Electronic records and corroborative evidence can sustain clandestine removal findings, while individual penalties may still be reduced.

Electronic records retrieved from a pen drive were held admissible under section 36B because they were maintained day to day for business reporting, used for regular transaction monitoring, and showed no adverse authenticity issue. On a composite appraisal of the electronic data, supplier records, seized notebooks, weighment slips and supporting statements, clandestine manufacture and removal were found established; the demand was therefore not time-barred because prior departmental knowledge or absence of suppression was not proved. The duty demand, interest and company penalty were sustained, while the penalties on the individual noticees were reduced as excessive on the facts.

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Issues: (i) whether the data retrieved from the pen drive and connected electronic records was admissible and could be relied upon to establish unaccounted purchases, production and clearances; (ii) whether the department had proved clandestine manufacture and removal with adequate corroboration and whether the demand was barred by limitation; and (iii) whether the penalties imposed on the individual noticees required interference.

Issue (i): whether the data retrieved from the pen drive and connected electronic records was admissible and could be relied upon to establish unaccounted purchases, production and clearances.

Analysis: The electronic records were not treated as mere private papers divorced from business activity. The CEO had admitted that the entries were made by him on a day-to-day basis for reporting to head office, and the records were used for the company's regular monitoring of transactions. The statutory requirement under section 36B was therefore satisfied, and the fact that the records were not part of the formal statutory books did not by itself render them inadmissible. The absence of tampering was also noted, and the material was sent for examination without any adverse report on authenticity.

Conclusion: The electronic records were admissible and could be relied upon against the assessee.

Issue (ii): whether the department had proved clandestine manufacture and removal with adequate corroboration and whether the demand was barred by limitation.

Analysis: The electronic data from the pen drive tallied with the records found from a major supplier, and the seized pads, notebooks and weighment slips corroborated the pattern of unaccounted receipts and clearances. Statements of the CEO, suppliers and buyers supported the documentary material, and the Tribunal found that the assessee's explanation based on statutory stock registers could not displace the stronger incriminating material. On limitation, the Tribunal held that the assessee failed to show that the department had prior knowledge of the undisclosed transactions or that suppression was absent.

Conclusion: Clandestine removal was proved, and the demand was not time-barred.

Issue (iii): whether the penalties imposed on the individual noticees required interference.

Analysis: While the Tribunal upheld the finding of involvement, it considered the penalties on the individual noticees to be excessive in the facts of the case and reduced them to lower amounts. The penalty on the company was not interfered with, but the penalties on the individuals were substantially scaled down.

Conclusion: The penalties on the individual noticees were reduced.

Final Conclusion: The duty demand, interest and company penalty were sustained, while the penalties on the individual noticees were reduced, resulting in a partial allowance of the appeals.

Ratio Decidendi: Electronic records maintained and used in the regular course of business activity, though not reflected in statutory books, are admissible under section 36B when supported by corroborative evidence, and clandestine removal may be sustained on a composite appraisal of such records, witness statements and surrounding documentary material.

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