(Tax Case No.93/2024) 2025:CGHC:23373-DB AFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 93 of 2024 {Arising out of Final Order No.FO/ST/A/50550/2023-CU[DB] dated 26-4-2023 passed by the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi, in Service Tax Appeal No.51862 of 2015} Judgment reserved on: 9-5-2025 Judgment delivered on: 12-6- 2025 M/s Saubhagya Tilak Hotels Pvt. Ltd., Opposite College of Dairy Technology, Labhandi, G.E. Road, Raipur (C.G.) ... Appellant versus Principal Commissioner of Central Excise, Central Excise Building, Dhamtari Road, Tikrapara, Raipur (C.G.) ... Respondent For Appellant : Mr. Rahul Tamaskar, Advocate on behalf of Mr. Bhishm Aluwalia, Advocate. For Respondent : Mr. Ashutosh Singh Kachhawaha, Advocate. Division Bench: - Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Sanjay Kumar Jaiswal, JJ. SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.06.13 10:52:12 +0530 (Tax Case No.93/2024) C.A.V. Judgment Sanjay K. Agrawal, J. 1. This tax appeal preferred under Section 35G(1) of the Central Excise Act, 1944 was admitted for hearing on 24-7-2024 by formulating the following substantial questions of law: - “i. Whether Statement recorded contrary to provisions of Section 9D qualify to be Statement in Chief and can demand be confirmed relying upon such statements? ii. Whether CESTAT was correct in law to confirm demand relying upon statements recorded contrary to Section 9D and without cross examination of such witnesses? iii. Whether Hon’ble CESTAT was correct in law in holding that appellant has provided Mandap Keeper Services without evidence of provision of service and is liable to pay service tax on total receipts? iv. Whether Hon’ble CESTAT is correct in confirming the demand against the appellant without allowing abatement in value of service available in terms of Notification No.01/2006-ST dated 01.03.2006?” 2. For the sake of convenience, substantial question of law No.iii is reformulated as under: - “iii. Whether Hon’ble CESTAT was correct in law in holding that appellant has provided Mandap Keeper Services without evidence of providing service and is liable to pay service tax on total receipts?” 3. The aforesaid questions of law arise for consideration on the following factual backdrop: - (Tax Case No.93/2024) 4. M/s. Saubhagya Tilak Hotels Pvt. Ltd. – the appellant herein, was engaged in operating a non-air-conditioned restaurant (without alcohol service) and B2B supply of bakery and confectionary items during disputed period 2008-09 to 2010- 11 and during that period, service tax was not levied on non- AC and non-alcohol serving restaurants, and supply of bakery and confectionary was also sale of goods. As a consequence of search operation at the premises of the appellant on 24-12- 2011 conducted by a team of Service Tax Officers, the respondent entertained a view that the appellant has received amount in form of cash and cheques from multiple parties in relation to providing ‘Mandap Keeper‘s Services’ as defined under Section 65(105)(m) of the Finance Act, 1994 and accordingly, documents like bills, bank statements, payment vouchers, daily receipts, etc. were seized under panchnama dated 24-12-2011 (Annexure D). Statement of Mr. Satish Kumar Pachouri, Manager (Operations) of the appellant firm was recorded under Section 14 of the Central Excise Act, 1944 and thereafter, statement of Mr. Ashwin Sethi, Director of the appellant firm was also recorded under Section 14 on 3-4- 2012. Show cause notice was issued to the appellant on 16-4- 2013 demanding service tax amounting to 91,04,431/- along ₹ (Tax Case No.93/2024) with applicable interest and penalty on ‘Mandap Keeper Service’ for the period from 2008-09 to 2011-12 and thereafter, on 26-6-2014, the respondent returned bills relating to Mandap Keeper Service except payment and receipt sheets as non-relied upon documents to the appellant. The appellant replied to the show cause notice on 13-11-2014 and specifically in paragraph 13 of the reply, demanded opportunity to cross-examine Mr. Satish Kumar Pachouri, Manager (Operations). The order in original dated 20-1-2015 passed by the Commissioner confirmed the demand of service tax and refuted the opportunity of hearing holding that Mr. Satish Kumar Pachouri was the employee of the appellant herein relying upon the decision rendered by the CESTAT, Bangalore in the matter of Shalini Steels Pvt. Ltd. v. Commissioner of Central Excise, Hyderabad1. 5. Feeling aggrieved and dissatisfied with the order in original passed by the Commissioner i.e. the adjudicating authority confirming the entire demand of service tax, the appellant herein has preferred appeal before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, however, by final and cryptic order dated 26-4-2023, the 1 (2010) 258 ELT 545 (Tax Case No.93/2024) learned CESTAT dismissed the appeal finding no merit which has been sought to be challenged by the appellant / assessee by filing this appeal in which substantial questions of law have been formulated and set out in the opening paragraph of this order. A rectification application was also filed by the appellant before the CESTAT which has also been dismissed on 6-2-2024. 