessee, it would be open to the assessee to seek permission to cross-examine the persons who have made the said statements, should it choose to do so. In case any such request is made by the assessee, it would be incumbent on the adjudicating authority, i.e. on Respondent No2 to allow the said request, as it is trite and well- settled position in law that statements recorded behind the back of an assessee cannot be relied upon, in adjudication proceedings, without allowing the assessee an opportunity to test the said evidence by cross-examining the makers of the said statements. If at all authority is required for this proposition, reference may be made to the decisions of the Hon'ble Supreme Court in Arya Abhushan Bhandar v U.O.I., 2002 (143) ELT 25 (SC), Swadeshi Polytex v Vollector, 2000 (122) ELT 641 (SC).

++ the case of M/s Fine Aromatics CWP 12616 of 2016 and M/s Shiva Mint Industries CWP 12618 of 2016, are presently pending adjudication before Respondent No.2. No further orders would be required to be passed, in the said writ petitions, apart from directing that Respondent No.2 would adjudicate the said Show Cause Notices by following the procedure prescribed in para 33 supra. Therefore, CWP 12616 of 2016 and 12618 of 2016 stand disposed of accordingly.

(See 2016-TIOL-1238-HC-P&H-CX)