GST UPDATE

Hon’ble Authority: Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata Bench.
Case Title: M/s SBIW Steels Pvt. Ltd. v. Commissioner of CGST & Central Excise, Durgapur
Appeal No. & Citation: Excise Appeal No.76606 of 2017
Date of Order: 25 MAY 2026
Outcome: In favour of the Appellant

Brief Facts of the Case

M/s SBIW Steels Pvt. Ltd. was engaged in manufacturing exclusively for SAIL under an agreement. As per the agreement, the entire manufacturing capacity of the company was dedicated to SAIL and the company was not permitted to manufacture goods for any other person. In August 2014, officers of the department visited the factory premises and recovered certain diaries/notebooks maintained by Shri Joydev Karmakar, who was engaged in loading and unloading work through a contractor. On scrutiny of such records, the department noticed that some entries matched with the appellant’s records. Based on these diary entries and statements recorded during investigation, the department alleged that the appellant had clandestinely manufactured and removed TMT Bars without payment of excise duty. Accordingly, a show cause notice was issued proposing demand of duty along with interest and imposition of penalties on the appellant and its Director. The adjudicating authority confirmed the demand, interest, and penalties, against which the appellant filed appeal before the Tribunal.

Question before Hon’ble Authority

Whether excise duty demand alleging clandestine manufacture and removal can be sustained solely on the basis of third-party notebooks and loose papers without independent corroborative evidence and without complying with the mandate of Section 9D of the Central Excise Act, 1944?

Brief Arguments by Appellant

The entire allegation was based upon third-party documents including some note books and loose papers recovered from Shri Joydev Karmakar, working under loading and unloading contractor, who was neither an employee of the appellant nor responsible for statutory records of production and clearance.
The appellant had leased its entire production capacity to SAIL and operated strictly under SAIL supervision. No complaint was ever raised by SAIL regarding unauthorized production.
No corroborative evidence was gathered by the department such as excess procurement of raw materials, abnormal electricity consumption, identification of buyers, transporters, vehicle verification, flow of funds or physical stock discrepancy to substantiate clandestine removal.
Statements relied upon by the department could not be used as evidence since cross-examination was denied and mandatory procedure prescribed under Section 9D of the Central Excise Act, 1944 was not followed.
Mere deposit during investigation is not amounting to acceptance of the allegation, law is well settled in this regard.
The demand was barred by limitation as the department had conducted investigation in August 2014 whereas the show cause notice was issued only in May 2016 without any suppression or wilful misstatement on the part of the appellant.
Regarding imposition of penalty on the Director, Shri Rajesh Kumar Goel, the appellant submits that condition precedent for imposing penalty under Rule 26 of the Central Excise Rules, 2002 has not been satisfied in this regard. Reliance was also placed on various judicial precedents.

Brief Arguments by Respondent

The department alleged that:

Certain entries in notebooks recovered during investigation did not match the company’s records.
The notebooks showed movement of goods which were allegedly removed without payment of duty.
Statements recorded during investigation supported the allegation of clandestine removal.
Therefore, excise duty along with penalty was recoverable from the company.

Findings and Judgement

Manufacturing Was Exclusively for SAIL

The Tribunal observed that the appellant was manufacturing exclusively for SAIL under a specific agreement and this fact was never disputed by the department.

Case Based Only on Third-Party Records

The Tribunal observed that the department’s entire case was built only on a diary and notebooks maintained by Shri Joydev Karmakar, who was working under a contractor for loading and unloading activities. The Tribunal held that third-party records alone cannot be used to confirm serious allegations like clandestine removal unless supported by strong independent evidence. Reliance was placed on several earlier judgments and held that entries in notebooks, diaries, loose papers, or private records cannot automatically establish wrongdoing. Even if such entries appear genuine, they must be supported by independent evidence such as proof of production, transport, purchase of raw materials, buyers, flow of money, or actual removal of goods. Mere suspicion cannot replace evidence.

No Supporting Investigation Conducted by the Department

The Tribunal found major gaps in the department’s investigation. No effort was made to verify excess production capacity, establish excess purchase of raw materials, examine electricity consumption, identify actual buyers, verify transportation of alleged goods, or trace flowback of money from alleged clandestine sales. Without such supporting evidence, the allegation of clandestine removal could not be sustained.

Transporter and Main Persons Were Not Properly Examined

The Tribunal noted that no statement of Shri Mukesh Chowdhury (the transporter/contractor who assigned work to Shri Joydev Karmakar) was recorded. Therefore, the diary maintained by Shri Joydev Karmakar remained unverified and unreliable.

Violation of Section 9D and Natural Justice

The Tribunal also held that the statements relied upon by the department could not be treated as valid evidence because the procedure under Section 9D of the Central Excise Act, 1944 was not followed. The persons whose statements were relied upon were neither examined before the adjudicating authority nor offered for cross-examination. Therefore, reliance on such statements was legally improper and violated principles of natural justice.

Statements Without Cross-Examination Have No Evidentiary Value

The Tribunal observed that when witnesses are not produced for examination and cross-examination, their statements recorded during investigation lose evidentiary value. Statements recorded behind the back of the assessee cannot be relied upon to confirm allegations.

Allegation of Clandestine Removal Not Proven

Department failed to establish clandestine manufacture and removal through reliable evidence. Since the case was based only on unverified third-party records and unsupported statements, the allegation was held to be unsustainable.
Accordingly, the Tribunal set aside the impugned order and quashed the demand of tax, interest, and penalties and allowed the appeal filed by the appellant

Case Laws Relied Upon

Case Law	Citation
CBI v. V.C. Shukla	(1998) 3 Supreme Court Cases 410
Commissioner of Central Excise, Indore Vs. Prag Pentachem Pvt. Ltd.	2018 (360) ELT 1025 (Tri.-Del.)
TGL Poshak Corporation v. CCE, Hyderabad	2002 (140) E.L.T. 187 (Tri.-Chennai)
Commissioner of Central Excise & Service Tax, Raipur Vs. P.D. Industries Pvt. Ltd.	2016 (340) E.L.T. 249 (Tri.-Delhi)
Jindal Drugs Pvt. Ltd. Vs. Union of India	2016 (340) E.L.T. 67 (P & H)
J.K. Cigarettes Ltd. v. CCE	2009 (242) E.L.T. 189 (Del.)
CCE v. Parmarth Iron Pvt. Ltd.	2010 (260) E.L.T. 514 (All.)
Arya Abhushan Bhandar v. Union of India	2002 (143) E.L.T. 25 (S.C.)
Swadeshi Polytex v. Collector	2000 (122) E.L.T. 641 (S.C.)

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GST update /2026-27/0029

GST UPDATE

Brief Facts of the Case

Question before Hon’ble Authority

Brief Arguments by Appellant

Brief Arguments by Respondent

Findings and Judgement

Case Laws Relied Upon

Opinion

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