GST UPDATE

Hon’ble Court: CESTAT, New Delhi
Case Title: M/s. Miraj Product (P) Ltd. VERSUS The Commissioner
Appeal No. & Citation: EXICSE APPEAL NO. 50988 OF 2025

Hon’ble Judge(s)	HON’BLE MR. JUSTICE DILIP GUPTA, PRESIDENT and HON’BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Order	06.04.2026
Outcome	In favour of the Appellant

Brief Facts of the Case

M/s. Miraj Products (P) Ltd., the appellant, was engaged in the manufacture of lime mixed chewing tobacco under the brand name “Miraj”, falling under the Central Excise Tariff. The appellant operated two units at Nathdwara, Rajasthan,Unit-II was the processing unit, where raw tobacco was received and processed. The process involved drying, grading, mixing tobacco with lime, and applying flavouring agents such as peppermint oil, after which the processed tobacco was packed in gunny bags and cleared on payment of duty to the packing unit. Unit-I was the packing unit, where the processed tobacco received from Unit-II was packed into 6-gram pouches and 15-gram zipper pouches under the brand name “Miraj.”The Directorate General of Central Excise Intelligence (DGCEI) initiated an investigation on the suspicion that the appellant had clandestinely procured raw tobacco and packaging materials through certain traders and dummy firms and manufactured tobacco pouches without recording them in statutory records or paying excise duty. During the investigation, statements of transporters, suppliers and other persons were recorded and various transport documents such as Goods Receipts (GRs) were examined. Based on the alleged procurement of large quantities of raw tobacco and packing films, the department calculated the production capacity of the pouching machines and alleged that the appellant had the capability to manufacture substantial quantities of tobacco pouches in excess of the recorded production. It was further alleged that the appellant had clandestinely manufactured and cleared large quantities of Miraj Tobacco pouches through certain dealers during the period 2002–03 to 2004–05. Consequently, a show cause notice was issued proposing demand of central excise duty along with interest and penalties, which was confirmed by the adjudicating authority in the impugned order. Aggrieved, by the said order, the appellant filed appeal before the Tribunal.

Relevant Section

Section 9D of the Central Excise Act
Rule 26 of the CGST Rules

Question before the Authority

Whether clandestine procurement of raw tobacco, clandestine manufacture and removal of chewing tobacco by the appellant was supported by credible evidence or was based on assumptions and presumptions?
Whether statements recorded under Section 14 of the Central Excise Act could be relied upon without following the procedure prescribed under Section 9D?
Whether imposition of penalties under Rule 26 is justified?

Brief Arguments by Appellant

The appellants raised the following submissions before the Tribunal:

Non-compliance with Section 9D of the Central Excise Act
The adjudicating authority relied upon statements of witnesses recorded during investigation without following the mandatory procedure prescribed under Section 9D of the Central Excise Act, such as examining the witnesses before the adjudicating authority and granting opportunity for cross-examination. Reliance was placed on decisions in Surya Wires Pvt. Ltd., Paradise Steels Pvt. Ltd., Ambika International, and Hi-Tech Abrasives Ltd.

No clandestine manufacture or removal established
The appellants submitted that they had neither procured raw materials clandestinely nor cleared finished goods without payment of duty, and the department failed to produce any corroborative evidence of clandestine production.

Improper reliance on statements under Section 14
The department relied solely on statements recorded under Section 14 to allege clandestine removal, which cannot be treated as evidence since the procedure under Section 9D was not followed.

No evidence of clandestine procurement of raw tobacco or packaging material
The allegation that raw tobacco was supplied through M/s. Shelraj Tobacco and M/s. Raghunayak Traders was based only on statements during investigation, without any documentary evidence showing actual delivery of goods to the appellant.

Demand based on assumptions and conjectures
The appellants argued that the entire demand was based on assumptions rather than concrete evidence. The burden to prove clandestine manufacture and removal lies on the department, as held in Bansiwala Iron & Steel Rolling Mills and Rathi TMT Saria (P) Ltd.

Extended period of limitation wrongly invoked
The appellants contended that there was no suppression of facts or intent to evade duty, and therefore invocation of the extended period of limitation was unjustified.

Penalty and interest not sustainable
Since the duty demand itself was not sustainable, the penalties imposed on the appellants and the interest demanded were also liable to be set aside.

Brief Arguments by Respondent

Detailed investigation establishing clandestine activities
The department contended that a detailed investigation was conducted covering the entire chain of procurement of raw materials, packing materials, manufacturing capacity, production process and clearance of finished goods to dealers, which clearly indicated clandestine manufacture and removal by the appellant.

