Statement First, Cross-Examination Second: CESTAT Allahabad Invokes Section 9D of the Central Excise Act to Quash a ₹2.39 Crore Cenvat Credit Fraud Demand Against Rathi Steel and Power

Quick answer: In M/s Rathi Steel and Power Ltd. v. Additional Director General, DGGSTI (Adjudication Cell), decided on 15 September 2026, the Allahabad Regional Bench of the Customs, Excise & Service Tax Appellate Tribunal (P.K. Choudhary, Member Judicial, and P. Anjani Kumar, Member Technical) set aside an Order-in-Original that had denied Cenvat credit of ₹2,39,61,066 to the appellant, along with interest and an equal penalty, on the allegation that the credit was availed on cenvatable invoices issued without actual delivery of copper scrap. The Tribunal held that the adjudicating authority had relied on third-party statements recorded during investigation without following the mandatory two-step admissibility procedure prescribed by Section 9D of the Central Excise Act, 1944; had treated a co-noticee’s settlement under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 as proof of the case against unrelated noticees; and had confirmed the demand through undifferentiated, common findings rather than reasons specific to the appellant. The appeal was allowed with consequential relief.

Key Takeaways

• Section 9D of the Central Excise Act, 1944 — mirrored by Section 138B of the Customs Act, 1962 — is a mandatory, two-step gate for admitting a third party’s investigation-stage statement in adjudication. The deponent must first be examined as a witness before the adjudicating authority, who must then form a reasoned opinion that the statement should be admitted in the interest of justice; only after that determination can cross-examination be offered.
• A statement’s age does not excuse skipping Section 9D. The adjudicating authority’s reasoning that a roughly six-year gap between the statement and its retraction made the retraction an “afterthought” could not substitute for the statutorily mandated re-examination of that witness before treating his original statement as admissible evidence.
• A co-noticee’s settlement under an amnesty scheme is not evidence against other noticees. The Tribunal found unsustainable the adjudicating authority’s reasoning that other noticees settling under SVLDRS showed the investigation and evidence were “fool proof” against noticees who did not settle.
• An omnibus order confirming demand against a large noticee base on undifferentiated findings will not survive appeal. Of the roughly 500-page Order-in-Original, only 10 to 11 pages addressed substantive findings, and none of them engaged the appellant’s own facts specifically.
• The same evidentiary discipline applies across the fraud-invoicing chain. The Tribunal relied on its own earlier order in a companion appeal arising from the identical investigation, decided in the noticee’s favour on materially similar grounds — showing this is a settled Tribunal position on this specific racket, not an isolated outcome.

1. Introduction

Cenvat credit fraud investigations built around a single alleged “invoice mill” — a trader or broker accused of issuing tax-paid invoices for goods that were never actually supplied — have generated some of the most persistent litigation under the legacy Central Excise regime, and their structure recurs, almost unchanged, in today’s GST input tax credit fraud cases pursued by the Directorate General of GST Intelligence. The investigating agency identifies a controlling figure, traces cash transactions through informal ledgers and third-party statements, and then issues a common show cause notice to dozens of downstream manufacturers alleged to have availed credit without receiving the underlying goods. What often gets lost in the scale of such proceedings is individualised proof against each recipient — and a statutory safeguard, easily overlooked in the rush to confirm demand across a large noticee base, that governs whether the third-party statements at the heart of the case can be used as evidence at all.

M/s Rathi Steel and Power Ltd. v. Additional Director General, DGGSTI, decided by the Allahabad Regional Bench of the Customs, Excise & Service Tax Appellate Tribunal on 15 September 2026, addresses exactly this problem. The appellant, a Ghaziabad-based manufacturer of TMT bars and steel billets, was one of 68 noticees accused of availing Cenvat credit on the strength of invoices issued by dealer companies controlled by a single individual, without any accompanying supply of goods. The Tribunal set aside the demand of ₹2,39,61,066 confirmed against the appellant, holding that the adjudicating authority had failed to follow Section 9D of the Central Excise Act, 1944 before treating the investigation’s third-party statements as evidence, and had otherwise confirmed the demand through generic findings rather than reasons addressed to the appellant’s own case. This article traces the investigation, the Tribunal’s reasoning on Section 9D, and what the decision means both for legacy excise appeals still working through the system and for today’s GST fraud-chain investigations that rely on the same evidentiary architecture.

