2026-VIL-922-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Clubbing of clearances of sister concerns – SSI exemption under Notification No. 8/2003 C.E. - Revenue identified three sister concerns operating from different premises with separate registrations, power connections, bank accounts and income tax returns – Authorities issued show cause notice to the main unit proposing to club the clearances of these three sister concerns to deny SSI exemption and demand excise duty without issuing separate show cause notices to the three sister concerns - Whether the clubbing of clearances of three sister concerns with that of the main unit for determining aggregate value of clearances for SSI exemption can be sustained – HELD – The clubbing of clearances of sister concerns cannot be sustained without issuing separate show cause notices to those units. The authority must put the sister concerns on statutory notice indicating the intention to treat them as dummy units and invite their reply with evidence to substantiate that they were independent manufacturers before clubbing their clearances. The one-sided approach to treat other units as dummy without putting them on statutory notice is unknown and unenforceable in law - Where turnover of multiple units is sought to be clubbed, all such units must be issued show cause notices. The principles of natural justice mandate that no person shall be condemned without an opportunity to present their case. The failure to comply with this legal requirement vitiates the order. The order clubbing clearances of the three sister concerns with the main unit is set aside as being in violation of natural justice and principles of law - The impugned order is set aside and the appeals are allowed - Reliance on retracted statements without corroborative evidence - Whether statements recorded by investigating officers during investigation, which are subsequently retracted by the declarants, can be relied upon in adjudication proceedings without examining the witnesses and providing cross-examination opportunity – HELD - The reliance on retracted statements without corroborative independent evidence cannot sustain findings in adjudication proceedings. The Central Excise Act, 1944 mandates under Section 9D that statements made during inquiry shall be relevant for proving the truth of facts contained therein only when such persons are examined as witnesses before the adjudicating authority and the authority forms an opinion that statements should be admitted in evidence, following which cross-examination opportunity must be provided. This procedure is mandatory and failure to comply means no reliance can be placed on statements recorded during investigation - The fact that statements were subsequently retracted further weakens the authority's reliance on them. The commissioner's reliance on such inadmissible statements without proper justification cannot be used against the appellant – The findings based on inadmissible retracted statements without independent corroborative evidence are set aside and cannot form the basis of any demand or penalty - Allegation of clandestine manufacture and removal - Whether charges of clandestine manufacture and removal of excisable goods can be sustained on the basis of statements, seized notebooks and speculation without documentary evidence – HELD - It is well settled legal position that charges of clandestine manufacture and removal must be established by marshaling material evidence substantiating unaccounted purchase of raw materials, evidence of manufacture, identity of buyers, transportation and delivery of goods to such buyers, and receipt of consideration. Mere speculation or assumption cannot form the basis for such serious allegations - In the present case, the comparison of seized notebooks with statutory RG1 and ER-3 returns completely negates the allegation as the statutory returns show far higher quantities than the notebooks. The revenue has not placed on record any documentary evidence regarding unaccounted raw material, unaccounted electricity consumption, unaccounted labour, or any material evidence substantiating clandestine operations - The findings of clandestine manufacture and clearance without payment of duty are set aside for want of substantiating documentary evidence - Demand of duty based on clubbing of clearances when unit itself within SSI limit - Whether duty can be demanded on the basis of aggregate clearances when the main unit's own clearances are within the SSI exemption limit – HELD - Since the main unit's own clearances as per ER-1 and ER-3 returns are within the SSI exemption limit and the demand of duty is based solely on clubbing the clearances of sister concerns which is unsustainable. Further, the unit has furnished all relevant data in its returns and the revenue department has not disputed or denied the figures. When facts are within the knowledge of the department and disclosed by the assessee in its returns, the department cannot later allege suppression of facts with intent to evade duty. If the unit was not eligible for SSI exemption on the basis of its own clearances for any particular period, the Department should have initiated proceedings immediately upon disclosure in returns rather than waiting for investigation and then alleging suppression. The longer period of limitation under Section 11A(4) cannot be invoked in such circumstances - The demand of duty based on clubbing of clearances is unsustainable and is set aside - Confiscation of goods - Whether goods can be confiscated under Rule 25 of Central Excise Rules, 2002 when the authority relies only on retracted statement of the possessor without any other admissible and relevant documentary evidence that the goods were non-duty paid. – HELD - The confiscation of goods requires substantiation that the goods are non-duty paid excisable goods. The authority cannot rely on retracted statements without other admissible and relevant documentary evidence to establish non-duty payment status of seized goods. In the present case, the proprietor had retracted his statement by filing an affidavit. No other documentary evidence has been placed on record to prove that the goods in question were manufactured and cleared by the main unit without payment of duty. The seizure proceeds are solely based on the retracted statement and the speculation regarding clandestine removal which stands disapproved - The order of confiscation of goods is set aside - Personal penalty under Rule 26 of Central Excise Rules, 2002 - Whether personal penalties can be imposed when the findings regarding clandestine manufacture and confiscation of goods are set aside – HELD - The personal penalty under Rule 26 of Central Excise Rules, 2002 is imposable only if two conditions are cumulatively satisfied: first, the person has personally dealt with excisable goods, and second, the person has personally dealt with excisable goods with knowledge or having reason to believe that the goods are liable for confiscation - The Rule 26 requires as a condition precedent that excisable goods which the person knows or has reason to believe are liable to confiscation. In the present case, the clubbing of clearances which forms the basis of all charges stands disapproved, the allegations of clandestine manufacture and removal stand disapproved, and consequently the confiscation order stands set aside. Since the goods are not liable for confiscation, the condition precedent for imposing personal penalty does not exist – The personal penalties imposed under Rule 26 are set aside.
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