Evidence from transporters regarding transportation of raw tobacco
The department relied on documents recovered from Jai Maharaj Transport Service, Nadiad, where several GRs (Goods Receipts) showed transportation of raw tobacco from M/s. Pinakpani Traders to the appellant. Statements of other transporters such as Rajpurohit Transport, Vijay Goods Carrier and Haryana Punjab Roadlines revealed that they had issued blank GRs, which were allegedly used to facilitate clandestine transportation.
Clandestine supply of packing material through dummy firms
It was alleged that M/s. Eden Hi Tech Films, Udaipur, the main supplier of packing materials, had created several dummy firms for supplying printed packing materials required for clandestine clearance of tobacco pouches. The persons in whose names these firms were created were allegedly unaware of such business activities.

Production capacity of pouching machines indicating excess production
Based on the number and speed of pouching machines installed, the department calculated that the appellant had the capacity to produce 54,52,800 pouches of 6 grams per day, which supported the allegation that the appellant could manufacture additional quantities of tobacco pouches beyond the recorded production.

Machinery capacity and contractor statements indicating clandestine manufacture
The department submitted that the installed capacity of machinery and statements of contractors confirmed that the appellant had manufactured and cleared goods in excess of recorded production. On this basis, it was alleged that 947,407,450 pouches of Miraj Tobacco were clandestinely manufactured from the unaccounted raw tobacco and packing material.

Evidence of clandestine removal through transport documents and dealer records
The department further relied on GRs recovered from Vikram Singh Rajpurohit, proprietor of Rajpurohit Transport Co., Udaipur, along with documents obtained from Manohar Lal Bhatia and other dealers, which allegedly showed that 36,035 bags of Miraj Tobacco were clandestinely removed during the financial years 2002–03, 2003–04 and 2004–05.

Findings and Judgement

The Tribunal undertook the detailed analysis of the Order passed by the Appellate Authorities and also took note of the relevant sections and gave analysis in relation to the following:
Regardingclandestine removal of goods based on the statements recorded under section 14

Mandatory procedure under Section 9D for reliance on statements
The Tribunal held that Section 9D of the Central Excise Act is mandatory and prescribes a specific procedure before statements recorded during investigation can be relied upon as evidence. Where the circumstances mentioned under Section 9D(1)(a) do not exist, the adjudicating authority must follow the procedure under Section 9D(1)(b), which requires examination of the person who made the statement as a witness before the adjudicating authority and thereafter forming an independent opinion that such statement should be admitted in evidence in the interest of justice.
Purpose of the statutory safeguard and requirement of cross-examination
The Tribunal observed that the elaborate procedure under Section 9D exists because statements recorded during investigation may sometimes be obtained under coercion or compulsion. Therefore, before such statements are relied upon, the witness must be examined in adjudication proceedings and the assessee must be given an opportunity for cross-examination, ensuring compliance with principles of natural justice.
Statements become relevant only after admission in evidence
It was held that a statement recorded during investigation becomes relevant in adjudication proceedings only after it is admitted in evidence in accordance with Section 9D. If the prescribed procedure is not followed, the statements cannot be treated as relevant or admissible evidence for proving the allegations.
Judicial precedents affirming mandatory compliance
The Tribunal relied upon judicial precedents including Ambika International, Hi Tech Abrasives, Drolia Electrosteel Pvt. Ltd., and Jindal Drugs Pvt. Ltd., which consistently held that Section 9D must be strictly complied with, and statements recorded during investigation cannot be relied upon unless the statutory requirements are fulfilled.
Non-compliance with Section 9D in the present case
The Tribunal noted that around 90% of the relied-upon documents were statements of various persons recorded under Section 14. However, the Commissioner neither examined these persons as witnesses before the adjudicating authority nor admitted their statements in evidence in accordance with Section 9D. Consequently, the reliance placed on such statements in the impugned order was legally unsustainable.
Allegations of clandestine removal cannot be sustained
Since the findings of clandestine manufacture and removal were primarily based on such inadmissible statements, the Tribunal held that the allegations of clandestine removal could not be sustained in law.

Regarding clandestine procurement of raw material and packing material and clandestine removal of finished goods

Allegation regarding clandestine procurement of raw tobacco
The Department alleged that the appellant had clandestinely procured large quantities of raw tobacco based on check post records of the Commercial Tax Department, which indicated transportation of goods in the name of M/s. Stonic Marble. However, the appellant explained that this discrepancy arose due to similarity between the RST number of M/s. Stonic Marble and the RET number of the appellant, resulting in an error during data entry at the Ratanpur Check Post. The appellant substantiated this explanation by producing corresponding invoices and entries in statutory records such as RG-12, demonstrating that the goods were duly accounted for. The Tribunal accepted this explanation and held that the Department failed to establish that the goods shown in the name of M/s. Stonic Marble were actually unaccounted raw material received by the appellant.

