Clandestine Removal Cannot Be Established Through Uncorroborated Records: CESTAT Kolkata

By CA Sandeep Kanoi Excise Duty Judiciary November 5, 2026

Steelex Electrocast Private Limited Vs Commissioner of CGST (CESTAT Kolkata)

Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, allowed the appeal filed by M/s Steelex Electrocast Private Limited against the Commissioner of Central Goods and Service Tax, Bolpur, setting aside a Central Excise duty demand of ₹4,62,01,119, along with applicable interest and an equal penalty. The appellant was engaged in manufacturing M.S. billets falling under Chapter 72 of the Central Excise Tariff Act, 1985. The Directorate General of Central Excise Intelligence (DGCEI), Kolkata, alleged that the company had clandestinely manufactured and removed M.S. billets without payment of duty during April to June 2014 and from 25 July to 1 August 2014. Following searches at the appellant’s factory, directors’ residences and connected premises, the Department recovered brokerage sheets, private notebooks and other documents. Relying upon these records, statements recorded during investigation and alleged discrepancies in electricity consumption, the Department issued a show cause notice dated 11 October 2017. After an earlier adjudication was remanded by the Calcutta High Court, the Commissioner passed a de novo order dated 7 February 2020 confirming the demand under Section 11A(4) of the Central Excise Act, 1944, interest under Section 11AA and penalty under Section 11AC. The appellant challenged the order before the Tribunal, contending that the allegations were based on assumptions, disputed documents and statements lacking statutory admissibility.

The Tribunal first examined whether statements recorded under Section 14 of the Central Excise Act, 1944 could be relied upon without complying with the mandatory requirements of Section 9D. The Department had relied extensively on statements of the appellant’s directors, Shri Joydeb Karmakar, the director of SBIW Steels Private Limited and a transporter. The Tribunal held that Section 9D prescribed a mandatory procedure for admitting such statements as substantive evidence. Except in specified exceptional circumstances under Section 9D(1)(a), the person making the statement must be examined before the adjudicating authority, which must thereafter determine whether the statement should be admitted in the interests of justice. However, none of the witnesses had been examined before the adjudicating authority, no reasoned finding invoking the statutory exceptions had been recorded, and the appellant’s request for cross-examination had been denied. The Tribunal also rejected the Department’s interpretation of the directors’ inability to explain certain entries as an admission of clandestine removal. It observed that Shri Anil Kumar Agarwal had not been shown invoices relating to all customers, while Shri Sunil Agarwal had been questioned about private records nearly three years after their seizure. Similarly, the transporter had merely confirmed providing transportation services without admitting that any goods had been transported without invoices. Relying upon the principles laid down in G-Tech Industries v. Union of India, 2016 (339) ELT 209 (P&H), the Tribunal held that statements relied upon without compliance with Section 9D could not establish the truth of the allegations.

The Tribunal next considered the evidentiary value of the seized brokerage sheets, notebooks and comparison charts under Section 36B of the Central Excise Act, 1944. The Department had relied on Seized Document No. 01/SEPL/Resi/KOL/14, recovered from the residence of director Shri Sunil Agarwal, and notebooks allegedly maintained by Shri Joydeb Karmakar. The Tribunal observed that Section 36B prescribed mandatory safeguards governing the admissibility of computer-generated records, including compliance with conditions relating to the regular use and proper functioning of computer systems and certification under Section 36B(4). The Revenue had failed to produce the requisite certificate or establish the statutory conditions governing the computer-derived materials relied upon. The Tribunal further noted that the Department’s comparison of seized entries with Central Excise invoices was incomplete and selective. The appellant had furnished a detailed reconciliation showing that the entries corresponded to duty-paid sales made to SBIW Steels, Surya Alloys, Adhunik Industries and other purchasers. However, the adjudicating authority rejected the reconciliation without recording cogent reasons. The Tribunal held that entries could not automatically be treated as unaccounted clearances merely because they did not match invoices issued to one particular purchaser. Consequently, the seized records and comparison charts did not provide a reliable evidentiary foundation for confirming the demand.

On the substantive allegation of clandestine manufacture and removal of M.S. billets, the Tribunal held that the Department had failed to establish the essential elements through independent and corroborative evidence. No reliable evidence had been produced regarding procurement of excess raw materials, unrecorded production, shortages of finished goods, additional transportation, undisclosed sale proceeds or unaccounted financial transactions. There was no satisfactory verification of the alleged purchaser’s books of account or categorical confirmation that goods had been received without payment of excise duty. The Tribunal also rejected reliance on electricity consumption discrepancies as independent proof of clandestine manufacture, observing that such data could at best serve as corroborative material when supported by other substantive evidence. It further considered the connected proceedings involving SBIW Steels Private Limited, in which the evidentiary reliability of statements and records attributed to Shri Joydeb Karmakar had already been examined. The Tribunal found that the Department could not sustain the present demand by relying on substantially the same disputed materials without independent corroboration. It emphasised that serious allegations involving substantial duty demands and penal consequences must be established through cogent and legally admissible evidence rather than suspicion, conjecture, selective comparisons or unsupported presumptions.

After considering the statutory provisions, documentary records, witness statements and connected judicial decisions, the Tribunal concluded that the Revenue had failed to establish clandestine manufacture and clearance of M.S. billets by Steelex Electrocast Private Limited. The statements recorded during investigation were not admissible for proving their contents because the mandatory procedure under Section 9D had not been followed, while the computer-derived materials relied upon by the Department did not satisfy the statutory requirements of Section 36B. The remaining allegations were unsupported by independent evidence of excess production, unaccounted procurement, clandestine transportation or receipt of undisclosed consideration. The Tribunal therefore held that the duty demand confirmed by the adjudicating authority was legally unsustainable. Consequently, it set aside the Central Excise duty demand of ₹4,62,01,119, together with applicable interest and the equal penalty imposed under Section 11AC. Since the substantive demand itself failed, the allegations supporting penal liability could not survive. The Tribunal clarified that its decision concerned the appeal of the appellant-company and did not determine any separate appeals filed by its directors. Accordingly, by Final Order No. 75746/2026 dated 23 June 2026, the CESTAT Kolkata allowed the appeal with consequential relief, if any, in accordance with law.

Cases Discussed

G-Tech Industries v. Union of India — 2016 (339) ELT 209 (P&H)
CCE v. Parmarth Iron Pvt. Ltd. — 2010 (260) ELT 514 (Allahabad)
CC v. Bussa Overseas Properties Ltd. — 2007 (216) ELT 659 (SC)
Amiya Steel Pvt. Ltd. v. Commissioner of CGST & Central Excise, Bolpur — Final Order Nos. 77751–77753/2025
Ramgarh Sponge Iron Pvt. Ltd. v. Principal Commissioner, CGST & CX, Ranchi — 2024 (9) TMI 1844 (CESTAT Kolkata)
Hi-Tech Abrasives Ltd. v. Commissioner of Central Excise & Customs, Raipur — 2018 (362) ELT 961 (Chhattisgarh)
Continental Cement Company v. Union of India — 2014 (309) ELT 411 (Allahabad)
SBIW Steels Pvt. Ltd. & Anr. v. Commissioner of GST & Central Excise, Durgapur — Final Order Nos. 75642–75643/2026

FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER

The present Appeal has been preferred by M/s. Steelex Electrocast Private Limited, Plot No. 1472H, Mouza – Kadasole, Ghutgoria, JL. No. 22, Barjora, Bhadul, Bankura – 722 167, West Bengal, [hereinafter referred to as the “appellant”] against Order-in- Original No. 38/COMMR/BOL/19-20 dated 07.02.2020 passed by the Ld. Commissioner of Central Goods and Service Tax, Bolpur, whereby central excise duty amounting to Rs.4,62,01,119/- (inclusive of Education Cess and Secondary & Higher Education Cess) was confirmed against the appellant under the provisions of Section 11A(4) of the Central Excise Act, 1944 along with applicable interest under Section 11AA and equal penalty under Section 11AC of the said Act.

1.1. The present appeal pertains to the aforesaid demand of duty, interest and penalty fastened upon the appellant-company vide the impugned order.

