₹4.34 Crore Clandestine Removal Demand Quashed for Inadmissible Electronic Evidence: CESTAT Kolkata

Jai Mangla Sponge Iron Private Limited Vs Commissioner of C.G.S.T. and C.X. (CESTAT Kolkata)

Summary: CESTAT Kolkata set aside the Central Excise duty demand of Rs.4,34,56,993/- against M/s Jai Mangla Sponge Iron Pvt. Ltd., the equivalent penalty imposed on the company and the Rs.50 lakh personal penalty imposed on its Director, holding that the Revenue failed to establish the alleged clandestine manufacture and removal through legally admissible and corroborated evidence. The dispute concerned alleged clandestine clearance of 16,639.630 MT of Sponge Iron and 15,873.090 MT of Charcoal during 01.11.2014 to 07.09.2016. The Department principally relied upon data/documents retrieved from seized CPUs, computers and pen drives and statements recorded from employees during investigation.

The Tribunal identified two principal evidentiary issues: whether statements recorded during investigation were admissible without compliance with Section 9D of the Central Excise Act, 1944, and whether data retrieved from CPUs and pen drives could be admitted without satisfying Section 36B. It held that statements relied upon by Revenue had never been tested through examination-in-chief or cross-examination and, therefore, could not be relied upon without following the mandatory Section 9D procedure. The Tribunal relied, inter alia, upon M/s Ambika International v. Union of India [2018 (361) E.L.T. 90 (P&H)] and its earlier decision in M/s Jai Balaji Industries Limited & ors. v. Commissioner of C.G.S.T. and Central Excise, Bolpur [2023 (8) TMI 989 – CESTAT, Kolkata].

On electronic evidence, the Tribunal held that data/documents retrieved from CPUs, computers and pen drives could not constitute admissible evidence where the statutory requirements of Sections 36B(2) and 36B(4) had not been complied with. The Tribunal consequently excluded the central electronic evidentiary foundation on which the allegation of clandestine clearances rested.

The Tribunal further applied the evidentiary parameters stated in M/s Arya Fibres Ltd. v. Commissioner of C.Ex., Ahmedabad-II [2014 (311) E.L.T. 529]. It found that the manufacturing capacity had not been examined; proper investigation had not been conducted at the end of all alleged buyers or suppliers of raw materials; and there was no investigation regarding additional labour or electricity consumption required for the alleged unaccounted production. With the electronic material and statements found inadmissible and no sufficient independent evidence remaining, the charge of clandestine manufacture and clearance could not survive. The entire duty demand was therefore set aside, the consequential penalties also fell, and both appeals were allowed with consequential relief, if any.

Cases Discussed

• M/s. Ambika International vs. Union of India [2018 (361) E.L.T. 90 (P&H)] — Relied upon. Section 9D procedure is mandatory before statements recorded during investigation can be treated as relevant evidence; where statutory conditions are not fulfilled, such statements cannot be relied upon to prove their contents.
• M/s. Jai Balaji Industries Limited & ors. v. Commissioner of C.G.S.T. and Central Excise, Bolpur [2023 (8) TMI 989 – CESTAT, Kolkata] — Relied upon on both Section 9D and Section 36B. The Tribunal reiterated that statements cannot be relied upon without compliance with Section 9D and that statutory requirements governing computer-generated evidence are mandatory.
• G-Tech Industries Vs Union Of India [2016 (339) ELT 209 (P&H)] — Relied upon through Jai Balaji Industries for the mandatory procedure under Section 9D before statements recorded under Section 14 can be admitted and relied upon in adjudication.
• J.&K. Cigarettes Ltd. v. CCE [2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.T.R. 225 (Del.)] — Discussed in the Section 9D analysis; the statutory procedure applies to adjudication proceedings as well as prosecution proceedings.
• UOI and Another v. GTC India and Others, SLP (C) No. 21831/1994, dated 03.01.1995 [1995 (75) E.L.T. A177 (S.C.)] — Referred to on challenge to an adjudicating authority’s decision under Section 9D.
• C.C.E. v. Parmarth Iron Pvt. Ltd. [2010 (260) E.L.T. 514 (All.)] — Relied upon for the proposition that where Revenue chooses not to examine witnesses in adjudication, their statements cannot be treated as evidence.
• C.C. v. Bussa Overseas Properties Ltd. [2007 (216) E.L.T. 659 (S.C.)] — Referred to for application of general principles of evidence to adjudicating authorities.
• Bussa Overseas Properties Ltd. v. C.C. [2001 (137) E.L.T. 637 (T)] — Tribunal decision referred to in connection with Bussa Overseas Properties before the Supreme Court.
• M/s. Arya Fibres Ltd. v Commissioner of C.Ex., Ahmedabad-II [2014 (311) E.L.T. 529] — Relied upon for the evidentiary parameters necessary to establish clandestine manufacture and clearance, including tangible evidence concerning excess raw materials, actual removal, buyers, sale proceeds, electricity consumption and transportation.
• Anvar P.V. — Relied upon in the electronic-evidence analysis concerning statutory conditions for admissibility of computer-generated records.
• Arjun Panditrao Khotkar — Relied upon in considering the mandatory evidentiary requirements governing electronic records.
• Agarvanshi Aluminium — Relied upon on the requirement of compliance with Section 36B for computer-generated evidence.
• Popular Paints and Chemicals — Relied upon on admissibility of electronic/computer-generated evidence under Section 36B.
• Global Extrusion — Relied upon in holding that computer printouts cannot be relied upon without satisfying the statutory requirements governing electronic evidence.
• Shivam Steel Corp. v. CCE [2016 (339) E.L.T. 310 (Tri. Kol.)] — Cited by the appellants in support of their challenge to the clandestine-removal demand.
• K. Rajgopal v. CCE [2002 (142) E.L.T. 128 (Tri.-Che.)] — Cited by the appellants on proof required for clandestine manufacture/removal.
• AMKAMP Marketing (P.) Ltd. v. CCE [2019-VIL-18-CESTAT-ALH-CE] — Cited by the appellants.
• T.G.L. Poshak Corp. v. CCE [2002 (140) E.L.T. 187 (Tri.)] — Cited by the appellants.
• Continental Cement Co. v. UOI [2014 (309) E.L.T. 411 (All.)] — Cited by the appellants concerning proof of clandestine manufacture and removal.
• Balashri Metals (P.) Ltd. v. CCE [2017 (345) E.L.T. 187 (Jhr.)] — Cited by the appellants.
• Jindal Cable v. CCE [(2022)-VIL-183-CESTAT-DEL-CE] — Cited by the appellants.
• CCE v. Vishnu & Co. (P.) Ltd. [2016 (332) E.L.T. 793 (Del.)] — Cited by the appellants.
• Hitech Abrasives (P.) Ltd. v. CCE [2018 (362) E.L.T. 96 (CHH.)] — Cited by the appellants.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The present appeals have been filed by M/s. Jai Mangla Sponge Iron Pvt. Ltd. [hereinafter referred to as the “appellant-company” or “appellant no. 1”], and Shri Jawahar Lal Vig, Director of the appellant-company [hereinafter referred to as “appellant no. 2”] challenging        the         Order-in-Original         No. 05/Commissioner/2021 dated 17.03.2021 passed by the Ld. Commissioner of C.G.S.T. and Central Excise, Jamshedpur, Outer Circle Road, Bistupur, Jamshedpur – 831 001, whereby the demand of Central Excise duty amounting to Rs.4,34,56,993/- (inclusive of cesses) for the period from 01.11.2014 to 07.09.2016 has been confirmed against appellant no. 1, along with interest and penalty of an equivalent amount has been imposed under Section 11AC of the Central Excise Act, 1944; a personal penalty of Rs.50,00,000/- was imposed upon appellant no. 2 under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the CGST Act, 2017.

2. The facts of the case are that the appellant-company is engaged in the manufacture and clearance of Sponge Iron and Charcoal falling under Chapters 72 and 27 of the Central Excise Tariff Act, 1985. They were holding Central Excise Registration bearing ECC No. AABCJ4338CXM001.

3. The proceedings originated from intelligence gathered by the Preventive Branch of the office of the Commissioner, C.G.S.T. & Central Excise, Jamshedpur, pursuant to which a search was conducted at the premises stated to be the secret office of M/s. Maa Tara Ferrotech Ltd. During the course      of       such       proceedings,       certain documents/records were recovered, which were considered by the Department to contain references to procurement of Sponge Iron from the appellant-company. Accordingly, on 16.09.2016, the officers of the Preventive Branch of the office of the Commissioner, C.G.S.T. & Central Excise, Jamshedpur conducted searches at three premises connected with the appellants, namely: –

i.  The factory premises of the appellant no. 1 situated at Kurli, Chandil;

ii. The working office of the appellant no. 1 situated at Room Nos. 306/307, 3rd Floor, Akashdeep Plaza, Golmuri, Jamshedpur; and

iii. The residential premises of appellant no. 2 situated at H. No. 08, C.H. Area, Bistupur, Jamshedpur.

