Third-Party Records Without Corroboration Cannot Sustain Excise Demand: CESTAT Kolkata

Shiv Metaliks Private Limited Vs Commissioner of Central Excise (CESTAT Kolkata)

Summary: The CESTAT Kolkata allowed the connected appeals of Shiv Metaliks Private Limited and its director, Shri Mahesh Khaitan, and set aside the central excise duty demand of ₹17,60,744 for 2007-08, consequential interest, the equivalent company penalty and the director’s ₹1 lakh penalty. The appeals challenged the common Order-in-Appeal dated 26 October 2017, which had upheld the adjudication order dated 29 February 2016. The company manufactured sponge iron under Chapter 72 of the Central Excise Tariff Act, 1985. The dispute concerned alleged clandestine manufacture and clearance, together with undervaluation of certain duty-paid supplies.

The proceedings originated in DGCEI searches at Ghogar Ispat (P) Ltd. (GIPL) and Omkar Steel (P) Ltd. (OSPL) in 2008, followed by searches at the appellant’s factory and office on 17 November 2008. The Department relied principally on GIPL’s computer printouts and pen-drive data, OSPL’s handwritten ledger and investigation statements. It interpreted “P” or “Pucca” entries as duty-paid transactions, “K” or “Kaccha” entries as unaccounted supplies, and “S” or “Souda” entries as agreed purchase rates. Differences between the “S” rates and “O” invoice values were treated as suppressed consideration; certain “S”-only entries were treated as non-duty-paid supplies. A notice dated 28 March 2011 proposed recovery by invoking the extended period, interest and penalties.

The appellants submitted that their own sale register and GIPL ledger matched duty-paid “P” entries and that disputed third-party entries could not establish additional production or supplies. They pointed to the absence of evidence concerning excess raw materials, electricity, labour, stock discrepancies, transport or cash receipts. Although vehicle numbers appeared in the printouts, no transporter, driver or relevant broker had been examined to establish movement of the alleged consignments. They also challenged attribution of entries referring to more than one supplier. Revenue maintained that the coded entries, handwritten records and statements, read together, established unaccounted and undervalued transactions and justified the demand.

The Tribunal held that third-party records could be relevant evidence, but the Department had to establish an independent and credible connection between those records and the appellant’s alleged manufacture and removal. Neither the GIPL electronic records nor the OSPL ledger originated from, or was recovered from, the appellant. The company’s examined records did not supply the missing corroboration, and no material demonstrated corresponding excess procurement of raw materials. The absence of transporter or driver evidence also left physical movement unproved. Referring to Dinabandhu Steel and Power and Haldia Steels, the Tribunal concluded that uncorroborated third-party entries could not sustain either clandestine-removal or undervaluation allegations.

On electronic evidence, the Tribunal found no certificate under Section 36B(4) identifying the records, explaining their production, identifying the relevant devices and addressing the conditions under Section 36B(2) of the Central Excise Act, 1944. The accountant’s statement that printouts were taken in his presence did not replace statutory certification, particularly when he made entries on another person’s instructions. The show cause notice did not satisfactorily explain the sealing, preservation and custody of the pen drives before their subsequent examination. The Tribunal also rejected reliance on Section 36A: the documents were neither produced by the appellants nor seized from their custody, so the necessary foundation for invoking the presumption against them was absent. It relied on Trikoot Iron & Steel Casting and Amiya Steel in examining these defects.

The statements relied upon by Revenue provided no clear and unequivocal admission of clandestine clearances by the appellants. None of the relevant deponents had been examined before the adjudicating authority under Section 9D(1)(b), and the cross-examination request made in the reply and reiterated in appeal remained unaddressed. Applying the statutory safeguards discussed in Geetham Steels, the Tribunal declined to treat the statements as reliable substantive evidence. Shri Mahesh Khaitan had consistently stated that sales were effected through a broker on payment of duty and that he could not explain GIPL’s records. His inability to comment on another entity’s entries could not be converted into an admission merely by describing his replies as evasive.

The OSPL ledger suffered from an additional foundational defect: its author had neither been identified nor examined. There was no proof of who made the entries, their source or the writer’s knowledge of the alleged transactions. Recovery of such a document did not establish the truth of its contents or their connection with the appellant. Referring also to Sai Sponge and the evidentiary parameters in Arya Fibres, the Tribunal emphasised the need for tangible evidence of production, raw-material or electricity consumption, transport and receipt of unaccounted consideration. It found the essential links in the alleged clandestine activity unproved.

The separate undervaluation limb also failed. The Department had not independently established payment of any amount above invoice value by GIPL to the appellant, or the necessary nexus between additional consideration and the appellant. An unexplained third-party “Souda” notation could not displace declared transaction value and shift the burden to the assessee. The appellants had additionally challenged limitation and non-application of mind, including a stated breakup of ₹1,46,625, ₹10,74,405 and ₹5,71,714, totalling ₹17,92,744 rather than the confirmed ₹17,60,744. These remained submissions recorded in the order; the Tribunal’s operative relief rested on failure to establish the principal allegations through reliable and corroborated evidence.

Accordingly, the Tribunal set aside the ₹17,60,744 duty demand under Section 11A(1) and interest under Section 11AB. With the allegations of clandestine activity and undervaluation unproved, the company’s Section 11AC penalty had no surviving foundation. The director’s Rule 26 penalty was also dropped: no reliable evidence established his conscious and specific involvement or knowing handling of goods liable to confiscation, and directorship alone was insufficient. The common Order-in-Appeal was set aside and both appeals were allowed with consequential relief, if any, in accordance with law.