Allegation relating to procurement through dummy firms
The Department further alleged that raw tobacco was procured through firms such as M/s. Shelraj Tobacco and M/s. Raghunayak Traders, which were allegedly managed by employees of the appellant. However, this allegation was based primarily on statements of employees, transporters and traders recorded during investigation under Section 14 of the Central Excise Act. The Tribunal observed that no independent documentary evidence was produced to prove that the raw tobacco supplied in the name of these firms was actually delivered at the appellant’s factory. Since the statements were relied upon without following the mandatory procedure under Section 9D, they could not be treated as admissible evidence.

Absence of corroborative evidence for clandestine manufacture
The Tribunal also noted that the Department failed to produce any corroborative evidence indicating excess production, such as proof of additional labour, extended working hours, abnormal electricity consumption, or procurement of excess raw materials and packing materials. In the absence of such evidence, the allegation of clandestine manufacture of lime mixed chewing tobacco remained unsubstantiated.

Allegation regarding clandestine removal of finished goods
The allegation of clandestine clearance of finished goods was based on parallel invoices, documents recovered from dealers, GRs of transporters, and statements of dealers and customers. However, the Tribunal observed that these allegations were again primarily founded on statements recorded during investigation, which could not be relied upon due to non-compliance with Section 9D.

Reliance on Retracted Statements by the department

The Tribunal also took note of the fact that Mukesh, an employee of the appellant, initially stated that he had prepared parallel invoices, which the Department relied upon to allege clandestine clearance. However, this statement was subsequently retracted through a letter dated 27.08.2005. The Tribunal observed that once a statement is retracted, it loses its evidentiary value unless it is supported by independent corroborative evidence

Discrepancies in check post data and transport records
The Department also relied on computerized records from the Ratanpur Check Post showing repeated movement of the same vehicles with the same invoice numbers. The Tribunal found that such entries were likely the result of data entry errors, as the Department failed to produce the corresponding physical invoices or transport documents. Additionally, the alleged multiple trips of the same truck within a single day were practically impossible, considering that a single journey between the locations required 10 to 12 hours.
No physical or documentary evidence relating to discrepancy in material or goods found during search
During investigation and search at the appellant’s premises, no excess or shortage of raw materials, packing materials or finished goods was found, and the physical stock matched the entries recorded in RG-I and other statutory records. Further, no documents or records indicating clandestine manufacture or removal were recovered from the premises.

Failure of the Department to discharge burden of proof
The Tribunal reiterated the settled legal principle that clandestine manufacture and removal must be established through positive, cogent and corroborative evidence. In the present case, the Department relied largely on uncorroborated statements and doubtful data records, without producing concrete documentary evidence. Consequently, the Department failed to discharge the burden of proving clandestine procurement of raw materials or clandestine clearance of finished goods.

Regarding imposition of penalties under rule 26 of the Central Excise Rules

Absence of finding regarding confiscation of goods
It is submitted that penalty under Rule 26 of the Central Excise Rules can be imposed only when the goods are confiscated or held liable to confiscation. In the present case, the impugned order does not contain any discussion or finding that the goods were liable to confiscation. The adjudicating authority has merely observed, while imposing penalty, that the goods were liable to confiscation without recording any supporting reasoning. In the absence of such a finding, the essential condition for invoking Rule 26 remains unfulfilled and therefore the penalty is not sustainable.

Reliance on judicial precedent
This position is supported by the decision of the Tribunal in Shri Ramesh Garg, Chairman of M/s K.S. Oil Ltd. vs. Commissioner, CGST, Customs & Central Excise, wherein it was held that in the absence of confiscation of goods or a finding that the goods are liable to confiscation, penalty under Rule 26 cannot be imposed.

Accordingly, the Tribunal set aside the confirmation of excise duty demand amounting to ?20.41 crore along with interest. The penalties imposed under Rule 26 of the Central Excise Rules, 2002 were also set aside.

Cases Relied Upon

Case Laws	Citation
Ambika International vs. Union of India	2016 (334) E.L.T. 97 (P&H)
Hi-Tech Abrasives Ltd. vs. Commissioner of Central Excise & Service Tax	2018 (362) E.L.T. 961 (Chhattisgarh)
Drolia Electrosteel Pvt. Ltd. vs. Commissioner of Central Excise	2019 (365) E.L.T. 556 (Tri. – Del.)
Jindal Drugs Pvt. Ltd. vs. Union of India	2016 (340) E.L.T. 67 (Bom.)
Shri Ramesh Garg, Chairman of M/s K.S. Oil Ltd. vs. Commissioner, CGST, Customs & Central Excise

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GST update /2026-27/0004

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