Clandestine-removal demands require a corroborated evidentiary chain; unauthenticated loose sheets, electronic data, and third-party files are insufficient.
Fiscal liability for clandestine removal requires reliable, corroborated evidence connecting unaccounted inputs, manufacture, removal, transport, recipients and consideration. Unsigned loose sheets, WhatsApp printouts, Tally data recovered from third-party premises, and unverified third-party files lack sufficient evidentiary value where authorship, custody, provenance, extraction, integrity, and statutory safeguards for electronic records are not established. Statements indicating only a marketing connection cannot independently prove clandestine manufacture or clearance. Natural justice requires disclosure of relied-upon statements and records. Assumptions based on selected consumption ratios or uncorroborated private records cannot substitute for a complete evidentiary chain.
Issues: (i) Whether the alleged clandestine clearances could be sustained on the Varanasi loose sheets and WhatsApp printouts; (ii) Whether the alleged clandestine clearances could be sustained on the Tally data recovered from the Prayagraj laptop and related statements; and (iii) Whether the demand based on File No. 17 concerning alleged supply and consumption of laminates could be sustained.
Issue (i): Whether the alleged clandestine clearances could be sustained on the Varanasi loose sheets and WhatsApp printouts.
Analysis: The unsigned loose sheets neither identified the assessee, the goods, their author, nor the quantity and nature of any taxable transaction. The WhatsApp printouts lacked a reliable evidentiary foundation concerning extraction, provenance, integrity, preservation and statutory compliance for electronic evidence under Section 36B of the Central Excise Act, 1944. Neither source was supported by corroborative evidence of unaccounted inputs, excess production, transport, identified buyers or receipt of sale proceeds. A charge of clandestine removal must be proved through reliable material; a finding on preponderance of probability must arise from proved circumstances rather than successive assumptions.
Conclusion: The demand attributable to the loose sheets and WhatsApp printouts is unsustainable and the issue is decided in favour of the assessee.
Issue (ii): Whether the alleged clandestine clearances could be sustained on the Tally data recovered from the Prayagraj laptop and related statements.
Analysis: The Tally records were recovered from third-party premises, maintained under a fictitious name, and were not linked to the assessee through reliable source documents or transaction-wise corroboration. Deficiencies regarding the laptop's identity, custody, ownership, extraction and electronic-record safeguards undermined the evidentiary value of the data. Related statements could at most indicate a marketing connection and could not independently establish clandestine manufacture and removal. Reliance on an undisclosed relied-upon statement and panchnama was also inconsistent with natural justice. The necessary chain of circumstantial evidence connecting manufacture, removal, transport, delivery and consideration was absent.
Conclusion: The demand based on the Tally data and related statements is unsustainable and the issue is decided in favour of the assessee.
Issue (iii): Whether the demand based on File No. 17 concerning alleged supply and consumption of laminates could be sustained.
Analysis: File No. 17 was an unverified third-party record of unproven authorship, authenticity and custody. Its entries were not corroborated by evidence of actual delivery of laminates to the factory, receipt, consumption, manufacture of finished goods, clandestine outward transport, identified buyers or flow of consideration. Attribution of laminate through a selected ratio, followed by assumed manufacture and clearance, amounted to a presumption founded upon another presumption. Third-party records cannot alone discharge the burden of proving clandestine removal.
Conclusion: The demand founded on File No. 17 is unsustainable and the issue is decided in favour of the assessee.
Final Conclusion: The substantive demands lacked a legally reliable evidentiary foundation because the alleged unaccounted clearances were not established through a complete and corroborated evidentiary chain.
Ratio Decidendi: Fiscal liability for clandestine removal cannot be founded solely on unauthenticated private or electronic records; reliable corroboration linking unaccounted inputs, manufacture, removal, recipients and consideration is indispensable.