Cases Discussed

• Principal Commissioner of CGST & Central Excise, Lucknow v. A.J. Sugandhi Pvt. Ltd. — 2026 (9) TMI 1112 (CESTAT Allahabad). Cited by the appellants against founding one presumption upon another, including for the alleged undervaluation.
• Steelex Electrocast Private Limited v. Commissioner of Central Goods and Service Tax, Bolpur — 2026 (6) TMI 1294 (CESTAT Kolkata). Cited by the appellants concerning electronic evidence, Section 9D and the alleged admission of the director.
• SBIW Steels Pvt. Ltd. & Anr. v. Commissioner of CGST & Central Excise, Durgapur — 2026 (5) TMI 1442 (CESTAT Kolkata). Cited by the appellants on corroboration and the admissibility of investigation statements.
• Jolla Steel Pvt. Ltd. & Anr. v. Commissioner of Central GST Commissionerate, Birbhum — 2026 (4) TMI 61 (CESTAT Kolkata). Cited by the appellants in challenging the demand founded on third-party records.
• Haldia Steels Limited (Unit-II) & Anr. v. Commissioner of Central Goods and Services Tax, Birbhum — 2026 (2) TMI 904 (CESTAT Kolkata). Relied upon in rejecting a clandestine-removal demand based on uncorroborated private records.
• Ashish Enterprises v. Principal Commissioner CGST & Central Excise, Bhopal — 2026 (1) TMI 642 (CESTAT New Delhi). Cited by the appellants on the insufficiency of uncorroborated third-party evidence.
• North East Engineering Co. Pvt. Ltd. v. Commissioner of CGST & Central Excise, Siliguri — 2025 (12) TMI 90 (CESTAT Kolkata). Cited by the appellants regarding Section 36B certification and the use of untested statements.
• Amiya Steel Pvt. Ltd. & Ors. v. Commissioner of CGST & Central Excise, Bolpur — 2025 (11) TMI 1692 (CESTAT Kolkata). Relied upon for the inadmissibility of uncertified computer printouts recovered from third parties.
• Sai Sponge (India) Limited & Ors. v. Principal Commissioner of Central Goods & Service Tax, Ranchi — 2025 (10) TMI 965 (CESTAT Kolkata). Considered on the need to prove authorship and evidentiary nexus of third-party handwritten records.
• Geetham Steels Pvt. Ltd. v. Commissioner of G.S.T. and Central Excise, Salem — 2025 (3) TMI 1098 (CESTAT Chennai). Relied upon concerning the statutory process for admitting investigation statements under Section 9D.
• Trikoot Iron & Steel Casting Ltd. v. Additional Director General (Adjn.), Directorate General of GST Intelligence (Adjudication Cell) — Final Order No. 58546 of 2024, Excise Appeal No. 55779 of 2023, decided 9 September 2024 (CESTAT New Delhi). Relied upon for mandatory Section 36B safeguards; oral evidence or a panchnama cannot substitute the prescribed certificate.
• Dinabandhu Steel and Power Limited & Ors. v. Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar — 2024 (4) TMI 721 (CESTAT Kolkata). Relied upon regarding independent corroboration, excess production and the authorship of third-party documents.
• Super Forgings & Steel Ltd. v. Commissioner of Central Excise, Kolkata-IV — 2024 (1) TMI 448 (CESTAT Kolkata). Cited by the appellants on proof of clandestine removal and their objection to the extended period.
• Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal & Others — AIR 2020 SC 4908 (Supreme Court). Discussed in the reproduced Trikoot decision concerning electronic records, certificates and production of the original device.
• Arya Fibres Pvt. Ltd. v. Commissioner of Central Excise, Ahmedabad-II — 2014 (311) E.L.T. 529 (CESTAT Ahmedabad). Relied upon for the tangible and corroborative evidence required to establish clandestine manufacture and clearance.
• Anvar P.V. v. P.K. Basheer & Others — (2014) 10 SCC 473 (Supreme Court). Discussed in the reproduced Trikoot decision on the admissibility of secondary electronic evidence under Section 65B.

FULL TEXT OF THE ORIGINAL CESTAT KOLKATA ORDER

The present appeals have been preferred against the common Order-in-Appeal No. 16- 17/CE/RKL-GST/2017 dated 26.10.2017 passed by the Ld. Commissioner (Appeals), C.G.S.T., Central Excise and Customs, Bhubaneswar, whereby the appeals preferred by M/s. Shiv Metaliks (P) Limited (hereinafter referred to as the “appellant-company” or “appellant No. 1”) and Shri Mahesh Khaitan, Director of the appellant-company (hereinafter referred to as “appellant No. 2”) before him came to be rejected and the findings recorded in Order-in-Original No. 70/Addl. Commr/CEX/RKL/2015-16 dated 29.02.2016, confirming a demand of central excise duty amounting to Rs.17,60,744/-, together with interest and penalties, on the allegation of clandestine manufacture and production of goods as well as undervaluation/under-invoicing of certain goods so as to evade payment of duty, came to be sustained.

2. The facts of the case are that appellant No. 1 is engaged in the manufacture of Sponge Iron, falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985, at its factory situated at Gurundupalli, Bonai, in the district of Sundargarh, Odisha, and was duly registered with the Central Excise Department during the period relevant to the present proceedings.

3. The genesis of the proceedings may be traced to an investigation undertaken by the officers of the Directorate General of Central Excise Intelligence (DGCEI) in the year 2008 into the affairs of, inter alia, M/s. Ghogar Ispat (P) Ltd. (hereinafter referred to as “GIPL”) and M/s. Omkar Steel (P) Ltd. (hereinafter referred to as “OSPL”).

GIPL:

4. On 26.03.2008, searches were conducted at various premises of GIPL, including its office situated at G-2, Laxmi Apartment, Sakchi, Jamshedpur. In the course of the said search, the officers of the DGCEI purportedly retrieved from the computer systems and pen drives maintained at the said premises certain electronic data pertaining to procurement of raw materials, particularly Sponge Iron, from various suppliers and the payments allegedly made in respect thereof, which purportedly revealed transactions concerning the appellant-company, namely, M/s. Shiv Metaliks Pvt. Ltd. The data was stated to contain particulars of payments effected both in cash and through cheques drawn on UCO Bank. The electronic material so retrieved was reduced into printouts and seized under Panchanama, and was designated as “Document No. 40/DGCEI/RRU/GIPL/O/08”. According to the Revenue, the said document/printouts under Document No. 40/DGCEI/RRU/GIPL/O/08 contained a system of coded entries, namely (i) “P” (ii) “K” and (iii) “O” & “S”, which is one of the principal foundations of which the allegations have subsequently been levelled against the appellants. The notation “P” signified “Pucca”, “K” signified “Kaccha” and “S” signify “Souda”; certain entries also bore the notation “O”, which, as can be understood from the records/impugned order, represented the original/documented or invoiced value: –

i. The Revenue construed the transactions denoted by “P”, i.e. “Pucca”, as those covered by regular invoices and upon which central excise duty had been discharged. ii. The entries bearing the notation “K”, i.e. “Kaccha”, were construed as representing transactions wherein goods had allegedly been received by GIPL without corresponding invoices and without payment of the requisite central excise duty.