2. Case summary and background

The investigation

Between 2011 and 2012, the Directorate General of Central Excise Intelligence — the agency later reconstituted as the GST intelligence apparatus whose Adjudication Cell now appears as respondent in this appeal — investigated Shri Amit Gupta, director of M/s Progressive Alloys P. Ltd., and a cluster of associated registered dealers: M/s Forward Minerals & Metals P. Ltd., M/s Unnati Alloys P. Ltd., M/s Moral Alloys P. Ltd. and M/s Brilliant Metals P. Ltd. The allegation was that these dealer entities issued cenvatable invoices for non-ferrous metals — principally copper scrap — to manufacturers of excisable goods, including M/s Rathi Steel and Power Ltd., the appellant, without any physical delivery of the goods described in the invoices.

The department’s case, built substantially on statements recorded under Section 14 of the Central Excise Act, was that Shri Amit Gupta imported goods through group companies and sold them for cash in the open market, while separately supplying only paper invoices — accompanied by fictitious transport documents bearing vehicle numbers that, on verification, belonged to JCBs and auto-rickshaws rather than goods carriers — to manufacturer-customers, who used those invoices to claim Cenvat credit on inputs they had in fact purchased, unaccounted, from the open market. Transporters, including the proprietor of M/s Leo Trans & Logistics and the accountant of an associated firm, denied having transported any goods under the invoices in question. Ledgers recovered from Shri Amit Gupta recorded cash transactions against entries described as “Anil Trading Co.”, “Anil Rathi”, “Rathi” and “Rathi Steel Anil Trading Co.”, which the department treated as corresponding to the appellant. The appellant’s account was that it procured copper scrap — 0.70% to 0.90% of the input mix used to manufacture its TMT bars and billets — through a broker, Shri Anil Gupta, who arranged supply from a different individual, Shri Mohit Gupta, and that the transporter who delivered the goods, Shri Ram Chander Rathore of Hariom Tempo Services, corroborated that account in his own statement.

A show cause notice dated 19 August 2015 was issued to 68 companies and individuals, proposing recovery of Cenvat credit, interest and penalty. The noticees, including the appellant, sought cross-examination of the deponents whose statements underpinned the case. Cross-examination of Shri Amit Gupta was eventually conducted on 10 April 2018 — nearly three years after the notice and roughly six years after his original statement — in the course of which he resiled from his earlier account and stated that his statement had been dictated and made under coercion.

The Order-in-Original and the appeal

The Additional Director General (Adjudication Cell), New Delhi, passed Order-in-Original No. 146/2024-CE on 30 September 2024, confirming a demand of ₹2,39,61,066 against the appellant, together with interest and a penalty equal to that amount. The order ran to approximately 500 pages, but the Tribunal found that only 10 to 11 pages contained the adjudicating authority’s discussion and findings — of which four to five pages simply reproduced the relevant statutory provisions — and that this discussion gave no findings specific to the appellant, addressing instead the case against all 68 noticees in common terms. The adjudicating authority rejected the retractions made during cross-examination on the footing that they came too late to be credible, and treated the fact that certain other noticees had separately settled their disputes under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 as corroboration that the investigation and evidence were sound. The appellant carried the matter in appeal to the CESTAT’s Allahabad Regional Bench, which heard the appeal on 2 September 2026 and delivered Final Order No. 70393/2026 on 15 September 2026.

3. Legal analysis

3.1 The issue the Tribunal actually decided

The appellant raised a battery of objections — delay in adjudication, the absence of physical stock verification, contradictions between witnesses on who bore freight costs, and the department’s failure to investigate the appellant’s own alleged intermediaries. But the Tribunal’s operative reasoning turned on a narrower and more fundamental question: could the third-party statements at the foundation of the case be treated as relevant evidence at all, given that the procedure prescribed by Section 9D of the Central Excise Act, 1944 for admitting such statements had not been followed?