Various records, documents and electronic storage devices were recovered and seized from the aforesaid premises and were thereafter examined during the course of investigation.

3.1. From the factory premises at Kurli, Chandil, the officers examined the records and documents available there and recovered/seized relevant records and documents along with certain CPUs marked as ‘CPU Intex/Neptune’ and ‘CPU Intex/Blaze’, which were taken into possession under the respective seizure proceedings and assigned the corresponding seizure serial numbers. The seized material was thereafter examined by the investigating officers in connection with the alleged transactions and clearances under investigation.

3.2. From the working office at Room Nos. 306/307, Akashdeep Plaza, Golmuri, the search resulted in recovery and seizure of various business and accounting records, including a sale invoice for the year 2014-15; computer printouts of the ledger account of M/s. Maa Tara Ferro Tech (P) Ltd. for the period 01.04.2014 to 31.03.2016; ledger account of M/s. Maa Tara Ispat Industries (P) Ltd. for the period 01.04.2015 to 31.03.2016; sale register and purchase register for the period 01.04.2014 to 31.03.2016; party-wise sale register and party-wise purchase register for the period 01.04.2014 to 31.03.2016; sale register pertaining to Shree Laxmi Timber Traders and Saw Mills for the period 2012-13 to 2015-16; RG-23A Part-II records for April and May, 2016 pertaining to Shree Laxmi Timber Traders and Saw Mills; and a CPU described in the seizure records as an LG CPU without CPU number. The aforesaid records were subsequently relied upon and examined during the course of investigation.

3.3. From the residential premises of appellant no. 2 at H. No. 08, C.H. Area, Bistupur, the officers recovered and seized a 16 GB SanDisk Cruzer Blade pen drive.

4. The seized records and electronic devices were thereafter subjected to examination by the investigating officers. In particular, data was retrieved from the seized CPUs and printouts were taken therefrom, which, according to the Department, contained details relevant to procurement, manufacture and dispatch of goods. The Department subsequently relied upon such retrieved data, along with the documentary records recovered during the searches, to allege that the appellants had engaged in clandestine clearance / removal of finished products i.e., Sponge Iron and Charcoal, without issuing central excise invoices and without payment of applicable central excise duties thereon, by way of wilful suppression of relevant facts.

5. The investigation also involved examination of the statements of persons associated with the appellant-company. Shri Swapan Sinha, Manager (Accounts) of the appellant-company, in his statement dated 16.09.2016 recorded under Section 14 of the Central Excise Act, 1944, stated, inter alia, regarding the accounting and statutory affairs of the appellant-company and also inter alia stated that the said clearances without issuance of central excise invoices were made as per the direction of Shri Sarabjeet Singh Sony, the Plant-in-Charge of the appellant-company and that the same was in cognizance of the directors.

5.1. The statement of Shri Sarabjeet Singh Sony, Plant-in-Charge of the appellant-company, was thereafter recorded on 21.11.2016 under Section 14 of the Act, wherein he inter alia stated that the goods were removed by them from their factory without payment of duty and without issuance of central excise invoices as per the direction of the appellant no. 2; he also stated that Shri Swapan Sinha looks after the work of the Account Branch and directly reports to the appellant no. 2.

5.2. Further, Shri Pankaj Kumar Sharan, Assistant Accountant of the appellant-company, in his statement dated 03.10.2016, stated, inter alia, that invoices were prepared manually on the basis of information supplied by the Plant-in-Charge on KUTCHA papers, which were thereafter destroyed after preparation of the invoices, while the corresponding computer entries were made by other persons on the basis of such KUTCHA papers. The Department relied upon the said statement in conjunction with the computer data and other records recovered during the investigation.

5.3. Thereafter, statements of Shri Swapan Sinha, Manager (Accounts) of the appellant-companywere again recorded on 15.12.2016, 21.12.2016 and 06.01.2017.

6. The investigation was also extended to M/s. Bunty Overseas Pvt. Ltd. In this regard, a letter dated 07.02.2018, accompanied by a list of invoices, was issued seeking clarification as to whether the goods covered by the said invoices had been exported and for production of the corresponding ARE-1s. M/s. Bunty Overseas Pvt. Ltd., in its response, confirmed that all the goods dispatched from M/s. Jai Mangla Sponge Iron Pvt. Ltd. as reflected in the enclosed list had been exported. The Department relied upon such confirmation as corroboration of the retrieved computer data and sought to rely upon the same for establishing the genuineness of the said data.

7. The investigation was thereafter extended to the transportation aspect of the transactions reflected in the records under examination. Statements of certain vehicle owners were recorded, wherein they stated that they had provided vehicles to the appellant-company for transportation of goods during the material period. However, they expressed their inability to produce transportation-related documents on the ground that the transactions were old and that the relevant consignment papers had remained at the destination. They also stated that transportation payments were made in cash at the time of loading/unloading.

8. The investigation also brought on record certain data/documents recovered from the alleged secret office of M/s. Maa Tara Ferrotech Ltd., which purportedly reflected procurement of Sponge Iron by M/s. Maa Tara Ferrotech Ltd. from M/s. Jai Mangla Sponge Iron Pvt. Ltd. The Department thereafter compared/tallied the said data with the records of the appellant-company and alleged that, in respect of a portion of the transactions so reflected, corresponding Central Excise invoices had not been issued by the appellant-company. The said material was relied upon by the Department as further corroboration of the alleged unaccounted clearances.

9. In view of the above material and upon scrutiny of the records/documents and the retrieved data, the Department alleged that during the relevant period the appellant-company had procured 44,954.27 MT of coal and 22,179.32 MT of iron ore which were not reflected in its statutory accounts and which were allegedly used for manufacture of unaccounted finished goods. On the aforesaid basis, and relying upon the electronic data and computer printouts recovered during investigation, the statements of the employees/personnel of the appellant-company, the verification undertaken with M/s. Bunty Overseas Pvt. Ltd., the transportation-related enquiries and the documents stated to have been recovered from the premises of M/s. Maa Tara Ferrotech Ltd., the Department alleged clandestine clearance of 16,639.630 MT of Sponge Iron and 15,873.090 MT of Charcoal during the period from 01.11.2014 to 07.09.2016, without issuance of Central Excise invoices, involving alleged Central Excise duty liability of Rs.4,34,56,993/-, comprising Central Excise duty of Rs.4,31,06,267/-, Education Cess of Rs.2,33,816/-and Secondary & Higher Education Cess of Rs.1,16,910/-.

10. Accordingly, a Show CausecumDemand Notice dated 09.12.2019 was issued to the appellants proposing recovery of Central Excise duty amounting to Rs.4,34,56,993/- for the aforesaid period by invoking the extended period under Section 11A(4) of the Central Excise Act, 1944, together with applicable interest and penalty under Section 11AC of the Act. A personal penalty was also proposed against the appellant no. 2 / Director of the appellant-company under Rue 26 of the Central Excise Rules, 2002 for his alleged role in the transactions in question.

10.1. The matter was adjudicated by the Ld. Commissioner of C.G.S.T. and Central Excise, Jamshedpur, who, vide the impugned Order-in- Original      No.      05/Commissioner/2021       dated 17.03.2021,      confirmed      the      demand       of Rs.4,34,56,993/- against appellant no. 1, along with applicable interest, and imposed an equivalent penalty of Rs.4,34,56,993/- under Section 11AC of the Central Excise Act, 1944. A further penalty of Rs.50,00,000/- under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the CGST Act, 2017 was imposed upon appellant no. 2 for his alleged involvement in and abetment of the evasion of Central Excise duty.

10.2. Against the said order, the appellants are before us.

11. During the course of hearing, the Ld. Counsel appearing on behalf of the appellants have made various submissions in support of their contentions, which are inter alia summarized below: –

(i)             It is submitted that the entire case of the Department regarding the alleged clandestine manufacture and clearance is substantially founded upon the statements of Shri Swapan Sinha and Shri Sarabjeet Singh Sony, coupled with the dispatch reports/data purportedly retrieved from the seized computers. It is contended that, apart from the aforesaid material, the investigation does not disclose the existence of the usual and necessary corroborative evidence which could reasonably establish clandestine manufacture and clearance. In particular, there is no corresponding finding of any physical stock discrepancy; excess or abnormal consumption of electricity; statements of the alleged buyers/consignees; transport documents or statements of truck drivers establishing movement of the alleged clandestinely cleared goods; weighment slips; evidence of additional labour having been deployed for manufacture of the alleged unaccounted production; evidence regarding receipt and utilisation of the alleged sale proceeds; corresponding demand of VAT or other commercial tax; statements of the alleged suppliers of the unaccounted raw materials; or the statements of the persons who had actually made the relevant entries in the computerised records. According to the appellants, the absence of such independent and contemporaneous corroborative evidence assumes significance where the very foundation of the demand rests upon alleged clandestine manufacture and removal.

