The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, set aside a substantial central excise demand of Rs.4,34,56,993/- after finding the Department's case fatally flawed due to non-compliance with mandatory evidentiary procedures under Sections 9D and 36B of the Central Excise Act, 1944. The Tribunal held that statements recorded during investigation and computer printouts retrieved from seized devices were inadmissible as evidence, collapsing the allegation of clandestine manufacture and clearance of Sponge Iron and Charcoal.
Background & Facts
The Dispute
The Department alleged that M/s. Jai Mangla Sponge Iron Private Limited (appellant-company) and its Director Shri Jawahar Lal Vig (appellant no. 2) engaged in clandestine clearance of finished products (Sponge Iron and Charcoal) without issuing central excise invoices or paying applicable duties during the period 01.11.2014 to 07.09.2016. The Department claimed this resulted in a central excise duty liability of Rs.4,34,56,993/- (inclusive of cesses), for which it sought recovery along with equivalent interest and penalty under Section 11AC of the Central Excise Act, 1944, and a personal penalty of Rs.50,00,000/- against appellant no. 2 under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the CGST Act, 2017.
Key Facts
- The appellant-company was engaged in manufacture and clearance of Sponge Iron and Charcoal falling under Chapters 72 and 27 of the Central Excise Tariff Act, 1985, holding Central Excise Registration bearing ECC No. AABCJ4338CXM001.
- On 16.09.2016, officers of the Preventive Branch conducted searches at three premises connected with the appellants: (i) factory premises at Kurli, Chandil; (ii) working office at Room Nos. 306/307, 3rd Floor, Akashdeep Plaza, Golmuri, Jamshedpur; (iii) residential premises of appellant no. 2 at H. No. 08, C.H. Area, Bistupur, Jamshedpur.
- From the factory premises, officers recovered/seized records, documents, and certain CPUs marked 'CPU Intex/Neptune' and 'CPU Intex/Blaze'.
- From the working office, they seized business and accounting records including sale invoices, ledger accounts, sale/purchase registers, and an LG CPU.
- From the residential premises of appellant no. 2, a 16 GB SanDisk Cruzer Blade pen drive was recovered.
- Statements were recorded during investigation: Shri Swapan Sinha (Manager Accounts) on 16.09.2016 under Section 14; Shri Sarabjeet Singh Sony (Plant-in-Charge) on 21.11.2016 under Section 14; Shri Pankaj Kumar Sharan (Assistant Accountant) on 03.10.2016; and further statements of Shri Swapan Sinha on 15.12.2016, 21.12.2016, and 06.01.2017.
- The Department alleged clandestine clearance of 16,639.630 MT of Sponge Iron and 15,873.090 MT of Charcoal based on retrieved computer data and statements, involving alleged Central Excise duty liability of Rs.4,34,56,993/- (comprising duty Rs.4,31,06,267/-, Education Cess Rs.2,33,816/-, Secondary & Higher Education Cess Rs.1,16,910/-).
- A Show Cause-cum-Demand Notice dated 09.12.2019 proposed recovery of Rs.4,34,56,993/- for the period 01.11.2014 to 07.09.2016 by invoking the extended period under Section 11A(4) of the Central Excise Act, 1944.
- The Ld. Commissioner of C.G.S.T. and Central Excise, Jamshedpur, vide Order-in-Original No. 05/Commissioner/2021 dated 17.03.2021, confirmed the demand of Rs.4,34,56,993/- against appellant no. 1 with equivalent interest and penalty under Section 11AC, and imposed a personal penalty of Rs.50,00,000/- on appellant no. 2 under Rule 26 read with Section 174 of the CGST Act, 2017.
Procedural History
- 16.09.2016: Searches conducted at factory premises, working office, and residential premises of appellants.
- 16.09.2016: Statement of Shri Swapan Sinha recorded under Section 14.
- 21.11.2016: Statement of Shri Sarabjeet Singh Sony recorded under Section 14.
- 03.10.2016: Statement of Shri Pankaj Kumar Sharan recorded.
- 15.12.2016, 21.12.2016, 06.01.2017: Further statements of Shri Swapan Sinha recorded.
- 07.02.2018: Letter issued to M/s. Bunty Overseas Pvt. Ltd. seeking clarification on exports.
- 09.12.2019: Show Cause-cum-Demand Notice issued proposing recovery of Rs.4,34,56,993/-.
- 17.03.2021: Impugned Order-in-Original No. 05/Commissioner/2021 passed confirming demand and penalties.
- 20.08.2026: Date of hearing before CESTAT Kolkata.
- 17.09.2026: Date of judgment/order.
Relief Sought
The appellants prayed that the impugned Order-in-Original be set aside and the demand of Central Excise duty, together with consequential interest and penalties imposed upon them, be quashed.
The Legal Issue
The central question was whether the Department's reliance on statements recorded under Section 14 of the Central Excise Act, 1944, and computer printouts/data retrieved from seized CPUs/pen drives, without compliance with the mandatory procedures prescribed under Sections 9D and 36B respectively, rendered such evidence inadmissible and thereby vitiated the adjudication of the alleged clandestine clearance of goods.
Arguments Presented
For the Appellant/Petitioner
The appellants contended that the Department's case was substantially founded on statements of Shri Swapan Sinha and Shri Sarabjeet Singh Sony coupled with computer printouts, but lacked necessary corroborative evidence such as physical stock discrepancies, transport documents, or buyer statements. They argued that statements recorded during investigation were inadmissible because they were not examined-in-chief nor allowed cross-examination, violating the mandatory procedure under Section 9D(1)(b). Regarding electronic evidence, they asserted that computer printouts did not satisfy Section 36B(2) and 36B(4) requirements, particularly the absence of a certificate from a responsible official. They further submitted that the Show Cause Notice dated 09.12.2019 was barred by limitation as it pertained to transactions ending 07.09.2016, and the Department failed to establish fraud or wilful suppression required to invoke the extended period under Section 11A(4). The appellants relied on precedents including M/s. Jai Balaji Industries Limited v. Commissioner of C.G.S.T. and Central Excise, Bolpur [2023 (8) TMI 989 - CESTAT, Kolkata] and G-Tech Industries v. Union of India [2016 (339) E.L.T. 209 (P & H)] to support their contentions on evidentiary inadmissibility.