3.2 Section 9D’s two-step gate, and why it exists

Section 9D governs when a statement recorded before a gazetted Central Excise officer during inquiry becomes relevant for proving the truth of its contents. Where none of the exceptional circumstances in clause (a) apply — the deponent is dead, untraceable, incapacitated, kept out of the way, or cannot be produced without unreasonable delay or expense — clause (b) prescribes a mandatory two-step sequence before the statement can be treated as evidence: first, the deponent must be examined as a witness before the adjudicating authority itself; second, the adjudicating authority must form an opinion, having regard to the circumstances of the case, that the statement should be admitted in evidence in the interest of justice. Only once that determination is made does the question of offering the witness for cross-examination arise. Section 9D(2) extends this procedure to adjudication proceedings, not merely criminal trials, and Section 138B of the Customs Act, 1962 contains an identically structured safeguard for statements recorded under Section 108 of that Act.

The Tribunal’s reasoning tracked, and extensively reproduced, the Principal Bench’s decision in Surya Wires Pvt. Ltd. v. Principal Commissioner, CGST, Raipur (Excise Appeal No. 51148 of 2020), which collected the governing line of High Court authority: the Delhi High Court’s decision in J&K Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.), which first held that Section 9D(2) extends the sub-section (1) procedure to adjudication with the same force as to criminal proceedings; the Punjab and Haryana High Court’s decisions in Ambika International v. Union of India, 2018 (361) E.L.T. 90 (P&H) (decided 17 June 2016) and Jindal Drugs Pvt. Ltd. v. Union of India, 2016 (340) E.L.T. 67 (P&H) (decided 21 June 2016), which explained that the procedure exists because a statement recorded during investigation carries a real risk of having been extracted under coercion, and that the safeguard neutralises that risk before the statement is used; the Chhattisgarh High Court’s decision in Hi Tech Abrasives Ltd. v. Commissioner of C. Ex. & Cus., Raipur, 2018 (362) E.L.T. 961 (Chhattisgarh) (decided 4 July 2018), which held the provision mandatory rather than directory, and separately excluded an unauthenticated private notebook once the statement of its author was excluded for the same reason; and the Delhi High Court’s decision in Additional Director General (Adjudication) v. Its My Name Pvt. Ltd., 2021 (375) E.L.T. 545 (Del.) (decided 1 June 2020), which applied the identical principle under Section 138B of the Customs Act to hold that unadmitted Section 108 statements could not even oppose a request for provisional release of seized goods. The Tribunal also drew on its own Division Bench’s decision in Drolia Electrosteel (decided 30 October 2023), which applied Jindal Drugs to hold 35 unadmitted statements inadmissible in a Central Excise proceeding.

3.3 Where the adjudicating authority went wrong

Measured against that framework, the adjudicating authority’s approach failed at the first step. Rather than examining Shri Amit Gupta and the other deponents as witnesses and recording a reasoned opinion on admissibility before allowing cross-examination, the adjudicating authority proceeded directly to weighing the credibility of the retraction that emerged during cross-examination — nearly six years after the original statements were recorded — and rejected it as a delayed afterthought unsupported by corroboration. The Tribunal held this could not substitute for the statutory procedure: a late retraction does not, by itself, license treating the original, unadmitted statement as reliable; if anything, the multi-year gap — itself a product of the department’s own pace of adjudication — cut against attributing fault to the appellant for its timing. The Tribunal was equally unpersuaded by the alternative reasoning that officers recording statements under the Central Excise Act are not police officers, so that confessions before them are acceptable without more; that proposition, even taken at face value, does not dispense with Section 9D’s separate admissibility procedure.

