Rallison Electricals Pvt Ltd vs Principal Commissioner of Central Goods & Services Tax, Commissionerate, Alwar

GST update /2026-27/0014

Brief Facts of the Case

The appellant is engaged in the manufacture of electrical wires and cables. During audit and subsequent investigation for the period March 2015 to March 2017, the department alleged that the appellant had wrongly availed CENVAT credit on certain inputs. It was alleged that part of the raw material was burnt in the boiler as it was unusable, some inputs were cleared “as such” at reduced value under the guise of rejected material, and a portion of raw materials was shown as excess consumption in the manufacturing process. Based on these allegations, primarily drawn from balance sheet analysis and statements of employees recorded during investigation, a show cause notice was issued proposing recovery of CENVAT credit along with interest and penalty by invoking the extended period of limitation. The adjudicating authority as well as the Principal Commissioner confirmed the demand. Aggrieved, the appellant preferred the said appeal before the CESTAT.

Relevant Section

Section 9D of the Central Excise Act
Section 11A(4) of the Central Excise Act

Question before Hon’ble Authority

Whether statements recorded under Section 14 of the Central Excise Act could be relied upon without following the mandatory procedure under Section 9D?
Whether the extended period of limitation under Section 11A(4) was rightly invoked when the demand was primarily imposed on persual of Balance Sheets and financials?

Brief Arguments by Appellant

Non-admissibility of Statements under Section 14 (Violation of Section 9D)

The demand is based solely on statements under Section 14, which are inadmissible since the mandatory procedure under Section 9D that is examination and cross-examination of the person whose statements were relied upon was not followed. Support is drawn from the decision in M/s Surya Wires Pvt. Ltd. vs Principal Commissioner, CGST, Raipur, wherein it was held that non-compliance with Section 9D renders such statements inadmissible.

Denial of credit not justified on account of Full Disclosures of Inputs used in Financials

The appellant had duly disclosed an amount of Rs. 25,67,340/- in the balance sheet for Financial Year 2014-15 under the head ‘transfer rejected (unused) for self-use in boiler for fire’. The consumption of such inputs was not only reflected in the financial records but also declared in the monthly ER-1 returns filed with the department.

Correct Treatment of Inputs Cleared “As Such”

the appellant had correctly discharged its obligations in respect of inputs cleared “as such”. The said clearances were properly declared in the ER-1 returns and reflected at reduced value as rejected material. Therefore, the denial of the input tax credit was not sustainable.

Excess Consumption Allegation is Assumption-Based

The allegation of excess consumption is based on theoretical calculations and ignores variations in product specifications; no independent evidence supports the claim.

Extended Period of Limitation Not Invocable

All relevant information, including consumption of inputs, clearance of rejected materials, and financial details, was duly recorded in the balance sheets and statutory returns filed with the department. There was neither suppression of facts nor any wilful misstatement with intent to evade duty. In such circumstances, invocation of the extended period is legally impermissible.

No Liability for Interest and Penalty

When the demand of tax does not sustain, question of interest and penalty does not arise.

Brief Arguments by Respondent

Denial of Credit on Burnt Inputs Justified

The department contends that CENVAT credit on PVC compound allegedly burnt in the boiler is not admissible, as such inputs were not used in the manufacture of final products and therefore credit was required to be reversed.

Credit Not Admissible on Inputs Cleared “As Such”

It is argued that inputs cleared “as such” without proper reversal of CENVAT credit were in violation of the rules, and hence denial of credit on such clearances is justified.

Excess Consumption Indicates Diversion of Inputs

The department submits that the appellant declared excess consumption of raw materials, which indicates diversion or non-use in manufacturing, thereby warranting denial of corresponding CENVAT credit.

Reliance on Statements is Valid

The statements recorded under Section 14, particularly of the Production Manager, are reliable and form valid evidence. The adjudicating authority rightly relied upon these statements to establish the case.