iii. The notation “S”, understood as “Souda”, was alleged to represent the agreed or settled purchase rate, which, according to the Department, reflected the higher consideration actually paid/payable for the goods, whereas the corresponding “O” value was treated as the lower value appearing in the invoices. Consequently, wherever “S” and “O” appeared conjointly, the Revenue drew an inference that the transaction represented an instance of under-invoicing or undervaluation, inasmuch as the goods were allegedly transacted at a higher consideration but invoiced at a lower value with the attendant consequence of short-payment of central excise duty.

iv. The Revenue further alleged that, in certain instances, only the “S” value was reflected in the records and, in such cases, proceeded on the premise that the transactions represented consignments not covered by duty-paid invoices. Such transactions were, therefore, treated on the same footing as those marked “K”, and an inference was drawn that the expressions “S” and “K” had, in certain contexts, been employed interchangeably to signify unaccounted and non-duty-paid transactions.

4.1. In addition to the aforesaid computer printouts, three pen drives were also recovered from Shri Rajesh Kumar Mishra, accountant of GIPL. The said pen drives were purportedly found to contain data concerning procurement of raw materials from various parties, either directly or through middlemen, together with particulars relating to payments made towards such transactions and receipts connected therewith. The statement of Shri Rajesh Kumar Mishra was recorded under Section 14 of the Central Excise Act, 1944. In the course thereof, he, inter alia, stated that he was entrusted with miscellaneous functions relating to accounts, banking transactions, entries concerning sale of finished goods and purchases, and that the sale and purchase accounts of GIPL were maintained in the computer system and pen drives. It also appears that Shri Tara Chand Agarwal, Director of GIPL, and Shri Rajesh Kumar Mishra, accountant of GIPL, had allegedly containing acceptance or acknowledgement of clandestine removal of finished excisable goods by the appellant-company.

OSPL:

5. The investigation was thereafter extended to the premises of OSPL. On 25.06.2008, searches were conducted at various premises of OSPL, during the course whereof the DGCEI officers purportedly recovered, inter alia, handwritten ledgers recording procurement of unaccounted raw materials, including Sponge Iron, and the payments allegedly made to various suppliers. The name of the appellant-company was also found reflected in the said handwritten records. Although the records pertaining to the search of OSPL also extended to retrieval or seizure of data from computers and pen drives, the material which ultimately came to be relied upon against the appellant-company, insofar as the OSPL investigation was concerned, principally comprised the handwritten ledger, which as per the Revenue, indicated unaccounted clearances.

6. Pursuant to the aforesaid investigation and the material allegedly brought to light therefrom, searches were conducted on 17.11.2008 at the factory premises as well as the office premises of the appellant-company. The statement of Shri Mahesh Khaitan, Director of the appellant-company and appellant No. 2 herein, was subsequently recorded on 19.08.2009. The said statement was relied upon by the Department in the proceedings that followed and, in the adjudication order, the replies furnished by appellant No. 2 were characterised as “evasive”.

7. Upon a cumulative consideration of the aforesaid materials, the Revenue was of the view that the documentary evidence retrieved from the premises of GIPL and OSPL, comprising computer- generated printouts, electronic data contained in pen drives and handwritten ledgers, when read conjointly with the statements of the persons associated with GIPL, evidenced clandestine manufacture and clearance attributable to the appellant-company without payment of duty as well as undervaluation / under-invoicing on the part of the appellants by declaring a value lower than the actual consideration received or agreed upon, so as to evade payment of duty. It was also alleged that the appellant no. 2, being the Director of the appellant-company and allegedly being fully conversant with the affairs of the company, had knowingly participated in the aforesaid fraudulent activities and had engaged in wilful suppression of production and removal of excisable goods without payment of duty in contravention of the provisions of the Central Excise Act, 1944 and the Central Excise Rules, 2002, including Rules 4, 6, 10 and 11 thereof.

8. Pursuant thereto, a Show Cause Notice dated 28.03.2011 was issued to the appellants proposing recovery of central excise duty amounting to Rs.17,60,744/- for the period 2007-08, together with interest, by invoking the extended period of limitation on the allegation that the duty had been evaded by reason of fraud, wilful misstatement, suppression of facts and contravention of the provisions of the Central Excise Act, 1944 and the Central Excise Rules, 2002. The said Notice also proposed penalty upon the appellant No. 1 under Section 11AC of the Act read with Rule 25 of the Central Excise Rules, 2002 and also upon the appellant no. 2 under Rule 26 of the said Rules.

8.1. The appellants, in response thereto, submitted their respective replies dated 24.06.2011, categorically disputing the allegations and contesting the proposed demand, interest and penalties. The appellants, inter alia, contended that the entire edifice of the Department’s case rested upon records allegedly recovered from third parties, namely GIPL and OSPL, without adequate or legally sustainable corroboration. It was further contended that the demand was hopelessly barred by limitation and could not be sustained by resort to the extended period.

8.2. The matter thereafter came up for adjudication. Following a personal hearing afforded to the appellants on 02.02.2016, the adjudicating authority passed Order-in-Original No. 70/Addl. Commr/CEX/RKL/2015-16 dated 29.02.2016 whereby the demand of central excise duty amounting to Rs.17,60,744/- was confirmed against appellant No. 1, together with applicable interest, and an equivalent penalty of Rs.17,60,744/- was imposed under Section 11AC of the Central Excise Act, 1944. A personal penalty of Rs.1,00,000/- was also imposed upon appellant No. 2 under Rule 26 ibid. While arriving at the said conclusion, the adjudicating authority held that the computer printouts, the handwritten ledger and the statements recorded during the course of investigation, read together constituted substantive evidence in support of the allegations, and further held that the evidentiary onus had, in consequence, shifted upon the appellants.

8.3. Aggrieved by the aforesaid Order-in-Original, the appellants preferred appeals before the Ld. Commissioner (Appeals), C.G.S.T., Central Excise and Customs, Bhubaneswar, who, upon consideration of the matter, passed the common Order-in-Appeal No. 16-17/CE/RKL-GST/2017 dated 26.10.2017, whereby the appeals came to be rejected and the findings recorded in the Order-in-Original, including the confirmation of the duty demand, interest and penalties, were upheld.