The Tribunal was similarly unpersuaded by one of the adjudicating authority’s own stated grounds for confirming the demand — that the fact that some of the 68 noticees had separately settled their disputes under the SVLDRS Scheme was, in the adjudicating authority’s own words, sufficient to show that “the investigation conducted and the evidence gathered were fool proof.” The appellant had argued that the scheme’s own terms make clear an SVLDRS application cannot be treated as a confession or admission usable to draw adverse inferences against other parties, and the Tribunal treated this reasoning, together with the delayed-retraction point, as symptomatic of an adjudication order that reached a common conclusion against all 68 noticees without engaging the specific facts of the appellant’s own case. Beyond the Section 9D point, the Tribunal identified this as a second, independent defect: the adjudicating authority’s order, notwithstanding its length, gave no findings specific to the appellant — it recorded a common set of conclusions applicable to all noticees without engaging the individualised evidence, submissions and cross-examination testimony relevant to the appellant. The Tribunal also noted the absence of the most obvious corroborative step available to the department: no physical verification was ever conducted of the appellant’s raw material stock against its invoiced purchases, an inquiry that, had it been undertaken, could have independently established or refuted the shortfall the fictitious-invoice theory implied. As the Tribunal put it, “the Adjudicating Authority has proceeded with the conviction that the investigation was sacrosanct and is not questionable.”

3.4 A companion decision, and whether the reasoning survives the shift to GST

The Tribunal placed weight on its own earlier order in V.K. Bhuraria; M/s Brilliant Metals Pvt. Ltd. & 7 Others (Excise Appeal No. 51356 of 2017, Final Order Nos. 51800–51808 of 2018, dated 11 May 2018) — a decision arising from the very same investigation into Shri Amit Gupta, but concerning a different downstream noticee. There too, the Tribunal had allowed the appeal on materially similar reasoning: the absence of any physical stock verification, the absence of recovered cash corroborating the alleged cash-sale mechanism, and the absence of any inquiry into the recipient manufacturer’s own suppliers beyond the disputed third-party statements. Read together, the two decisions indicate a settled Tribunal position on this specific investigation, rather than an isolated outcome turning on Rathi Steel’s particular facts.

Because Section 9D belongs to the Central Excise Act rather than the CGST Act, its application here does not, without more, transplant into GST adjudication. Section 136 of the CGST Act, 2017 supplies a textually similar relevance rule for a statement made and signed on appearance before a proper officer under summons, but it is framed only in terms of proving facts “in any prosecution for an offence under this Act” — it does not carry an express provision equivalent to Section 9D(2) of the Central Excise Act or Section 138B(2) of the Customs Act, which is what the courts relied upon to extend the two-step admissibility procedure from criminal trials to adjudication proceedings. A GST adjudicating authority relying on a co-noticee’s or a supplier’s statement in an input tax credit fraud proceeding — precisely the fact pattern in DGGI show cause notices under Section 74 of the CGST Act — cannot yet assume this line of authority applies of its own force; the extension would have to be independently reasoned, since the textual bridge the courts relied upon under the legacy statutes has no direct counterpart in Section 136.

4. Practical significance

For manufacturers and dealers facing a common show cause notice arising from an “invoice mill” investigation — whether under the legacy Central Excise regime or today’s GST fraud-chain proceedings — the decision offers a concrete checklist. First, where the department’s case rests on statements recorded from a supplier, broker, transporter or their employees, a noticee should insist, at the reply stage, on the two-step Section 9D procedure being followed in terms, not merely on being offered cross-examination as an afterthought: the demand for examination of the deponent before the adjudicating authority, and a reasoned finding on admissibility, should be made explicitly and on the record, so that any later failure to do so is squarely before an appellate forum. Second, where cross-examination does occur and produces a retraction, a noticee should anticipate an adjudicating authority treating the retraction’s timing, rather than its substance, as the ground for rejecting it, and should document wherever possible the reasons for any delay — such as the department’s own pace of adjudication — so that timing arguments cannot be used to sidestep Section 9D altogether.