(ii)        It is further submitted that the allegations of clandestine clearance cannot be sustained merely on the basis of assumptions, presumptions or inferences drawn from isolated documents or statements, particularly when the alleged clearances involve substantial quantities of finished goods. The appellants rely upon the following decisions in support of their contentions: –

• • Shivam Steel Corp. v. CCE [2016 (339) E.L.T. 310 (Tri. Kol.)];
  • Rajgopal v. CCE [2002 (142) E.L.T. 128 (Tri. – Che.)] ;
  • AMKAMP Marketing (P.) Ltd. v. CCE [2019-VIL-18-CESTAT-ALH-CE];
  • Arya Fibres Pvt. Ltd. v. CCE [2014 (311) E.L.T. 529 (Tri. -Ahmd.)];
  • G.L. Poshak Corp. v. CCE [2002 (140) E.L.T. 187 (Tri.)];
  • Continental Cement Co. v. UOI [2014 (309) E.L.T. 411 (All.)];
  • Balashri Metals (P.) Ltd. v. CCE [2017 (345) E.L.T. 187 (Jhr.)]
  • Jindal Cable v. CCE [(2022)-VIL-183-CESTAT-DEL-CE];
  • CCE v. Vishnu & Co. (P.) Ltd. [2016 (332) E.L.T. 793 (Del.)];
  • Hitech Abrasives (P.) Ltd. v. CCE [2018 (362) E.L.T. 96 (CHH.)]

(iii) Moreover, that the statements of persons relied upon in the impugned order were not subjected to effective cross-examination. It is contended that the appellants had sought cross-examination of the persons whose statements were relied upon against them; however, such persons were not made available for cross-examination. According to the appellants, reliance upon statements which were neither tested through cross-examination nor adequately corroborated by independent evidence cannot, by itself, constitute a sufficient basis for sustaining the serious allegation of clandestine manufacture and removal.

(iv) It is also submitted that certain statements of employees/persons associated with the appellant-company were recorded during the investigation under circumstances which, according to the appellants, involved coercion and pressure upon the concerned employees/persons. The appellants accordingly dispute the voluntary and evidentiary character of such statements and submit that the same could not have been relied upon against them without appropriate scrutiny and independent corroboration.

(v) A principal objection of the appellants concerns the reliance placed by the Department upon the computer data retrieved from the seized computers/CPUs and the printouts taken therefrom. Learned Counsel submits that the said computer printouts do not satisfy the statutory requirements prescribed under Section 36B(2) and Section 36B(4) of the Central Excise Act, 1944, and therefore could not have been treated as admissible evidence for establishing the alleged clandestine clearances. It is specifically contended that the computer printouts relied upon by the Department were not accompanied by the requisite certificate contemplated under Section 36B(4).Section 36B(4) requires a certificate containing, inter alia, particulars regarding the manner in which the electronic record was produced and the particulars of the device involved in the production of such record; the certificate is intended to establish the manner in which the electronic record was produced and to identify the relevant computer/device from which, or through which, the record was generated. The appellants contend that the printouts relied upon in the present proceedings were not accompanied by such mandatory certificate. Consequently, any alleged admission or indication of clandestine removal emerging merely from a computerised sale register or other computer-generated record cannot, therefore, be relied upon unless the statutory conditions governing its admissibility under Section 36B have first been satisfied.

(vi) It is further contended that Section 36B(4) mandates certification of the computer-generated record by a person occupying a responsible official position in relation to the operation of the relevant device, and that such certification is material for establishing the authenticity and evidentiary foundation of the electronic record. In the present case, according to the appellants, neither the mandatory requirements of Section 36B(2) were complied with nor was any certificate as contemplated under Section 36B(4) produced on record. The appellants therefore submit that the computer printouts and the alleged clandestine clearances purportedly derived therefrom could not have constituted a legally sufficient foundation for confirmation of the demand.

(vii) The appellants further submit that, in a case involving an allegation of clandestine removal of such substantial quantities of goods, the Department ought to have undertaken investigation into the actual movement of the goods, including the entry of vehicles at the factory premises, loading of the goods, security/gate         passes,         transportation documents, records/forms maintained by the Commercial Taxes Department at entry/check-posts, and corresponding receipt of the goods by the alleged consignees.  According to the appellants, no such comprehensive investigation was undertaken by the Department. The absence of evidence establishing the physical movement of the alleged clandestinely cleared goods, according to the appellants, renders the allegation fundamentally unsubstantiated.

(Viii) Learned Counsel also draws attention to the statement dated 16.09.2016 of Shri Swapan Sinha, and submits that the said statement was not signed by the concerned officer who recorded the same. It is accordingly contended that the statement, being deficient in the manner in which it was recorded/authenticated, could not have been treated as admissible or reliable investigative evidence against the appellants. The appellants submit that the Department could not derive an adverse finding from such a statement without first establishing its proper evidentiary foundation.

(ix) It is further submitted that some of the persons who had allegedly been operating the computers and making entries during the relevant period were ex-employees of the appellant-company and had subsequently left the service of the appellant-company. According to the appellants, the Department did not adequately investigate or examine such persons with regard to the alleged computer entries attributed to them. The appellants therefore contend that the alleged computer-generated entries could not reasonably be fastened upon the appellant-company merely on the basis of their existence in the seized electronic devices, particularly when the persons who had actually operated the computers and made the entries were not properly examined during the investigation. Such an investigation, according to the appellants, remained incomplete and could not furnish a reliable evidentiary basis for the demand.

(x) It is also submitted that the investigation was materially deficient inasmuch as no effective investigation was conducted against the alleged transporters and buyers/consignees. The appellants submit that, in a case alleging clandestine manufacture and clearance of substantial quantities of finished goods, investigation into the persons who allegedly transported and received the goods would constitute an important and independent means of corroborating the alleged clearances. The failure to investigate the alleged buyers and transporters, coupled with the absence of corresponding transportation and receipt documents and other independent corroborative material, according to the appellants, renders the investigation incomplete and incapable of sustaining the demand.

11.1. On the aspect of limitation, the Ld. Counsel for the appellants submits that the Show Cause Notice was issued only on 09.12.2019, whereas the period to which the allegations relate is 01.11.2014 to 07.09.2016; thus, the demand substantially travels beyond the normal period of limitation and could survive only if the Department was able to establish the statutory ingredients necessary for invocation of the extended period under Section 11A(4) of the Central Excise Act, 1944. It is contended that the mere allegation of clandestine manufacture or clearance, or the fact that an investigation was subsequently undertaken, does not by itself establish fraud, collusion, wilful mis-statement, suppression of facts with intent to evade payment of duty, or any other circumstance contemplated by the statutory provision for invoking the extended period. It is the specific case of the appellants that the Department has not brought on record any positive or independent material demonstrating that the appellant-company had deliberately withheld material information from the Department, made any wilful mis-statement, or adopted any fraudulent course of conduct with the specific intent to evade payment of Central Excise duty. In this regard, the Ld. Counsel for the appellants further submitted that the appellant-company was a registered Central Excise assessee and was maintaining statutory records and filing the returns required under the Central Excise law. In such circumstances, according to the appellants, a mere subsequent inference drawn by the Department from documents, computer data or statements cannot automatically be equated with suppression of facts; that for invocation of the extended period, there must be a clear and positive nexus between the alleged non-disclosure and a deliberate intention to evade duty. It is submitted that no such positive evidence has been brought on record in the present case. He therefore contends that the extended period could not have been invoked merely because the Department, during a later investigation, formed a view that certain clearances were not reflected in the statutory records; the alleged clandestine activity itself being founded substantially upon disputed statements and computer-generated data whose evidentiary admissibility is specifically challenged, the same material cannot simultaneously be treated as sufficient to establish the substantive demand as well as the distinct and higher requirement of fraudulent or wilful suppression with intent to evade duty for the purpose of limitation. The appellants accordingly submit that the demand, insofar as it falls beyond the normal period prescribed under Section 11A, is barred by limitation.

11.2. In view of the foregoing submissions, the Ld. Counsel for the appellants submits that the allegations of clandestine manufacture and clearance have not been established by the Department by cogent, positive and legally admissible evidence; that the computer printouts relied upon by the Department suffer from the statutory deficiencies under Section 36B; that the statements relied upon against the appellants were not effectively tested through cross-examination and, in certain cases, were allegedly recorded under coercive circumstances; that the investigation did not adequately establish the actual movement and receipt of the alleged clandestinely cleared goods; and that the invocation of the extended period of limitation is itself unsustainable in the absence of positive evidence of fraud, wilful mis­statement or suppression of facts with intent to evade payment of duty. It is, therefore, prayed that the impugned Order-in-Original be set aside and the demand of Central Excise duty, together with the consequential interest and penalties imposed upon the appellants, be quashed.

12. On the other hand, the Ld. Authorized Representative of the Revenue supported the findings in the impugned order. Accordingly, he prayed that the appeals be rejected.

13. Heard the parties and considered their submissions.

14. On the basis of the arguments advanced by both the sides and the documents placed before us, we find that the sole allegation against the appellants herein is that, they were engaged in clandestine clearance of the goods in question and the said conclusion has been arrived at on the basis of investigation conducted, wherein, certain documents were retrieved from the CPUs / pen drives during the course of search and various statements were recorded from the employees of the appellant-company.

