Clandestine removal demands corroboration: inadmissible electronic data and untested third-party statements cannot sustain duty demand.

Electronic records such as a pen drive are not admissible unless the statutory conditions for proving computer-generated material are satisfied, including identification of the source and creator of the data; without that compliance, such material cannot support a duty demand. Third-party statements used against an assessee ordinarily require cross-examination unless a statutory exception applies, and denial of that opportunity weakens reliance on those statements. Allegations of clandestine removal must be supported by corroborative evidence such as unaccounted raw material, excess production, electricity use, transport documents, or seizure evidence; where the case rests only on third-party records and untested statements, the charge is not made out.

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Issues: (i) whether the pen drive and other electronic data could be relied upon without compliance with the statutory requirements governing electronic records; (ii) whether statements of third parties could be used against the assessee without affording cross-examination; (iii) whether clandestine removal could be sustained solely on third-party records and statements without corroborative evidence from the assessee's factory.

Issue (i): whether the pen drive and other electronic data could be relied upon without compliance with the statutory requirements governing electronic records.

Analysis: Electronic records are admissible only when the statutory conditions for proving computer-generated material are satisfied. The record did not establish the computer or source from which the data in the pen drive was generated, nor the person responsible for creating it, and the prescribed safeguards for proving such material were not fulfilled.

Conclusion: The pen drive data was not admissible and could not form the basis of the duty demand.

Issue (ii): whether statements of third parties could be used against the assessee without affording cross-examination.

Analysis: Where the Revenue relies on statements of persons recorded during investigation, the assessee must ordinarily be permitted to cross-examine them unless the statutory exceptions are established. Here, the relied-upon statements were used against the assessee without allowing cross-examination, and no exceptional ground was shown to justify that denial.

Conclusion: The third-party statements could not be relied upon to sustain the allegations.

Issue (iii): whether clandestine removal could be sustained solely on third-party records and statements without corroborative evidence from the assessee's factory.

Analysis: Allegations of clandestine manufacture and removal require cogent corroboration such as proof of unaccounted raw materials, excess production, excess electricity consumption, transport evidence, seizure of goods, or flow-back of sale proceeds. The search at the assessee's premises revealed no incriminating factory records, stock discrepancies, excess raw material, or excess electricity consumption. The case rested only on third-party records and untested statements, which were insufficient on their own.

Conclusion: The charge of clandestine removal was not proved.

Final Conclusion: The demand and penalties were unsustainable in law, and the appeals succeeded.

Ratio Decidendi: A duty demand alleging clandestine removal cannot be sustained on uncorroborated third-party documents, inadmissible electronic records, and untested statements; proof must be supported by reliable corroborative evidence and compliance with the statutory safeguards for electronic evidence and witness examination.

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