2025 (11) TMI 431 - AT - Central Excise

Departmental demand set aside where uncertified digital and physical evidence failed s.36A/36B CEA requirements and corroboration

CESTAT held the departmental demand unsustainable and allowed the appeals, setting aside the impugned orders. Computer printouts and digital media seized ... Clandestine removal - Sufficient evidences - computer printouts taken from the computer resumed during the search of the secret premises of the appellant are in accordance with the Section 36B of the Central Excise Act or not - difference of opinion - matter referred to Third Member for resolution in difference of opinion recorded - majority order. HELD THAT:- In the present case, it is found that the Laptops and Pen drives have been resumed on 22.9.2015. They were opened in the presence of the Panchas on 30.10.2015 The appellants in the reply to SCN [as given in the Para 20.1 of the OIO] have pointed out that the Laptops and Pendrives were sealed on 30.10.2015, but were opened after more than three years on 2.11.2018 in the presence of Engineers called by the Department, who have submitted a Report. This Report was not made available to the appellant. While Section 36B prescribes several conditions for admittance as evidence, in this case, there is no answer from the Revenue as to why the print outs were not taken but were taken after more than 3 years after their seizure. This on its own would be sufficient to cast doubt on the entire process of handling of the print-outs. The mere signature of the Director, that too in the first and last pages of the print outs would not make him the author of the data entry or the print outs. He has not certified the print-outs as is required under Section 36B. The cited case of Trikoot [2024 (10) TMI 672 - CESTAT NEW DELHI] has held that the presence of Panchas cannot make it a legal document without proper certification by the author of the documents. It is found that the co-ordinate Benches of the Tribunals have been consistently holding that in the case of non-fulfilment of the conditions given under Section 36B, the charge of clandestine removal cannot be legally sustained and they have set aside the impugned orders and allowed the Appeals. It is found that in this case, the Revenue has failed to fulfil the conditions given under Section 36B which would prove to be fatal to the case of the Revenue - the entire demand predominantly relies on the computer printouts without any proper certification. Hence, I set aside the impugned order and allow the appeals. A comparison of the Section of 36A and Section 36B, clarifies that while Section 36A deals with the situation of recovery of documents in written, typed, physical form of documents brought in as evidence, whereas the Section 36B deals with the computer, CVD and other computer-based digital evidence - In the present proceedings, it is not a case wherein only physical documents in terms of Section 36A, or computer-based records in terms of Section 36B have been seized by the Revenue. It is a combination of both. Individually, both the physical as well as digital evidence brought in will have to fulfil the conditions of the Section 36A and Section 36B respectively. In respect of digital evidence, it is already held that in the present case, they lack evidentiary value, which has proved to be fatal to the Revenue’s case. The appellant has pointed out that their Annual production capacity when compared to alleged total clearances [both accounted for and unaccounted for as per Revenue], is far less. No efforts have been made to counter this claim from the appellant. No statements from the purported buyers of finished goods or purported sellers of the raw materials have been recorded - All these go on to point out that the Revenue has primarily and heavily relied on the pen-drives recovered and the print-outs thereof, which incidentally have not been properly certified so as to be admitted as evidence. They have failed to gather enough corroborative evidence to pin the allegations on the appellant. The factual details show that the entire case is more or less fully built on the basis of digital records / printouts. Hence, non-fulfilment of the conditions specified under Section 36B of CEA 1944, proves fatal to the Revenue’s case. Hence, the appeals are required to be allowed as has been held by the Hon’ble Member (Judicial). Final Decision The matter stands remitted to the Division Bench for passing the necessary orders - In view of the majority order, all the appeals are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether computer printouts and electronic records recovered during search are admissible evidence in adjudication under the Central Excise Act in absence of a certificate satisfying the conditions of Section 36B of the Central Excise Act (pari materia to Sections 65A/65B of the Evidence Act). 2. Whether the presence of panchnama, signatures on printouts and oral / documentary corroboration permit reliance on electronic printouts despite non-compliance with Section 36B. 3. Whether independent non-electronic documentary evidence recovered during search (diaries, gate passes, weighment slips, transport diaries, bank credits, purchase invoices, statutory returns) and oral statements suffice to establish clandestine manufacture and removal such that demand and penalties can be sustained even if electronic printouts are excluded. 