CESTAT Kolkata Quashes Excise Duty Demand After Finding Electronic Records & Loose Sheets Inadmissible Without 36B/9D Compliance
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata has set aside the central excise duty demand of ₹97.97 lakh and the associated penalties imposed on a steel manufacturer and its director, holding that the Department’s case was entirely built on inadmissible electronic records, uncorroborated loose sheets, and statements not tested as required under law. The Tribunal found that the adjudicating authority proceeded on assumptions rather than proof, and that the record did not contain any positive evidence of clandestine manufacture or removal of finished goods.
The case originated from a DGCEI search conducted on 26 February 2014 at the factory premises located in Deoghar, Jharkhand. During the search, officers seized loose papers, a pen drive alleged to contain production data, and statements of factory personnel. The subsequent show cause notice issued in March 2015 alleged that the assessee had cleared finished steel products without payment of duty, relying primarily on the pen-drive data and loose sheets as proof of suppressed production. It demanded ₹97.97 lakh along with interest and equal penalty and proposed a matching penalty on the director. The adjudicating authority confirmed the entire demand, appropriated ₹10 lakh paid under protest, and imposed penalties on both the company and its director. The Commissioner (Appeals) upheld the order in full, giving rise to the present appeals before CESTAT.
Before the Tribunal, the appellants strongly challenged the foundation of the demand, arguing that none of the documents seized constituted lawful evidence. It was pointed out that the electronic data copied from the pen drive was not authenticated in accordance with Section 36B of the Central Excise Act, which governs the admissibility of electronic records. No certificate was produced to prove the source device, accuracy of the printouts, or identity of the person responsible for the data. As a result, the electronic evidence could not be relied upon.
It was further argued that the statements of the director and factory employees recorded during investigation could not be used as evidence without compliance with Section 9D, which requires the makers of the statements to be examined before the adjudicating authority unless specific statutory contingencies exist. In this case, no examination was conducted before the adjudicating authority and no written reasons were recorded for dispensing with it. The appellants contended that these statutory safeguards were not merely procedural but directly determine whether statements can be treated as evidence.
The Tribunal found considerable merit in these submissions. It noted that the alleged weekly wage register extracted from the pen drive contained several entries that bore no resemblance to normal payroll entries, including references such as “Carriage Contractor,” “Rod Cutting Contractor,” and “Hukdi Contractor,” and that the number of workers depicted (150 or more) blatantly contradicted PF/ESIC records showing only 35–36 employees on the rolls during the relevant period. The Tribunal also recorded that there was no evidence of excess payment of wages, which would have been a natural corollary if additional labour was engaged for the alleged clandestine production.
The Tribunal further observed that the Department failed to produce even the basic corroborative indicators typically examined in clandestine removal cases. There was no evidence of abnormal electricity consumption, unrecorded procurement of inputs, excess usage of raw materials, payments to transporters, vehicle challans or statements of vehicle owners/drivers, or confirmation from any buyers of alleged unaccounted goods. Stock verification conducted during the search also did not reveal excess finished goods or shortages that could support an allegation of suppressed clearance. The Tribunal held that the calculations of ingot and TMT yield made through assumed averages had no disclosed basis and could not be treated as evidence.
Rejecting the Department’s argument that an aggregate set of clues was sufficient to prove evasion, the Tribunal emphasized that clandestine removal must be established through positive evidence, not conjectures. Once the pen drive data was rendered inadmissible for failure to comply with Section 36B and the statements were rendered unusable for failure to comply with Section 9D, the loose sheets alone could not form the basis of a duty demand. Loose papers, the Tribunal observed, are not evidence by themselves unless corroborated by independent and reliable proof.
Concluding that the adjudication and appellate orders rested on legally invalid evidence and that there was no independent material establishing clandestine manufacture or removal, the Tribunal set aside the entire duty demand, interest, and penalties, and allowed the appeals filed by both the company and its director, with consequential reliefs.
Appearance
Counsel For Appellant: Arnab Chakraborty & Shri Abhijit Biswas
Counsel For Respondent: A. Mukherjee, Authorized Representative
Cause Title: M/s. Vikromatic Steels Pvt.Ltd. Versus Commissioner, CGST & CX, Ranchi
Case No: Excise Appeal No.77761 of 2018
Coram: R. Muralidhar (Judicial Member), K. Anpazhakan (Technical Member)
