2025 (6) TMI 1961 - AT - Central Excise

Revenue's appeal dismissed against Director for clandestine removal due to procedural violations under sections 36B and 9D

Commissioner of Central Excise & CGST Jodhpur Versus M/s Paradise Steels Pvt. Ltd. And Commissioner of Central Excise & CGST Jodhpur Versus Shri Rakshit Bhansali Director M/s Paradise Steels Pvt. Ltd.

Commissioner of Central Excise & CGST Jodhpur Versus M/s Paradise Steels Pvt. Ltd. And Commissioner of Central Excise & CGST Jodhpur Versus Shri Rakshit ... The core legal questions considered in this case are:1. Whether the procedure prescribed under section 36B of the Central Excise Act, 1944 was complied with in relation to the retrieval and certification of electronic data from the computer and pen drive seized during investigation.2. Whether the burden of proof to establish the clandestine removal of goods was discharged by the department, specifically regarding the type of product cleared (cold rolled patta disguised as hot rolled patta).3. Whether the statement of the Director of Paradise Steels, recorded under section 14 of the Central Excise Act, can be admitted as evidence without following the procedure mandated under section 9D of the Central Excise Act.4. Whether penalty imposed on the Director of Paradise Steels under rule 26 of the Central Excise Rules, 2002 was justified.Issue 1: Compliance with Section 36B of the Central Excise Act in Retrieval and Certification of Electronic DataThe relevant legal framework is section 36B of the Central Excise Act, which mandates a specific procedure for retrieval and certification of data from electronic devices during investigation. The section requires that data retrieved from a computer or electronic device must be certified by a responsible official in relation to the operation of the device, thereby ensuring the authenticity and integrity of the data as evidence.The department relied on a panchnama dated December 30, 2013, prepared in the presence of two independent witnesses and the Director of Paradise Steels, asserting it as the certificate under section 36B. The adjudicating authority accepted this as compliance.The Commissioner (Appeals) disagreed, holding that a panchnama cannot substitute the certificate required under section 36B. The panchnama merely documents the retrieval process but does not certify the authenticity of the data. The Commissioner noted that the Director's clarifications regarding the excel sheet did not amount to certification of the data's authenticity. Furthermore, the data was not stored on the computer but on a USB drive, from which printouts were taken without obtaining any signature certificate as mandated under section 36B(4).The Commissioner emphasized that the failure to obtain the required certificate was a significant procedural flaw that undermined the evidentiary value of the data. The Tribunal upheld this view, referencing a Division Bench decision which held that a panchnama cannot be treated as a certificate under section 36B, and the adjudicating authority cannot itself determine compliance with the certification requirements.Thus, the Court concluded that the department failed to follow the mandatory procedure under section 36B, rendering the electronic data inadmissible as evidence to support the demand.Issue 2: Burden of Proof Regarding Clandestine Removal and Product TypeThe department alleged that Paradise Steels clandestinely cleared cold rolled patta as hot rolled patta to evade excise duty, as hot rolled patta was exempt. The department relied on data retrieved from the computer and the Director's statement to establish this.The Commissioner (Appeals) analyzed whether the department discharged the burden of proof. It was noted that the most crucial evidence to prove the type of product cleared would be the confirmation from buyers who received the goods. However, despite having the names of buyers from the Director's statement, the department did not summon or record statements from any buyers. The investigation was wound up without this critical step.The Commissioner held that issuing a show cause notice without obtaining statements from buyers, who were essential witnesses, was untenable and indicated departmental bias towards raising a demand without adequate proof.The Tribunal agreed with this reasoning, holding that the department failed to produce cogent and corroborative evidence to substantiate the allegation of clandestine removal.Issue 3: Admissibility of the Director's Statement under Section 14 and Section 9D of the Central Excise ActSection 14 authorizes officers to summon persons and record their statements during inquiry. However, section 9D prescribes strict conditions for the admissibility of such statements in evidence, requiring that the person making the statement be examined as a witness before the adjudicating authority, and the authority must form an opinion that the statement should be admitted in the interests of justice. Additionally, the person against whom the statement is used must be given an opportunity for cross-examination.The department relied on the Director's statement recorded under section 14 to support the demand. The Commissioner (Appeals) found that the procedural safeguards under section 9D were not complied with, rendering the statement inadmissible as evidence.The Tribunal reinforced this position by citing a recent decision which clarified that statements recorded during inquiry cannot be relied upon unless the procedure under section 9D is followed. This procedural requirement is mandatory to prevent coercion or compulsion in recording statements and to ensure fairness.Consequently, the Director's statement was not admissible to prove the allegations without adherence to section 9D.Issue 4: Imposition of Penalty on the DirectorThe penalty of Rs. 2 lakhs was imposed on the Director under rule 26 of the Central Excise Rules, 2002, presumably for the alleged clandestine removal and non-compliance.Given the findings that the department failed to prove the allegations due to lack of admissible evidence and procedural lapses, the Commissioner (Appeals) held that penalty could not be imposed on the Director.The Tribunal concurred, dismissing the department's appeal against the penalty order.Significant Holdings and Core PrinciplesThe Tribunal held that:'It was obligatory on the part of the department to follow the procedure contemplated under section 36B of the Central Excise Act and obtain a certificate. There is, therefore, no error in finding recorded by the Commissioner (Appeals).'Regarding evidentiary requirements for statements, the Tribunal emphasized:'A person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made.'It was also held that:'The department was supposed to summon the buyers and record their statements to determine what type of products they had received. However, the investigating authority has not taken the statements of any of the buyers and have winded up the investigation. Such a show cause notice issued without taking the statements of buyers (when they were crucial evidences for proving the allegations) is not tenable.'On penalty, the Tribunal concluded that without proof of the allegations, penalty could not be sustained.Accordingly, the Tribunal dismissed the department's appeals and upheld the Commissioner (Appeals) order allowing the appeals filed by Paradise Steels and its Director.