4. Whether recorded statements of witnesses/ employees taken during investigation retain evidentiary value where retraction/coercion is alleged and where procedural safeguards (reiteration under Section 9D / cross-examination) were not followed. 5. Burden and standard of proof applicable to allegations of clandestine manufacture and removal - role of circumstantial and corroborative evidence and interplay of presumptions under Section 36A. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of computer printouts: statutory framework and precedents Legal framework: Section 36B of the Central Excise Act prescribes conditions for admissibility of computer-produced documents (computer printouts) and requires a certificate by a responsible official (mirroring Sections 65A/65B Evidence Act). The certificate must identify the electronic record, describe its production, deal with conditions about regular use, supply of data, proper operation, and be signed to the best of the certifier's knowledge and belief. Precedent treatment: The Tribunal and Supreme Court decisions require compliance with Section 65B (Evidence Act) / Section 36B (Central Excise Act) for electronic secondary evidence; Anvar P.V. and Arjun Panditrao Khotkar were applied to hold that secondary electronic evidence is inadmissible without prescribed certification, unless primary electronic evidence (original device) is produced. Interpretation and reasoning: The Court examined seizure, timing of opening of devices, printing, presence of panchnama and signatures, and the absence of a certificate in statutory form identifying device/period/regular use. Delay in extracting printouts (years after seizure) and lack of expert certification or certificate by a responsible official undermined the chain of custody and required safeguards. Ratio vs. Obiter: Ratio - computer printouts as secondary electronic evidence are inadmissible unless Section 36B conditions (including certificate) are satisfied or primary electronic evidence (original device) is produced and proved in court. Observations on panchnama/signatures not substituting statutory certificate are ratio. Conclusion: Electronic printouts relied upon for quantification lacked mandatory Section 36B certification and therefore could not be accorded evidentiary value for sustaining the demand. Issue 2 - Whether panchnama/signatures cure Section 36B non-compliance Legal framework: Section 36B(4) mandates a specific certificate; presence of panch witnesses or signatures on printouts is not identical to the statutory certificate. Precedent treatment: Co-ordinate Tribunal decisions consistently held that mere panchnama and signatures do not satisfy Section 36B / 65B requirements; computer printouts must be accompanied by the statutory certificate or original device must be produced. Interpretation and reasoning: The Court analysed panchnama timing, who signed, and whether signatures amounted to the required certificate. It held that panchnama/signatures cannot be equated with the certificate required by statute; the adjudicating authority cannot, by oral appreciation or internal findings, substitute for the formal certificate. Ratio vs. Obiter: Ratio - panchnama/signatures do not meet Section 36B(4) certification requirements; obiter remarks concerned operational practices and best evidence considerations. Conclusion: Panchnama and signatures did not cure the statutory non-compliance and did not render printouts admissible. Issue 3 - Admissibility and evidentiary sufficiency of non-electronic documentary evidence (Section 36A and corroboration) Legal framework: Section 36A creates a presumption as to the truth of contents of documents produced or seized under the Act unless contrary is proved; Section 36A admits seized documents notwithstanding stamp defects if otherwise admissible. Precedent treatment: Tribunal and High Court authorities treat documents recovered from custody of accused/ employees as prima facie authentic under Section 36A, shifting burden to the party to disprove linkage or authenticity. However, established precedents also require tangible, direct and corroborative evidence for clandestine removal (not mere notebooks or untested entries). Interpretation and reasoning: The Technical Member emphasised a matrix of seized non-electronic materials - diaries, gate pass books, weighment slips, transport diaries, bank credit analysis, purchase invoices and statements of weighbridge owners/transporters - and found cross-correlation among these items and admissions by employees/director sufficient to prove clandestine clearances. The Judicial Member/third Member examined the same materials and concluded that where digital printouts are foundational for quantification, exclusion of those printouts rendered quantification unsustainable; further, several documentary and testimonial elements (retractions, lack of cross-examination, gaps in transporter/buyer inquiries, production capacity and movement evidence) did not constitute reliable corroboration under the standards required to establish clandestine removal. Ratio vs. Obiter: Mixed: The proposition that properly seized, non-electronic documents seized from custody attract the presumption under Section 36A is ratio. The application about sufficiency of the specific set of seized documents to prove clandestine removal in this factual matrix contains both ratio (as applied by the Technical Member) and contrary ratio (as applied by the Judicial Member/majority) - demonstrating that sufficiency depends on the totality and independence of