The Customs, Excise and Service Tax Appellate Tribunal has delivered a significant ruling clarifying that the extended period of limitation under Section 11A(4) of the Central Excise Act cannot be invoked where the department was fully aware of the facts at the time of the transaction, and no deliberate suppression with intent to evade duty occurred. This judgment reinforces the principle that mere inaction or failure to scrutinize documents does not constitute suppression.
Background & Facts
The Dispute
The dispute arose from the denial of area-based exemption under Notification No. 50/2003-C.E. dated 10.06.2003 to Sun Home Appliances Private Limited (formerly M/s. Sun Industries), which had acquired the business of M/s. Om Sai Enterprises. The Directorate General of GST Intelligence (DGGI) alleged that the appellant fraudulently extended the exemption period by creating a proxy entity to continue availing benefits beyond the permissible timeframe. The Additional Director General (Adjudication) confirmed a central excise duty demand of Rs. 33,78,13,127 under Section 11A(4), along with interest and penalties under Rule 25 and Rule 26 of the Central Excise Rules, 2002.
Key Facts
- M/s. Om Sai Enterprises, located at F-83, Bahadrabad Industrial Area, Haridwar, was availing area-based exemption under Notification No. 50/2003-C.E. since 29.03.2010 for manufacturing footwear and leather accessories.
- On 01.05.2015, Om Sai informed the Uttarakhand Sales Tax Department and the District Industries Centre (DIC) of its intention to manufacture new products: LED TVs, washing machines, and air conditioners.
- DIC granted approval via R-29 receipt on 01.05.2015 and issued Form-447 on 12.05.2015.
- The Central Excise Department acknowledged the addition of new products on 12.05.2015.
- Om Sai commenced clearance of new products from June 2015, supplying to Amba Electronics and Taneja Electronics.
- On 13.07.2015, Om Sai applied to DIC for shifting its factory to Khasra No. 83, Vardhman Industrial Estate, Sector-3, Bahadarpur Saini, Roorkee Road, Haridwar - a notified area under the exemption.
- DIC granted permission on 20.07.2015.
- A rent agreement dated 26.06.2015 was executed with M/s. Maxx Mobile Communications for the new premises.
- A Chartered Engineer inspected the premises on 24.07.2015 and again on 01.08.2015, issuing certificates.
- Om Sai informed the DIC and Central Excise Department of the shift on 10.08.2015 and 13.08.2015 respectively.
- On 14.08.2015, a Business Transfer Agreement was executed between Om Sai and the appellant, Sun Home Appliances Private Limited, transferring the business as a going concern.
- The appellant informed DIC and Central Excise Department of the takeover on 24.08.2015.
- The appellant commenced clearance of goods under the exemption from 31.08.2015 to 30.06.2017.
- DGGI conducted searches and recorded statements under Section 14 of the Central Excise Act between June 2016 and February 2017.
- A show cause notice dated 28.05.2020 was issued, proposing duty demand for the period 31.08.2015 to 30.06.2017.
Procedural History
- 29.03.2010: Om Sai Enterprises commenced operations under area-based exemption.
- 01.05.2015: Om Sai notified authorities of addition of new products.
- 10.05.2015: DIC received declaration for new products.
- 11.05.2015: Central Excise Department notified of new product addition.
- 13.07.2015: Om Sai applied for shift to Khasra-83 premises.
- 20.07.2015: DIC granted permission for shift.
- 01.08.2015: Chartered Engineer certified new premises.
- 14.08.2015: Business Transfer Agreement executed between Om Sai and appellant.
- 24.08.2015: Appellant informed DIC and Central Excise Department of takeover.
- 31.08.2015 to 30.06.2017: Appellant cleared goods under exemption.
- 22.06.2016 to 16.02.2017: DGGI recorded statements under Section 14.
- 28.05.2020: Show cause notice issued - over four years after the last clearance.
- 31.01.2025: Additional Director General confirmed demand, interest, and penalties.
- 05.02.2026: Hearing before CESTAT.
- 29.04.2026: Final order passed by CESTAT.
The Parties' Positions
Appellant (Sun Home Appliances, Jasraaj Singh Kalra, Sarabjit Singh Kalra):
- Argued that the acquisition of Om Sai was a legitimate business transfer.
- Contended that addition of new products and shift of premises were lawful under Notification No. 50/2003-C.E. and CBEC Circulars 939/2010 and 960/2012.
- Asserted that all documents were submitted to and acknowledged by the department.
- Stated that the extended period of limitation could not be invoked as the department had full knowledge of the transactions in 2015.
- Challenged the admissibility of statements recorded under Section 14, as Section 9D procedures were not followed.
- Denied any fraudulent intent or suppression.
Respondent (DGGI / Additional Director General):
- Alleged that the appellant was a proxy entity created by Noble Industries to fraudulently extend the exemption period beyond February 2016.
- Claimed that the Business Transfer Agreement was forged and the shift of premises was fictitious.
- Relied on statements recorded under Section 14 to prove collusion and suppression.
- Argued that the extended period under Section 11A(4) was rightly invoked due to wilful suppression and fraudulent intent.
- Imposed penalties under Rule 26 on Jasraaj and Sarabjit Singh Kalra, alleging their involvement in the evasion.
