The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal has struck down an excise duty demand and related penalties against Sagar Freshners Pvt. Ltd., a Jaipur-based manufacturer of scented supari, along with its Director. The Tribunal held that the order passed by the Commissioner was unsustainable because it relied almost entirely on investigation statements without complying with the mandatory procedure outlined in Section 9D of the Central Excise Act, 1944.
The Bench of Justice Dilip Gupta and P. V. Subba Rao ruled that statements recorded under Section 14 during the investigation cannot automatically be treated as evidence unless the adjudicating authority examines the persons who made those statements or records its written satisfaction that the statutory exceptions under Section 9D apply. Only thereafter can the assessee be granted the right to cross-examination. The Tribunal noted that none of these requirements had been followed.
The Directorate General of GST Intelligence had searched the factory and the Director’s residence, alleging excess stock of scented supari, loose papers recovered from the residence, and high production capacity due to 16 pouch packing machines. On this basis, the department alleged production nearly five times higher than reported and claimed that goods were cleared without invoices while availing SSI exemption beyond the prescribed limit. A show cause notice issued in October 2019 invoked the extended limitation period and demanded duty with interest and penalties.
The adjudicating authority confirmed the demand and the Commissioner (Appeals) upheld the decision, relying heavily on the statements of the Director, company staff, and packaging suppliers. Requests for cross-examination were denied on the ground that it would not affect the evidentiary value of those statements. The Tribunal rejected this approach, calling it fundamentally flawed.
The Tribunal found that the statements could not be considered at all because the statutory preconditions for their admissibility were ignored. With no independent evidence supporting the allegations, claims of clandestine manufacture and removal collapsed. The Bench observed that loose papers, absence of consumption records, and theoretical calculations based on machine capacity are insufficient to prove suppression of production. It also ruled that invoking the extended period required proof of deliberate evasion, which was missing.
Since the entire case rested on inadmissible statements, the Tribunal set aside the impugned order in full and allowed both appeals, granting consequential relief.
The appeals were argued by Advocate Arun Goyal for the appellant and Authorized Representative Bhagwat Dayal for the department.