8.4. Aggrieved thereby, the appellants have filed the instant appeals.

9. During the course of hearing, the Ld. Counsel appearing on behalf of the appellant made various submissions, which read as follows: –

I. The demand rests solely on records of third parties, GIPL and OSPL, without any corroborative evidence.

(i) It is submitted that the entire case is built on printouts of GIPL’s pen drives and a handwritten ledger of OSPL, neither maintained by nor recovered from the Appellants. The only records of the Appellant No. 1 relied upon, its sale register and its ledger of GIPL, matched the duty paid “P” entries. The “K” entries and OSPL’s entries have been treated as clandestine clearances only because they are absent from the Appellant’s records. The OIO itself records (Para 1.4) that pages 45 to 55 of Document No. 40 reflect GIPL’s purchases from the appellant No. 1 and from M/s. Shree Hari Sponge (P) Ltd., so the entries cannot even be attributed to the Appellant No. 1 with certainty.

(ii) There is no evidence of procurement of excess raw materials, excess electricity or labour, shortage or excess of stock, transportation, or receipt of cash by the Appellant No. 1 other than the third parties’ own notings. Though the SCN alleges that “P” and “K” consignments moved in the same vehicles and GIPL’s printouts record lorry numbers, no statement of any transporter, driver, the broker Shri Amit Poddar or Shri Shyam Sunder Agrawal is relied upon.

(iii) Reference is also invited to the following decisions:

• • • • M/s. Haldia Steels Limited (Unit-II) & Anr. Versus Commissioner of Central Goods and Services Tax, Birbhum [2026 (2) TMI 904 – CESTAT Kolkata]

• • • • M/s. Dinabandhu Steel and Power Limited & Ors. Versus Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar [2024 (4) TMI 721 – CESTAT Kolkata],

• • • • M/s. Amiya Steel Pvt. Ltd. & Ors. Versus Commissioner of CGST & Central Excise, Bolpur [2025 (11) TMI 1692 – CESTAT Kolkata]

• • • • M/s. SBIW Steels Pvt. Ltd. & Anr. Versus Commissioner of CGST & Central Excise, Durgapur [2026 (5) TMI 1442 – CESTAT Kolkata]

• • • • M/s. Ashish Enterprises Versus Principal Commissioner CGST & Central Excise, Bhopal [2026 (1) TMI 642 – CESTAT New Delhi]

• • • • Principal Commissioner of CGST & Central Excise, Lucknow Versus M/s. A.J. Sugandhi Pvt. Ltd. [2026 (9) TMI 1112 – CESTAT Allahabad]

• • • • M/s. Jolla Steel Pvt. Ltd. & Anr. Versus Commissioner of Central GST Commissionerate, Birbhum [2026 (4) TMI 61 – CESTAT Kolkata]

• • • • M/s. Super Forgings & Steel Ltd. Versus Commissioner of Central Excise, Kolkata-IV [2024 (1) TMI 448 – CESTAT Kolkata]

(iv) Hence, the demand is liable to be set aside on this ground alone.

II. The computer printouts are inadmissible under Section 36B of the Act and OSPL’s ledger is of unproved authorship.

(i) No certificate under Section 36B(4) identifying the electronic record, the manner of its production and the device, and dealing with the conditions of Section 36B(2), is relied upon. Shri Mishra’s endorsement that the printouts were taken in his presence is not such a certificate; by his own statement he only made entries on the instructions of GIPL’s Director. The pen drive was opened only on 21.04.2009, more than a year after its seizure, and the SCN does not state how it was sealed or kept meanwhile. Section 36A, relied upon by the Ld. Commissioner (Appeals), raises a presumption only against the person who produced the document or from whose custody it was seized, and a person tried jointly with him; the records were neither produced by nor seized from the Appellants.

(ii) The appellants have relied upon the following: –

• • • • M/s. Amiya Steel Pvt. Ltd. & Ors. Versus Commissioner of CGST & Central Excise, Bolpur [2025 (11) TMI 1692 – CESTAT Kolkata]

• • • • M/s. North East Engineering Co. Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Siliguri [2025 (12) TMI 90 – CESTAT Kolkata]

• • • • M/s. Steelex Electrocast Private Limited Versus Commissioner of Central Goods and Service Tax, Bolpur [2026 (6) TMI 1294 – CESTAT Kolkata]

(iii) The OSPL demand rests on a single page of a handwritten ledger (Annexure-3E to the SCN) whose author has not been identified. Such a document cannot be relied upon, as held in: –

• • • M/s. Dinabandhu Steel and Power Limited & Ors. Versus Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar [2024 (4) TMI 721 – CESTAT Kolkata]

• • • M/s. Sai Sponge (India) Limited & Ors. Versus Principal Commissioner of Central Goods & Service Tax, Ranchi [2025 (10) TMI 965 – CESTAT Kolkata]

III. The statements cannot be relied upon without following Section 9D of the Act, and the appellant No. 2 made no admission.

(i) Shri Mishra only made entries on another’s instructions and the entries put to him do not concern the appellant No. 1. He was not competent to vouch for their truth.

(ii) The OIO further relies on “confessional statements” and on an alleged acceptance by Shri Tara Chand Agrawal, whose statement is not a relied upon document, while the SCN (Para 3.0) only asserted that he had accepted the documents. None of the deponents was examined before the Ld. Adjudicating Authority under Section 9D(1)(b), and the request for cross examination made in the reply was never considered, though it was pressed again in the appeals before the Ld. Commissioner (Appeals). The statements therefore have no evidentiary value, as held in the cases of: –

• • • M/s. North East Engineering Co. Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Siliguri [2025 (12) TMI 90 – CESTAT Kolkata]

• • • M/s. Amiya Steel Pvt. Ltd. & Ors. Versus Commissioner of CGST & Central Excise, Bolpur [2025 (11) TMI 1692 – CESTAT Kolkata]

• • • M/s. SBIW Steels Pvt. Ltd. & Anr. Versus Commissioner of CGST & Central Excise, Durgapur [2026 (5) TMI 1442 – CESTAT Kolkata]

• • • M/s. Steelex Electrocast Private Limited Versus Commissioner of Central Goods and Service Tax, Bolpur [2026 (6) TMI 1294 – CESTAT Kolkata] and

• • • M/s. Haldia Steels Limited (Unit-II) & Anr. Versus Commissioner of Central Goods and Services Tax, Birbhum [2026 (2) TMI 904 – CESTAT Kolkata]

(iii) The appellant No. 2 consistently stated that the sales were made through a broker on payment of duty and that he could not comment on GIPL’s records. The lower authorities treated this as evasive and further held that he had accepted GIPL to be a major customer (OIO Para 5.7), which does not appear in any portion of his statement extracted in the SCN or the Impugned Order. Further reliance in this regard is placed on the decision in the case of M/s. Steelex Electrocast Private Limited Versus Commissioner of Central Goods and Service Tax, Bolpur [2026 (6) TMI 1294 – CESTAT Kolkata]

(iv) Hence, the statements cannot be read against the Appellants.