Third, in a proceeding involving multiple noticees, a noticee should resist an adjudicating authority’s temptation to decide its case by reference to what other noticees did — another party’s SVLDRS settlement, another party’s admission, or another party’s failure to respond. The Tribunal’s rejection of the SVLDRS-based inference shows that a settlement scheme’s own terms, and general principles of evidence, prevent one party’s litigation choices from being read as proof against another; this objection should be made explicitly wherever an adjudicating authority reasons collectively across a large noticee base rather than assessing each case on its own record.

Fourth, and perhaps most immediately, the department’s own omission here — never verifying the appellant’s raw material stock against its invoiced purchases — is a reminder that the absence of an obvious corroborative step cuts in a noticee’s favour, and should be affirmatively argued rather than left implicit; a fictitious-supply allegation that is never tested against the recipient’s actual stock or production records is, on this Tribunal’s reasoning, correspondingly weaker.

Finally, for practitioners handling DGGI show cause notices under the GST regime that rely on a common supplier’s or intermediary’s statements — the same architecture as the fraud-invoicing chains this decision addresses — the absence of a clear GST equivalent to Section 9D(2) or Section 138B(2) means the argument for excluding unadmitted third-party statements in GST adjudication has to be built affirmatively, by analogy to the Central Excise and Customs case law and the shared statutory purpose behind Section 136 of the CGST Act, rather than assumed to follow automatically from decisions like this one.

5. Conclusion

Rathi Steel and Power does not disturb the department’s authority to deny Cenvat credit availed on the strength of invoices unsupported by an actual supply of goods, nor does it hold that statements recorded during investigation are inherently unreliable. What it insists upon is procedure: a statement recorded from a third party during inquiry does not become evidence against a noticee merely because it was recorded, or merely because the deponent did not immediately retract it — it becomes evidence only once the adjudicating authority has examined the deponent as a witness and formed a reasoned opinion that admitting the statement serves the interest of justice, a sequence the Central Excise Act, 1944 and the Customs Act, 1962 both make mandatory rather than optional.

The decision is also a caution about the administrative economics of mass show cause notices. An investigation that identifies 68 noticees on the strength of one individual’s shifting account cannot be adjudicated, or defended on appeal, through a common set of findings; each noticee’s link to the alleged fraud has to be separately established, and an omnibus order that skips this step invites exactly the reversal that occurred here, as it did in the Tribunal’s earlier, materially identical order concerning a different noticee from the same investigation.

For practitioners, the more durable value of the decision lies in the analogy it invites, and the caution it counsels, for GST fraud-chain investigations built on the same evidentiary foundation: the safeguard is well established under the legacy regime, but its extension to GST adjudication under Section 136 of the CGST Act remains to be independently argued, not assumed.

Authorities

Applied by the Tribunal

• J&K Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.) — held that Section 9D(2) of the Central Excise Act extends the admissibility procedure to adjudication proceedings with the same force as to criminal trials.
• Ambika International v. Union of India, 2018 (361) E.L.T. 90 (P&H) (decided 17 June 2016) — set out the mandatory two-step procedure under Section 9D(1)(b) and its rationale.
• Jindal Drugs Pvt. Ltd. v. Union of India, 2016 (340) E.L.T. 67 (P&H) (decided 21 June 2016) — applied the same reasoning to Section 138B(1) of the Customs Act.
• Hi Tech Abrasives Ltd. v. Commissioner of C. Ex. & Cus., Raipur, 2018 (362) E.L.T. 961 (Chhattisgarh) (decided 4 July 2018) — held Section 9D mandatory and excluded an unauthenticated private notebook once the statement of its author was excluded.
• Additional Director General (Adjudication) v. Its My Name Pvt. Ltd., 2021 (375) E.L.T. 545 (Del.) (decided 1 June 2020) — applied the identical principle under Section 138B of the Customs Act.
• Drolia Electrosteel (Tribunal, decided 30 October 2023) — excluded 35 unadmitted statements for non-compliance with Section 9D(1)(b).
• Surya Wires Pvt. Ltd. v. Principal Commissioner, CGST, Raipur, Excise Appeal No. 51148 of 2020 (Tribunal, Principal Bench) — the decision from which the Allahabad Bench drew the above line of authority.
• V.K. Bhuraria; M/s Brilliant Metals Pvt. Ltd. & 7 Others, Excise Appeal No. 51356 of 2017, Final Order Nos. 51800–51808 of 2018 dated 11 May 2018 (Tribunal) — companion decision from the identical investigation, allowed on materially similar reasoning.