2. Briefly stated, the facts of the case are that the appellant is engaged in the manufacture of M.S. Billets falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985 and is duly registered with the Central Excise Department. The appellant is duly registered under the Central Excise Act, 1944 bearing Registration No. AAICS9875NXM001. The appellant has been a regular assessee, maintaining statutory records including the Daily Stock Account, issuing Central Excise Invoices in the prescribed manner and filing periodic returns.

2.1 Intelligence was developed by the officers of the Directorate General of Central Excise Intelligence (DGCEI), Kolkata Zonal Unit, alleging that the appellant had indulged in clandestine manufacture and clearance of M.S. Billets without payment of Central Excise duty. In furtherance thereof, simultaneous search operations were conducted at various premises connected with the appellant, namely: –

(i) The factory and office premises of the appellant at Barjora, Bankura;

(ii) The residential premises of the Shri Sunil Agarwal, Director of the appellant-company, at 92/93, Nalini Ranjan Avenue, Flat No. 24N, New Alipore, Block-B, Kolkata-700053;

(iii) The factory, office and other related premises of M/s. SBIW Steels Private Limited (hereinafter “SBIW”) at Ghutgoria, Barjora, Bankura;

(iv) The residential premises of one Shri Joydeb Karmakar.

2.2 During the course of investigation, certain documents and records, including a set of brokerage sheets marked as Seized Document No. 01/SEPL/Resi/KOL/14, were resumed from the residential premises of Shri Sunil Agarwal, one of the Directors of the appellant-company. Certain notebooks allegedly maintained by Shri Joydeb Karmakar, marked as Seizure List No. 02/SBIWRes/Joydeb/14, and other records were also resumed during investigation.

2.3 Statements of various persons, including Shri Anil Kumar Agarwal, Director of the appellant-company, Shri Sunil Agarwal, Director of the appellant- company, Smt. Shikha Agarwal, Shri Joydeb Karmakar, Shri Rajesh Kumar Goel, Director of M/s. SBIW Steel Pvt. Ltd., and Shri Durga Shankar Dubey, transporter, were recorded under Section 14 of the Central Excise Act, 1944.

2.4 On the basis of the aforesaid documents and statements, the Department entertained a view that the appellant had clandestinely manufactured and removed M.S. Billets without payment of duty. It was alleged that certain entries appearing in the resumed documents represented unaccounted clearances effected by the appellant, particularly to M/s. SBIW Steel Pvt. Ltd., and that the same were not reflected in the statutory records maintained by the appellant.

2.5 Consequently, a Show Cause Notice No. 117/KZU/KOL/Gr.D/14 dated 11.10.2017 came to be issued proposing, inter alia, recovery of Central Excise duty amounting to Rs.4,62,01,119/- under Section 11A(10) of the Central Excise Act, 1944 from the appellant-company, along with interest under Section 11AA and imposition of penalty under Section 11AC of the Act thereon on the allegation of clandestine removal of M.S. Billets during the period April 2014 to June 2014 and 25.07.2014 to 01.08.2014.

2.6. Initially, the matter was adjudicated ex parte vide Order-in-Original dated 29.03.2019 confirming the impugned demands. Against the said order, the appellant filed a Writ Petition before the Hon’ble High Court at Calcutta being W.P. 10188(W) of 2019.

2.7. On the ground that the relied upon and non- relied upon documents were not handed over to the appellant before the first adjudication, the matter was remanded to the adjudicating authority by the Hon’ble Calcutta High Court for fresh adjudication de novo.

3. Upon de novo adjudication, the appellant contested the allegations in toto and filed detailed replies to the Show Cause Notice. It was, inter alia, contended that the entire case of the Department was founded upon assumptions and presumptions and rested principally upon statements recorded during

investigation and certain private documents and notebooks, whose evidentiary value was seriously disputed and not free from doubt. The appellant further submitted a detailed reconciliation statement wherein each entry in Seized Document No. 01 was co-related with the corresponding Central Excise Invoice.

3.1. The matter was adjudicated vide the impugned order dated 07.02.2020 wherein the Ld. Commissioner of Central Goods and Service Tax, Bolpur, rejected the contentions advanced by the appellant and inter alia proceeded to confirm the demand of central excise duty amounting to Rs.4,62,01,119/- (inclusive of Education Cess and Secondary & Higher Education Cess) under Section 11A(4) of the Central Excise Act, 1944 against the appellant-company, along with interest, and imposition of penalty under Section 11AC of the Act thereon. While confirming the above demand, the ld. adjudicating authority heavily relied upon: (a) the statements of the Directors of the appellant-company; (b) the statement of the Director of M/s. SBIW Steel Pvt. Ltd; (c) the notebooks seized from the residence of Shri Joydeb Karmakar marked as Seizure List No. 02/SBIWRes/Joydeb/14; (d) the documents marked as Seized Document No. 01/SEPL/Resi/KOL/14; and (e) an alleged disparity in electricity consumption.

3.2. Aggrieved by the aforesaid Order-in-Original, the appellant has preferred the instant appeal.

4. During the course of hearing, the Ld. Counsel appearing on behalf of the appellant has made various submissions in support of his contentions, which can inter alia be summarized as follows: –

I. THE ADJUDICATING AUTHORITY COMMITTED A FUNDAMENTAL LEGAL ERROR BY RELYING ON STATEMENTS RECORDED UNDER SECTION 14 WITHOUT COMPLIANCE WITH THE MANDATORY PROCEDURE OF SECTION 9D OF THE CENTRAL EXCISE ACT, 1944

(i) Section 9D of the Central Excise Act which applies to adjudication proceedings by virtue of Section 9D (2) prescribes a carefully designed procedure governing the admissibility of statements recorded under Section 14 during investigation. Under Section 9D(1)(a), a statement made before a Gazetted Central Excise Officer is directly relevant as evidence if the person who made it (i) is dead; (ii) cannot be found; (iii) is incapable of giving evidence; (iv) has been kept out of the way by the adverse party; or (v) cannot be produced without unreasonable delay or expense. The adjudicating authority must pass a reasoned and speaking order invoking one of these grounds. Any such order is amenable to challenge by the assessee.

(ii) Under Section 9D(1)(b), in all other cases i.e., where none of the above conditions exist the following two sequential steps are mandatory before the statement can be admitted as evidence: (i) the person who made the statement must first be examined as a witness before the adjudicating authority (examination-in-chief); and (ii) the adjudicating authority must thereafter form an opinion that, having regard to the circumstances, the statement should be admitted in the interests of justice.

(iii) The word ‘shall’ in Section 9D(1) makes this procedure mandatory, not directory. The legislative rationale is cogent: statements recorded during investigation by revenue officers can be the product of coercion, compulsion or inducement. Examination before the adjudicating authority, followed by cross- examination by the noticee, provides the only reliable safeguard against reliance on tainted, involuntary or false statements.

(iv) The impugned order relies heavily upon the following statements all recorded under Section 14 of the Act during investigation:

Statement of Shri Anil Kumar Agarwal, Director of SEPL, dated 24.04.2015;
Statement of Shri Sunil Agarwal, Director of SEPL, dated 29.05.2017 and 23.05.2017;
Statement of Smt. Shikha Agarwal, wife of Shri Sunil Agarwal, dated 31.08.2017;
Statement of Shri Joydeb Karmakar, dated 14.09.2014 and 20.10.2014;
Statement of Shri Rajesh Kumar Goel, Director of SBIW, dated 15.02.2016;
Statement of Shri Durga Shankar Dubey, transporter.

(v) The Adjudicating Authority has directly relied upon these statements as substantive evidence to confirm the demand. This reliance is wholly illegal for the following reasons as: – not a single deponent whose statement has been relied upon was produced before the Adjudicating Authority and examined as a witness. The Adjudicating Authority never conducted any examination-in-chief of any of the above persons.

(vi) No finding has been recorded in the Impugned Order that any of the above persons were unavailable under any of the grounds specified in Section 9D(1)(a) — i.e., dead, untraceable, incapacitated, kept away by the Appellant, or producible only at unreasonable expense.

(vii) The Appellant was never offered an opportunity to cross-examine any of the deponents, which is a fundamental and non-derogable requirement of natural justice. The directors’ request for cross-examination was not granted.

(viii) No formal order was passed under Section 9D(1)(a) or (b) admitting any statement into evidence, as mandatorily required before reliance can be placed on the statement.