Extended Period Properly Invoked

The respondent contends that the appellant suppressed material facts and misrepresented transactions, justifying invocation of the extended period of limitation under Section 11A(4).

Important

Cases Relied Upon

Petitioner / Appellant	Respondent
M/s Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur	Excise Appeal No. 51148 of 2020 decided on 01.04.2025
Ambika International vs. Union of India	2018 (361) E.L.T. 90 (P&H)
J.K. Cigarettes Ltd. v. CCE, 2009	(242) E.L.T. 189 (Del.)
Jindal Drugs Pvt. Ltd. vs. Union Of India	2016 (340) E.L.T. 67 (P & H)
Hi Tech Abrasives Ltd. vs. Commissioner of C. Ex. & Cus., Raipur	2018 (362) E.L.T. 961 (Chhattisgarh)
Hindalco Industries Ltd. vs. Commissioner of C. Ex., Allahabad	2003 (161) E.L.T. 346 (Tri.-Del.)
Mega Trends Advertising Ltd. vs. Commr. of C. Ex. & S.T., Lucknow	2020 (38) G.S.T.L. 57 (Tri.-All.)

Findings and Judgement

Regarding Relevance of Statements Recorded
The CESTAT undertook a detailed examination of the legal framework governing the admissibility of statements recorded during investigation, particularly under Section 14 of the Central Excise Act and the procedural safeguards enshrined under Section 9D of the Act. It was observed that Section 9D(1)(b), akin to Section 138B(1)(b) of the Customs Act, lays down a mandatory procedure for treating such statements as relevant evidence. Specifically, where the exceptional circumstances under clause (a) are not applicable, the person whose statement has been recorded must first be examined as a witness before the adjudicating authority. Thereafter, the adjudicating authority must form a reasoned opinion regarding the admissibility of such statement in the interest of justice. Only after such admission can the assessee be afforded an opportunity to cross-examine the witness.
The CESTAT placed reliance upon numerous case laws of various High Courts and also of the judgements given by the Division bench of the CESTAT and emphasized that this procedure is not merely directory but mandatory in nature. Non-compliance with the statutory requirements renders such statements inadmissible and devoid of evidentiary value. The rationale behind this safeguard, as recognized by various courts, is to address the inherent risk that statements recorded during investigation may be obtained under coercion or compulsion. Therefore, the law mandates an independent verification of such statements before they can be relied upon in adjudication proceedings.
Therefore, in the present case, the CESTAT found that the entire demand against the appellant was founded primarily on statements recorded under Section 14. However, the adjudicating authority had failed to follow the mandatory procedure prescribed under Section 9D. The persons whose statements were relied upon were neither examined before the adjudicating authority nor was any opportunity for cross-examination granted to the appellant. In the absence of such compliance, the statements could not be treated as relevant evidence for proving the allegations. Consequently, the CESTAT held that the very foundation of the impugned order was legally unsustainable, as it rested on inadmissible evidence. Since the denial of CENVAT credit was based on such defective reliance on statements, the impugned order was liable to be set aside on this ground alone.
Regarding Invocation of Extended Period
The CESTAT observed that the entire case was based on information disclosed in the appellant’s balance sheets and ER-1 returns. These are statutory and public documents, and therefore, the allegation of suppression is unsustainable. The appellant had duly recorded all transactions, and no material fact was withheld from the department. If any clarification was required, the department could have sought it at the relevant time. Thus, placing reliance on settled judicial principles, the CESTAT held that when demand is based on disclosed records, extended limitation cannot be invoked in the absence of fraud or intent to evade duty. Accordingly, the invocation of the extended period was held to be invalid, rendering the demand time barred.

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GST update /2026-27/0014

Brief Facts of the Case

Relevant Section

Question before Hon’ble Authority

Brief Arguments by Appellant

Brief Arguments by Respondent

Important

Cases Relied Upon

Findings and Judgement

Opinion

Author’s Comment

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