IV. The undervaluation demand rests only on the “souda” rates noted by GIPL.

(i) The demand of Rs. 5,71,714/- compares the invoice value of duty paid clearances, whose entries matched GIPL’s own “P” entries, with the “souda” rates in GIPL’s printouts. Apart from those notings, there is no evidence of any amount above the invoice value flowing to the Appellant No. 1.

(ii) A presumption cannot be founded upon another presumption, as held in Principal Commissioner of CGST & Central Excise, Lucknow Versus M/s. A.J. Sugandhi Pvt. Ltd. [2026 (9) TMI 1112 – CESTAT Allahabad]. Hence, this demand is also liable to be set aside.

V. The OIO suffers from non-application of mind, which the Impugned Order has not examined.

(i) Apart from refusing to discuss the decisions cited, the OIO deals with a plea of payment of duty and interest before the SCN (Para 5.10) not found in the replies as recorded in it, imposes Rule 26 penalty on “Noticee No. 2 and 3” (Para 5.13) though there were only two noticees, and records a break-up of Rs. 1,46,625/- (OSPL), Rs.10,74,405/- (GIPL) and Rs. 5,71,714/- (Para 1.2) which adds up to Rs. 17,92,744/-, not the Rs. 17,60,744/- confirmed. Hence, both orders are liable to be set aside.

VI. The demand is barred by limitation.

(i) All the documents on which the demand is founded were with the Department by August 2009, the last step being the statement of 19.08.2009, yet the SCN was issued only on 28.03.2011. Suppression cannot be alleged when the Appellant’s own records matched GIPL’s duty paid entries and the allegation rests on uncorroborated third party records. Reliance is placed on the case law of M/s. Super Forgings & Steel Ltd. Versus Commissioner of Central Excise, Kolkata-IV [2024 (1) TMI 448 – CESTAT Kolkata].

(ii) Hence, the extended period is not invocable and the demand is time barred.

9.1. In view of these submissions, it is prayed by the Ld. Counsel for the appellants that the impugned order be set aside and the present appeals be allowed, by granting consequential reliefs to the appellants.

10. The Ld. Authorized Representative of the Revenue, reiterating the findings recorded in the impugned order, submitted that the case against the appellants was founded upon the evidence brought on record during the course of investigation. It was contended that the computer-generated printouts and electronic data recovered from the premises of GIPL, particularly Document No. 40/DGCEI/RRU/GIPL/ O/08, contained specific entries relating to transactions with the appellant-company, wherein the notations “K”, “P” and “S”, read in their proper context, disclosed unaccounted as well as undervalued transactions. It was further submitted that the handwritten ledger recovered from OSPL contained particulars of transactions involving the appellant-company which did not correspond with the appellant’s statutory sale records and, therefore, lent corroborative support to the allegation of clandestine clearances. It was therefore argued that the evidence, when considered conjointly with the statements recorded during investigation and the appellant’s failure to satisfactorily account for the discrepancies noticed therein, constituted sufficient basis for sustaining the demand, interest and penalties imposed by way of the present proceedings.

11. Heard both sides and perused the records of the case.

12. We find that the dispute in these appeals emanates from the allegation of the Department that the appellant-company had indulged in clandestine manufacture and clearance of excisable goods/Sponge Iron without payment of the appropriate central excise duty and, in certain transactions, had resorted to under- invoicing/undervaluation by declaring a value lower than the alleged actual consideration, thereby occasioning evasion of duty. The case of the Revenue is founded principally upon certain computer- generated printouts and electronic data purportedly retrieved from the premises of M/s. Ghogar Ispat (P) Ltd. (GIPL), particularly Document No. 40/DGCEI/RRU/GIPL/O/08 coupled with the statements of persons associated with GIPL and a handwritten ledger allegedly recovered from the premises of M/s. Omkar Steel (P) Ltd. (OSPL). The appellants, on the other hand, have consistently disputed the allegations and have contended that the entire edifice of the demand rests upon third-party records which were neither maintained by nor recovered from them, and which have not been fortified by any independent or contemporaneous evidence emanating from the appellant-company itself. It is in this backdrop that we are required to examine whether the materials relied upon by the Department constitute a legally and factually sustainable foundation for fastening upon the appellants the substantial duty liability in question.

13. At the outset, we find it necessary to examine the very substratum upon which the impugned demand rests. A careful perusal of the Show Cause Notice as well as the impugned orders makes it abundantly clear that the principal documentary material relied upon by the Department comprises the printouts/electronic records allegedly maintained by GIPL and the handwritten ledger purportedly recovered from OSPL. Significantly, neither of these records emanates from the appellant-company, nor were the same recovered from its factory or office premises. A third-party record may undoubtedly constitute a relevant piece of evidence in an appropriate case, but where the entirety of the demand is sought to be founded upon entries made by a third party, the Department must necessarily demonstrate, by cogent and independent evidence, that the entries relied upon do in fact relate to the assessee, represent the transactions alleged by the Department and bear a credible nexus with the alleged clandestine manufacture or removal. A mere entry in a record maintained by another person, without more, cannot ipso facto be transmuted into proof of manufacture and clearance by the assessee.