(ix) A careful reading of the Directors’ statements reveals that the Adjudicating Authority has drawn wholly impermissible inferences. The Impugned Order characterises the Directors’ silence ‘I cannot comment’ as an admission of clandestine removal. This is legally untenable for the following reasons:

a. When the Director Shri Anil Agarwal was confronted with entries in Seized Document No. 01 during his statement dated 24.04.2015, only the invoices issued to SBIW were shown to him. The Central Excise Invoices issued to other parties Surya Alloys, Adhunik Industries and dozens of other customers were never placed before him. No human being can spontaneously identify individual invoice numbers without seeing them. His inability to identify specific invoices at that moment was not a concession of clandestine removal.

b. During the hearing before the Adjudicating Authority, the Appellant submitted a comprehensive reconciliation statement correlating each entry in Seized Document No. 01 with the corresponding Central Excise Invoice. The Adjudicating Authority rejected this reconciliation without recording any reason a serious infirmity going to the root of the order.

c. Silence or inability to comment during an investigation particularly when the full set of invoices is not shown to the deponent cannot be equated with an admission. Silence does not amount to confessional evidence of duty evasion.

d. In any event, even if the statements were to be considered, they required compliance with Section 9D before they could be used as evidence. As demonstrated above, this compliance was not undertaken.

(x) The settled legal position, repeatedly affirmed by the High Courts and this Tribunal, is that non-compliance with Section 9D renders the statements completely devoid of evidentiary value for proving the truth of their contents. The Adjudicating Authority’s reliance on these statements amounts to reliance on irrelevant material, vitiating the order in its entirety. Reference in this regard is invited to the following decisions:

G-Tech Industries v. Union of India, 2016 (339) ELT 209 (P&H)
M/s. Amiya Steel Pvt. Ltd. vs. Commissioner of CGST & Central Excise, Bolpur [Final Order No.77751-77753/2025 (Tri. – Kol.)]
M/s. Jai Balaji Industries Limited (Unit-III) vs. Commissioner of CGST & CX, Bolpur Commissionerate [Final Order No. 75583- 75585/2020 (Tri. – Kol.)]
M/s. Ramgarh Sponge Iron Private Limited & Oth. vs. Principal Commissioner, C.G.S.T. & C.X., Ranchi. [2024 (9) TMI 1844 – (Tri. – Kol.)]
M/s Hi Tech Abrasives Limited vs. The Commissioner, Central Excise And Customs Raipur [2018 (362) E.L.T. 961 (C.G. High Court)]

II. THE SEIZED DOCUMENTS, NOTEBOOKS AND ANY COMPUTER-DERIVED EVIDENCE DO NOT SATISFY THE MANDATORY CONDITIONS OF SECTION 36B OF THE CENTRAL EXCISE ACT AND ARE ACCORDINGLY INADMISSIBLE

(i) Section 36B of the Central Excise Act (which is pari materia with Section 65B of the Indian Evidence Act, 1872) prescribes a mandatory procedural framework for admission of computer printouts, microfilms, facsimile copies and electronically stored data as evidence. The following conditions under Section 36B(2) must all be cumulatively satisfied:

(a) The computer printout was produced by the computer during the period over which it was regularly used to store or process information for the purposes of activities regularly carried on by the person having lawful control over the computer;

(b) During such period, information of the kind contained in the printout was regularly supplied to the computer in the ordinary course of such activities;

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

(ii) In addition, Section 36B(4) requires the issuance of a certificate by a person occupying a responsible official position in relation to the operation of the computer, identifying the record, describing the manner in which it was produced, furnishing particulars of the device, and certifying compliance with Section 36B(2). This certificate must accompany the electronic record.

(iii) The impugned order relies upon the following documents, which are essentially paper outputs derived from records alleged to have been maintained electronically, or are physical documents whose contents have been typed/processed:

Seized Document No. 01/SEPL/Resi/KOL/14 — brokerage sheets found at the Director’s residence;
Karmakar Notebooks (02/SBIWRes/Joydeb/14) — notebooks allegedly maintained by Shri Karmakar recording loading/unloading at SBIW;
Various comparison charts prepared by the DGCEI by cross-referencing entries in these documents.

(iv) The Revenue has failed entirely to establish the mandatory conditions under Section 36B(2). No certificate under Section 36B(4) has been obtained from any person occupying a responsible official position in relation to any computer or device that allegedly generated these records. There is no proof that the entries were produced by a computer that was used regularly for the relevant business activity in the ordinary course, or that the information was regularly fed into it, or that the computer was functioning properly, or that the output faithfully reproduces the input. In the complete absence of these mandatory safeguards, the documents are inadmissible as evidence. Reference in this regard is invited to the following decisions:

M/s. Amiya Steel Pvt. Ltd. vs. Commissioner of CGST & Central Excise, Bolpur [Final Order No.77751-77753/2025 (Tri. – Kol.)]
M/s. Jai Balaji Industries Limited (Unit-III) vs. Commissioner of CGST & CX, Bolpur Commissionerate [Final Order No. 75583- 75585/2020 (Tri. – Kol.)]
M/s. Ramgarh Sponge Iron Private Limited & Oth. vs. Principal Commissioner, C.G.S.T. & C.X., Ranchi. [2024 (9) TMI 1844 – (Tri. – Kol.)]
M/s. MSP Sponge Iron Limited vs. Commissioner of CGST, C. EX & Customs, Rourkela Commissionerate [2020 (3) TMI 15 – (Tri. – Kol.)]
Ambica Organics vs. Commissioner of C.EX. & Cus., Surat-I [2016 (334) E.L.T. 97 (Tri – Ahmd.)]

(v) Independently of Section 36B, the Seized Document No. 01 has been characterised by the Appellant as un-reconciled, unsigned, unsettled and unconfirmed brokerage sheets. The Adjudicating Authority has given this document a meaning ‘secret sales records’ that is not supported by any independent evidence. The document is unsigned by any party, bears no acknowledgment of the alleged buyer/SBIW and was never presented to SBIW for confirmation. The Appellant’s explanation that these are unfinished brokerage reconciliation sheets, which is inherently plausible and has never been effectively demolished by the department, has been brushed aside without reason.

III. THE CORE CASE OF CLANDESTINE REMOVAL RESTS ON FLAWED METHODOLOGY: RELIANCE ON PARTIAL EVIDENCE WHILE IGNORING EXCULPATORY MATERIAL

(i) During the hearing, the Appellant submitted a detailed, document-based reconciliation statement demonstrating that each and every entry in Seized Document No. 01 corresponds to a legitimate excise-paid sale, covered by a Central Excise Invoice. This reconciliation covered sales made to all parties including M/s Surya Alloys Industries Ltd., M/s Adhunik Industries Ltd., M/s SBIW Steels Pvt. Ltd. and numerous other customers. The reconciliation demonstrates that the entries in the seized document are not mysterious unaccounted sales but merely the broker’s working list of all sales most of which were already covered by excise invoices.

(ii) The Adjudicating Authority has not rejected this reconciliation statement on any specific, fact- based or reasoned ground. The Impugned Order does not identify any entry in the reconciliation that fails to correspond to an invoice, nor does it explain why the reconciliation should not be accepted. The total non-engagement with this critical piece of exculpatory evidence is a serious infirmity and vitiates the Impugned Order.

(iii) The investigating authority compared certain entries in Seized Document No. 01 with only the Central Excise Invoices issued to SBIW. The entries in Seized Document No. 01 against dates and weights that did not match SBIW invoices were automatically treated as clandestine removals. However: –

Many of those ‘unmatched’ entries correspond to sales made by SEPL to other parties (Surya Alloys, Adhunik, etc.) covered by valid excise invoices, a fact the Appellant clearly demonstrated through its reconciliation statement.
The investigating authority never compared the entries in Seized Document No. 01 against the full universe of Central Excise Invoices issued by SEPL to all its customers.
This selective and truncated comparison makes the department’s analysis fundamentally unreliable and unsupported.
As a result of this flawed comparison, some excise-paid sales made to parties other than SBIW have been treated as clandestine removals and duty has effectively been demanded twice on the same transactions. This also constitutes a case of double taxation in respect of those entries, which cannot be permitted in law.