corroboration. Conclusions: Majority conclusion - non-electronic documents in this case, absent admissible electronic quantification and given evidentiary gaps (retractions, incomplete corroboration, production capacity issues), were insufficient to sustain the quantified demand; dissenting conclusion - the documentary network (weighment slips, diaries, transport records, bank credits and statements) corroborated the ledger entries and supported confirmation of demand and penalties. Issue 4 - Treatment of recorded statements and procedural safeguards (retraction, Section 9D, cross-examination) Legal framework: Section 9D procedure requires certain formalities for reliance on statements recorded before a Gazetted Central Excise Officer; procedural safeguards (opportunity to reiterate voluntariness, right to cross-examine) are implicated where retraction/coercion is alleged. Precedent treatment: Decisions mandate that where retraction or coercion is alleged, the adjudicating authority must ensure compliance with statutory procedure (reiteration of free will, allowance of cross-examination) before treating recorded statements as evidence. Interpretation and reasoning: The Judicial Member/third Member found that several employees had retracted or alleged dictation/coercion and that Section 9D safeguards and cross-examination requests were not properly addressed; therefore those recorded statements lost evidentiary value. The Technical Member treated the recorded statements as corroborative where not convincingly retracted and where documentary corroboration existed. Ratio vs. Obiter: Ratio - recorded statements allegedly retracted must be admitted only after statutory safeguards (reiteration under Section 9D and, if sought, cross-examination); failure vitiates reliance. Obiter statements concern weight to be accorded when retraction is delayed or unsupported. Conclusion: Procedural irregularities and retractions weakened the probative value of certain recorded statements; whether remaining statements suffice depends on their independent corroboration. Issue 5 - Burden, standard of proof and role of circumstantial evidence in clandestine removal cases Legal framework: For clandestine/smuggling/confiscation matters, law recognises that certain facts remain peculiarly within knowledge of accused and that circumstantial and corroborative evidence can discharge the prosecution/departmental burden to raise a prima facie case; Section 36A shifts evidentiary burden regarding seized documents; court must nevertheless require tangible corroboration (excess raw material, discovered finished goods, transport/recipient links, receipt of sale proceeds, electricity consumption etc.). Precedent treatment: Authorities require a composite of direct and circumstantial indicia (purchase-clearance mismatch, weighment/gate pass correlation, transport/recipient admissions, bank credits) to sustain clandestine removal findings; mere notebooks/uncertified digital records are inadequate. Interpretation and reasoning: The Technical Member found the composite of corroborative documentary and testimonial evidence met the probability test and principles from precedents to uphold demand even disregarding uncertified electronic printouts. The Judicial Member/third Member held that the Department's case relied predominantly on uncertified electronic printouts for quantification; exclusion of those printouts, together with gaps on production capacity, transport corroboration and procedural defects, left the Department's case legally unsustainable. Ratio vs. Obiter: Ratio - clandestine removal can be proved by cumulative circumstantial evidence where it reasonably points to clandestine activity; factual sufficiency depends on quality of corroboration. Obiter - guidance on specific quantum of corroboration in differing fact patterns. Conclusion: Where admissible evidence establishes the essential elements (excess inputs/production, instances of unaccounted removal linked to recipients and transporters, realization of sale proceeds), demand can be sustained; absent reliable admissible quantification and with procedural lapses, demand cannot safely be upheld. OVERALL CONCLUSIONS 1. Majority (Judicial Member and Third Member) - Electronic printouts central to quantification lacked mandatory Section 36B certification and could not be admitted; non-electronic documents and oral evidence, on analysis, did not independently and sufficiently corroborate the alleged clandestine clearances to sustain the quantified demand and penalties; therefore the adjudicating order confirming demand was set aside and appeals allowed. 2. Dissent (Technical Member) - Even if Section 36B formalities were not strictly met for computer printouts, a body of independent documentary and testimonial evidence seized during searches (diaries, gate passes, weighment slips, transport diaries, bank credits, admissions) cross-correlated to establish clandestine manufacture and unaccounted removals; on that basis the adjudicating order could be upheld and appeals dismissed. 3. Legal principle affirmed - Secondary electronic evidence requires compliance with Section 36B (or production of primary electronic device); panchnama/signatures do not substitute statutory certification. Whether non-electronic seized records and witness statements suffice to prove clandestine removal is fact-sensitive and requires robust, independent corroboration; procedural safeguards for recorded statements must be respected.