Electronic evidence and corroboration in clandestine removal claims: unverified computer records failed, but admitted stock shortage demand survived.

Clandestine removal could not be sustained on the basis of seized computer printouts and cloned electronic records because the statutory conditions for admissibility under Section 36B of the Central Excise Act, 1944 were not met, the search and extraction process suffered procedural irregularities, and the alleged records lacked independent corroboration; the duty demand on that basis was therefore not sustainable. The duty demand arising from shortage of finished goods was maintained because the shortage was admitted and linked to the stock verification finding, and the consequential interest and equal penalty were upheld under Section 11AC. The result was partial relief to the assessee, with only the shortage-based demand surviving.

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Issues: (i) whether the computer printouts and other electronic records relied upon by the department were admissible and could sustain the allegation of clandestine clearance of paints and varnishes; (ii) whether the confirmed demand relating to shortage of finished goods and the consequential penalty and interest could be sustained.

Issue (i): whether the computer printouts and other electronic records relied upon by the department were admissible and could sustain the allegation of clandestine clearance of paints and varnishes

Analysis: The evidence rested principally on data retrieved from seized computers and printouts prepared after cloning of disks. The search and seizure process, sealing of computers, preparation of panchnamas and retrieval of data were found to suffer from serious procedural irregularities, and the relevant panch witnesses and the person who cloned and extracted the data were not available for effective cross-examination. The conditions prescribed for admissibility of computer outputs under Section 36B of the Central Excise Act, 1944 were held not to have been satisfied. The alleged computer records were also not supported by independent, corroborative evidence such as verified raw material procurement, excess electricity consumption, extra labour, transport documents, cash trail, or consistent buyer confirmations. The allegation of clandestine removal therefore remained unproved.

Conclusion: The charge of clandestine clearance based on the computer printouts and allied records was rejected and the duty demand founded on that basis was not sustainable, in favour of the assessee.

Issue (ii): whether the confirmed demand relating to shortage of finished goods and the consequential penalty and interest could be sustained

Analysis: The demand of Rs. 1,95,227/- arose from shortage of finished goods found during stock verification, and that liability was not contested. In view of the finality attached to the related SSI exemption finding, the confirmed shortage-based duty remained payable. Consequential interest followed, and equal penalty was attracted under Section 11AC of the Central Excise Act, 1944.

Conclusion: The shortage-based duty demand of Rs. 1,95,227/-, with interest and equal penalty, was sustained, against the assessee.

Final Conclusion: The impugned order was substantially set aside, but the limited duty demand arising from stock shortage, along with interest and equal penalty, was maintained, resulting in partial relief to the assessee.

Ratio Decidendi: Clandestine removal cannot be sustained on disputed electronic records unless the statutory requirements for admissibility are strictly complied with and the allegation is supported by independent corroborative evidence; where only a limited admitted shortage survives, that specific demand and its statutory consequences may still be upheld.

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