6. Mr. Rahul Tamaskar, Advocate, appearing on behalf of Mr. Bhishm Aluwalia, learned counsel for the appellant, would submit that the author of relied upon documents receipt and expenditure sheets i.e. Accountant has not been examined in the entire investigation and furthermore, Mr. Satish Kumar Pachouri, whose statement has been heavily relied upon by the Revenue, though sought to be cross-examined by the appellant, but despite prayer having been made, he has not been allowed to be cross-examined which is violative of the procedure prescribed under Section 9D of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. Furthermore, the documents that have been returned being non-relied upon documents have also been relied upon to hold the appellant liable for service tax. Mr. Tamaskar, learned counsel appearing for the appellant, would lastly submit that relied upon (Tax Case No.93/2024) documents are inconclusive to establish rendering of Mandap Keeper Services, as such, the impugned order passed by the adjudicating authority i.e. the Commissioner of Customs & Central Excise and affirmed by the appellate authority i.e. the CESTAT are liable to be set aside and the appeal deserves to be allowed. 7. Mr. A.S. Kachhawaha, learned counsel appearing for the respondent/Revenue, would support the impugned order and submit that on the basis of the statement of Mr. Satish Kumar Pachouri, employee of the appellant/assessee being Manager (Operations) as well as the documents brought on record, service tax has rightly been levied by the Commissioner of Customs & Central Excise which has rightly been affirmed by the appellate authority, as such, the concurrent findings of the two authorities are not open to interference in exercise of jurisdiction under Section 35G of the Central Excise Act, 1944 and the appeal deserves to be dismissed. 8. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection. Page 7 of 21 (Tax Case No.93/2024) 9. Though by order dated 24-7-2024, four separate substantial questions of law have been formulated, but substantial questions No.(i) & (ii) are both interlinked with each other, therefore, they are being answered together. Answer to Substantial Questions of Law No.(i) & (ii) 10.In this case, on 24-12-2011, search operation was conducted in the premises of the appellant under panchnama dated 24-12- 2011 and on the same day, statement of Mr. Satish Kumar Pachouri, Manager (Operations) of the appellant firm, was recorded under Section 14 of the Central Excise Act, 1944 and thereafter, on 3-4-2012, statement of Mr. Ashwin Sethi, Director of the appellant firm, was recorded under Section 14. Section 14 is the power of the Central Excise Officer to summon persons to give evidence and produce documents in inquiries under the Central Excise Act, 1944. By virtue of sub- section (3) of Section 14, every such inquiry under sub-section (1) of Section 14 shall be deemed to be a “judicial proceeding” within the meaning of Section 193 and Section 228 of the Indian Penal Code. However, it is the case of the appellant herein that while replying to the show cause as stated in paragraph 13, the assessee demanded cross-examination of Mr. Satish Kumar Pachouri stating that as the Revenue has heavily (Tax Case No.93/2024) relied upon the statement of this witness recorded under Section 14 of the Central Excise Act, 1944, therefore, opportunity to cross-examine him should be given to the appellant/assessee which the Commissioner of Customs & Central Excise/adjudicating authority rejected holding that since Mr. Satish Kumar Pachouri, Manager (Operations), whose statement was recorded under Section 14 was the employee of the appellant/assessee and no specific reason was attributed requesting for such cross-examination, relying upon the decision rendered by the CESTAT, Bangalore in Shalini Steels Pvt. Ltd. (supra). On challenge being made by the appellant before the appellate authority CESTAT, the appellate authority has not recorded any specific finding in this regard. 11.Section 14 of the Central Excise Act, 1944 confers powers on the Central Excise Officer to summon persons to give evidence. Such statements are admissible in evidence. By relying upon these statements so recorded, the Central Excise Officer adjudicating the case may : (a) raised demand of Central excise duty; (b) confiscate any goods, plant or machinery, etc.; (c) levy penalties. In view of the aforesaid power and jurisdiction confers to the Central Excise Officer, the adjudicating proceedings are quasi-judicial in nature. [See :- T. Ashok Pai v. (Tax Case No.93/2024) CIT, Bangalore2; Vinod Solanki v. Union of India and another3 and Kothari Filaments and another v. Commissioner of Customs (Port Kolkata) and others4. 