(iv) The Statement of transporter is not probative. The impugned order places reliance on the statement of one Shri Durga Shankar Dubey, a transporter, who confirmed that he transported certain consignments of the Appellant. This statement does not establish clandestine removal for the following reasons:

a. The transporter confirmed the fact of transportation service which is undisputed. SEPL was a manufacturer and regularly despatched goods to multiple customers using multiple vehicles.

b. The investigating authority showed the transporter a list of dates, vehicle numbers and weights and asked him to confirm. This is a leading and suggestive form of questioning that does not independently prove the content of the list.

c. The transporter was never asked whether he transported goods exclusively to SBIW or to other parties as well. Since the transporter served SEPL for all its deliveries, his confirmation of transportation services does not prove that any specific consignment went to SBIW without an excise invoice.

d. This statement too is inadmissible for failure to comply with Section 9D, as the transporter was not produced before the Adjudicating Authority and was never examined-in-chief or made available for cross-examination.

IV. THERE IS A COMPLETE ABSENCE OF CORROBORATIVE EVIDENCE ESSENTIAL TO ESTABLISH CLANDESTINE MANUFACTURE AND REMOVAL

(i) The charge of clandestine manufacture and removal is one of the most serious levelled under the Central Excise Act. The courts and Tribunals have consistently held that such a charge, carrying penal consequences, must be established by the Revenue through tangible, clinching and independent corroborative evidence, and cannot be based on surmise, conjecture, assumptions or presumptions. A mere allegation, even if supported by seized documents, is not sufficient if the other key parameters of clandestine removal have not been independently verified.

(ii) The investigating authority has not investigated any of the following essential aspects, the absence of which is fatal to the case of clandestine removal:

– No Evidence of Excess Raw Material Procurement – For SEPL to have manufactured MS Billets in excess of its recorded production, it would necessarily have required to procure excess quantities of raw materials (primarily sponge iron, scrap, iron ore, etc.). The investigating authority has not found a single document, invoice, voucher or entry indicating that the Appellant procured any raw material in excess of what is recorded in its books. Without excess raw material input, excess production and clandestine removal is physically and commercially impossible.

– No Physical Stock Shortage at the Factory – The basic tool for detecting unaccounted production is a physical stock verification at the manufacturer’s factory. If the Appellant had been running its plant at higher capacity and producing goods beyond what it declared, the closing stock of finished goods would be short. No stock taking exercise was conducted at the Appellant’s factory. There is no finding of any shortage in stocks of raw material or finished goods.

– No Investigation of Electricity Consumption Data – While the Show Cause Notice alleged a disparity in electricity consumption as supporting evidence of excess production, (a) the electricity consumption data was used as the primary premise rather than a corroborative fact, (b) no independent expert investigation has been conducted, and (c) the settled law requires electricity consumption to be used only as a corroborative factor alongside other substantive evidence of production. Electricity consumption, in isolation, cannot prove clandestine removal.

– No Vehicle Movement Evidence – The alleged clandestine removal of MS Billets, a bulk industrial commodity in significant quantities would require the deployment of multiple heavy vehicles. No independent evidence of vehicle movement beyond the declared deliveries has been produced. There are no CCTV records, no check-post entries, no weighbridge records, no lorry receipts, no security gate records, and no independent witness accounts of additional vehicles transporting goods without invoices.

– No Recovery of Cash or Unaccounted Funds – Clandestine sales necessarily involve receipt of unaccounted cash or funds. No cash in excess of the Appellant’s declared transactions has been found or seized from the Appellant, its directors, or any associated persons. No hawala transactions, no benami accounts and no unusual financial flows have been identified or investigated.

– No Independent Admission by the Alleged Buyer (SBIW) – SBIW, through its Director Shri Rajesh Kumar Goel, did not confirm having purchased any goods from SEPL without excise invoices. His statement records that he could not comment on the questioned consignments because the documents were not recovered from SBIW’s premises. This is not a corroboration; it is an absence of corroboration.

– No Verification of SBIW’s Books of Account – If SEPL had sold billets to SBIW without excise invoices, SBIW would either have recorded these purchases without proper documentation or paid for them through unaccounted channels. The investigating authority has not examined SBIW’s books of account or purchase records to verify whether any such unaccounted procurement is reflected therein. This is a fundamental investigative lapse.

(iii) In view of the aforesaid submission, it is submitted that the entire demand is based on assumption and presumption and therefore liable to be set aside. Reference in this regard is invited to the following decisions:

M/s. Amiya Steel Pvt. Ltd. vs. Commissioner of CGST & Central Excise, Bolpur [Final Order No.77751-77753/2025 (Tri. – Kol.)]
M/s. Jai Balaji Industries Limited (Unit-III) vs. Commissioner of CGST & CX, Bolpur Commissionerate [Final Order No. 75583- 75585/2020 (Tri. – Kol.)]
M/s. Ramgarh Sponge Iron Private Limited & Oth. vs. Principal Commissioner, C.G.S.T. & C.X., Ranchi. [2024 (9) TMI 1844 – (Tri. – Kol.)]
M/s. MSP Sponge Iron Limited vs. Commissioner of CGST, C. EX & Customs, Rourkela Commissionerate [2020 (3) TMI 15 – (Tri. – Kol.)]
M/s. Ambica Organics vs. Commissioner of C.EX. & Cus., Surat-I [2016 (334) E.L.T. 97 (Tri – Ahmd.)]
M/s. Hi-Tech Abrasives v. Commissioner of C. Excise & Customs, Raipur [2018 (362) ELT 961 (Chhattisgarh)]
M/s. Continental Cement Company v. Union of India [2014 (309) ELT 411 (All.)]
M/s. BST Infratech Limited & Anr. vs. Commissioner of CGST & Excise, Bolpur Commissionerate [2020 (12) TMI 31 – (Tri. – Kol.)]

V. STATEMENT OF SHRI JOYDEB KARMAKAR CANNOT BE CONSIDERED AS ADMISSIBLE EVIDENCE TO ALLEGE CLANDESTINE REMOVAL OF GOODS

(i) It is submitted that the proceedings against the Appellant are founded upon the statement of Shri Joydeb Karmakar. The very same statement, along with the allegations emanating therefrom has already been examined by the Bench in the proceedings initiated against SBIW Steel wherein the allegations were found to be unsustainable and the proceedings were dropped in Excise Appeal No. 76606 of 2017. Once the evidentiary value and credibility of the statement of Shri Joydeb Karmakar have been considered and rejected in the connected proceedings arising out of the same set of facts and evidence, the department cannot selectively rely upon the very same statement to sustain the impugned proceedings against the Appellant. In the absence of any independent corroborative evidence, the impugned order, insofar as it is based upon the statement of Shri Joydeb Karmakar, is arbitrary, legally untenable, and liable to be set aside.

VI. EXTENDED PERIOD OF LIMITATION UNDER SECTION 11A(4) HAS BEEN WRONGLY INVOKED

(i) The impugned order invokes the extended period of 5 years under Section 11A(4) of the Act on the ground that SEPL had deliberately suppressed the facts of clandestine removal from the department with intent to evade duty. The extended period requires proof of

(i) wilful mis-statement or suppression of facts; AND (ii) intent to evade duty. Both elements must co-exist and must be affirmatively proved by the Revenue through positive evidence. The mere fact of non- payment of duty does not by itself constitute suppression.

(ii) SEPL was a duly registered assessee maintaining proper statutory records — Daily Stock Account, Central Excise Invoices, periodic returns — all of which were available for inspection by the Revenue at any time. There is no allegation that any statutory record maintained by SEPL was falsified.

(iii) The alleged facts were not ‘suppressed’ from the department. The seized documents were found in a private residential premises of the Director — which is not a place where any statutory disclosure obligation exists. The fact that goods were allegedly unaccounted does not per se mean that SEPL ‘suppressed facts’ in any legal sense.

(iv) The investigation was triggered by specific intelligence and search operations — not by any omission on the Appellant’s part to disclose information it was required to disclose. This undercuts the allegation of deliberate concealment.

(v) As the Appellant’s reconciliation statement demonstrates, the entries in Seized Document No. 01 in fact correspond to excise-paid sales. If there was no clandestine removal, the question of intentional suppression does not arise.

