The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has dismissed the Revenue’s appeal seeking restoration of a ₹69.86 lakh central excise duty demand, holding that a son placing purchase orders for his father’s business does not establish that the father’s firm is a dummy unit whose clearances can be clubbed with those of the son’s firm.

The bench of Dr. Rachna Gupta (Officiating President) and P.V. Subba Rao (Technical Member) rejected the department’s reliance on suppliers’ statements, finding no record that the persons who made those statements had been examined as witnesses by the adjudicating authority in compliance with Section 9D of the Central Excise Act, 1944. 

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The appellant/assessee is a proprietorship concern of Gagan Bhatia, manufactured G.I. channels. It was not registered with the central excise department because it claimed the small-scale industry exemption under Notification No. 08/2003-CE.

During a search of its premises on April 4, 2013, officers seized allegedly unaccounted finished goods valued at ₹83,600. A show cause notice proposing confiscation of those goods followed on August 20, 2013.

Further investigation led the department to allege that the firm had purchased unaccounted raw materials, principally from Jabico Steel and Ganeev Galwa Products, and used them to manufacture and clandestinely clear excisable goods without paying duty.

The department relied on manufacturing facilities, machinery, manpower, electricity supply and a diesel generator set, along with purchase and sales data recovered from a laptop seized from residential premises. The assessee also furnished sales invoices, purchase invoices, VAT returns and a balance sheet during the investigation.

Based on figures derived from the purchases, the department demanded ₹69.86 lakh in central excise duty.

The dispute centred on the department’s decision to combine the clearances of assessee with those of Snow White Plaster Industries, a proprietorship concern belonging to Gagan Bhatia’s father, Yash Bhatia.

According to the investigation, assessee acknowledged purchasing approximately 90% of the raw materials for the two concerns from the identified suppliers. The suppliers’ statements indicated that he placed orders and made payments for supplies to both businesses.

The adjudicating authority confirmed the duty demand with applicable interest and an equivalent penalty under Section 11AC. It also confiscated the seized goods with an option for redemption and imposed a penalty under Rule 25.

However, the Commissioner (Appeals) set aside the duty demand, interest, related penalty and redemption fine, while reducing the penalty relating to confiscation to ₹5,000.

The appellate authority found no evidence justifying the clubbing of the two firms’ clearances. It also noted that the concerns were separately registered with VAT and other authorities.

The department argued that the suppliers’ statements established that Snowhite Plaster Industries was a dummy unit and that supplies shown against it were actually supplies to assessee.

The Tribunal rejected this inference.

It agreed that the fact that Gagan Bhatia placed orders for his father’s firm did not establish that the firm lacked an independent existence. The suppliers’ statements concerning common ordering and payment arrangements did not, by themselves, prove the department’s allegation.

Consequently, the Tribunal found no basis to disturb the Commissioner (Appeals)’ conclusion that the clearances could not be combined on the evidence relied upon.

The Tribunal separately examined the Revenue’s assertion that the statutory requirements for relying on the suppliers’ statements had been fulfilled.

It reproduced Section 9D, which governs the relevance of statements recorded before gazetted central excise officers. The provision addresses specified circumstances in which such statements may be relied upon and, through subsection (2), extends the framework to proceedings under the Act other than proceedings before a court.

On the record before it, the Tribunal found nothing showing that the suppliers who gave the statements had been examined as witnesses by the adjudicating authority.

It therefore held that the Revenue’s claim of compliance with Section 9D was incorrect. This failure alone, the Bench observed, was sufficient to dismiss the appeal.

The Tribunal upheld the Commissioner (Appeals)’ order and dismissed the departmental appeal on both grounds: the failure to establish compliance with Section 9D and the absence of evidence proving that the father’s concern was a dummy firm.

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