2025 (11) TMI 1692 - AT - Central Excise

Clandestine removal demand quashed for relying on third-party records, violating sections 14, 9D and 65B requirements

M/s. Amiya Steel Pvt. Ltd, Shri Pradip Goswamy, Accountant M/s. Amiya Steel Pvt. Ltd, Shri Arindam Mondal, Director, M/s. Amiya Steel Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Bolpur

CESTAT Kolkata allowed the appeal of the assessee and set aside the demand of duty, interest, and penalties for alleged clandestine removal of sponge ... Clandestine removal of sponge iron - initiation of proceedings solely based on the search conducted on a 3rd parties premises and based on the purported documents recovered at their end - reliability of statements recorded u/s 14 of the Central Excise Act, 1944 as substantive evidence without adherence to the mandatory procedure under Section 9D - HELD THAT:- There is nothing to indicate that any search operations were subsequently conducted in the premises of the appellant and any incriminating documents were seized from them. There is no record of any shortage / excess being found at the appellant’s premises after conducting any stock verification. The first point of allegation against the appellant has emanated from the statement of Debashsis Shashmal dated 13/11/2014, which itself was taken after about two years from the date of first visit of the officials to the factory premises of SRPML. Before that, he had already recorded four statements in which there was no mention of any clandestine purchase on cash basis by SRPML. Further, it is found that when the reliance is placed on the five recorded statements of Debashsis Shasmal, it was necessary for the Revenue to follow the Section 9(D) procedure to ascertain as to whether the statements were recorded by him on his own or were they recorded under any pressure or coercion. Only after this, the Statements could have been relied upon as an evidence which the Department has failed to do in this case - the recorded statements have no evidentiary value in this case. Upon recording Section 36(B), procedure not being followed - HELD THAT:- It is found that the computer printouts have been obtained from the computers of third party, without any certification from the person maintaining the computers. This Kolkata Tribunal, in the case of Ramgarh Sponge Iron Private Limited Vs. Principal Commissioner, CGST & CX [2024 (9) TMI 1844 - CESTAT KOLKATA] where it was held that 'The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if requirements under Section 65B of the Evidence Act are not complied with, as the law now stands in India.' - thus, applying the ratio of above case law, the non-certified computer printouts taken from the third party computer also cannot be used as an evidence by the Revenue. Coming to the corroborative evidence, it is found that the Revenue has not come out with any corroborative evidence with regard to movement of vehicles, carrying the alleged 1733.02 MT of Sponge Iron which would require movement of about 80 to 90 trucks. No statements have been recorded from the vehicle owners/drivers. No stock taking was conducted at the end of the appellant to verify the finished goods stock. Therefore, the allegation about removal of the goods clandestinely cannot be construed based on the assumptions and presumptions only. Thus, the confirmed demand is legally not sustainable. Accordingly, the impugned order set aside and the appeal of the company allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the demand of central excise duty on alleged clandestine removals of sponge iron could be sustained when founded solely on third-party records and statements without any search, seizure or stock verification at the assessee's premises. (2) Whether statements recorded under Section 14 of the Central Excise Act, 1944 could be relied upon as substantive evidence without adherence to the mandatory procedure under Section 9D and without permitting cross-examination of the deponents. (3) Whether computer printouts obtained from third-party computers/hard drives, without certification and without compliance with Section 36B of the Central Excise Act, 1944 (and the parallel evidentiary standards for electronic records), could be treated as admissible and reliable evidence for confirming duty demand. (4) Whether, in the absence of corroborative evidence such as proof of excess production, movement of vehicles, transport documents, buyers' confirmation, financial flow-back or stock discrepancy, a serious charge of clandestine removal can be confirmed on presumptions and assumptions. (5) Whether penalties imposed on the company's officers could survive when the foundational demand and proceedings against the company were held unsustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1) & (2): Reliance on third-party records and statements under Section 14 without compliance with Section 9D Legal framework (as discussed) (a) Section 9D of the Central Excise Act, 1944, reproduced and analysed in detail, stipulates when and how statements recorded before a Gazetted Central Excise Officer under Section 14 can be treated as relevant and admissible for proving the truth of their contents. (b) The judgment of a High Court in G-Tech Industries and the Tribunal decision in Geetham Steels were relied upon to explain that: - Section 9D(1)(a) applies only in limited situations (death, absence, incapacity, being kept out of the way, or presence obtainable only with unreasonable delay/expense), and requires a reasoned order if invoked. - In all other cases, under Section 9D(1)(b), the maker of the statement must be examined as a witness before the adjudicating authority, and only thereafter, on judicial assessment, can the earlier statement be admitted as evidence in the 'interests of justice'. - Section 9D(2) extends these requirements to adjudication proceedings, not only prosecutions. Interpretation and reasoning (c) The Tribunal noted that the entire case originated from a search at a third-party's (SPRML's) premises; no search or seizure was conducted at the appellant's premises and no shortage/excess of stock was detected there. (d) The first allegation against the appellant emerged only from the fifth statement of a third-party employee (Debashis Shasmal) recorded long after the initial visit; earlier four statements did not mention any clandestine cash purchases. (e) The Tribunal found that: - The department relied on multiple statements of this witness without invoking Section 9D(1)(a) by any reasoned order; none of the statutory contingencies (death, non-traceability, incapacity, etc.) were recorded. - The mandatory procedure under Section 9D(1)(b) was not followed: the deponent was not examined as a witness in adjudication, and no judicial evaluation