15. In these circumstances, the following issues emerge: –

a. Whether the statements recorded during the course of investigation are admissible as evidence in the absence of compliance of the procedure laid down under Section 9D of the Central Excise Act, 1944, or not; and

b. Whether the data retrieved from the CPUs / pen drives are admissible as evidence without adhering to the provisions of Section 36B of the Central Excise Act, 1944, or not.

Issue (a) Admissibility of statements recorded during  the course of investigation in the absence of compliance of the procedure laid down under Section  9D of the Central Excise Act, 1944

16. Admittedly, the statements recorded during the course of investigation, which have been relied upon in the proceedings by the Revenue, have never been tested by way of examination-in-chief and also not allowed for cross-examination. Therefore, the said statements are not reliable statements, without complying with the mandatory procedure prescribed under Section 9D of the Central Excise Act, 1944, as held by the Hon’ble Punjab and Haryana High Court in the case of M/s. Ambika International vs. Union of India [2018 (361) E.L.T. 90 (P&H)], wherein it has been held as under: –

“21. Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is self-evident inference that the decision flowing from the exercise of such discretion, i.e. the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of sub-section (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioners have also invited attention to an unreported short order of the Supreme Court in UOI and Another v. GTC India and Others in SLP (C) No. 2183 of 1994, dated 3-1-1995 wherein it was held that the order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(l)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.

22. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.

i. the person who made the statement has to first be examined 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.

23. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word “shall” in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.

24. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious.  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 DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudication authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.

25. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a gazetted Central Excise Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the gazetted Central Excise Officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he 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.

26. In fact, 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.

27. It is only, therefore, –

i. after the person whose statement has already been recorded before a gazetted Central Excise Officer is examined as a witness before the adjudicating authority, and

ii. the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence, that the question of offering the witness to the assessee, for cross-examination, can arise.

28. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.

29. Reliance may also usefully be placed on para 16 of the judgment of the Allahabad High Court in C.C.E. v. Parmarth Iron Pvt. Ltd., 2010 (260) E.L.T. 514 (All.), which, too, unequivocally expound the law thus :

“If the Revenue choose (sic chose?) not to examine any witnesses in adjudication, their statements cannot be considered as evidence.”

30. That adjudicating authorities are bound by the general principles of evidence, stands affirmed in the judgment of the Supreme Court in C.C. v. Bussa Overseas Properties Ltd., 2007 (216) E.L.T. 659 (S.C.), which upheld the decision of the Tribunal in Bussa Overseas Properties Ltd. v. C.C., 2001 (137) E.L.T. 637 (T).

31. It is clear, from a reading of the Orders-in-original dated 19-5-2016 and 1-6-2016 supra, that respondent No. 2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub-section. The Orders-in-Original dated 19-5­2016 and 1-6-2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.”

16.1. Further, the said issue has also been examined by this Tribunal in the case of M/s. Jai Balaji Industries Limited & ors. v. Commissioner of C.G.S.T. and Central Excise, Bolpur [2023 (8) TMI 989 – CESTAT, Kolkata], wherein this Tribunal observed as under: –

“13. The next evidence relied upon by the adjudicating authority to confirm the demands in the impugned order are the statements recorded on the date of search and subsequently during the course of investigation. The statements recorded and the contents therein are given below in brief:

13.1 A statement of Shri Sushil Kumar Roy, Associate (Commercial) of JBIL-III was recorded in which he inter alia stated that data sheet retrieved from pen drives were the details of Billets sold ‘on bills’ as well as ‘without bills’; that whenever tax invoice number is not given some of them ‘might be’ for without bill dispatches because in some of such cases, bills might have been issued from JBIL-IV but entries were made in the pen drives only to keep account. We find that this statement is not very categorical about the clandestine clearances.

13.2 A statement of Shri Kanhaiya Agarwal, weighbridge in-charge of JBIL-III was recorded on 17.07.2014, wherein he inter alia stated that he used to make weighment of goods at the weigh bridge of all incoming raw material as well as of outgoing finished goods. On being asked to explain about the pink weighment slips and slip pad as recovered from JBIL-III, he stated that weight of the material which has to be cleared without invoices was being mentioned in these pink weighment slips which was later handed over to Shri Sushil Kumar Roy. This statement was later retracted y him during cross examination before the adjudicating authority.

13.3. On 17.07.2014, a search was also conducted at the Head Office of Jai Balaji Group in Kolkata. The officers took out printouts of some of the e-mails from company’s mail –ID handled by Shri Diptendu Samui, who was working as Accounts officer. Two pen drives were recovered from the possession of Shri Anil Kumar Agarwal. The officers also resumed two laptops under a Panchnama.

13.4. A statement of Shri Diptendu Samui, Accounts Officer, was recorded wherein he was shown certain messages retrieved from his mobile phone. In the present proceedings, there were only two messages showing purchase of scrap of only 15 MT and 10 MT, totally 25 M.T of scrap purchased in cash. Shri Diptendu Samui in his cross examination had categorically stated that both the above entries of purchase of 25 M.T. of scrap was accounted for in their books of records.

13.5 A statement of Shri Raghunath Jhunjhunwala, weighbridge in-charge of JBIL IV was recorded, wherein he, inter alia, explained the procedure of weighment of raw materials and finished goods. He uses a pink slip for final weighment. He was shown pink slip Nos. 77, 79 both dated 18-08-2013 recovered from M/s. Baba Strips & Tubes Ltd on 3­04-2014 to which he stated that slip No. 77 & 78 was in his handwriting whereas slip No. 79 was in the handwriting of Rudra Tapas.

13.6 A statement of Shri Partho Sarkar, Associate Manager Excise of JBIL-IV was recorded wherein he stated that central excise duty was paid only on the invoices prepared and kept in statutory records. If invoice was not prepared for any consignment, no central excise duty was paid by JBIL-IV. No further investigation was conducted to substantiate this evidence.

13.7 A statement of Shri Anup Kumar Aggarwal, former Vice-President(Commercial) of Group Company was recorded wherein he, inter alia, stated that while working with Jai Balaji Group he was looking after procurement of raw materials; that while directing the dispatch plan as per the direction of Shri Rajiv Jajodia, Director, he used to interact with weighbridge supervisors namely Shri Kanhaiya at Unit-III; that whether a particular consignment was to be dispatched with bill or without bill was decided by the Directors only; and that the payment for such dispatches was received in JBIL group in cheque or cash respectively.

13.11. The Appellants stated that the procedure set out under Section 9D is a mandatory procedure and without following this procedure no reliance can be placed on any statement recorded under Section 14 of the Central Excise Act, 1944. We agree with the contention of the Appellants. In the case of G-Tech Industries Vs Union Of India reported in 2016(339) ELT 209 (P&H), the Hon’ble Punjab and Haryana High Court has given an elaborate findings regarding the procedure to be followed under Section 9D. The relevant Part of the judgement is reproduced below:

3. The petitioner seeks, by means of the present writ petition, to challenge Order-in-Original No. V(29)15/ce/Commr.Adj/Chd-II/44/2015, dated 4-4-2016 issued by respondent No. 2 whereby respondent No. 2 has confirmed differential Central Excise Duty (hereinafter referred to “as duty”) demand of ` 7,08,38,008/- with interest and equivalent penalty. It is contended that the impugned order-in-original has been passed in flagrant violation of Section 9D of the Central Excise Act, 1944 (hereinafter referred to as “the Act”) by relying upon the statements recorded under Section 14 of the Act without first admitting them in evidence in accordance with the procedure prescribed in this regard by Section 9D(1)(b) of the Act.

4. In view of the fact that the case of the petitioner is essentially premised on Section 9D of the Central Excise Act, 1944, it would be appropriate to reproduce the said provision, in extenso, thus :

“9D. Relevancy of statements under certain circumstances. – (1) A statement made and signed by a person before any Central Excise Officer of a gazetted 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 provision of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.”

5. A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein.

6. Section 9D of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.&K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.T.R. 225 (Del.). Para 12 of the said decision clearly holds that by virtue of sub­section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well.

7. There can, therefore, be no doubt about the legal position that the procedure prescribed in sub-section (1) of Section 9D is required to be scrupulously followed, as much in adjudication proceedings as in criminal proceedings relating to prosecution.

8. As already noticed herein above, sub­section (1) of Section 9D sets out the circumstances in which a statement, made and signed before a Gazetted Central Excise Officer, shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the statement, which has been made during inquiry/investigation, before a Gazetted Central Excise Officer, cannot be treated as relevant for the purpose of proving the facts contained therein. In other words, in the absence of the circumstances specified in Section 9D(1), the truth of the facts contained in any statement, recorded before a Gazetted Central Excise Officer, has to be proved by evidence other than the statement itself. The evidentiary value of the statement, insofar as proving the truth of the contents thereof is concerned, is, therefore, completely lost, unless and until the case falls within the parameters of Section 9D(1).