12.In order to consider the plea raised at the Bar, it would be appropriate to notice Section 9D of the Central Excise Act, 1944, which states as under: - “9D. Relevancy of statements under certain circumstances.—(1) A statement made and signed by a person before any Central Excise Officer of a gazette rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains,— (a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or (b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. (2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceedings under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.” 2 (2007) 7 SCC 162 3 (2008) 16 SCC 537 4 (2009) 2 SCC 192 (Tax Case No.93/2024) 13.Section 9D of the Central Excise Act, 1944 is in two parts. Clause (a) of sub-section (1) of Section 9D refers to the following circumstances: - (i) when the person who made the statement is dead, (ii) when the person who made the statement cannot be found, (iii) when the person who made the statement is incapable of giving evidence, (iv) when the person who made the statement is kept out of the way by the adverse party, and (v) when the presence of the person who made the statement cannot be obtained without unreasonable delay or expense. 14.Sub-section (2) of Section 9D extends the provision of sub- section (1) of Section 9D to any proceedings under the Central Excise Act, 1944, other than a proceeding before a Court. As such, Section 9D of the Central Excise Act, 1944 can be utilised in adjudication proceedings by the Commissioner as well. 15.In the instant case, it is not the case of the appellant that where any of the circumstances mentioned in clause (a) of sub-section (1) of Section 9D of the Central Excise Act, 1944, exist. Therefore, clause (b) of sub-section (1) of Section 9D would come into operation. The said clause prescribes a specific (Tax Case No.93/2024) procedure to be followed before the statement can be admitted in evidence and under this procedure, two steps are required to be followed by the adjudicating authority under clause (b) of sub-section (1) of Section 9D,viz., (i) the person who made the statement has to be examined first as a witness in the case before the adjudicating authority, and (ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. 16.The object beyond enacting clause (b) of sub-section (1) of Section 9D of the Central Excise Act, 1944 is explicitly clear. The statement, recorded during inquiry/investigation, by the Gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the Central Excise Officers or the Service Tax Officers resort to compulsion in order to extract confessional statements and in order to neutralise the effect of compulsion before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates (Tax Case No.93/2024) that the evidence of the witness has to be recorded before the adjudicating authority so as to eliminate any scope of pressure or undue influence on the part of the investigating agencies. For this, the adjudicating authority has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that having regard to the circumstances of the case, the statement should be admitted in the interests of justice. 17.Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence in which evidence-in-chief has to precede cross-examination and cross-examination has to precede re-examination. 18.It is well settled that adjudicating authorities are bound by the general principles of evidence which stands affirmed in the judgment of the Supreme Court in the matter of Commissioner of Customs, Mumbai v. Bussa Overseas Properties Ltd.5. 19.Similarly, in the matter of Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II6 in which the request of the appellant therein seeking cross-examination of witnesses was not dealt with by the adjudicating authority in 5 2007 (216) ELT 659 (SC) 6 2015 (324) ELT 641 (SC) (Tax Case No.93/2024) the order and was not granted by the competent authority, their Lordships of the Supreme Court interfering with the order of the adjudicating authority and the appellate authorities held that the assessee disputed the correctness of the statements and wanted to cross-examine, the impugned order suffers from serious flaw and is in violation of principles of natural justice, and observed as under: - "6. According to us, not allowing the assessee to cross- examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted (Tax Case No.93/2024) to cross-examine those dealers and what extraction the appellant wanted from them." 20.A Division Bench of this Court also in the matter of Hi Tech Abrasives Ltd. v. Commissioner