The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai, set aside a duty demand of Rs.4,08,12,318/- and a penalty of Rs.2 crore imposed on the appellant-company and its managing director, holding that the electronic data relied upon by the Revenue was inadmissible for non-compliance with Section 36B of the Central Excise Act, 1944, and that the quantum of liability must be re-determined solely on the basis of admissible statements and independent documentary evidence. The Tribunal emphasized that while statements recorded during investigation retain evidentiary value, the mechanical adoption of figures from electronic records without satisfying procedural safeguards undermines the evidentiary foundation of the demand.
Background & Facts
The Dispute
The Revenue alleged that M/s. Sri Kamalaganapathy Steel Rolling Mills Ltd. (Appellant-I) clandestinely procured MS ingots from M/s. V.V. Iron and Steel Company Pvt. Ltd. (VVISCO) and M/s. Geetham Steels Pvt. Ltd. (GSPL), manufactured TMT rods/bars, and cleared them without accounting for production or paying Central Excise duty during the period 01.04.2011 to 02.02.2012. Appellant-II, Shri C. Saravanan, Managing Director, was alleged to be actively involved in the procurement, suppression of production, and clandestine removal of finished goods.
Key Facts
- The alleged clandestine clearance period: 01.04.2011 to 02.02.2012.
- Investigation: DGCEI officers searched the appellant's premises on 07.03.2012 and seized documents, including sales invoice files, a CD bearing the name "Moserbeer Sterling", and computer printouts under a mahazar dated 07.03.2012.
- Simultaneous search at VVISCO, Tuticorin on 04.04.2012 seized invoice files, three computer CPUs, and recorded statements of its Accounts Manager, Plant-in-Charge, and Computer Operator.
- The Show Cause Notice proposed recovery of Rs.4,08,12,318/- towards Central Excise duty and cess on alleged unaccounted clearances of TMT rods/bars, along with interest and penalties.
- After adjudication, the Commissioner confirmed the demand with interest and imposed an equal penalty on the appellant-company under Section 11AC of the Central Excise Act, 1944.
- A further penalty of Rs.2 crore was imposed on Shri C. Saravanan, Managing Director, under Rule 26(1) of the Central Excise Rules, 2002.
- The appellant's statement dated 17.07.2013 acknowledged receipt of substantial quantities of material from VVISCO and distinguished between accounted and unaccounted quantities.
- Appellant-II's earlier statement dated 12.03.2012 denied maintaining data on CDs or other electronic media, but later admitted the seized CD contained actual as well as allegedly fabricated data.
Procedural History
- 26.03.2018: Commissioner passed Order Sl. No. 01/2018 (C.Ex. - Commissioner) confirming demand and penalties (impugned order).
- 2018: Excise Appeal Nos. 41774 and 41775 of 2018 filed before CESTAT, Chennai (arising out of the impugned order).
- 02.04.2026: Date of hearing before CESTAT.
- 29.09.2026: Date of decision (judgment pronounced in open court).
The Parties' Positions
For the Appellant/Petitioner
The appellants contended that the principal demand of Rs.3,97,49,753/- was based on computer printouts from a CD seized from their factory, and that the mandatory requirements of Section 36B of the Central Excise Act, 1944 relating to admissibility of electronic records were not fulfilled. They argued that the CD was disowned, mahazars did not record particulars of the computer generating the data, and no steps were taken for nearly four years to establish compliance with Section 36B. They further submitted that statements recorded under Section 14 of the Central Excise Act were relied upon without following the mandatory procedure under Section 9D, and that the allegation of clandestine manufacture lacked independent corroborative evidence such as excess consumption of raw materials or electricity.
For the Respondent/State
The Revenue submitted that the seized CD was contemporaneously authenticated under mahazar proceedings in the presence of Appellant-II, who signed the printouts, rendering the electronic data admissible. They relied on statements of VVISCO employees, transporters, and purchasers, which independently corroborated the data recovered from the appellant. The Revenue contended that the cumulative evidence, including purchase invoices, Form-IV records, transporter records, and statements, established clandestine receipt, manufacture, and removal of MS ingots and TMT bars, and that the demand of duty, interest, and penalty was sustainable.
Relief Sought
The appellants sought to set aside the impugned order, the duty demand, interest, and penalties, and to have the matter remanded for re-quantification based solely on admissible evidence. The respondent prayed that the appeals be dismissed and the impugned order upholding the demand and penalties be confirmed.
The Legal Issue
The issue for determination is whether the demand confirmed against M/s. Sri Kamalaganapathy Steel Rolling Mills Ltd. towards alleged clandestine manufacture and removal of TMT Bars during 01.04.2011 to 02.02.2012, together with interest and penalty under Section 11AC of the Central Excise Act, 1944, and the penalty of Rs.2 crore imposed on Shri C. Saravanan under Rule 26(1) of the Central Excise Rules, 2002, is sustainable.
