The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has set aside penalties imposed on the Director and the Authorised Signatory of a company holding that penalties under Rule 26 of the Central Excise Rules, 2002 cannot be sustained solely on the basis of confessional statements without independent corroborative evidence.
The bench of Dr. Ajaya Krishna Vishvesha (Judicial Member) ruled that the adjudicating authority must clearly specify the exact clause of Rule 26 under which penalties are imposed.
The case arose from an Order-in-Original dated April 11, 2017, passed by the Commissioner of Central Excise, Customs and Service Tax, Audit-III, Vapi. The Commissioner had imposed a penalty of ₹50 lakh on Vinod Kumar Mittal, Director of the company, and ₹1 lakh on Sharad Haribhai Naik, the company’s Authorised Signatory and Liaisoning Officer (Personnel & Administration), under Rule 26 of the Central Excise Rules, 2002.
Buy Now: Supreme court Judgements E-Compilation – JUNE 2026
The Department alleged that the company had indulged in large-scale clandestine manufacture and removal of MS Bars, scrap, and mill scales without payment of central excise duty. Investigations conducted at multiple premises reportedly revealed unaccounted production and clearances, leading to an alleged central excise duty evasion exceeding ₹4.24 crore. According to the Revenue, both individuals had knowledge of and participated in the alleged clandestine activities.
Before the Tribunal, the appellants argued that the Commissioner had relied almost entirely on statements recorded during the investigation without allowing them an opportunity to cross-examine the witnesses whose statements formed the basis of the findings.
They contended that such reliance violated Section 9D of the Central Excise Act, 1944, which requires that statements recorded during investigation be tested through examination and cross-examination before they can be relied upon in adjudication proceedings, except in limited statutory circumstances.
The appellants further argued that no independent documentary or corroborative evidence supported the allegations against them. The penalty order failed to specify the precise provision or clause of Rule 26 under which penalties had been imposed. Penalty provisions must be interpreted strictly, and an order lacking statutory specificity cannot survive judicial scrutiny.
The Tribunal examined Rule 26 of the Central Excise Rules, 2002, which prescribes penalties for persons knowingly dealing with excisable goods liable to confiscation or issuing excise invoices without actual supply of goods.
It observed that the Commissioner had primarily relied upon statements allegedly made by the Director and the Authorised Signatory, but had failed to produce any independent corroborative evidence establishing their direct involvement in the alleged clandestine clearances.
The Tribunal noted that while the adjudicating authority referred to admissions made during investigation, the impugned order did not discuss any supporting documentary evidence capable of independently proving the allegations.
According to the Tribunal, mere confessional statements, without corroboration, cannot constitute sufficient evidence for imposing penalties under Rule 26.
The Bench placed considerable emphasis on Section 9D of the Central Excise Act, observing that statements recorded during investigation become relevant evidence only when statutory requirements are fulfilled, including examination of the person as a witness wherever applicable.
The Tribunal relied on the Gujarat High Court’s decision in CCE, Vadodara-I v. Paresh Ramabhai Amin (2026), where it was held that orders based solely on statements without granting cross-examination and without corroborative evidence cannot be sustained.
It also referred to its earlier ruling in Western India Ceramics Pvt. Ltd., reiterating that untested statements cannot be relied upon where Section 9D requirements have not been satisfied.
The Tribunal further found a significant legal defect in the Commissioner’s order.
Although penalties were imposed under Rule 26, the adjudicating authority failed to specify whether the action was taken under sub-rule (1), sub-rule (2), or any specific clause.
The Bench observed that such omission deprived the appellants of proper notice regarding the exact nature of the alleged contravention.
The Tribunal relied upon the Supreme Court’s judgment in Amrit Foods, which held that penalty orders must clearly identify the precise statutory provision allegedly violated, particularly where penal consequences are involved.
After examining the evidence and applicable legal provisions, the Tribunal held that the penalties were based substantially on statements unsupported by independent corroborative evidence. The requirements of Section 9D had not been complied with. The Commissioner failed to identify the specific clause of Rule 26 under which penalties were imposed.
The Tribunal set aside the penalties of ₹50 lakh imposed on the Director and ₹1 lakh imposed on the Authorised Signatory, while allowing both appeals.
Membership Required to Access Notification Details & Copy
To view the complete Notification Details and Download Copy, you must have an active membership. Please subscribe to continue.