(vi) It is submitted that even if the evidence were to be taken at face value (which is denied), the evidence is entirely consistent with inadvertent error or dispute about coverage rather than deliberate, intentional suppression. The benefit of doubt on this count must go to the assessee.

(vii) Since the primary demand is not legally sustainable for the reasons set out above, the extended period is not independently applicable. However, even on standalone consideration, the conditions for invoking the extended period are not fulfilled.

4.1. In view of the above submissions, the Ld. Counsel appearing on behalf of the appellant have prayed for setting aside the demand of central excise duty confirmed against them vide the impugned order, along with interest. Accordingly, they also prayed for immunity from imposition of penalty under Section 11AC of the Central Excise Act, 1944.

5. On the other hand, the Ld. Authorized Representative of the Revenue appearing before us reiterated the findings in the impugned order.

6. Heard both sides and perused the documents available on record.

7. After hearing the arguments advanced by both sides and upon consideration thereof, we find that the following issues emerge, which are to be decided in the present Appeal:

(I) Whether the statements recorded under Section 14 of the Central Excise Act, 1944 in this case can be relied upon in the present proceedings to sustain the charge of clandestine manufacture and clandestine clearance of excisable goods against the appellant, or not?

(II) Whether the seized documents, notebooks and other computer-derived evidence relied upon by the Revenue satisfy the mandatory requirements prescribed under Section 36B of the Central Excise Act, 1944 so as to be treated as admissible evidence against the appellant, or not?

(III) Whether the documents and evidences available on record conclusively establish that the Appellant had indulged in clandestine manufacture and removal of excisable goods, as alleged, or not?

7.1. The points arising for determination are now taken up for consideration issue-wise.

Issue (I): Whether the statements recorded under Section 14 of the Central Excise Act, 1944 in this case can be relied upon in the present proceedings to sustain the charge of clandestine manufacture and clandestine clearance of excisable goods against the appellant, or not?

8. From a perusal of the impugned order, it can be observed that the ld. adjudicating authority has heavily relied upon the following statements for sustaining the allegation of clandestine manufacture and clearance against the appellant: –

Statement of Shri Anil Kumar Agarwal, Director of M/s. Steelex Electrocast Pvt. Ltd., dated 24.04.2015;
Statements of Shri Sunil Agarwal, Director of M/s. Steelex Electrocast Pvt. Ltd., dated 23.05.2017 and 29.05.2017;
Statement of Smt. Shikha Agarwal, wife of Shri Sunil Agarwal, dated 31.08.2017;
Statements of Shri Joydeb Karmakar dated 14.09.2014 and 20.10.2014;
Statement of Shri Rajesh Kumar Goel, Director of M/s. SBIW Steels Pvt. Ltd., dated 15.02.2016; and
Statement of Shri Durga Shankar Dubey, transporter.

The admissibility and evidentiary worth of such statements assumes considerable significance.

8.1. We find that the entire edifice of the Revenue’s case substantially rests upon various statements recorded during the course of investigation under Section 14 of the Central Excise Act, 1944, as observed hereinabove. However, the admissibility of such statements in adjudication proceedings is not left to discretion, but is expressly regulated by Section 9D of the Act, which embodies a statutory safeguard intended to ensure fairness and reliability in the appreciation of evidence.

8.2. Section 9D, by virtue of sub-section (2) thereof, applies with equal force to adjudication proceedings. The scheme of the provision leaves no room for ambiguity. Under clause (a) of sub-section (1), statements recorded before a Gazetted Central Excise Officer may be admitted straightaway only in exceptional circumstances, namely where the maker of the statement is dead, cannot be found, is incapable of giving evidence, has been kept away by the adverse party or cannot be produced without unreasonable delay or expense. In such eventuality, the adjudicating authority is required to record a reasoned satisfaction regarding the existence of any of the aforesaid contingencies.

8.3. In all other cases falling under Section 9D(1)(b), the statute mandates a two-stage procedure. Firstly, the person whose statement is sought to be relied upon is required to be examined as a witness before the adjudicating authority. Secondly, upon such examination, the adjudicating authority is required to form an opinion that, having regard to the circumstances of the case, admission of such statement is warranted in the interests of justice. Only thereafter can the statement be treated as relevant evidence for proving the truth of its contents.

8.4. The use of the expression “shall” in Section 9D is indicative of the mandatory character of the provision. The legislative intent underlying the said safeguard is manifest. Statements recorded during investigation are often obtained in circumstances where the possibility of coercion, pressure, inducement or misunderstanding cannot be completely ruled out. Therefore, examination of the maker of the statement before the adjudicating authority, coupled with the valuable right of cross- examination available to the noticee, constitutes an indispensable safeguard against miscarriage of justice.

8.5. Upon perusal of the records, we find that none of the aforesaid deponents, whose statements have been extensively relied upon in the impugned order, were produced before the adjudicating authority for examination. No examination-in-chief of any of the witnesses was conducted. Equally, there is no finding in the impugned order that any of the circumstances contemplated under Section 9D(1)(a) existed so as to dispense with such examination.

8.6. We further find that the impugned order suffers from a fundamental infirmity inasmuch as it neither records any satisfaction under Section 9D nor discloses any reasoned basis for treating the statements in question as admissible evidence. Despite the absence of the statutory exercise mandated by law, the adjudicating authority has proceeded to rely upon the said statements as substantive evidence. We are unable to agree with the findings recorded in the impugned order in this regard, for such an approach not only overlooks the mandate of Section 9D but also strikes at the very foundation of the evidentiary process contemplated by the legislature. It is also evident from the records that the request of the appellant seeking cross- examination of the concerned persons was not acceded to. Denial of cross-examination, particularly when the statements are sought to be used as substantive evidence against the assessee, amounts to denial of a valuable right and constitutes a serious infraction of the principles of natural justice.

8.7. We also find considerable force in the contention of the appellant that the statements of the Directors have been misconstrued by the adjudicating authority. A careful reading of the statement dated 24.04.2015 of Shri Anil Kumar Agarwal reveals that while confronting him with the entries appearing in Seized Document No. 01, only certain invoices pertaining to M/s. SBIW were shown to him. Admittedly, the invoices relating to other buyers, including M/s. Surya Alloys, M/s. Adhunik Industries and several other customers, were never put to him. In such circumstances, his inability to immediately identify particular invoice numbers or his response that he was unable to comment thereon could not, by any stretch of imagination, be construed as an admission of clandestine manufacture and removal.

8.8. The appellant has also specifically contended that the Director’s silence in the said statements as “I cannot comment” cannot be considered as an admission of guilt on the part of the appellant. It is trite law that silence, inability to recollect or expression of lack of knowledge during the course of investigation cannot be elevated to the status of a confession. Absence of an explanation cannot be equated with admission of guilt. Significantly, the appellant had subsequently furnished before the adjudicating authority a detailed reconciliation statement correlating the entries appearing in Seized Document No. 01 with the corresponding Central Excise invoices. We find that the adjudicating authority has discarded the said reconciliation without recording any cogent reasons therefor, which itself constitutes a serious infirmity going to the root of the matter. We thus find considerable force in the above argument advanced by the appellant.

8.9. Be that as it may, even assuming that the statements possessed some evidentiary value, the same could not have been looked into without first complying with the mandatory requirements of Section 9D. The statutory procedure cannot be bypassed on the premise that the statements themselves appear to support the allegations.

8.10. The legal position in this regard is no longer res integra. In G-Tech Industries v. Union of India [2016 (339) E.L.T. 209 (P & H)], the Hon’ble Punjab & Haryana High Court authoritatively held that compliance with Section 9D is mandatory and statements recorded under Section 14 cannot be relied upon for proving the truth of their contents unless the procedure prescribed therein is followed. The relevant portion of the aforesaid Order reads as under: –

“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 re-examination.

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 sub-section. The Orders-in-Original, dated 4-4-2016, 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.”

8.11. The above view has also been expressed 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 eviderice 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.