9. The consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating authority relies on the statement, recorded during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.

10. Once the ambit of Section 9D(1) is thus recognized and understood, one has to turn to the circumstances referred to in the said sub-section, which are contained in clauses (a) and (b) thereof.

11. Clause (a) of Section 9D(1) 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.

12. Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is self-evident inference that the decision flowing from the exercise of such discretion, i.e., the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of sub-section (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioner has also invited attention to an unreported short order of the Supreme Court in UOI and Another v. GTC India and Others in SLP (C) No. 21831/1994, dated 3-1-1995 [since reported in 1995 (75) E.L.T. A177 (S.C.)], wherein it was held that the order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.

13. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.

i. the person who made the statement has to first be examined 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.

14. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the Gazetted Central Excise officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word “shall” in Section 9D(1), makes it clear that, the provisions contemplated in the sub­section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.

15. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. 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 DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.

16. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement              recorded               during investigation/inquiry before the Gazetted Central Excise officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he 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. In fact, 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 re­examination.

18. It is only, therefore,-

i. after the person whose statement has already been recorded before a Gazetted Central Excise officer is examined as a witness before the adjudicating authority, and

ii. the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence, that the question of offering the witness to the assessee, for cross-examination, can arise.

19. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.

20. Reliance may also usefully be placed on Para 16 of the judgment of the Allahabad High Court in C.C.E. v. Parmarth Iron Pvt Ltd., 2010 (260) E.L.T. 514 (All.), which, too, unequivocally expound the law thus :

“If the Revenue choose (sic chose?) not to examine any witnesses in adjudication, their statements cannot be considered as evidence.”

21. That adjudicating authorities are bound by the general principles of evidence, stands affirmed in the judgment of the Supreme Court in C.C. v. Bussa Overseas Properties Ltd., 2007 (216) E.L.T. 659 (S.C.), which upheld the decision of the Tribunal in Bussa Overseas Properties Ltd. v. C.C., 2001 (137) E.L.T. 637 (T).

22. It is clear, from a reading of the Order-in-Original dated 4-4-2016 supra, that Respondents No. 2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to Respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub­section. The Orders-in-Original, dated 4-4­2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.

23. The said Order-in-Original, dated 4-4­2016, passed by Respondent No. 2 is, therefore, clearly liable to be set aside.

24. In view of the above facts and circumstances, the impugned Order-in-Original dated 4-4-2016 passed by respondent No. 2 stands set aside. Resultantly, the show cause notice issued to the petitioner is remanded to respondent No. 2 for adjudication de novo by following the procedure contemplated by Section 9D of the Act and the law laid down by various judicial Authorities in this regard including the principles of natural justice in the following manner :-

i. In the event that the Revenue intends to rely on any of the statements, recorded under Section 14 of the Act and referred to in the show cause notices issued to Ambika and Jay Ambey, it would be incumbent on the Revenue to apply to Respondent No. 2 to summon the makers of the said statements, so that the Revenue would examine them in chief before the adjudicating authority, i.e., before Respondent No. 2.

ii. A copy of the said record of examination-in-chief, by the Revenue, of the makers of any of the statements on which the Revenue chooses to rely, would have to be made available to the assessee, i.e., to Ambika and Jay Ambey in this case.

iii. Statements recorded during investigation, under Section 14 of the Act, whose makers are not examination-in-chief before the adjudicating authority, i.e., before Respondent No. 2, would have to be eschewed from evidence, and it would not be permissible for Respondent No. 2 to rely on the said evidence while adjudicating the matter. Neither, needless to say, would be open to the Revenue to rely on the said statements to support the case sought to be made out in the show cause notice.

iv. Once examination-in-chief, of the makers of the statements, on whom the Revenue seeks to rely in adjudication proceedings, takes place, and a copy thereof is made available to the assessee, it would be open to the assessee to seek permission to cross-examine the persons who have made the said statements, should it choose to do so. In case any such request is made by the assessee, it would be incumbent on the adjudicating authority, i.e., on Respondent No. 2 to allow the said request, as it is trite and well-settled position in law that statements recorded behind the back of an assessee cannot be relied upon, in adjudication proceedings, without allowing the assessee an opportunity to test the said evidence by cross-examining the makers of the said statements. If at all authority is required for this proposition, reference may be made to the decisions of the Hon’ble Supreme Court in Arya AbhushanBhandar v. U.O.I., 2002 (143) E.L.T. 25 (S.C.) and Swadeshi Polytex v. Collector, 2000 (122) E.L.T. 641 (S.C.).

25. The writ petition is allowed in the aforesaid terms.

13.12. Once it duly came on record that various statements recorded from the witnesses were not of voluntary nature but were recorded after putting undue pressure upon the witnesses the same could not be admitted in evidence by the Adjudicating Authority. The same clearly lost its evidentiary value. Once these statements are excluded from evidence no reliance could be placed on the computer printouts and other evidences. The law laid down in the Delhi High Court, in the case of C.C.E Vs. Vishnu and Co. Ltd reported in 2016 (332) ELT 793 (Del), is reproduced below:

41. What the above submission overlooks is the ‘reliability’ of such statements. Once it is shown that the maker of such statement has in fact resiled from it, even if it is after a period of time, then it is no longer safe to rely upon it as a substantive piece of evidence. The question is not so much as to admissibility of such statement as much as it is about its ‘reliability’. It is the latter requirement that warrants a judicial authority to seek, as a rule of prudence, some corroboration of such retracted statement by some other reliable independent material. This is the approach adopted by the CESTAT and the Court finds it to be in consonance with the settled legal position in this regard.

42. The contention that it is the responsibility of the noticees to produce the witnesses for cross-examination is a strange one considering that they are witnesses of the Department and that their statements are being relied upon by the Department in support of the SCNs. Since it is relying on such statements, it is the responsibility of the Department to ensure their presence for cross-examination. As already mentioned, whenever such witnesses (i.e. six of them) were produced for cross-examination they resiled from their earlier statements.

43. It is not a matter of mere coincidence that none of the witnesses who were cross-examined stood by their earlier statements. It is one thing to overlook this feature on the premise that all of them were under the pressure and control of the noticees. The other approach is to view this with some caution and ask what might be the case if the remaining witnesses were also produced for cross-examination? Importantly, what would be the prejudice caused to the noticees, in such circumstances, by their non-production for cross-examination? Thus a doubt is created in favour of the noticees when such witnesses do not turn up for cross-examination. It is the latter approach that has weighed with the CESTAT. That, in view of this Court, was a possible approach and does not render its order perverse on that score.

13.13. In the case of Hi Tech Abrasives Ltd Vs Commissioner of C.Ex and Cus, Raipur, reported in 2018 (362) ELT 961 (Chattisharh), the Hon’ble High Court has held that unless the procedure laid down in Section 9D of the Central Excise Act, 1944 is followed in letter and spirit, no reliance can be placed on any statement recorded under Section 14 of the Central Excise Act, 1944. The relevant part of the judgement is reproduced below:

9. Findings on Substantial Questions of Law (i) & (ii) :

We shall decide the first two substantial questions of law as they are overlapping. The submission of counsel for the appellant has been that firstly, the Director’s statement was not admissible and secondly it cannot be treated as admission because in reply to Show Cause Notice, the said statement was stated to have been obtained under duress. We shall first examine the legal position with regard to the admissibility of the statement of Director which admittedly was taken during search operations by the investigation officers.

9.1 At the outset, it needs to be clarified that during the course of argument, Learned Counsel for the parties agreed that second substantial question of law is with regard to legality of procedure adopted by the adjudicating authority and not the Tribunal as such because the Tribunal has only exercised appellate jurisdiction. This is quite obvious from orders passed by the Tribunal, the appellate authority and pleadings/ground in the appeal. There is no dispute that the adjudicating authority did not record the statement of the Director Mr. Narayan Prasad Tekriwal and the basis of the finding recorded by the adjudicating authority as well as Customs, Excise and Service Tax Appellate Tribunal, has been the statement of the Director as recorded by the investigation officer during investigation. Section 9D of the Central Excise Act of 1944 reads as under :

Section 9D – Relevancy of statements under certain circumstances. A statement made and — (1) signed by a person before any Central Excise Officer of a gazetted 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, –

When the person who made the statement is (a) dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or

when the person who made the statement is (b) examined as a witness in the case before the Court and the Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice.

The provisions of sub-section (1) shall, so (2) far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before the Court.

On scanning the anatomy of the said provision, we find that the statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of inquiry or proceeding under the Act shall be relevant for the purposes of proving truth of the facts which it contains only when it fulfills the conditions prescribed in clause (a) or as the case may be, under clause (b). While clause (a) deals with certain contingencies enumerated therein, clause (b) provides that statement made and signed would be relevant for the purposes of proving the truth of the facts contained in that statement only when the person whom made the statement is examined as witness before the Court. (her, the adjudicating authority).