13.1. Equally significant is the fact that the records of the appellant-company which were themselves examined by the Department do not furnish the requisite corroborative foundation for the allegations. As contended by the appellants, the sale register and the ledger maintained by them showed entries upon which duty had been discharged. There is no material brought to our notice evidencing any corresponding procurement by the appellant-company of excess quantities of raw materials commensurate with the alleged clandestine production. There is equally no other independent circumstance/evidence which could independently connect the third-party entries with actual unaccounted production and clearance by the appellant. The entire evidentiary chain, in substance, commences and terminates with the notings contained in the records of GIPL and OSPL, apart from certain statements recorded during the investigation.

13.2. We also find from the orders passed by authorities below that the same refer to certain vehicle/lorry numbers appearing in the printouts pertaining to GIPL. Yet, conspicuously, no statement of any transporter or driver has been relied upon to establish the physical movement of the alleged clandestine consignments. In a case where clandestine manufacture and removal is alleged, the physical movement of the alleged goods constitutes a material circumstance requiring satisfactory establishment, which the Revenue has failed to establish.

13.3. A similar view has been expressed by this Tribunal in the case of M/s. Dinabandhu Steel and Power Limited & Ors. Versus Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar [2024 (4) TMI 721 – CESTAT Kolkata]. The relevant portion of the said order reads thus: –

“9.1 Further, no evidence has been produced by the Revenue with regard to excess purchase and payment thereof. No evidence in the form of excess consumption of electricity was brought on record. Moreover, no payment for clandestine removal of the goods by illicit means has been brought on record. Mere documents recovered from the premises of a third party cannot be the basis to allege clandestine removal of goods. 9.2 Moreover, it has not been ascertained as to who was maintaining those documents and who had kept these documents in the premises of M/s. EFPL.”

13.4. Similarly, in M/s. Haldia Steels Limited (Unit-II) & Anr. Versus Commissioner of Central Goods and Services Tax, Birbhum [2026 (2) TMI 904 – CESTAT Kolkata], the demand raised on allegations of clandestine manufacture and clearance of Sponge based on certain private records, was set aside.

13.5. The position that consequently emerges is that the Department has sought to construct the entire demand upon records originating from third parties, while the necessary independent and corroborative evidence required to connect those records with actual clandestine manufacture and removal by the appellant-company is conspicuously absent. The entries in the records of GIPL and OSPL, shorn of independent corroboration, cannot by themselves establish the factum of clandestine manufacture and clearance by the appellant-company or any undervaluation / under-invoicing on their part. We are, therefore, of the considered view that the demand, insofar as it rests upon such uncorroborated third-party records, cannot be sustained in law. The impugned demand is, accordingly, found to be untenable and liable to be set aside on this count.

Evidentiary Admissibility of Computer- Generated Printouts under Section 36B

14. There is yet another, and equally fundamental, infirmity in the evidentiary foundation of the impugned demand. The principal electronic material relied upon by the Department consists of computer- generated printouts purportedly obtained from the electronic devices viz. computers and pen drives, retrieved from the premises of GIPL. Such electronic records, when sought to be relied upon as evidence in adjudication under the Central Excise Act, were required to satisfy the statutory safeguards engrafted in Section 36B of the Act. The said provision does not treat every computer-generated printout as possessing automatic evidentiary sanctity; rather, it prescribes specific conditions governing the admissibility of information contained in an electronic record, including the manner in which the information was produced, the device from which it was produced and the fulfilment of the statutory conditions stipulated therein. The relevant Section is reproduced hereunder: –

“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.”

14.1. In the present case, however, we do not find on record any certificate contemplated under Section 36B(4) identifying the electronic record relied upon, setting out the manner of its production and the particulars of the computer or device involved, and certifying compliance with the conditions prescribed under Section 36B(2) of the Act. The absence of such statutory certification assumes significance when the very authenticity and evidentiary worth of the electronic material constitute the foundation of the demand.

14.2. The Revenue cannot rely upon the statement of Shri Rajesh Kumar Mishra, Accountant of GIPL, to endorse that the printouts had been taken in his presence. Such an assertion does not answer the requirements of Section 36B(4). More importantly, the statement of Shri Mishra itself does not establish that he was the author or custodian of the contents reflected in the electronic records. On the contrary, as emerges from his own statement, he was making entries on the instructions of the Director of GIPL. The mere presence of a person at the time when a printout is generated cannot, by any process of legal reasoning, be equated with a statutory certification of the authenticity, manner of production and integrity of the electronic record. The distinction between witnessing the taking of a printout and certifying the conditions statutorily prescribed for admitting the electronic record in evidence is crucial.

14.3. Further, the Show Cause Notice does not disclose the manner in which the pen drives were sealed, preserved, stored or otherwise kept in safe custody during the intervening period. In a case where the electronic material itself constitutes the principal evidentiary foundation for a substantial duty demand, the integrity of the electronic record and the chain by which it came to be accessed and reduced into printouts cannot be left to assumption. The absence of any satisfactory account of the custody and preservation of the device during the intervening period further detracts from the evidentiary weight sought to be attached to the printouts.

14.4. We also find no merit in the reliance placed by the learned Commissioner (Appeals) upon Section 36A of the Act for sustaining the evidentiary value of the material in question. The above section operates, subject to its terms, against the person who produces the document or from whose custody such document is seized, and against a person tried jointly with such person. In the present case, the electronic records were neither produced by the appellants nor seized from their custody. The foundational circumstance necessary for invoking such a statutory presumption against the present appellants is, therefore, conspicuously absent.

14.5. The issue as to whether, without obtaining a certificate under Section 36B of the Central Excise Act, print-outs generated from personal computers or pen drives could be admitted as evidence came up for consideration 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], wherein the following has been observed: –

“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:

….

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.

.

.

.

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.”

14.6. The above position has also been maintained in the case of M/s. Amiya Steel Pvt. Ltd. & Ors. Versus Commissioner of CGST & Central Excise, Bolpur [2025 (11) TMI 1692 – CESTAT Kolkata], wherein the Tribunal held that non-certified computer printouts taken from third party computers cannot be used as evidence by the Revenue.

14.7. In the facts before us, therefore, the electronic printouts relied upon by the Department suffer from non-compliance with the statutory safeguards governing their admissibility, while the handwritten ledger relied upon in relation to OSPL suffers from the foundational defect of unproved authorship. These deficiencies assume particular significance in the present case because neither document is merely corroborative of an otherwise independently established clandestine transaction; rather, they constitute the very foundation upon which the allegations against the appellant-company have been constructed. Once the admissibility, provenance and authorship of such foundational material remain unestablished, the edifice sought to be erected upon the same cannot be sustained merely by resort to inference or presumption. The impugned demand, to that extent, is therefore rendered legally and evidentially unsustainable.

