Clandestine removal demands fail when electronic records are doubtful and investigation statements lack cross-examination safeguards.

Clandestine removal demands cannot rest on doubtful electronic records, unsealed devices, or statements denied cross-examination. The Tribunal held that search and seizure were procedurally unreliable because independent local witnesses were not properly associated. It further found that data from unsealed pen drives and printouts lacked assured authenticity and did not satisfy the conditions for electronic evidence. Statements recorded during investigation were also excluded because cross-examination was denied. With that material discarded, no legally sufficient corroboration remained to prove clandestine removal or shortages, so the duty demand and penalties were set aside.

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Issues: (i) Whether the search and seizure proceedings were vitiated for non-compliance with the requirement of associating independent local witnesses under the governing search procedure; (ii) Whether the data retrieved from unsealed pen drives and computer printouts could be relied upon without satisfying the statutory conditions for admissibility of electronic evidence; (iii) Whether statements of persons recorded during investigation could be used against the assessee without compliance with the statutory requirement of examination and cross-examination; (iv) Whether the allegations of clandestine removal and the demand based on shortages were proved on legally sufficient evidence.

Issue (i): Whether the search and seizure proceedings were vitiated for non-compliance with the requirement of associating independent local witnesses under the governing search procedure.

Analysis: The search provisions under the Central Excise law were read with the Criminal Procedure Code, which required witnesses from the locality or, failing that, other available respectable inhabitants. The same witnesses were repeatedly used at different places and on different dates, without any satisfactory explanation. This created doubt about the fairness of the searches and the resultant seizures.

Conclusion: The search and seizure proceedings were held to be procedurally defective and unreliable.

Issue (ii): Whether the data retrieved from unsealed pen drives and computer printouts could be relied upon without satisfying the statutory conditions for admissibility of electronic evidence.

Analysis: The demand rested principally on data taken from pen drives that were not sealed at seizure, and the same device yielded different data on different occasions. The Tribunal also found that the statutory conditions governing computer printouts and electronic records were not properly satisfied, and no reliable assurance existed that the retrieved data remained untampered.

Conclusion: The electronic data and printouts were held to be of doubtful authenticity and inadmissible for sustaining the demand.

Issue (iii): Whether statements of persons recorded during investigation could be used against the assessee without compliance with the statutory requirement of examination and cross-examination.

Analysis: The adjudicating authority relied upon statements recorded during investigation, but the request for cross-examination was denied. In the absence of compliance with the mandatory evidentiary safeguards, such statements could not be treated as dependable proof against the assessee.

Conclusion: The statements were held to be inadmissible in the adjudication proceedings.

Issue (iv): Whether the allegations of clandestine removal and the demand based on shortages were proved on legally sufficient evidence.

Analysis: Clandestine removal required tangible, positive and corroborated evidence such as proof of procurement of excess raw material, actual removal, transportation, sale proceeds and related links. Once the electronic data and statements were excluded, no substantive evidence remained. The alleged shortages, by themselves, did not establish clandestine removal.

Conclusion: The charges of clandestine removal and the duty demand, including the demand based on shortages, were not proved.

Final Conclusion: The impugned order could not be sustained in law. The duty demand and penalties were set aside, and the appeals were allowed.

Ratio Decidendi: A demand for clandestine removal cannot be sustained on doubtful electronic records and untested statements; the Revenue must establish the charge by legally admissible, corroborated evidence, and compliance with the statutory safeguards governing search, electronic evidence, and cross-examination is essential.

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