9.2 At this juncture, we need to notice the provision contained in Section 9D which provides that sub-section (1) shall, as far as may be, applied in relation to the proceedings under the Act, other than the proceeding before the court, as they apply in relation to proceeding before the Court. This provision when read in juxtaposition, the small clauses (a) and (b) under sub-section (1), requirement of law of recording of examination as witness would be in relation to the proceedings before the adjudicating authority.

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 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 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) = 2011 (270) E.L.T. 643 (S.C.). That decision turned on its own facts. In para 19 of the judgment, it was concluded as below :

We are of the considered opinion that it “19. 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 mannert statements recorded without following the procedure as set out in Section 9D of the Central Excise Act, 1944 has no evidentiary value :-

13.14. From the above discussion and the decisions cited above, we observe that the statements recorded cannot be relied upon to demand duty, unless the procedure set out in Section 9D are followed. None of the statements recorded in this case conclusively establish any clandestine clearance. During cross examination all of them retracted their earlier statements. Hence, the evidentiary value of the statements have to be examined in the light of the decisions cited above.”

16.2. Again, in the case ofM/s. Prinik Steels (P) Ltd. &ors. v. Commissioner of C.Ex., Cus. &S.Tax, Bhubaneswar-I [2023 (12) TMI 299 – CESTAT, Kolkata=(2024) 15 Centax 313 (Tri. – Cal.)], under similar facts and circumstances, the Tribunal observed as follows: –

“13. (iii) Whether the procedure as set out in Section 9D of the Central Excise Act, 1944 was followed in this case or not? If not followed, then whether the statements recorded under section 14 of the Central Excise Act, 1944 can be relied upon to demand duty ?

13.1 The Appellant contended that Statements recorded during the course of investigation cannot be relevant without testing the same under section 9D. The provisions of Section 9D of the Act is mandatory and unless the prescriptions of Section 9D are complied, the testimony of witness cannot be treated as relevant piece of material as mandated under section 9D. The Appellant contended that the statements of person/witness relied on in the impugned order are not examined in chief and not allowed Cross Examination in accordance with Section 9D. Hence, such statement cannot be relevant piece of material.

13.2 Regarding admission of cross examination, he stated that the Appellants have requested for cross examination of seven persons Viz, Manoj Kumar Sahoo, Chittaranjan Bhukta, Chittaranjan Nayak, Krishna Charan Padhi, Prasanta Kumar Das, Prasanna Kumar Majhi, and R.C. Samantray, whose statements have been relied upon in the Notice.among the seven, cross examination was conducted only on Shri. Krishna Chandra Padhi.

13.5 The Appellant relied on the decision of this Tribunal in the case of M/s Jai Balaji Industries Ltd. v. CGST reported in 2023-VIL-771-CESTAT-KOL-CE in support of their contention that the statements recorded in this case cannot be relied upon as the provisions of section 9D are not followed. In the case of G-Tech Industries v. Union of India reported in 2016 (339) E.L.T. 209 (P & H), the Hon’ble Punjab and Haryana High Court has given an elaborate findings regarding the procedure to be followed under section 9D. The relevant Part of the judgement is reproduced below:

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13.6 Had the adjudicating authority followed the provisions of Section 9D and examined the witnesses who have given the statements, the truth in this statement could have come out. Thus, we hold that the statements recorded in this case has lost its evidentiary value by not following the provisions of Section 9D. Thus, we find that Procedure set out in Section 9D has not been followed in this case. Accordingly, we answer to the question (iii) at Para 11 supra in the negative.”

16.3. In view of the above, we hold that the said statements recorded during the course of investigation are inadmissible in the absence of examination-in-chief and cross-examination thereof and non-following of the procedure laid down under Section 9D of the Central Excise Act, 1944.

Issue (b): Admissibility of the data retrieved from the CPUs / pen drives without adhering to the provisions  of Section 36B of the Central Excise Act, 1944

17. Another issue that arises is whether the data, in the form of print outs / documents, retrieved from the CPUs, computers or pen drives, can be treated as admissible evidence against the appellants in this case, or not. We find that the said data retrieved from the CPUs, computers or pen drives were never tested in terms of Section 36B(2) and Section 36B(4) of the Central Excise Act, 1944 and therefore, the same are not admissible as evidence to substantiate the allegation of clandestine clearance of goods against the appellants. The said issue has been examined by this Tribunal in the case of M/s. Ramgarh Sponge Iron Pvt. Ltd. v. Principal Commissioner, CGST & CX, Ranchi [2024 (9) TMI 1844 (Tri.-Kol.)], wherein this Tribunal held as under:-

“7.1.5. We observe that the appellants questioned the evidentiary value of the entire document recovered from the premises of Shri Om Prakash Singh on the ground that conditions mentioned in Section 36B had not been followed to rely upon the data. We observe that the print-outs were taken from the computers, pen drives and laptop recovered from the office of Shri Om Prakash Singh. Pen drives and laptops are floating devices and unless the person who entered the data in the computers, pen drives and laptop are identified, the data recovered from the devices cannot be relied upon to demand duty. In this case, we observe that the persons who entered the data in the computers, pen drives and laptop are not identified and certificate as required under section 36B(4) has not been taken. Section 36B (4) mandates that any computer printout has to be signed by a person occupying a responsible official position in relation to the operation of the relevant device and a cer­tificate is to be given to that effect. This is required to establish the ownership of the data recovered from the computer device, lap top or pen drive. In the present case, we observe that neither the mandatory conditions of Section 36B(2) have been complied with nor there is any certificate on record as mandated under Section 36B(4). Thus, we hold that the print-outs taken from the computers, pen drives and laptop cannot be relied upon to demand duty in this case, as the provisions of Section 36B(2) and 36B(4) are not satisfied.

7.1.6. In support of their contention that the computer printouts resumed from the computers, pen drives and laptop in this case are not admissible evidences, unless the mandatory procedure prescribed in Section 36B is followed, the appellants cited various decisions. We observe that in the case of Ambica Organics vs. Commissioner of C.Ex. &Cus., Surat-I reported in 2016 (334) E.L.T. 97 (Tri.-Ahmd)., it has been held as under:

“7. After hearing both the sides and on perusal of the records, I find that the Central Excise officers while visiting the factory of the appellant, recovered a USB drive in the appellant’s premises. The USB drive was connected with computer and a printout was taken by the computer expert accompanied with the Central Excise officers. The printout gives the details of the certain sales (date-wise) commencing from 1-4-2005. The delivery challans for various chemicals for the month of December, 2005 and January, 2006 were found and seized during the search. The appellants disowned the contents of the printout and stated that it has manipulated the data base with motive, to take revenge from the partner and the firm for the refusal of the loan of Rs. 1 lakh sought by the Computer Operator. The appellant filed an affidavit disclosing this fact on 13-2-2006 i.e. immediately after the raid and a copy of the affidavit was also given to the investigating officer. The Central Excise officers attempted to corroborate the contents of the printout with the statements of 30 persons viz. buyers, transporters etc. The appellants requested for cross-examination of 30 persons which was rejected by the Adjudicating authority. The appellants contended that the statements are pre-drafted computer statements and it cannot be voluntary nature. After considering the submissions of the appellant, the Commissioner (Appeals) allowed the cross-examination of 4 persons randomly selected. Three of them stated that they were made to sign the pre-drafted statements on a promise that no action shall be taken against them.

8. For the purpose of proper appreciation of the case, the relevant portion of the findings of the Commissioner (Appeals) is reproduced below : –

“4.5 Another contention of the appellant is that department has brought artificial evidence in the form of 30 statements from the buyer parties. The appellant stand is that the statements of the 30 parties are pre-drafted computer statements and involuntary. Four of the buyers (randomly selected) deposed before me. Three of them stated before me that they were made to sign a pre-drafted statement on a promise that no action shall be taken against them. One of them stated that his statement was voluntary. In the statements it has been recorded that these person stated that they received the textile auxiliary chemicals without invoice and against cash payments. Statement of these 30 persons (most of them Processors) are against their own interest as it makes them liable for penal action for purchasing dutiable goods on which duty was not paid. However, no show cause notice is given to these persons who have admitted to have received the impugned goods without bills. This fact gives credence to the allegations made by the appellant that the statements were not voluntary. It is apparent that the thirty statements have been recorded under a promise that no action shall be taken against them. Under these facts and circumstances, the evidentiary value of these thirty statements is considerably weakened. However, the solid evidence in the form of electronic records (USB Drive) and the computer printout from the same are sufficient to nail the appellant.”

9. The Commissioner (Appeals) observed that the evidence in the form of electronic record (USB drive) the computer printout are strong evidence to establish the clandestine removal of the goods. It is seen that the said printout of the data in the USB drive contained the details of raw material and finished goods along with the names and addresses of the suppliers and the purchasers of the finished goods. It is seen that the statements were recorded to corroborate the contents of the printout and the Commissioner (Appeals) had held that the said statements has no strong evidentiary value. Shri Anil Gupta, Partner of the appellant firm had stated that he was not aware of the details contained in the USB drive.

