Clandestine-clearance demands cannot rest on untested statements and uncertified computer printouts.

M/s. Jai Mangla Sponge Iron Pvt. Ltd., engaged in manufacturing sponge iron and charcoal, and its Director, Shri Jawahar Lal Vig, challenged Order-in-Original No. 05/Commissioner/2021 dated 17 March 2021.

The Commissioner had confirmed Central Excise duty of ₹4,34,56,993, with interest and equivalent penalty, against the company for alleged clandestine manufacture and clearance during 1 November 2014 to 7 September 2016, and imposed a personal penalty of ₹50,00,000 on the Director under Rule 26 of the Central Excise Rules, 2002.

The proceedings arose from searches conducted at the company’s factory, office and the Director’s residence.

The Department seized documents, CPUs and a pen drive and relied upon computer-generated data, records allegedly recovered from the premises of another entity, and statements of company employees to allege that unaccounted raw materials had been used to manufacture and clear 16,639.630 MT of sponge iron and 15,873.090 MT of charcoal without payment of duty.

The appellants contended that the statements had not been tested through examination-in-chief and cross-examination as required by Section 9D of the Central Excise Act, 1944.

They also argued that the computer printouts were inadmissible for want of compliance with Sections 36B(2) and 36B(4), and that the Department had failed to produce independent corroboration such as evidence of physical movement, buyers’ statements, transport records, excess electricity consumption, labour deployment, sale proceeds or abnormal raw-material consumption.

Whether statements recorded during investigation under Section 14 of the Central Excise Act, 1944 could be relied upon without following the mandatory procedure under Section 9D, including examination-in-chief and cross-examination?

Whether data and printouts retrieved from seized CPUs, computers or pen drives were admissible and could be relied upon without compliance with Sections 36B(2) and 36B(4) of the Central Excise Act, 1944?

Whether the Department established the alleged clandestine manufacture and clearance through sufficient, tangible and corroborative evidence?

Section 9D of the Central Excise Act, 1944 requires statements recorded during investigation to satisfy the statutory conditions for relevancy and admissibility; ordinarily, the maker must be examined before the adjudicating authority and the statement must be admitted in evidence after a reasoned determination, with the assessee having an opportunity for cross-examination.

The Tribunal relied on Ambika International v. Union of India, G-Tech Industries v. Union of India, Hi-Tech Abrasives Ltd. v. Commissioner of Central Excise, and Jai Balaji Industries Ltd. v. Commissioner of CGST, which held that non-compliance with Section 9D prevents reliance on such statements.

Section 36B(2) and (4) prescribe the conditions and certificate necessary for admitting computer printouts and electronic data as evidence.

The Tribunal relied on Ramgarh Sponge Iron Pvt. Ltd. v. Principal Commissioner, Ambica Organics v. Commissioner of Central Excise, and Trikoot Iron & Steel Casting Ltd. v. ADG, DGGI, holding that electronic records cannot be relied upon without statutory compliance and proper certification.

For clandestine manufacture and removal, the Department must produce tangible and affirmative evidence, including proof relating to excess raw materials, actual removal, identified buyers, receipt of sale proceeds, transportation, electricity, labour and links between seized documents and factory operations, as stated in Arya Fibres Ltd. v. Commissioner of Central Excise.

The Tribunal found that the statements relied upon by the Department were neither examined in chief before the adjudicating authority nor effectively subjected to cross-examination.

Since the procedure under Section 9D had not been followed, the statements could not be treated as admissible evidence for proving the truth of their contents.

The electronic data and computer printouts were likewise not supported by the certificate or other statutory safeguards required under Section 36B(2) and Section 36B(4).

Consequently, the printouts could not constitute a valid evidentiary foundation for the demand.

Once the statements and electronic records were excluded, the remaining investigation did not establish the essential components of clandestine manufacture and clearance.

The Department had not adequately investigated the manufacturing capacity, alleged buyers, raw-material suppliers, labour requirement, electricity consumption, transportation or receipt of sale proceeds.

There was also no sufficient independent evidence of physical removal of the alleged unaccounted goods.

Applying the evidentiary standards in Arya Fibres, the Tribunal held that the allegation rested on inadmissible material, assumptions and incomplete corroboration rather than tangible proof.

It answered the second issue against the Revenue, holding that the computer data and printouts were inadmissible without compliance with Sections 36B(2) and 36B(4).

The Department consequently failed to establish clandestine manufacture and clearance of sponge iron and charcoal.

The demand of ₹4,34,56,993, interest and equivalent penalty against the company, along with the ₹50,00,000 personal penalty imposed on the Director, were set aside.

Both appeals were allowed with consequential relief, if any.