Relief Sought
The appellants sought:
- Setting aside of the order dated 31.01.2025.
- Quashing of the duty demand of Rs. 33,78,13,127.
- Cancellation of interest and penalties under Section 11AA, Rule 25, and Rule 26.
- Declaration that the extended period of limitation under Section 11A(4) was wrongly invoked.
- Direction that statements recorded under Section 14 be excluded as evidence due to non-compliance with Section 9D.
The Legal Issue
The central question was whether the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944, could be invoked where the department had full knowledge of the appellant’s business transfer, product addition, and premises shift in 2015, and whether the statements recorded under Section 14 could be relied upon without compliance with the mandatory procedure under Section 9D.
Arguments Presented
For the Appellant
The appellant relied on Section 9D of the Central Excise Act to argue that statements recorded under Section 14 were inadmissible because the adjudicating authority failed to examine the witnesses or form an opinion on their admissibility. The appellant cited Ambika International v. Union of India, Hi Tech Abrasives Ltd., and Drolia Electrosteel to establish that Section 9D is mandatory and non-compliance renders statements irrelevant.
The appellant further relied on Collector of Central Excise v. Chemphar Drugs, Pushpam Pharmaceutical Co. v. Commissioner of Central Excise, and Anand Nishikawa Co. Ltd. to argue that suppression requires deliberate intent to evade duty. Since the department had acknowledged the shift and takeover in 2015, no suppression existed. The appellant also cited CBEC Circulars 939 and 960 to establish that addition of new products and transfer of ownership were expressly permitted under the exemption.
For the Respondent
The department contended that the appellant’s acquisition of Om Sai was a sham transaction designed to circumvent the expiry of exemption benefits for Noble Industries. It relied on statements recorded under Section 14 to prove collusion, forged documents, and back-dated certificates. The department argued that the appellant’s failure to disclose the true nature of the transaction constituted suppression under Section 11A(4). It further claimed that Section 9D was not strictly applicable as the proceedings were adjudicatory, not penal, and that the statements were corroborated by documentary evidence.
The Court's Analysis
The Tribunal conducted a meticulous review of the legal framework governing extended limitation and evidentiary admissibility. It held that Section 11A(4) requires proof of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. The Court emphasized that suppression must be deliberate and not merely an omission.
"Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression."
The Tribunal noted that the Central Excise Department had received and acknowledged all communications from Om Sai and the appellant in 2015, including the shift of premises and change in ownership. A communication dated 2015 from the Range Officer explicitly stated: "...the taken over of the unit by M/s. Sun Industries appears in order..." This demonstrated that the department was fully aware of the transactions.
The Court held that the department’s failure to issue a show cause notice within the two-year limitation period - and its delay until 2020 - precluded invocation of the extended period. The Supreme Court in Chemphar Drugs and Pushpam Pharmaceutical had squarely held that when the department has full knowledge, extended limitation cannot be invoked.
Regarding Section 9D, the Tribunal held that the procedure is mandatory and non-negotiable. The Court cited Ambika International and Hi Tech Abrasives to affirm that statements under Section 14 are inadmissible unless the person is examined as a witness and the adjudicating authority records a reasoned opinion on admissibility. The Additional Director General had neither examined any witness nor formed such an opinion.
"The rigour of this provision could not be done away with by the adjudicating authority... without examination of the person... the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence at all."
The Tribunal further held that Rule 26 penalties could not be imposed because the order contained no finding that the goods were liable to confiscation - a mandatory precondition under Rule 26(1). The Court relied on Shri Ramesh Garg to affirm that without such a finding, penalty under Rule 26 is unsustainable.
The Verdict
The appellants succeeded in full. The CESTAT set aside the order dated 31.01.2025 in its entirety. The demand of central excise duty of Rs. 33,78,13,127, along with interest and penalties under Section 11AA, Rule 25, and Rule 26, was quashed. The Tribunal held that the extended period of limitation under Section 11A(4) was wrongly invoked, the statements under Section 14 were inadmissible due to non-compliance with Section 9D, and the penalty under Rule 26 was unsustainable for lack of a confiscation finding. All three appeals were allowed.
What This Means For Similar Cases
Suppression Requires Deliberate Intent - Not Mere Oversight
- Practitioners must argue that if the department received and acknowledged documents, correspondence, or declarations, then any subsequent claim of suppression fails.
- The burden shifts to the department to prove positive, intentional concealment - not just failure to detect.
- In cases involving business transfers or product additions under exemption notifications, maintain a clear paper trail and ensure all communications are formally recorded.
Section 9D Compliance Is Non-Negotiable in Adjudication
- Any reliance on statements recorded under Section 14 without examination of the witness and a reasoned opinion under Section 9D(1)(b) renders the evidence inadmissible.
- Always raise a preliminary objection to the admissibility of such statements at the earliest opportunity.
- Cite Ambika International and Hi Tech Abrasives to compel the adjudicating authority to follow mandatory procedure.
Rule 26 Penalties Require a Separate Confiscation Finding
- Penalty under Rule 26 cannot be imposed unless the order explicitly holds that the goods are liable to confiscation.
- If the order only imposes penalty under Rule 26 without a confiscation finding, challenge it on this ground alone.
- This principle applies across all excise, customs, and GST proceedings where Rule 26 or its equivalents are invoked.