Evidentiary Value of Statements not Tested in Terms of Section 9D

15. We also find that the Department’s case is sought to be further fortified by placing reliance upon certain statements of the Director and employees of GIPL, on the premise that such statements provide the requisite linkage between the appellants and the alleged clandestine clearances. We are, however, unable to discern from the statements relied upon any direct or unequivocal incrimination of the appellants. The impugned order merely records, in substance, that the concerned persons had admitted to clandestine manufacture on the part of the appellant- company, being one of the suppliers to GIPL. However, upon a careful scrutiny of the material placed before us, such purported admission does not emerge in any clear, categorical or otherwise unimpeachable form. More importantly, the statements of the said persons could not have been treated as substantive evidence without compliance with the statutory discipline engrafted in Section 9D of the Central Excise Act, 1944. In the present case, none of the deponents were examined before the adjudicating authority in terms of Section 9D(1)(b). In particular, we take note of the submission made by the appellants that their request for cross- examination, specifically made in their reply to the show cause notice, was not considered by the adjudicating authority and, significantly, the said request was reiterated before the Ld. Commissioner (Appeals), yet remained unaddressed. In the absence of compliance of Section 9D of the Act, the said statements cannot be regarded as reliable evidence against the appellants.

15.1. In this regard, it would be pertinent to refer to the decision rendered by the Tribunal at Chennai in the case of M/s. Geetham Steels Pvt. Ltd. v. Commissioner of G.S.T. and Central Excise, Salem [2025 (3) TMI 1098 – CESTAT, Chennai], wherein it has been held as follows: –

“57. If we notice the provisions of Section 9D, what flows from it is that 9D(1) stipulates when a statement given under section 14 would be relevant for the purpose of proving, “in any prosecution for an offence”, the truth of the facts which it contains and provides for various scenarios in the sub- sections thereto at (a) and (b). It is only when the Department first adduces evidence in the proceedings before the adjudicating authority, of the existence of the aforementioned scenarios in section 9D(1)(a) that the deponent’s statement is taken as a substantive piece of evidence, without the deponent deposing thereto before the adjudicating authority. That would still not obviate the requirement of the Gazetted officer before whom the statement was given, deposing the factum of such statement having been recorded from the deponent which is the method or manner of proving the recording of the statement, which statement under section 14 is already considered relevant for the purpose of proving the truth of the fact it contains- that is to say, the said deposition of the Gazetted Officer stating that the deponent had indeed given the statement before him, would be the manner of admitting or mode of proof of the admissible substantive evidence.

58. Again, 9D (1)(b) provides for the deponent’s statement given before the Gazetted Officer to be admitted as substantive evidence, when the person who made the statement is examined as a witness in the case before the adjudicating authority and the adjudicating authority is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. This sub section (b) of Section 9D(1) takes care of a situation where the witness who is deposing before the adjudicating authority turns hostile and on an evaluation of the circumstances of the case the adjudicating authority decides to discard the version given by the witness before it and instead place reliance on the earlier statement given before the Gazetted Officer. As elucidated supra, this also applies in a case where the witness deposing stands by his earlier statement and is thereafter offered for cross-examination to the opposite side and in case of minor inconsistencies/no inconsistency, if the adjudicating authority is of the opinion, having regard to the circumstances of the case that the statement should be admitted in evidernce in the interests of justice, the adjudicating authority can do so as per this Section 9D (1)(b).

59. However, implicit in this procedure stipulated in 9D(1)(b) is the necessary requirement for the adjudicating authority to depose all the deponents who have given statement under Section 14, save as those that are unavailable in the scenarios given in 9D(1)(a), for the purposes of evaluating whether the statements are voluntary, to attest that he had deposed the contents of the statement and then take a considered decision whether the truth of the facts contained in the statement stand proved or disproved in the facts and circumstances of the case. In other words, it is only after such examination in chief, that the adjudicating authority can arrive at a considered decision, whether to declare the witness appearing before it as a hostile witness and then to decide in the facts and circumstances whether to rely on the earlier statement; or if upon finding major inconsistencies between his earlier deposition and in the contradictions brought about in cross- examination, to not rely on the earlier statement; or if it is only minor discrepancies as that which does not majorly disturb the essential truth of his deposition, to rely upon it, if in the circumstances of the case, the adjudicating deems it fit in the interest of justice.”

[Emphasis supplied]

15.2. There is, thereafter, the statement of appellant No. 2, namely, Shri Mahesh Khaitan, which has been characterised by the adjudicating authority as containing “evasive replies”. We find such characterisation to be unsupported by the tenor of the statement itself. We find that the appellant no. 2 consistently stated, in substance, that the sales were effected through a broker upon payment of applicable duty and that he was not in a position to comment upon the entries contained in the records of GIPL. Such a response, by itself, cannot legitimately be transmuted into an admission merely because the person questioned was unable to furnish an explanation regarding records maintained by an independent third party. More fundamentally, a statement of inability to recollect, an expression of want of knowledge, or a refusal to speculate upon the contents of records maintained by another entity cannot, in law, be equated to an admission of the underlying transaction.

15.3. In view of the above, we find that the statements relied upon by the Revenue fail to provide the missing corroborative link between the third-party records of GIPL/OSPL and the alleged clandestine manufacture and clearance by the appellant-company. Further, the same are non- compliant with Section 9D ibid. and were never subjected to the statutory process of examination contemplated thereunder. Thus, the statements, when tested against the statutory safeguards and the evidentiary deficiencies noticed hereinabove, fail to advance the case of the Revenue.