was made before treating his statement as substantive evidence. - Requests for cross-examination of the witness and others, whose statements formed the basis of the show cause notice, were not granted. (f) Following the ratio of G-Tech Industries and Geetham Steels, the Tribunal held that: - Without compliance with Section 9D, statements recorded during investigation lose their evidentiary value for proving the truth of their contents. - Any reliance on such statements amounts to reliance on 'irrelevant material', thereby vitiating the adjudication. - If the procedure in Section 9D is not followed, it is to be treated as if the Revenue has given up those witnesses and their statements must be eschewed from consideration. Conclusions (g) The Tribunal concluded that, in this case, the recorded statements under Section 14 were not legally admissible as substantive evidence due to non-compliance with Section 9D and denial of cross-examination. (h) Consequently, such statements could not form a valid basis for confirming the demand of duty on alleged clandestine removals. Issue (3): Admissibility and evidentiary value of computer printouts from third-party devices without compliance with Section 36B Legal framework (as discussed) (a) Section 36B of the Central Excise Act, 1944, dealing with admissibility of microfilms, facsimile copies and computer printouts as 'documents' and 'evidence', was examined through the Tribunal's earlier decision in Ramgarh Sponge Iron Private Limited and other cited authorities. (b) The conditions under Section 36B(2) and the requirement of a certificate under Section 36B(4) were highlighted: the computer must have been regularly used, data regularly fed in the ordinary course, proper functioning of the device must be shown, and a responsible person must certify these aspects. (c) The Supreme Court's decision in Anvar P.V. v. P.K. Basheer was referred to for the parallel requirements in Section 65B of the Evidence Act: electronic records are admissible only upon satisfaction of specified conditions and with an accompanying certificate establishing identity, mode of production, device particulars and authenticity. Interpretation and reasoning (d) The Tribunal found that the printouts used against the appellant were derived from external hard drives/computers seized from a third party (SPRML), and: - No certificate from the person responsible for maintaining those computers was obtained. - None of the statutory conditions under Section 36B(2) were demonstrated by the Revenue. - The ownership, regular use and authenticity of the data were not established. (e) By applying the reasoning in earlier Tribunal decisions (including Ambica Organics and Premier Instrument & Controls) and Anvar P.V., the Tribunal held that: - Without fulfilling Section 36B requirements, computer printouts cannot be treated as admissible evidence of their contents. - Non-certified computer printouts, particularly from third-party devices, lack evidentiary value and cannot be the basis for proving clandestine removal. Conclusions (f) The Tribunal held that the computer printouts obtained from the third-party's computers/hard drives, in the absence of the mandatory certification and statutory compliance, could not be relied upon as evidence. (g) The demand of duty based primarily on such inadmissible computer printouts was therefore unsustainable. Issue (4): Necessity of corroborative evidence to establish clandestine removal and impermissibility of demands based on presumptions and assumptions Legal framework (as discussed) (a) The Tribunal referred to High Court decisions (including those in Hi Tech Abrasives and Continental Cement Company) which emphasise that clandestine removal is a serious charge and cannot be sustained without 'clinching evidence' such as: - Excess production details; - Purchase of extra raw materials; - Dispatch particulars from transporters and vehicle movement records; - Realisation and flow-back of sale proceeds; - Confirmations from buyers/dealers/regular transporters; - Discrepancies in stock and power consumption; - Documents such as lorry receipts, weighbridge slips, security gate records, check-post documents, tax road permits, etc. (b) These decisions hold that demands based solely on presumptions, assumptions or singular types of evidence, without such corroboration, are not legally tenable. Interpretation and reasoning (c) On the facts, the Tribunal found that: - Alleged clandestine clearance of 1733.02 MT of sponge iron would involve about 80-90 truck movements. - No evidence whatsoever was produced regarding vehicle movement, lorry receipts, transporter records, weighbridge slips, security/gate records, or statements of truck owners/drivers. - No evidence of extra manufacture or excess consumption of raw materials was brought on record. - No private records or documents of the appellant showing cash transactions or unaccounted sales were seized. - No stock verification at the appellant's premises was conducted; no shortage or excess of finished goods or raw materials was detected. (d) In light of the above deficiencies, and applying the principles from the cited High Court decisions, the Tribunal held that the Revenue had not undertaken the necessary investigative steps or produced substantive corroborative evidence. (e) The Tribunal reiterated that clandestine removal cannot be inferred merely from third-party records and unproven electronic data, particularly when all standard corroborative indicators (production, transport, finance, stock) are absent. Conclusions (f) The Tribunal concluded that there was no clinching or tangible evidence to establish clandestine manufacture or removal by the appellant. (g) The demand, being founded on presumptions and assumptions without corroboration, was held legally unsustainable. Issue (5): Sustainability of penalties on company officers when principal demand is set aside Interpretation and reasoning (a) The Tribunal observed that: - The penalties imposed on the director and accountant were purely consequential to the alleged clandestine removals by the company. - The show cause notice did not spell out any specific, independent acts of contravention attributable to these individuals beyond the company's alleged liability. (b) Once the demand and proceedings against the company were found unsustainable for lack of admissible evidence and corroboration, the very foundation for imposing penalties on its officers ceased to exist. Conclusions (c) The Tribunal set aside the entire confirmed demand, interest and penalty against the company. (d) As a corollary, the penalties imposed on the other appellants (director and accountant) were also set aside. (e) The appeals were allowed with consequential relief in accordance with law.