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2026 Supreme(Online)(CESTAT) 1324
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
Dilip Gupta, President, P.V. Subba Rao, Technical Member
Natwar Lal Sharda – Appellant
Versus
Additional Director General – Respondent
EXICSE APPEAL NO. 50198 OF 2025 | EXICSE APPEAL NO. 50082 OF 2025
For the Appellants/Petitioners: J.C. Patel, Nilesh Choudhary
For the Respondents: P.R.V. Ramanan
Statements recorded during investigation are inadmissible in adjudication proceedings unless the procedure under Section 9D is strictly followed, requiring witness examination by the adjudicating authority and an opportunity for cross-examination. Additionally, non-compliance with the procedural mandate for independent local witnesses during searches vitiates the entire search and seizure evidence.
Headnote:(A) Central Excise Act, 1944 - Sections 9D, 11A(4), 11A(10), 11AA, 11AC - Central Excise Rules, 2002 - Rule 25 - Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Rules 9, 17(1), 17(2), 18 - Search and Seizure - Reliability of Panchnama - Mandatory compliance with provisions of Section 100(4) of the Code of Criminal Procedure - Non-examination of Panch witnesses renders the evidence inadmissible and violates principles of natural justice. (Paras 49, 51, 60, 64)
(B) Adjudication proceedings - Evidence - Relevancy of statements recorded under Section 14 - Mandatory procedure under Section 9D of the Central Excise Act - Failure to examine the person who made the statement before the adjudicating authority renders such statement irrelevant - Adjudicating authority is duty-bound to form an opinion on admissibility before relying on such evidence. (Paras 73, 76, 78)
(C) Clandestine removal - Burden of proof - Evidence must be substantial and corroborated - Mere reliance on unverified private records or statements recorded under coercion without cross-examination is insufficient to sustain demands for duty and penalties. (Paras 33, 90, 91)
Facts of the case:
Searches were conducted at an undocumented factory where authorities alleged the manufacture of excisable goods and subsequent clandestine clearance. The department relied upon statements recorded under the act, two Panchnamas, and personal diaries. The adjudicating authority confirmed the duty demand for a specific period while dropping it for an earlier period due to lack of evidence. The appellant challenged the reliance on the Panchnamas and the statements, arguing that the mandatory procedure for cross-examination and witness examination had not been followed.
Findings of Court:
The court observed that the requirement under the Code of Criminal Procedure for local, independent, and respectable witnesses is mandatory. Since the Panchnamas did not record the non-availability of local witnesses and the chosen witnesses resided hundreds of kilometers away, the search proceedings were vitiated. Furthermore, the statements recorded during the investigation were inadmissible because the procedure under Section 9D, which requires the examination of the witness by the adjudicating authority and an opportunity for cross-examination by the noticee, was not followed.
Issues: Whether the search proceedings and subsequent reliance on statements recorded under Section 14 of the act were legally sustainable despite the failure to follow the mandatory procedural requirements for witness examination and cross-examination.
Ratio Decidendi: The legal mandate under Section 9D of the Central Excise Act is mandatory; statements recorded during investigation are not admissible in adjudication proceedings unless the witness is examined by the adjudicating authority and the authority forms a reasoned opinion on their admissibility, followed by the grant of an opportunity for cross-examination. Furthermore, strict compliance with the procedural requirements for a valid search is a prerequisite for admissibility of seizure documentation.
Result: Excise Appeal of the appellant allowed; Excise Appeal of the department dismissed.
| Table of Content |
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| 1. factual background and initiation of search/adjudication proceedings. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32) |
| 2. procedural compliance and validity of show cause notice. (Para 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42) |
| 3. admissibility of search procedures and panchnamas under crpc section 100(4). (Para 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67) |
| 4. requirements for admissibility of statements under section 9d of central excise act. (Para 68 , 69 , 70 , 71 , 72 , 73 , 74 , 75 , 76 , 77 , 78 , 79 , 80 , 81 , 82) |
| 5. determination of manufacturer status and sufficiency of evidence for duty demand. (Para 83 , 84 , 85 , 86 , 87 , 88 , 89 , 90 , 91 , 92 , 93 , 94) |
Date of Hearing: 19.02.2026
Date of Decision: 06.04.2026
FINAL ORDER NO’s. 50669-50670/2026
JUSTICE DILIP GUPTA:
Excise Appeal No. 50198 of 2025 has been filed by Natwar Lal Sharda1the appellant to assail that portion of the order dated 27.09.2024 passed by the Additional Director General (Adjudication), West Block VIII Wing-6, 2nd Floor, R.K. Puram, New Delhi2the Additional Director General that confirms the imposition of central excise duty upon him under section 11A(10) of the Central Excise Act, 19443the Central Excise Act for the period from April, 2016 to January, 2017 with interest and penalty after invoking the extended period of limitation contemplated under section 11A(4) of the Central Excise Act. The order also confiscates the pan masala and gutkha that were seized under Panchnama dated 30.01.2017 under rule 25 of the Central Excise Rules 20024the 2002 Rules read with rule 18 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 20085the 2008 Rules. The order, however, drops the demand of central excise duty for the period from April, 2015 to March, 2016.
2. Excise Appeal No. 50082 of 2025 has been filed by the department to assail that portion of the order dated 27.09.2024 passed by the Additional Director General that drops the demand of central excise duty raised against the appellant for the earlier period from April, 2015 to March, 2016.
3. The main issue that arises for consideration in the appeal filed by the appellant is whether the appellant is the “manufacturer” of pan masala and gutkha alleged to have been clandestinely manufactured in and cleared from an unregistered factory located at Khasra No. 1340, Village Balenga, District Bastar, during the period April, 2016 to January, 2017 and consequently, whether the demand for duty on such goods with interest from the appellant and imposition of penalty on the appellant are sustainable in law.
4. The appellant is the Managing Director of Sanwaria Sweets P. Ltd., Jaipur, which is engaged in production and sale of sweets, namkeen and bakery products. The appellant is also the proprietor of a firm Sharda Food Products having factory at E-1005, RICO Industrial Area, Phase-III, Jaipur, which the appellant had let out to S.S. Industries, Jaipur, whose proprietor is Ram Charan Badaya. The said S.S. Industries, Jaipur, manufactured, pan masala and gutkha under the brand name “Nazar”. The registered proprietor of the said brand name “Nazar” was originally Ashish Sharda, nephew of the appellant, who in 2006 assigned the said brand name to Siddheshwar Tobacco Products Ltd, Pandhurna, M.P., in which the nephew of the appellant, Mukesh Sharda, was a Director. Siddheshwar Tobacco Products Ltd had given license/franchise to S.S. Industries, Jaipur, for use of the said brand name “Nazar”. Siddheshwar Tobacco Products Ltd had also given license/franchise to Siddheshwar Fragrances P. Ltd., Jaipur, for use of the said brand name “Nazar” in respect of pan masala and gutkha.
5. It is the case of the department, acting on intelligence received by Director General