16. We have also considered the contentions in respect of the transactions allegedly emerging from the investigation undertaken at the end of OSPL. The demand founded upon the OSPL records rests, in material part, upon pages of a handwritten ledger, as seen from the Show Cause Notice. Significantly, the author of the said handwritten entry has neither been identified nor examined. There is consequently no evidence before us as to who made the entries, in what circumstances they were made, from what source the information was derived, or whether the person making such entries possessed any personal knowledge of the transactions allegedly recorded therein. The very authorship and provenance of the document remain unproved. A handwritten document of unknown authorship, standing by itself, cannot be elevated to the status of substantive evidence against an assessee merely because it was recovered during the course of an investigation. The recovery of a document establishes, without proof of authorship, does not establish the truth of the contents recorded therein, much less the identity of the person to whom the transactions relate. This Tribunal has, in the cases of M/s. Dinabandhu Steel and Power Limited & Ors. v. Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar [2024 (4) TMI 721 – CESTAT Kolkata], and M/s. Sai Sponge (India) Limited & Ors. v. Principal Commissioner of Central Goods & Service Tax, Ranchi [2025 (10) TMI 965 – CESTAT Kolkata], examined the evidentiary worth of such unproved third-party handwritten records and emphasised the necessity of establishing their authorship and evidentiary nexus before they can be relied upon to fasten a duty liability.

17. It must also be noted that in cases alleging clandestine manufacture and removal of excisable goods, the charge is necessarily of a serious nature and cannot rest upon isolated entries, presumptions or an inferential chain whose essential links remain unproved. The evidentiary parameters ordinarily attending such an allegation are well recognised. Apart from the identification of the alleged clandestine clearances from contemporaneous records, there ought to be some tangible material indicative of corresponding excess production, with reference to the installed manufacturing capacity of the assessee and the consumption of principal raw materials, electricity or other manufacturing inputs; evidence regarding the physical movement of the alleged goods through identifiable transporters, vehicles, brokers or other intermediaries; and material demonstrating the receipt of consideration outside the books of account, including, where alleged, a discernible flow-back of unaccounted funds. These circumstances, taken cumulatively, could provide the basis against which the veracity of private records or third-party entries could be tested. It is for this reason that clandestine removal cannot be presumed merely from the existence of note-books, private records or computer- generated printouts recovered from third parties, unless the entries contained therein are fortified by independent and tangible evidence establishing that the corresponding manufacture actually took place and that the goods were thereafter removed without payment of duty. The principle has, inter alia, been recognised by this Tribunal in Arya Fibres Pvt. Ltd. v. Commissioner of Central Excise, Ahmedabad-II [2014 (311) E.L.T. 529 (Tri.-Ahmd.)].

18. Upon a cumulative appreciation of the entire evidentiary material, therefore, we find that the allegation of clandestine manufacture and clearance has not been substantiated by the respondent by means of cogent and mutually corroborative evidence, the essential ingredients of the alleged clandestine activity.

19. Similarly, in view of the observations made hereinabove, the allegation of under-invoicing or undervaluation, which constitutes the other limb of the demand, also fails to withstand judicial scrutiny. The very foundation on which the demand rests is primarily based upon the third-party computer printouts, the admissibility and evidentiary worth of which have already been found by us to be seriously compromised, inter alia, by the absence of the statutory certificate contemplated under Section 36B of the Central Excise Act, 1944. Once the underlying electronic material itself is found incapable of constituting reliable substantive evidence, the differential allegedly emerging therefrom cannot, without more, be elevated into proof of receipt of additional consideration by the appellant.

19.1. More importantly, there is no independent evidence whatsoever to demonstrate that any amount in excess of the invoice value was actually paid by GIPL to appellant No. 1. The burden remained upon the Department to establish, by positive and cogent evidence, both the existence of consideration over and above the invoice value and its nexus with the appellant. Neither has been demonstrated on the present record. The Department has, however, sought to displace the declared transaction value not by reference to any independent evidence emanating from the appellant, but by preferring an unexplained third-party notation over the invoice value and treating the resulting differential as suppressed consideration. Such an approach would effectively reverse the evidentiary burden and require the appellant to disprove a transaction value which the Department itself has not first displaced through reliable and affirmative evidence. The statutory demand cannot be sustained upon such an inferential edifice. Consequently, the allegation of under-invoicing/undervaluation, like the allegation of clandestine manufacture and clearance, remains founded upon uncorroborated third-party material and successive assumptions rather than positive evidence. We, therefore, find that the demand attributable to the alleged under-invoicing / undervaluation is equally unsustainable and is liable to be set aside.

20. In view of the foregoing discussion, we observe that neither of the two principal allegations forming the foundation of the proceedings has been established, but are based on assumptions or presumptions. Consequently, the demand of Central Excise duty amounting to Rs.17,60,744/- confirmed against appellant No. 1 under Section 11A(1) of the Central Excise Act, 1944, together with the consequential demand of interest under Section 11AB of the said Act, cannot be sustained and is liable to be set aside. Accordingly, the same stands set aside.

20.1. The penalty imposed upon the appellant No. 1 under Section 11AC of the Central Excise Act, 1944, is equally unsustainable. The said penal provision is consequential upon the establishment of the duty liability accompanied by the requisite statutory ingredients warranting its invocation. In the present case, the principal allegations of clandestine manufacture and removal and under-invoicing/undervaluation have themselves failed for want of positive and cogent evidence. There is, consequently, no surviving foundation upon which the allegation of suppression of facts, wilful misstatement, fraud or any other contumacious conduct contemplated for imposition of penalty under Section 11AC can be sustained. Accordingly, we drop the penalty imposed on the appellant-company under Section 11AC of the Act.

20.2. As regards Shri Mahesh Khaitan / appellant no. 2, the penalty imposed upon him under Rule 26 of the Central Excise Rules, 2002, is also found to be unwarranted. No specific role in the alleged clandestine manufacture, removal or under-invoicing has been attributed to him by any reliable and legally sustainable evidence. He has not admitted the allegations, nor has the Department established that he dealt with, transported, removed, concealed, sold or otherwise handled any excisable goods with the knowledge or belief that the same were liable to confiscation. The mere fact that he was a Director of the appellant-company cannot, in the absence of evidence establishing his conscious and specific involvement in the alleged transactions, furnish an independent foundation for penalty under Rule 26. Since the principal allegations themselves have not been established and no material has been brought on record demonstrating the requisite role or mens rea on the part of appellant no. 2, the penalty imposed upon him also stands dropped.

21. In the result, the impugned Order-in-Appeal No. 16-17/CE/RKL-GST/2017 dated 26.10.2017, upholding Order-in-Original No. 70/Addl. Commr/CEX/RKL/2015-16 dated 29.02.2016, is set aside.

22. The appeals are allowed, with consequential relief, if any, in accordance with law.

(Order pronounced in the open court on 15.10.2026)