of Central Excise & Customs, Raipur7 considered the scope of proceedings under Section 9D of the Central Excise Act, 1944 and held that the provisions contained in Section 9D have to be construed strictly and are mandatory. It has been observed as under: - "9.3. A conjoint reading of the provisions therefore reveals that a statement made and signed by a person before the Investigation Officer during the course of any inquiry or proceedings under the Act shall be relevant for the purposes of proving the truth of the facts which it contains in case other than those covered in clause (a), only when the person who made the statement is examined as witness in the case before the court (in the present case, Adjudicating Authority) and the court (Adjudicating Authority) forms an opinion that having regard to the circumstances of the case, the statement should be admitted in the evidence, in the interest of justice. 9.4. The legislative scheme, therefore, is to ensure that the statement of any person which has been recorded during search and seizure operations would become relevant only when such person is examined by the adjudicating authority followed by the opinion of the adjudicating authority then the statement should be admitted. The said provision in the statute book seems to have been made to serve the statutory purpose of ensuring that the assessee are not subjected to demand, penalty interest on the basis of certain admissions recorded during investigation which may have been 7 2018 (362) ELT 961 (Chhattisgarh) (Tax Case No.93/2024) obtained under the police power of the Investigating authorities by coercion or undue influence. 9.5. Undoubtedly, the proceedings are quasi criminal in nature because it results in imposition of not only of duty but also of penalty and in many cases, it may also lead to prosecution. The provisions contained in Section 9D, therefore, has to be construed strictly and held as mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was (Tax Case No.93/2024) recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. In taking this view, we find support from the decision in the case of Ambica International v. UOI rendered by the High Court of Punjab and Haryana. Reliance has been placed by the Counsel for the Revenue on the decision in the matter of Commissioner of Central Excise v. Kalvert Foods India Private Limited (Laws (SC) 2011 838). That decision turned on its own facts. In para 19 of the judgment, it was concluded as below: “19. We are of the considered opinion that it is established from the record that the aforesaid statements were given by the concerned persons out of their own volition and there is no allegation of threat, force, coercion, duress or pressure being utilized by the officers to extract the statements which corroborated each other. Besides the Managing director of the Company of his own volition deposition the amount of Rs. 11 lakhs towards excise duty and therefore in the facts and circumstances of the present case, the aforesaid statement of the Counsel for the Respondents cannot be accepted. This fact clearly proves the conclusion that the statements of the concerned persons were of their volition and not outcome of any duress.” Accordingly, on the first and second question of law, we hold that the statement of the Director could not be treated as relevant piece of evidence nor could be relied upon without compliance of Section 9D of the Act. The two questions of law accordingly, stand answered in that manner." 21.Turning to the facts of the present case, it is quite vivid that in the instant case also, the statement of Mr. Satish Kumar (Tax Case No.93/2024) Pachouri, Manager (Operations), was recorded under Section 14 of the Central Excise Act, 1944, which was disputed by the appellant/assessee in paragraph 13 of his reply to show cause and specifically demanded opportunity to cross-examine him to unearth the truth, as according to the assessee, the Revenue has heavily relied upon his statement, but the adjudicating authority rejected the same holding that he is the employee of the assessee and no specific reason was attributed requesting for such cross-examination which in our considered opinion is in violation of the principles of natural justice, as because of non-affording of the opportunity of cross-examination, the appellant/assessee was adversely affected as held by their Lordships of the Supreme Court in Andaman Timber Industries (supra). 22.In the matter of Lakshman Exports Ltd. v. Collector of Central Excise8 also, the assessee therein was not allowed to cross- examine the representative and their Lordships of the Supreme Court finding necessity to give an opportunity to cross-examine the witness, remanded the matter back to the competent authority by holding as under: - 8 (2005) 10 SCC 634 (Tax Case No.93/2024) “2. We find that, in the reply to the show-cause notice, the assessee had specifically asked to be allowed to cross- examine the representatives of these two concerns to establish that the goods in question had been accounted for in their books of account and the appropriate amount of Central excise duty had been paid. The logic of such request is clear from what is stated therein. 