60. Therefore, we are of the view that Section 9D(2) not only legislatively mandates the adjudicating authority to apply the provisions of S.9D (1), depending on the facts and circumstances of the case, to the extent possible. but also when read along with Section 9D(1)(b), leads to the inexorable conclusion that the adjudicating authority necessarily has to conduct an examination in chief of the deponent of the statement so as to determine not only the voluntary nature as well as truthfulness of the facts the statement given under Section 14 before the Gazetted Officer contains, but also to determine whether or not the witness is hostile, and to decide whether or not to place reliance on the statement as per the mandate of Section 9(1)(b) in the circumstances of the case, as has been elaborated supra. This interpretation is also in consonance with the decision of the Honourable Apex Court in KI Pavunny’s case as stated supra, wherein the Apex Court emphasised that in the case of a retracted confession the court should examine whether the confessional statement is voluntary; in other words, whether it was not obtained by threat, duress or promise and if the Court is satisfied from the evidence that it was voluntary, then it is required to examine whether the statement is true. Such an interpretation is also in line with the decision of the jurisdictional Madras High Court cited supra and given the parimateria provisions of the Customs Act, 1962, we are of the view that the said interpretation would hold good under the parimateria provisions of Customs Act as well.”

[Emphasis supplied]

8.12. A similar view has been taken by this Tribunal in M/s. Amiya Steel Pvt. Ltd. v. Commissioner of CGST & Central Excise, Bolpur [Final Order No. 77751- 77753 of 2025 dated 21.11.2025 in Excise Appeal No. 75485 of 2020 & ors. – CESTAT, Kolkata] wherein the Tribunal has held that the Revenue is required to follow the procedure laid down under Section 9D for recording as to whether the statements recorded by a person were given by him on his own or were recorded under any pressure / coercion. The relevant observation of this Tribunal in the aforesaid decision is reproduced below: –

“8. We find that the entire proceedings have been initiated solely based on the search operations conducted at the third party SPRML’s premises. There is nothing to indicate that any search operations were subsequently conducted in the premises of the appellant and any incriminating documents were seized from them. There is no record of any shortage / excess being found at the appellant’s premises after conducting any stock verification. The first point of allegation against the appellant has emanated from the statement of Debashsis Shashmal dated 13/11/2014, which itself was taken after about two years from the date of first visit of the officials to the factory premises of SRPML. Before that, he had already recorded four statements in which there was no mention of any clandestine purchase on cash basis by SRPML. Further, we find that when the reliance is placed on the five recorded statements of Debashsis Shasmal, it was necessary for the Revenue to follow the Section 9(D) procedure to ascertain as to whether the statements were recorded by him on his own or were they recorded under any pressure or coercion. Only after this, the Statements could have been relied upon as an evidence which the Department has failed to do in this case.”

[Emphasis supplied]

8.13. Similar principles have also been reiterated by the Hon’ble Chhattisgarh High Court in the case of M/s. Hi Tech Abrasives Ltd. v. Commissioner of Central Excise & Customs, Raipur [2018 (362) E.L.T. 961 (Chhattisgarh)].

Statements of Shri Sunil Agarwal:

8.14. Specifically, with regard to the statements of Shri Sunil Agarwal, Director of the appellant- company, from the records, it transpires that certain private papers had been recovered from the residential premises of the Agarwal family during the course of search and seizure proceedings and that the statement of Shri Sunil Agarwal in relation thereto came to be recorded on 23.05.2017, i.e., after a lapse of nearly three years from the date of search. In such circumstances, his inability to identify the entries contained in the said papers and his expression of ignorance with regard thereto cannot, by any stretch of imagination, be construed as an admission of clandestine manufacture or removal. It would be wholly unrealistic to expect any person to retain precise particulars of numerous transactions after such a considerable lapse of time. Significantly, the impugned order appears to have drawn adverse inferences from the inability of the deponent to offer

comments on such entries, which, in our considered opinion, is legally impermissible. Mere inability to explain or comment upon certain entries after a lapse of nearly three years cannot be held analogous to incriminating evidence, much less a confession of clandestine activity.

Statements of Shri Joydeb Karmakar:

8.15. Equally, we find that considerable reliance has been placed upon the statements attributed to Shri Joydeb Karmakar. It is an admitted position that the appellant had specifically sought an opportunity to cross-examine the said witness. Such request, however, was not acceded to. The appellant had consistently contended that the statements attributed to Shri Joydeb Karmakar contained numerous linguistic and grammatical inconsistencies and that the said deponent, having regard to his educational background and writing ability, could not have independently authored such statements in the manner in which they appear on record. According to the appellant, such aspects could have been effectively demonstrated had an opportunity of cross- examination been afforded. Be that as it may, once the statements of Shri Joydeb Karmakar are sought to be relied upon as substantive evidence, compliance with the mandate of Section 9D and affording the noticee an opportunity to test the veracity of such statements through cross-examination assumes paramount importance. Denial of such opportunity renders the evidentiary worth of the said statements highly doubtful and deprives the appellant of an effective opportunity to rebut the allegations founded thereupon.

Statements of the Transporter

8.16. We further find that reliance has also been placed upon the statement of Shri Durga Shankar Dubey, a transporter in this case. A careful reading of the said statement reveals that the witness merely acknowledged having provided transportation services to the appellant. Such fact, by itself, is wholly unexceptionable and undisputed, the appellant admittedly being engaged in the manufacture and clearance of finished goods to various customers through different vehicles. Significantly, the investigating officers had confronted the transporter with a list of dates, vehicle numbers and quantities and sought his confirmation thereof. Such a mode of questioning, being inherently suggestive and leading in nature, cannot be regarded as constituting independent evidence of clandestine removals.

8.16.1. Further, we find substance in the contention of the appellant that the transporter was never questioned as to whether the consignments allegedly transported by him pertained exclusively to M/s. SBIW or whether he had transported goods for several other customers of the appellant as part of its regular business operations. Therefore, the mere confirmation of transportation services does not inexorably lead to the conclusion that any particular consignment was cleared without payment of duty or without cover of central excise invoices.

8.16.2. In any event, the statement of Shri Durga Shankar Dubey also suffers from the same legal infirmity as discussed hereinabove. He was neither examined before the adjudicating authority nor offered for cross-examination, and no procedure contemplated under Section 9D of the Act was followed before treating his statement as substantive evidence. Consequently, the said statement too cannot be accorded any evidentiary value for establishing the grave charge of clandestine manufacture and removal against the appellant.

9. In view of the foregoing discussion, we are of the considered opinion that the statements recorded under Section 14 of the Act, having been relied upon without adherence to the mandatory requirements prescribed under Section 9D of the Central Excise Act, 1944, are rendered devoid of evidentiary value for proving the truth of their contents. Consequently, the findings recorded in the impugned order to the extent they are founded upon such statements cannot be sustained in law and thus deserve no merit. The issue under consideration is answered accordingly in favour of the appellant.

Issue (II): Whether the seized documents, notebooks and other computer-derived evidence relied upon by the Revenue satisfy the mandatory requirements prescribed under Section 36B of the Central Excise Act, 1944 so as to be treated as admissible evidence against the appellant, or not?

10. We now proceed to examine the evidentiary value of the various seized documents, notebooks and comparison charts which constitute the second limb of the Revenue’s case. The impugned order places considerable reliance upon Seized Document No. 01/SEPL/Resi/KOL/14, certain notebooks allegedly maintained by Shri Joydeb Karmakar bearing No. 02/SBIWRes/Joydeb/14 and various comparison

charts prepared by the investigating agency by cross- referencing entries appearing therein. According to the Revenue, these documents establish clandestine manufacture and removal of excisable goods by the appellant-company.

10.1. Before adverting to the individual documents, it would be apposite to note that Section 36B of the Central Excise Act, 1944 prescribes a complete code governing the admissibility of computer printouts and electronic records. The said provision, being pari materia to Section 65B of the Indian Evidence Act, engrafts certain mandatory safeguards to ensure the authenticity and reliability of electronic evidence. The conditions stipulated under Section 36B (2) are cumulative in nature and are required to be strictly fulfilled before any computer-derived evidence can be admitted and acted upon.

10.2. We find that Section 36B (4) further mandates issuance of a certificate identifying the electronic record, describing the manner in which it was produced and certifying compliance with the requirements prescribed under sub-section (2). Such certificate is required to emanate from a person occupying a responsible official position in relation to the operation of the computer or the management of the relevant activities. Compliance with these safeguards is not an empty formality but constitutes the very foundation upon which the admissibility of such evidence rests.