Cited by the appellant’s counsel (not independently the basis of the Tribunal’s holding)

• S.K. Garg, 2017 (348) E.L.T. (Tribunal, Chennai) — cited on the requirement of cross-examination before relying on a witness’s statement.
• Century Metal Recycling P. Ltd., 2009 (234) E.L.T. (P&H), upheld 2009 (244) E.L.T. A57 (S.C.) — cited in support of the appellant’s separate claim for interest on an amount said to have been reversed under duress; not independently addressed in the Tribunal’s operative reasoning, which allowed the appeal “with consequential relief, if any, as per law” without a specific ruling on this claim.
• Riba Textiles Ltd., Final Order No. 60015/2020 dated 7 January 2020 (Tribunal, Chandigarh) — cited on the same interest claim.
• Parle Agro Ltd. (Tribunal, Allahabad, decided 25 March 2021) — cited on the same interest claim.

Cited by the adjudicating authority in the order under appeal

• Tech Mahindra Ltd. v. Commissioner of Central Excise, Pune-III, Order No. A/86893/2018 dated 18 June 2018 (Tribunal, Mumbai) — relied upon in the Order-in-Original for the proposition that interest on delayed duty payment is compensatory and statutorily due; not independently tested on this appeal, since the order itself was set aside.

Legislation and rules considered

Judgment

M/s Rathi Steel and Power Ltd. v. Additional Director General, DGGSTI (Adjudication Cell), Excise Appeal No. 70847 of 2024, Final Order No. 70393/2026, Customs, Excise & Service Tax Appellate Tribunal, Allahabad Regional Bench (P.K. Choudhary, Member Judicial, and P. Anjani Kumar, Member Technical), decided 15 September 2026 — https://indiankanoon.org/doc/27325152/

FAQ

What is Section 9D of the Central Excise Act, and why does it matter in Cenvat credit fraud cases? Section 9D governs when a statement recorded during an inquiry becomes admissible evidence in adjudication. Except in narrow circumstances (the deponent is dead, untraceable or similarly unavailable), the adjudicating authority must first examine the deponent as a witness and form a reasoned opinion that the statement should be admitted in the interest of justice, before the statement can be relied upon at all. In fraud-invoicing cases, where the entire demand often rests on one controlling individual’s statement, this procedure decides whether that statement can be used against downstream noticees in the first place.

Does an adjudicating authority have to offer cross-examination of every witness whose statement it relies on? Cross-examination is only the second stage. The first, and equally mandatory, stage is examining the deponent as a witness before the adjudicating authority and recording an opinion on admissibility. An adjudicating authority that skips this first stage and moves straight to assessing a retraction made during a later cross-examination has not followed the procedure Section 9D requires.

Can a co-noticee’s settlement under an amnesty scheme like SVLDRS be used as evidence against other noticees in the same investigation? No. The Tribunal found it unsustainable to treat other noticees’ decisions to settle under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 as proof that the investigation and evidence were sound against a noticee who did not settle. A settlement reflects that party’s own choice and does not establish facts against unrelated parties.

Does this Section 9D safeguard automatically apply to GST adjudication involving input tax credit fraud? Not automatically. Section 136 of the CGST Act, 2017 contains a similarly worded relevance rule, but on its face it is confined to proving facts “in any prosecution for an offence” under the Act, and it lacks an express provision extending it to adjudication proceedings, unlike Section 9D(2) of the Central Excise Act and Section 138B(2) of the Customs Act. Extending this evidentiary safeguard to GST adjudication would require an independent argument by analogy, not an assumption that the Central Excise and Customs case law applies of its own force.

This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.