Clandestine removal demands need admissible electronic evidence and corroboration; unverified records and retracted statements cannot sustain liability.

In clandestine removal cases, duty demand cannot rest solely on unverified third-party electronic records or retracted statements. Electronic printouts must satisfy Section 36B requirements, including the prescribed certificate and conditions for admissibility, failing which they lack evidentiary value. Statements recorded during investigation also cannot be relied on unless the Section 9D procedure is complied with. Where no independent corroboration exists for excess raw material use, unaccounted removals, transport, buyers' receipts, or flow of consideration, allegations of clandestine manufacture, undervaluation, and related penalties fail.

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Issues: (i) Whether data recovered from the computers, pen drives and laptop seized from a tax practitioner's office could, by itself, sustain duty demand for alleged clandestine manufacture and clearance by the appellant company; (ii) whether the printouts satisfied the conditions for admissibility of electronic records under Section 36B of the Central Excise Act, 1944; (iii) whether statements recorded during investigation could be relied upon without compliance with Section 9D of the Central Excise Act, 1944; (iv) whether the allegation of clandestine clearance stood proved by corroborative evidence and whether the undervaluation demand and penalties were sustainable.

Issue (i): Whether data recovered from the computers, pen drives and laptop seized from a tax practitioner's office could, by itself, sustain duty demand for alleged clandestine manufacture and clearance by the appellant company.

Analysis: The search of the appellant's factory did not yield incriminating material showing clandestine production or removal. The disputed data was recovered from a third party's office, the person who entered the data was not identified, and the trading firms named in the records were shown in cross-examination to be independent VAT-registered entities. The demand rested mainly on assumptions drawn from the seized data and statements, without independent verification from buyers, transporters, raw material suppliers, or other corroborative circumstances.

Conclusion: The data recovery, by itself, was insufficient to sustain the allegation of clandestine manufacture and clearance.

Issue (ii): Whether the printouts satisfied the conditions for admissibility of electronic records under Section 36B of the Central Excise Act, 1944.

Analysis: The printouts were taken from devices recovered from a third party's premises, but the mandatory requirements for treating such output as admissible evidence were not met. The statutory conditions governing regular use of the computer, supply of information in the ordinary course, operational integrity of the device, and the requisite certificate from a responsible person were not complied with. In the absence of compliance with Section 36B, the computer outputs lacked admissible evidentiary value.

Conclusion: The printouts could not be relied upon as evidence to demand duty.

Issue (iii): Whether statements recorded during investigation could be relied upon without compliance with Section 9D of the Central Excise Act, 1944.

Analysis: Several statements relied upon in adjudication were not tested through the mandatory procedure under Section 9D. The statements that were subjected to cross-examination were subsequently retracted, and the adjudicating authority did not establish the statutory basis required to treat the remaining statements as admissible evidence. In these circumstances, the statements lost evidentiary value for proving the truth of the alleged clandestine transactions.

Conclusion: The statements recorded under Section 14 could not be relied upon to sustain the duty demand.

Issue (iv): Whether the allegation of clandestine clearance stood proved by corroborative evidence and whether the undervaluation demand and penalties were sustainable.

Analysis: No corroborative material was brought on record to establish excess procurement of raw materials, unaccounted removals, transportation, buyers' receipts, or flow of consideration. The undervaluation allegation was also based on a method not supported by the show cause notice and not grounded in reliable evidence. Once the demand itself failed, the penalties on the company and the individual noticees also could not survive.

Conclusion: The allegations of clandestine clearance and undervaluation were not proved, and the penalties were unsustainable.

Final Conclusion: The impugned demand, interest, and penalties were set aside, and the appeals succeeded with consequential relief.

Ratio Decidendi: In clandestine removal cases, duty demand cannot rest on unverified third-party electronic records or retracted statements unless the statutory requirements for admissibility of electronic evidence and witness statements are strictly satisfied, and the allegations are corroborated by independent tangible evidence.

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