10.3. Upon a careful examination of the records, we find that no such certificate contemplated under Section 36B (4) has been brought on record by the Revenue. There is nothing to demonstrate that the computers or devices from which the impugned

records are alleged to have been generated were regularly used in the ordinary course of business, that information of the relevant nature was regularly fed into such systems, that the devices were functioning properly during the relevant period or that the outputs faithfully reproduced the original inputs. In the absence of these foundational facts, the mandatory requirements of Section 36B remain wholly unfulfilled.

10.4. We further find that the impugned order has proceeded to treat the seized documents and the comparison charts prepared by the investigating officers as substantive evidence without first satisfying the statutory conditions governing their admissibility. In our considered opinion, the approach adopted by the adjudicating authority overlooks the mandate of Section 36B and renders the evidentiary value of such materials highly suspect.

10.5. Similar issues had come up for consideration before this Tribunal in a catena of decisions, wherein it has consistently been held that non-compliance with the mandatory requirements of Section 36B denudes such electronic or computer-derived records of their evidentiary value. In the case of M/s. Ramgarh Sponge Iron Pvt. Ltd. v. Principal Commissioner, CGST & CX, Ranchi [2024 (9) TMI 1844 (Tri.-Kol.)], while dealing with a similar issue, 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 cer- tificate 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 sub- section (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. Sub- section (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;

(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:

7.1.8. Section 65B of the Evidence Act is pari materia 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 pari materia 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.”

10.6. A similar matter also came up for consideration before the Tribunal in the case of M/s. Jai Balaji Industries Ltd. v. Commissioner of CGST & CX, Bolpur Commissionerate [Final Order Nos. 75583-75585 of 2020 dated 12.11.2020 in Excise Appeal No. 76211 of 2018 – CESTAT, Kolkata], wherein the Tribunal reinforced that compliance with Section 36B is mandatory.

10.7. Even otherwise, we find that Seized Document No. 01 has been interpreted by the adjudicating authority as representing clandestine clearances effected by the appellant-company. However, the said document is admittedly unsigned, unconfirmed and bears no acknowledgment from any purchaser. It is not the case of the Department that the document was ever shown to M/s SBIW for confirmation. The explanation offered by the appellant that the said papers merely represented incomplete brokerage sheets and working papers has not been displaced by any independent evidence. Significantly, the impugned order rejects the said explanation without recording any cogent reasons. In our considered opinion, a document of such doubtful provenance could not have been elevated to the status of conclusive evidence of clandestine removals. We also find that Seized Document No. 01 forms part of a larger seizure comprising as many as 103 pages containing documents pertaining to several concerns and individuals, including papers unrelated to the appellant-company. The Revenue has selectively relied upon certain pages, even though the name of the appellant-company does not appear therein and none of such papers bears the signature or acknowledgment of any representative of the appellant. No investigation appears to have been undertaken to establish authorship of the entries or the nexus between the said papers and the manufacturing activities of the appellant. In the absence of any such foundational evidence, the mere fact that certain entries incidentally correspond with excise invoices cannot justify the inference that all remaining entries necessarily represent clandestine clearances.

10.8. We further find that when Shri Sunil Agarwal was confronted with the said papers, he merely acknowledged that some entries tallied with central excise invoices and expressed inability to comment upon the remaining entries. He also declined to offer any comments on documents allegedly recovered from Shri Joydeb Karmakar, which admittedly did not belong to the appellant. Such inability to explain or comment upon stray entries cannot, by itself, be treated as an admission of clandestine manufacture and removal.

10.9. We also find considerable force in the contention advanced on behalf of the appellant that during adjudication, a detailed reconciliation statement was furnished correlating the entries appearing in Seized Document No. 01 with corresponding Central Excise invoices issued to various customers including M/s SBIW Steels Pvt. Ltd., M/s Surya Alloys Industries Ltd., M/s Adhunik Industries Ltd. and several other buyers. According to the appellant, the entries contained in the seized document represented the broker’s working sheets reflecting sales effected to different parties and not unaccounted transactions.

10.10. Furthermore, the notebooks allegedly maintained by Shri Joydeb Karmakar merely contain dates, vehicle numbers, quantities and, in certain places, the number of pieces. They neither describe the goods nor mention the names of the consignors or consignees. There is no indication therein that the entries pertain to goods supplied by the appellant- company. Such rough and anonymous notings recovered from the residence of a third party, without independent corroboration, cannot constitute reliable evidence of clandestine manufacture and clearance.

10.11. It is equally noteworthy that the Revenue has not established that Shri Mukesh Chowdhury or Shri Joydeb Karmakar were exclusively associated with M/s. SBIW Steels Pvt. Ltd. There is nothing on record to rule out the possibility that they may have rendered services to other entities as well. In such circumstances, it would be wholly unsafe to attribute the entries found in the notebooks exclusively to transactions involving the appellant-company.

10.12. The impugned order neither points out any discrepancy in such reconciliation nor identifies any specific entry which remained unmatched. We are unable to find any discussion in the impugned order dealing with this crucial piece of evidence. A complete failure to consider exculpatory material produced by the appellant/noticee constitutes a serious infirmity which goes to the root of the matter.

10.13. We further find that the methodology adopted by the investigating agency itself suffers from inherent defects. The comparison undertaken by the Department was restricted only to invoices issued to M/s SBIW. Entries which did not tally with invoices issued to SBIW were mechanically treated as clandestine removals without undertaking any exercise to compare the same with invoices issued to other customers of the appellant-company. Such a selective and truncated analysis, in our considered view, is fundamentally flawed and incapable of forming the basis of a finding involving serious allegations of clandestine manufacture and removal. In fact, acceptance of such methodology would lead to an anomalous situation whereby transactions already subjected to duty and covered by valid Central Excise invoices issued to parties other than M/s SBIW would once again be treated as clandestine clearances, thereby resulting in an impermissible double levy on the very same transactions. Such a consequence is wholly alien to the scheme of the Act and cannot be countenanced in law.

10.14. It is pertinent to observe that certain important aspects of the investigation were left unexplored. Neither was any enquiry made regarding the authorship of the entries in the seized papers, nor were the records of the labour contractor examined. Such lapses assume significance since allegations of clandestine manufacture and removal, being quasi- criminal in nature, must rest on clear and cogent evidence and not on assumptions and presumptions.

11. In view of the foregoing discussion, we are unable to persuade ourselves to concur with the findings recorded in the impugned order insofar as the admissibility and evidentiary value of the seized documents and comparison charts are concerned. We hold that the mandatory requirements of Section 36B of the Central Excise Act, 1944 having not been complied with, the said documents and computer- derived materials cannot be treated as admissible evidence for sustaining the charge of clandestine manufacture and removal against the appellant.

Issue (III): Whether the documents and evidences available on record conclusively establish that the Appellant had indulged in clandestine manufacture and removal of excisable goods, as alleged, or not?

12. We further find that the allegation of clandestine manufacture and removal, being a serious charge carrying civil as well as penal consequences, cannot be sustained on the basis of assumptions and presumptions. It is now well settled through a catena of decisions that such a charge must be established by the Revenue through tangible and independent corroborative evidence. The various parameters and tests which are ordinarily required to be established in such cases have been succinctly laid down in several judicial pronouncements. In particular, it would be pertinent to refer to the guidelines laid down in the decision rendered 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]. The relevant observations of Tribunal in the said order are reproduced below for ease of reference: –

“40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :

(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.

Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v. CCE, Vadodara [2013 (293) E.L.T. 689]. It would appear that the decision, though rendered on 3-5-2013, was reported in the issue of the E.L.T., dated 29-7-2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5-8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.”

12.1. The said issue has also been examined by the Hon’ble High Court of Allahabad in the case of Continental Cement Company v. Union of India [2014 (309) E.L.T. 411 (All.)], wherein it has been held as under: –

“10. We have heard the learned counsel for the parties and gone through the material available on record, from which it appears that Shri Shubhashis Dev, Government Examiner of questioned documents, Shimla gave his written opinion dated 12-6-1998, wherein he has stated that “the documents of this case have been carefully and thoroughly examined. The enclosed writings and signatures stamped and marked were all written by one and the same persons”.

11. From the above, it appears that all the documents were written by one and the same persons, though the dates and the name of the parties are different. When it is so then the genuineness of the documents cannot be accepted.

