CESTAT rules demand based on third-party statements and uncertified electronic evidence inadmissible under section 36B

The CESTAT NEW DELHI held that demand for clandestine removal based solely on third-party statements and documents recovered from electronic devices without proper certification under section 36B of Central Excise Act was inadmissible. The appellant denied receiving invoices without physical delivery, and their RG-23 Part I register recorded all purchases, which the department failed to disprove. Since no documents were recovered from appellant's premises and third-party evidence lacks evidentiary value, the department failed to prove fake invoice usage or cenvat credit availed without goods delivery. Appeal allowed; no penalty imposed.

---

---

Issues Involved:

1. Admissibility of Cenvat Credit based on invoices without physical delivery of goods.
2. Validity of evidence obtained from third-party premises.
3. Retraction of statements by key witnesses.
4. Admissibility of electronic evidence without proper certification.
5. Timeliness of the demand raised by the department.

Summary:

Admissibility of Cenvat Credit:
The case revolves around M/s. KMG Rolling Pvt. Ltd. and its proprietor, who were accused of availing inadmissible Cenvat credit based on invoices from M/s. Unanti Alloys Pvt. Ltd. without actual delivery of goods. The investigation was initiated based on the statement of Shri Amit Gupta and documents recovered during searches at various premises. The department issued a show cause notice proposing recovery of Cenvat credit amounting to Rs. 83,54,316/- along with interest and penalties.

Validity of Evidence:
The appellants argued that no searches were conducted at their premises or at M/s. Unanti Alloys Pvt. Ltd., and that the statements of Shri Amit Gupta and Shri Sanjeev Magoo were retracted during cross-examination. They emphasized that all transactions were recorded in their RG-23A Part I Register and payments were made through legitimate channels.

Retraction of Statements:
Shri Amit Gupta and Shri Sanjeev Magoo retracted their earlier statements, claiming they were made under coercion. The Tribunal noted that once a statement is retracted, the burden shifts to the department to prove the allegations with corroborative evidence, which was not done in this case.

Admissibility of Electronic Evidence:
The Tribunal observed that the documents recovered from electronic devices lacked the necessary certification under Section 36B of the Central Excise Act, making them inadmissible as evidence.

Timeliness of Demand:
The appellants contended that the demand was time-barred as they were regularly audited and filed returns. The Tribunal did not find sufficient evidence to support the department's claim of fraudulent availing of Cenvat credit.

Conclusion:
The Tribunal held that there was no evidence to prove that the appellants availed Cenvat credit on fake invoices without receiving the goods. The order confirming the recovery of Cenvat credit and imposition of penalties was set aside, and both appeals were allowed. The Tribunal emphasized that third-party evidence without corroboration is not admissible and highlighted the importance of proper investigation and evidence collection in cases of alleged clandestine removal.

---