Arguments Presented
For the Appellant/Petitioner
The appellants argued that the electronic data/printouts were inadmissible because the mandatory requirements of Section 36B of the Central Excise Act, 1944, including the certificate under Section 36B(4), were not satisfied. They relied on Anvar P.V. Vs P.K. Basheer [(2014) 10 SCC 473] and Arjun Panditrao Khotkar Vs Kailash Kushanrao Gorantyal [(2020) 7 SCC 1] to assert that electronic records relied upon as secondary evidence are subject to statutory admissibility requirements. They contended that the statements recorded under Section 14 were inadmissible for non-compliance with Section 9D, as the request for cross-examination was wrongly rejected as a delaying tactic. They further submitted that the Revenue failed to produce tangible, direct evidence such as excess consumption of raw materials or electricity, and that the alleged clandestine manufacture lacked independent corroboration.
For the Respondent/State
The Revenue argued that the electronic data constituted seized and contemporaneously authenticated material, as the CD was opened and printed under mahazar proceedings in the presence of Appellant-II, who signed the printouts. They relied on the decision in Additional Director General (Adjudication), DRI Vs Suresh Kumar & Co. Impex Pvt. Ltd. [(2026) 1 SCC 756] to assert that where the department has done everything possible to obtain a third-party certificate and failed, compliance may be excused, but such circumstances were not satisfied here. They emphasized that statements of VVISCO employees, transporters, and purchasers remained unretracted and provided independent corroboration of the electronic data. The Revenue submitted that the cumulative evidence, including purchase invoices, Form-IV records, transporter records, weighment slips, and statutory returns, established the clandestine activity beyond reasonable doubt.
The Court's Analysis
The Tribunal first examined the admissibility of electronic evidence. It noted that, by statutory fiction, electronic records are treated as documents subject to fulfilment of requirements under Section 138C of the Customs Act, 1962, which is pari materia with Section 65B of the Evidence Act, 1872. The Tribunal observed that the ratio in Additional Director General (Adjudication), DRI Vs Suresh Kumar & Co. [(2026) 1 SCC 756] would apply only where the department has demonstrated it did everything possible to obtain a third-party certificate and failed; absent such showing, the electronic data could not be treated as admissible. Consequently, the electronic data/printouts were discarded from consideration.
Regarding statements, the Tribunal held that statements recorded during investigation under Section 108 of the Customs Act (analogous to Section 14 of the Central Excise Act) are admissible in evidence, and their evidentiary value must be examined independently. It found that the statements of VVISCO employees, transporters, and purchasers remained unretracted and there was no indication of involuntariness. The Tribunal further noted that the mere denial of cross-examination does not automatically render a statement devoid of evidentiary value, especially where the contravention is independently established by documentary and circumstantial evidence and no prejudice is demonstrated.
The Tribunal then considered the cumulative evidence. It held that, after excluding the inadmissible electronic records, the remaining independently admissible documentary evidence - such as invoices, transport records, weighment records, and statutory records - could be relied upon to the extent they independently established particular transactions or quantities. The statements of connected persons retained evidentiary value and could not be discarded merely because the appellant had sought cross-examination without substantiating specific prejudice.
"We therefore find that the impugned order requires re-examination to the extent that the quantum of demand has been arrived at by mechanically adopting figures contained in the electronic records. The statements and other independently admissible documentary evidence, such as invoices, transport records, weighment records and statutory records, can be relied upon to the extent that they independently establish particular transactions or quantities."
The Tribunal concluded that the impugned order was liable to be set aside to the extent it determined the entire demand based on electronic records, and the matter was remanded to the adjudicating authority for re-quantification strictly on the basis of admissible statements and independent documentary/circumstantial evidence, with a fresh order to be passed within ninety days.
The Verdict
The Tribunal set aside the impugned order to the extent it relied on electronic records for determining the quantum of demand. It remanded the matter to the Original Authority for re-quantification of the duty liability, if any, solely on the basis of admissible statements and independent documentary/circumstantial evidence, with a direction to pass a fresh order in accordance with law within ninety days of receipt of the order. The appellant was directed to cooperate in the re-quantification process. The consequential liability towards interest and penalties shall also be re-determined in accordance with the duty liability ultimately established. The original demand of Rs.4,08,12,318/- plus interest and penalty, and the penalty of Rs.2 crore on Shri C. Saravanan, are thus subject to re-determination.
What This Means For Similar Cases
Electronic Evidence Requires Strict Procedural Compliance
Practitioners must ensure that electronic records sought to be relied upon satisfy the mandatory requirements of Section 36B of the Central Excise Act, 1944 (or its analogue in other statutes). A mere printout or CD without the prescribed certificate or proof of genuine efforts to obtain one is inadmissible. The burden lies on the party proffering such evidence to demonstrate compliance or excuse.
Statements Retain Evidentiary Value Even Without Cross-Examination
Statements recorded during investigation remain admissible and can be weighed for their probative value. The denial of cross-examination does not automatically strip a statement of evidentiary worth, particularly when the statements are unretracted and corroborated by independent documentary evidence. Counsel should be prepared to challenge the voluntariness and reliability of such statements rather than relying solely on the absence of cross-examination.
Re-Quantification Based on Admissible Evidence Is Mandatory
Where electronic evidence is held inadmissible, the adjudicating authority must re-compute any tax demand, penalty, or liability using only independently admissible evidence such as invoices, statutory records, weighment slips, and unretracted statements. Mechanical adoption of figures from excluded electronic records is impermissible, and any fresh order must be grounded in evidence that independently establishes the factual basis for liability.