12. Further, unless there is clinching evidence of the nature of purchase of raw materials, use of electricity, sale of final products, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of presumptions and assumptions. Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. On careful examination, it is found that with regard to alleged removals, the department has not investigated the following aspects :

(i) To find out the excess production details.

(ii) To find out whether the excess raw materials have been purchased.

(iii) To find out the dispatch particulars from the regular transporters.

(iv) To find out the realization of sale proceeds.

(v) To find out finished product receipt details from regular dealers/buyers.

(vi) To find out the excess power consumptions.

13. Thus, to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.

14. In the instant case, no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s. Singhal Cement Agency, M/s. Praveen Cement Agency; and M/s. Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof. The mischievous role of Shri Anil Kumar erstwhile Director with the assistance of Accountant Sri Vasts cannot be ruled out.

15. In view of the above, we are of the opinion that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material out side the books have been proved.

16. In the light of the above discussions and considering the totality of the case, we are satisfied that no case is made out for extra so called clandestine sale of the Portland Cement to the said parties. We are satisfied that the first appellate authority has rightly deleted the addition and cancel the penalties. Hence we hereby set aside the impugned order passed by the Tribunal and restore the order passed by the first appellate authority, along with the reasons mentioned herein.

17. In the result, all the appeals filed by the appellants are hereby allowed.”

12.2. Further, the Tribunal in M/s. Nova Petrochemicals v. Commissioner of C.Ex., Ahmedabad-II [Final Order Nos. A/11207- 11219/2013 dated 26.09.2013], while dealing with a similar issue, has observed as follows:-

“40. After having very carefully considered the law laid down by this Tribunal In the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenues which mainly are the following:

(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 sales 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 for in excess of what is necessary for manufacture of goods otherwise manufactured and validity 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 document recovered during the search and activities being carried on in the factory of production; etc.”

12.3. Examining the facts of the present case in the light of the aforesaid principles, we find that except for placing reliance upon certain seized documents and statements, which have already been held to be inadmissible, the Revenue has failed to establish several essential circumstances ordinarily expected in cases of clandestine manufacture and removal. There is no evidence regarding procurement of excess raw materials, no stock verification revealing shortage of raw materials or finished goods, no independent evidence regarding movement of vehicles, no recovery of unaccounted cash or funds, and no verification of the books of account of the alleged buyer. Equally, there is no categorical admission on the part of the alleged buyer regarding receipt of goods without cover of duty-paid invoices.

12.4. Although it is true that the Revenue has sought to place reliance upon electricity consumption as one of the circumstances supporting the allegation of excess production, it is equally well settled that electricity consumption, by itself, can only constitute a corroborative circumstance and cannot form the sole basis for sustaining a charge of clandestine manufacture and removal. In any event, the appellant has also raised a challenge to the conclusions drawn by the Revenue on this aspect, arguing that in the absence of any scientific or expert analysis and in view of the absence of the other essential corroborative factors noticed above, reliance upon electricity consumption alone would not suffice to sustain the charge of clandestine manufacture and removal. Be that as it may, even assuming the Revenue’s case regarding electricity consumption to be correct, the absence of the other essential corroborative factors noticed above renders the allegation of clandestine manufacture and removal unsustainable in law.

13. Accordingly, in view of the discussion hereinabove, we hold that the Revenue has failed to establish the charge of clandestine manufacture and removal by adducing tangible, cogent and corroborative evidence. Consequently, this issue stands answered in favour of the appellant and against the Revenue.

Relevance of the decision of this Tribunal in the case of SBIW Steels Pvt. Ltd.:

14. We also find that separate proceedings had been initiated against M/s. SBIW Steels Pvt. Ltd. in relation to its alleged manufacture and clearances. The said proceedings emanated from the search conducted on 14.08.2014, during which the statement of Shri Joydeb Karmakar was recorded. Subsequently, the statements of Shri Joydeb Karmakar dated 14.08.2014 and 20.10.2014 came to be relied upon therein. The said proceedings culminated in the decision of this Tribunal in M/s. SBIW Steels Pvt. Ltd. & Anr. v. Commissioner of G.S.T. & C.Ex., Durgapur [Final Order Nos. 75642-75643 of 2026 dated 25.05.2026 in Excise Appeal No. 76606 of 2017 & anr. – CESTAT, Kolkata]. It is seen that the Tribunal, while considering the evidentiary value of the statements and records maintained by Shri Joydeb Karmakar, held that the statements could not be treated as reliable evidence in the absence of compliance with Section 9D of the Central Excise Act, 1944. It is further observed that the Tribunal, in the aforesaid decision, also noticed that no meaningful effort had been made by the Revenue to verify the veracity of the records maintained by Shri Joydeb Karmakar, despite the same being crucial to the allegation of clandestine manufacture and removal. In the absence of any documentary evidence supporting the statements of Shri Karmakar, the Revenue’s case against SBIW was held to be unsustainable. Since the very same statements and records of Shri Joydeb Karmakar have also been relied upon in the present proceedings, the observations made by the Tribunal in the case of SBIW Steels Pvt. Ltd. lend further support to the conclusion already arrived at by us regarding their lack of evidentiary value.

14.1. We further note that out of the alleged purchasers, investigation appears to have been confined substantially to M/s. SBIW Steels Pvt. Ltd. and no enquiry was conducted in respect of the other alleged buyers. Even in the case of SBIW, though investigations were undertaken, the said entity was not made a noticee in the current proceedings. In such circumstances, the statements and documents collected in the course of proceedings against M/s. SBIW Steels Pvt. Ltd. cannot, without independent corroboration, be employed against the appellant to sustain the allegation of clandestine manufacture and clearance. The fact that certain enquiries came to be conducted after a considerable lapse of time only reinforces the inadequacy of the investigation undertaken by the Revenue.

15. Upon an overall consideration of the facts and circumstances of the case, and in view of the findings recorded hereinabove, we find that the principal grounds on which the Revenue has sought to sustain the allegation of clandestine manufacture and clandestine clearance against the appellant-company do not withstand judicial scrutiny. The statements recorded under Section 14 of the Central Excise Act, 1944 having not been brought on record in the manner contemplated under Section 9D of the Act, the same cannot be treated as substantive evidence. Likewise, the seized documents, notebooks and computer-derived materials relied upon by the Revenue do not satisfy the mandatory requirements

of Section 36B of the Act and, therefore, cannot be accorded evidentiary value. Further, the allegation of clandestine manufacture and removal, which is quasi- criminal in nature and entails serious civil consequences, remains unsupported by the kind of cogent, independent and corroborative evidence which the law consistently requires for sustaining such a charge.

15.1. For the reasons discussed hereinabove, we find ourselves unable to concur with the conclusions reached in the impugned order. The allegation of clandestine manufacture and clandestine clearance levelled against the appellant-company, M/s. Steelex Electrocast Pvt. Ltd., therefore, fails and cannot be sustained in law. Consequently, the demand of Central Excise duty amounting to Rs.4,62,01,119/- (inclusive of Education Cess and Secondary & Higher Education Cess), together with the interest thereon, is held to be legally unsustainable and is accordingly set aside.

15.2. We further find that the penalty imposed upon the appellant-company under Section 11AC of the Central Excise Act, 1944 is merely consequential to the principal demand. Once the very foundation of the case alleging clandestine manufacture and removal is found to be non-existent, the penal consequences flowing therefrom cannot survive independently. In the absence of any legally admissible evidence establishing suppression of facts, wilful misstatement, fraud or any other ingredient necessary for invocation of Section 11AC, the imposition of equal penalty upon the appellant-company is also liable to be set aside.

16. It is clarified that the present appeal has been preferred only by M/s. Steelex Electrocast Pvt. Ltd. and the appeals, if any, of the Directors are not before us. Accordingly, the present order is confined solely to the demands and consequences challenged by the appellant-company in the instant proceedings.

17. In view of the foregoing discussions and findings, the impugned order stands modified to the extent indicated hereinabove. The demand of duty together with interest and the penalty imposed upon the appellant-company are set aside.

18. The appeal filed thus stands allowed, with consequential relief, if any, as per law.

(Order pronounced in the open court on 23.06.2026)

Filed under Cestat judgments