10. Learned Advocate submitted that the clandestine manufacture and removal of the goods cannot be upheld based on the printout of the data contained in the USB drive without following the requirement of condition of Section 36B of the Central Excise Act, 1944. Section 36B of the said Act provides admissibility of microfilms, facsimile copies of documents and computer printouts as documents and as evidence. Clause (c) of Section 36B(1) states that the statement contained in a document and included in a computer printout would be an evidence if the condition mentioned in the sub­section (2) and other provisions contained in this section are satisfied in relation to the statement and the computer in question, shall be deemed to be the document for the purpose of this Act and the rules made thereunder and can be admissible in proceedings. Sub-section (2) of Section 35B provides the condition referred to in sub-section (1) in respect of the computer printout shall be the following viz.

“(a) the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;

(b) during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

(c) throughout the material part of the said period, the computer was operational properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and

(d) the information contained in the statement reproduced or is derived from information supplied, to the computer in the ordinary course of the said activities.”

Sub-section (4) of Section 36B requires issue a certificate in this behalf by a person occupying the responsible official position in relation to the operation of the relevant device or the management of the relevant activity (whichever is appropriate) shall be evidence in any matter stated in the certificate and for the purpose of the sub-section, which shall be sufficient for a matter to be stated to the best of the knowledge and the belief of the persons stating it. In the present case, the data was not stored in the computer. It is stated that the computer expert accompanied with the Central Excise officers had taken the printout from the USB drive by connecting to the computer. The officers had not obtained any certificate as required under Section 36B of the said Act. It is also noted that none of the conditions under Section 36B(2) of the Act, 1944 was observed. In such situation, it is difficult to accept the printout as an evidence to support the clandestine removal of the goods. It is noted that the requirement of certificate under Section 36B(4) is also to substantiate the veracity of truth in the operation of electronic media. In the case of M/s. Premier Instrument & Controls Ltd. (supra), the Tribunal has held that the printout of the personal computer of the company’s officer, had not fulfilled the statutory condition laid down under Section 36B(2) of the Act and the demand is not sustainable. The relevant portion of the said decision is reproduced below : –

“9. On the demand of duty on waste and scrap, again the appellants have made out a strong case on merits. The demand covering the period November, 1993 to September, 1998 is based on certain computer printout relating to the period February, 1996 to September, 1998. These printouts were generated from a personal computer of Shri G. Sampath Kumar, a junior officer of the Company, whose statements were also recorded by the department. Admittedly, whatever facts were stated by Shri Sampath Kumar, in his statements, were based on the entries contained in the computer printouts. The statements of others, recorded in this case, did not disclose any additional fact. Therefore, apparently, what is contained in the computer printout is the only basis of the demand of duty on waste and scrap. The question now arises as to whether these printouts are admissible as evidence, in this case. Ld. Sr. Counsel has pointed out that the computer print-outs did not satisfy the statutory conditions. He has referred to the relevant provisions of Section 36B of the Central Excise Act which deals with admissibility of computer printouts etc. as evidence and says that the statement contained in a computer printout shall be deemed to be a document for the purposes of the Act and the rules made thereunder and shall be admissible as evidence of the contents of its original, if the conditions mentioned in sub-section (2) and other provisions of the Section are satisfied in relation to the statement and the computer in question. Sub­section (2) reads as under : –

“2. The conditions referred to in sub-section (1) in respect of the computer printout shall be the following, namely : –

a. the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly, carried on over that period by the person having lawful control over the use of the computer;

b. during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

c. throughout the material part of the said period, the computer was in operation properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and

d. the information contained in the statement reproduced or is derived from information supplied to the computer in the ordinary course of the said activities.”

Ld. Sr. Counsel has argued that the above conditions were not fulfilled in respect of the computer printout taken from the personal computer of Shri Sampath Kumar. It appears from the statement of Shri Sampath Kumar and the averments in the memorandum of appeal that it is an admitted fact that Shri Sampath Kumar was the person having lawful control over the use of the computer. The computer was not shown to have been used regularly to store or process information for the purposes of any activities regularly carried on by the company. It was also not shown that information of the kind contained in the computer printout was regularly supplied by the Company to the personal computer of Shri Sampath Kumar in the ordinary course of activities. Again, it was not shown that, during the relevant period, the computer was operating in the above manner properly. The above provision also casts a burden on that party, who wants to rely on the computer printout, to show that the information contained in the printout had been supplied to the computer in the ordinary course of business of the company. We find that none of these conditions was satisfied by the Revenue in this case. We have considered the Tribunal’s decision in International Computer Ribbon Corporation v. CCE, Chennai (supra). In that case, as in the instant case, computer printouts were relied on by the adjudicating authority for recording a finding of clandestine manufacture and clearance of excisable goods. It was found by the Tribunal that the printouts were neither authenticated nor recovered under Mahazar. It was also found that the assessee in that case had disowned the printouts and was not even confronted with what was contained therein. The Tribunal rejected the printouts and the Revenue’s finding of clandestine manufacture and clearance. We find a strong parallel between the instant case and the cited case. Nothing contained in the printouts generated by Sampath Kumar’s PC can be admitted into evidence for non-fulfilment of the statutory conditions. It is also noteworthy that the computer printouts pertained to the period February, 1996 to September, 1998 only but the information contained therein was used for a finding of clandestine removal of waste and scrap for earlier period also, which, in any case, was not permissible in law. In the result, we hold that the entire demand of duty on waste and scrap is liable to be set aside.”

11. Taking into consideration the overall facts and circumstances of the case, I find that the entire case was made out on the basis of statements of the buyers and the computer printout. Commissioner (Appeals) already held that the evidentiary value of the statements is weak. It is also noted that the statements of the 30 persons were mostly similarly pre-drafted. The investigating officers failed to comply with the conditions of Section 36B of the Act in respect of relying upon this computer printout. There is no adequate material available on record to establish the clandestine removal of goods. Therefore, the demand of duty solely on the basis of these materials cannot be sustained. Hence, as the clearance value was within the SSI exemption, the confiscation of the goods cannot be sustained. So, the imposition of penalties are not warranted”

7.1.7. In the case of Anvar P.V. Vs. P.K. Basheer reported in 2017 (352) E.L.T. 416 (S.C.), the Hon’ble Supreme Court has held as under:

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7.1.8. Section 65B of the Evidence Act is parimateria with Section 36B of the Central Excise Act, 1944. From the above observation of the Hon’ble Apex Court and the decision in the case of Ambica Organics referred above, we find that unless the conditions of Section 65B(2) of the Evidence Act, which is parimateria with Section 36B(4) of the Central Excise Act, are complied with, no reliance can be placed on any data recovered from computer printouts. Admittedly, the procedure set out in Section 36B has not been followed in this case. Thus, by following the judgement of the Hon’ble Apex Court and the other decisions cited above, we hold that the data resumed from the computer print-outs alone cannot be relied upon to demand duty, without any corroborating evidence.”

17.1. This Tribunal again had an occasion to examine as to whether, without obtaining a certificate under Section 36B of the Central Excise Act, print-outs generated from personal computers or pendrives could be admitted as evidence or not in the case of M/s. Trikoot Iron & Steel Casting Ltd. v. Additional Director General (Adjn.), Directorate General of GST Intelligence (Adjudication Cell) [Final Order No. 58546 of 2024 dated 09.09.2024 in Excise Appeal No. 55779 of 2023 – CESTAT, New Delhi]. The relevant observations of the Tribunal in the aforesaid decision are reproduced below: –

“15. To examine the issues that have been raised, it would be necessary to first examine section 36B of the Central Excise Act. It is reproduced:

“Section 36B- Admissibility of micro films, facsimile copies of documents and computer print outs as documents and as evidence. (1) Notwithstanding anything contained in any other law for the time being in force,-

a. a microfilm of a document or the reproduction of the image or images embodied in such microfilm (whether enlarged or not); or

b. a facsimile copy of a documents; or

c. a statement contained in a document and included in a printed material produced by a computer (hereinafter referred to as a ―computer printout).

(2) The conditions referred to in sub-section (1) in respect of a computer printout shall be the following namely:-

a. the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer,

b. during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement or of the kind from which the information so contained is derived;

c. throughout the material part of the said period, the computer was operating properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and

d. the information contained in the statement reproduces or is derived from information supplied to the computer in the ordinary course of the said activities.

(3) Where over any period, the function of storing or processing information for the purposes of any activities regularly carried on over that period as mentioned in clause (a) of sub-section (2) was regularly performed by computers, whether –

a. by a combination of computers operating over that period; or

b. by different computers operating in succession over that period; or

c. by different combinations of computers operating in succession over that period; or

(c) in any other manner involving the successive operation over that period, in whatever order, of one or more computers and one or more combination of computers, all the computers used for that purpose during that period shall be treated for the purposes of this section as constituting a single computer; and references in this section to a computer shall be construed accordingly.