3. It is now not contested that the matter should go back to the assessing authority, who shall near the matter de novo after ensuring that lacunae pointed out in the order of the Vice-President are met. 4. The civil appeals are allowed. The order under appeal and the orders of the authorities below are set aside. The matter shall stand restored to the Additional Collector, Okhla to proceed as indicated above.” 23.As such, the appellant was entitled to cross-examine Mr. Satish Kumar Pachouri, Manager (Operations), the opportunity of which ought to have been given which has not been given and the impugned order came to be passed in violation of the principles of natural justice. Answer to Substantial Question of Law No.(iii) 24.It is the case of the appellant that the appellant had not provided Mandap Keeper Service and without evidence of providing such service, tax has been imposed on him on total receipts. In this regard, first of all, it has been contended on behalf of the appellant that the statement of Mr. Satish Kumar Pachouri is inadmissible in evidence in light of Section 9D of (Tax Case No.93/2024) the Central Excise Act, 1944 and furthermore, the documents relied upon in paragraph 40(c) of the order in original (page 100 of the paper book) i.e. (i) Bills relating to Mandap Keeper Service pages 1-439; (ii) Bills relating to Mandap Keeper Service pages 1-157; and (iii) Bills relating to Mandap Keeper Service pages 1-245 indicating that the Noticee had been engaged in rendering service under the category of Mandap Keeper, have been returned to the assessee on 26-6-2014 being non-relied upon documents. The aforesaid documents were seized on 24-12-2011. The aforesaid documents were seized on 24-12-2011. On 3-6-2014, the appellant's representative requested the Commissioner, Central Excise & Customs, Raipur to return the documents not relied upon and accordingly, on 26-6-2014, vide Annexure P-11, following documents were returned to the assessee/appellant: - S.No. of Annexure - A (Withdrawal Memo dated 24.12.2011 Description of the documents Pages From To 1 Bill relating to Mandaap Keeper Service 1 439 2 Bill relating to Mandaap Keeper Service 1 157 3 Bill relating to Mandaap Keeper Service 1 245 8 Bank Statements 1 163 9 Bank Statements 1 345 10 Payments Vouchers Apr-09 (Tax Case No.93/2024) 11 Payments Vouchers Jul-10 12 Payments Vouchers Nov- 2011 25.By letter dated 30-6-2014 addressed to the Superintendent (Adj), Central Excise Head Quarters, Central Excise Building, Raipur, it was informed by the Superintendent (STC), Office of the Deputy Commissioner, Service Tax Division, Raipur, that non-relied documents have been returned to the assessee. As such, the documents which have been relied upon by the adjudicating authority in paragraph 40(c) of the order in original have been returned to the assessee as not relied upon documents and non-relied documents have been held by the adjudicating authority to show that the noticee has been engaged in rendering services under the category of Mandap Keeper. In view of the discussion made herein-above, the documents relied upon in paragraph 40(c) of the order in original had already been returned to the appellant/assessee by the Revenue and same have been held by the adjudicating authority to be the non-relied documents, yet they have been considered and on the basis of the same, it has been held by the adjudicating authority that the appellant/assessee has been engaged in rendering services under the category of Mandap Keeper, as non-relied upon documents, which have been (Tax Case No.93/2024) returned, ought not to have been considered by the adjudicating authority. 26.Consequently, the order in original dated 20-1-2015 passed by the adjudicating authority and the order impugned dated 26-4- 2023 passed by the CESTAT are liable to be set aside and are hereby set aside. The matter is remitted to the adjudicating authority for providing opportunity to cross-examine the witness(es) relied upon by the Revenue to the appellant and to pass order afresh after hearing the parties, in accordance with law within three months from the date of receipt of a copy of this order, after considering the material available on record. 27.The substantial questions of law are answered in aforesaid terms. 28.The appeal is allowed in aforesaid terms leaving the parties to bear their own cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Sanjay Kumar Jaiswal) JUDGE JUDGE Soma