For the Respondent/State
The Ld. Authorized Representative of the Revenue supported the findings in the impugned order, praying that the appeals be rejected. The Respondent maintained that the investigation had adequately established clandestine manufacture and clearance through seized documents, statements, and computer data, and that the impugned order correctly confirmed the demand and penalties.
The Court's Analysis
The Tribunal began by framing the two core evidentiary issues: (a) admissibility of statements recorded during investigation without compliance with Section 9D procedure, and (b) admissibility of data retrieved from CPUs/pen drives without adhering to Section 36B provisions. On the first issue, the Tribunal emphasized that Section 9D(1) of the Central Excise Act, 1944, mandates that a statement made before a gazetted Central Excise Officer during inquiry is relevant for proving truth of facts only if either (a) the maker is dead/unavailable, or (b) the maker is examined as a witness before the adjudicating authority and the authority forms an opinion that the statement should be admitted in the interests of justice. The Tribunal noted that the statements relied upon by the Department had never been tested by examination-in-chief nor allowed for cross-examination. Citing M/s. Ambika International vs. Union of India [2018 (361) E.L.T. 90 (P&H)], the Tribunal held that such statements cannot be considered relevant evidence without following the procedure under Section 9D(1)(b), as the Revenue had 'given up the said witnesses' making reliance 'misguided'. The Tribunal further relied on its own decision in M/s. Jai Balaji Industries Limited & ors. v. Commissioner of C.G.S.T. and Central Excise, Bolpur [2023 (8) TMI 989 - CESTAT, Kolkata], where it observed that statements recorded under Section 14 cannot be relied upon without examination-in-chief and cross-examination under Section 9D.
On the second issue concerning electronic evidence, the Tribunal held that data retrieved from CPUs/pen drives could not be treated as admissible evidence without compliance with Section 36B(2) and 36B(4) of the Central Excise Act, 1944. Section 36B(4) mandates a certificate signed by a person occupying a responsible official position regarding the operation of the device, establishing ownership and veracity of the electronic record. The Tribunal found that in the present case, neither the mandatory conditions of Section 36B(2) were complied with nor was any certificate as contemplated under Section 36B(4) produced on record. Relying on M/s. Ramgarh Sponge Iron Pvt. Ltd. v. Principal Commissioner, CGST & CX, Ranchi [2024 (9) TMI 1844 (Tri.-Kol.)], the Tribunal held that printouts taken from computers, pen drives, and laptops cannot be relied upon to demand duty when Section 36B requirements are unsatisfied. The Tribunal concluded that without admissible statements or electronic evidence, the Department had no foundation to allege clandestine clearance of 16,639.630 MT of Sponge Iron and 15,873.090 MT of Charcoal. It further noted the absence of corroborative ingredients such as examination of manufacturing capacity, investigation of buyers/suppliers, labour requirements, or electricity consumption patterns, rendering the charge of clandestine manufacture and removal fundamentally unsubstantiated.
The Verdict
The appellants succeeded entirely. The Tribunal set aside the impugned Order-in-Original No. 05/Commissioner/2021 dated 17.03.2021, quashing the demand of Central Excise duty amounting to Rs.4,34,56,993/- (inclusive of cesses) against appellant no. 1, along with the equivalent interest and penalty imposed under Section 11AC of the Central Excise Act, 1944. It also set aside the personal penalty of Rs.50,00,000/- imposed upon appellant no. 2 under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the CGST Act, 2017. The Tribunal directed that the Show Cause Notice issued on 09.12.2019 be remanded to the Respondent for adjudication de novo by following the procedure contemplated under Section 9D of the Act and principles of natural justice.
What This Means For Similar Cases
Mandatory Compliance with Section 9D for Statement Admissibility
Practitioners must ensure that statements recorded under Section 14 of the Central Excise Act, 1944, during investigation are only relied upon after strict compliance with Section 9D(1)(b). This requires examining the statement-maker as a witness before the adjudicating authority and forming an opinion that the statement should be admitted in the interests of justice. Failure to follow this procedure renders such statements inadmissible, as they may have been obtained under coercion or compulsion. Revenue officers must summon witnesses for examination-in-chief and allow cross-examination; reliance on untested statements is legally unsustainable.
Strict Adherence to Section 36B for Electronic Evidence
Electronic evidence such as computer printouts from seized devices requires mandatory compliance with Section 36B(2) and 36B(4) of the Central Excise Act, 1944. Specifically, a certificate under Section 36B(4) signed by a responsible official regarding the device's operation is essential to establish ownership and veracity of the electronic record. Without this certificate and proof that conditions like regular computer use and information supply were met, such evidence is inadmissible. Practitioners should challenge electronic evidence lacking these foundational requirements, as seen in the collapse of the Department's case here.
Corroboration Essential for Clandestine Clearance Allegations
Allegations of clandestine manufacture and clearance cannot rest solely on statements or electronic data; they require tangible corroborative evidence. This includes physical stock discrepancies, transport documents, buyer/consignee statements, electricity consumption excess, or proof of actual goods removal. The absence of such independent corroboration, as highlighted by the Tribunal, renders the allegation fundamentally unsubstantiated. Investigating agencies must undertake comprehensive verification beyond seized documents and statements to sustain such serious allegations.