(4) In any proceedings under this Act and the rules made thereunder where it is desired to give a statement in evidence by virtue of this section, a certificate doing any of the following things, that is to say, –

a. identifying the document containing the statement and describing the manner in which it was produced;

b. giving such particulars of any device involved in the production of that document as may be appropriate for the purpose of showing that the document was produced by a computer,

c. dealing with any of the matters to which the conditions mentioned in sub-section (2) relate,

and purporting to be signed by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activities (whichever is appropriate) shall be evidence of any matter stated in the certificate; and for the purposes of this sub-section it shall be sufficient for a matter to be stated to be to the best of the knowledge and belief of the person stating it.

(5) For the purposes of this section, –

a. Information shall be taken to be supplied to a computer if it is supplied thereto in any appropriate form and whether it is so supplied directly or (with or without human intervention) by means of any appropriate equipment;

b. whether in the course of activities carried on by any official, information is supplied with a view to its being stored or processed for the purposes of those activities by a computer operated otherwise than in the course of those activities, that information, if duly supplied to that computer, shall be taken to be supplied to it in the course of those activities;

c. a document shall be taken to have been produced by a computer whether it was produced by it directly or (with or without human intervention) by means of any appropriate equipment.

Explanation – For the purposes of this section,-

a. “computer” means any device that receives, stores and processes data, applying stipulated processes to the information and supplying results of these processes; and

b. any reference to information being derived from other information shall be a reference to its being derived therefrom by calculation, comparison or any other process.

16. Section 3 of the Evidence Act defines “document” as follows:

“―Document. – “Document” means any matter expressed or described upon any substance by means of letter, figures or marks, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter.”

17. “Evidence” in section 3 of the Evidence Act is defined as follows:

“Evidence.” — “Evidence” means and includes — (1) all statements which the Court permits or requires to be made before it by witnesses, in relation to matters of fact under inquiry;

Such statements are called oral evidence;

(2) all documents including electronic records produced for the inspection of the Court; such documents are called documentary evidence.”

18. Section 36B of the Central Excise Act deals with cases where any document is required to be produced as an evidence in proceedings under the Central Excise Act and the Rules framed thereunder. Such certificate should be signed by a person occupying a responsible position in relation to the operation of the device in question or the management of the relevant activities. In such a case it shall be evidence of any matter which is stated therein. It specifically mandates production of a certificate:

i. identifying the document containing the statement and describing the manner in which it was produced;

ii. giving such particulars of any device involved in the production of that document as may be appropriate for the purpose of showing that the document was produced by a computer,

iii. dealing with any of the matters to which the conditions mentioned in sub-section (2) relate.

19. The Central Excise Act contains a specific provision that describes the manner in which the admissibility of computer print outs will be accepted as evidence in proceedings initiated under the Central Excise Act.

20. In respect of section 65B of the Evidence Act, which is parimateria to the provisions of section 36B of the Central Excise Act, it would be relevant to refer to the observations made by the Supreme Court in Anvar P. V. The Supreme Court, held that evidence relating to electronic record shall not be admitted in evidence unless the requirement of section 65B of the Evidence Act is fulfilled. The relevant paragraphs of the said judgment are reproduced:

21. The aforesaid judgment of Supreme Court in Anvar P. V. was followed by the Supreme Court in Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal & others [AIR 2020 SC 4908], though with a slight modification. The Supreme Court held that if the original device is not produced, then electronic record can be produced in accordance with section 65B (1) of the Evidence Act together with the requisite certificate under section 65B (4).

22. It transpires from the aforesaid two judgments of the Supreme Court in Anvar P. V. and Arjun Panditrao Khotkar that:

i. Any documentary evidence by way of an electronic record under the Evidence Act can be proved only in accordance with the procedure prescribed under section 65B of the Evidence Act. The purpose of this provision is to sanctify secondary evidence in electronic form generated by a computer;

ii. Any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document only if the conditions mentioned under sub-section (2) of section 65 of the Evidence Act are satisfied, without further proof or production of the original;

iii. In view of the provisions of section 65(4) of the Evidence Act, a certificate must accompany the electronic record like computer printout, compact disc, video compact disc or pen drive, pertaining to which a statement is sought to be given in evidence, when the same is produced in evidence;

iv. Only if the electronic record is duly produced in terms of section 65B of the Evidence Act, that the question of its genuineness would arise. The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if the requirements of section 65B of the Evidence Act is not complied with;

v. An electronic record by way of secondary evidence shall not be admitted in evidence unless the the requirements of section 65B of the Evidence Act has satisfied; and

vi. This would not apply in a case where the appellant adduces primary evidence by making available in evidence the electronic records.

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26. The aforesaid decisions of the Tribunal, which are in the context of the provisions of section 36B of the Central Excise Act, hold that a printout generated from the personal computer that has been seized cannot be admitted in evidence unless the statutory conditions laid down in section 36B of the Central Excise Act are complied with. The decisions also hold that if the data is not stored in the computer but officers take out a printout from the hard disk drive by connecting it to the computer, then a certificate under section 36B of the Central Excise Act is mandatory.

30. A hard disk is a rigid magnetic disk that stores data. A pen drive is a data storage device that includes flash memory with an integrated USB interface.

31. The printouts, which are the sole basis for holding that the appellant had indulged in clandestine removal, were taken both on 04.07.2013 and on 15.07.2013 by placing the recovered hard disc and pen drive in the CPU.

32. It is, therefore, clear that the CPU did not contain the hard disk. The hard disk was in fact picked up from the corner of the room. No attempt was made by the department to admit the hard disk and the pen drive in evidence. The required certificate under section 36B (4) of the Central Excise Act was also not produced. Thus, no reliance can be placed on the printouts, in view of the two judgments of the Supreme Court in Anvar P. V. and Arjun Panditrao Khotkar and the three decisions of the Tribunal in Agarvanshi Aluminium, Popular Paints and Chemicals and Global Extrusion.

33. The adjudicating authority, on its own, examined the oral evidence on the points required to be stated in the certificate. This is not permissible in law. The confirmation of demand is based only on the printouts taken after connecting the hard disk and the pen drive to the computer.

34. It is, therefore, not possible to accept the contention advanced by the learned authorized representative appearing for the department that panchnama itself should be treated as a certificate or that the adjudicating authority was justified in itself examining whether the conditions set out in section 36B (4) of the Central Excise Act had been satisfied.

35. The impugned order dated 30.06.2021 passed by the adjudicating authority, therefore, cannot be sustained. It is, accordingly, set aside in so far as the appellant is concerned and the appeal is allowed.”

17.2. The same view has also been expressed by this Tribunal in the case of M/s. Jai Balaji Industries Limited & ors. v. Commissioner of C.G.S.T. and Central Excise, Bolpur [2023 (8) TMI 989 – CESTAT, Kolkata], wherein the Tribunal reinforced that compliance with Section 36B is mandatory.

17.3. Considering the ratio of the decisions cited supra, we hold that the said data / documents retrieved from the CPUs, computers or pen drives cannot be considered as admissible evidence for sustaining the charge of clandestine clearance of goods as the same have not been tested in terms of Section 36B(2) and Section 36B(4) of the Central Excise Act, 1944.

18. Furthermore, to allege clandestine manufacture and clearance of goods, the investigation was required to be conducted with a view to the following parameters, as laid down by the Tribunal in the case of M/s. Arya Fibres Ltd. v Commissioner of C.Ex., Ahmedabad-II [2014 (311) E.L.T. 529], which are as under: –

i. There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;

ii. Evidence in support thereof should be of :

a. raw materials, in excess of that contained as per the statutory records;

b. instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;

c. discovery of such finished goods outside the factory;

d. instances of sale of such goods to identified parties;

e. receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

f. use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;

g. statements of buyers with some details of illicit manufacture and clearance;

h. proof of actual transportation of goods, cleared without payment of duty;

i. links between the documents recovered during the search and activities being carried on in the factory of production; etc.”

18.1. Admittedly,    in    this     case,       neither the manufacturing capacity of the appellant has been examined, nor any proper investigation was conducted at the end of all alleged buyers of finished goods or as to the suppliers of raw materials. No investigation whatsoever was also conducted as regards the labour that would be required for manufacturing such clandestine clearances of manufactured goods or even as to how much electricity is required to manufacture such a quantity of goods. All these ingredients are absent. In such circumstances, the charge of clandestine manufacture and removal of goods is not sustainable.

19. Thus, the case of the Revenue, which is based on documents retrieved from CPUs, computers or pen drives and various statements recorded during the course of investigation, which have been found to be inadmissible as evidence, to allege clandestine removal of goods, cannot be sustained. In the absence thereof of any other evidence on record, we hold that the charge of clandestine clearance of goods is not sustainable against the appellants. In that view of the matter, we hold that the whole of the demand of duty raised against the appellants is not sustainable. Consequently, the same is set aside.

19.1. As the demand of central excise duty raised against the appellants itself is not sustainable, consequently, no penalty can be imposed on the appellants.

20. In the result, we set aside the impugned order and allow the appeals, with consequential relief, if any.

(Order pronounced in the open court on 17.09.2026)