2025 (6) TMI 1961 - AT - Central Excise

Clandestine removal - Levy of penalty on Director u/r 26 of the Central Excise Rules 2002 - non-compliance of the provisions of section 36B of the Central Excise Act - burden of proving the allegations made in the show cause notice. HELD THAT - The Commissioner (Appeals) in the impugned order has held that the finding recorded by the Joint Commissioner that the panchanama dated 30.12.2013 prepared for retrieval of data from computer and pendrive in the presence of two independent witnesses and Shri Rakshit Bhansali Director of Paradise Steels is itself a certificate under section 36B of the Central Excise Act. This finding is contrary to the provisions of section 36B of the Central Excise Act. It was obligatory on the part of the department to follow the procedure contemplated under section 36B of the Central Excise Act. The Commissioner (Appeals) observed that the data was not stored in the computer and only a print out from the USB drive was taken by connecting it to the computer. It was therefore obligatory on the part of the department to have followed the procedure set out in section 36B of the Central Excise Act and obtain a certificate. There is therefore no error in finding recorded by the Commissioner (Appeals). In view of the aforesaid decision of the Tribunal in Surya Wires 2025 (4) TMI 441 - CESTAT NEW DELHI the statement of the Director of Paradise Steels made under section 14 of the Central Excise could not have been taken into consideration as the procedure contemplated under section 9D of the Central Excise Act was not followed. The Commissioner (Appeals) is also justified in holding that to substantiate the allegation of clandestine removal it was obligatory on the part of the department to seek confirmation from the buyers to prove the type of product that was sold by the appellant as this was most crucial evidence but the investigating authority did not take the statement of any of the buyers. Thus penalty could not have been imposed upon the Director of Paradise Steels - appeal of Revenue dismissed.

Summary

The core legal questions considered in this case are:

1. Whether the procedure prescribed under section 36B of the Central Excise Act, 1944 was complied with in relation to the retrieval and certification of electronic data from the computer and pen drive seized during investigation.

2. Whether the burden of proof to establish the clandestine removal of goods was discharged by the department, specifically regarding the type of product cleared (cold rolled patta disguised as hot rolled patta).

3. Whether the statement of the Director of Paradise Steels, recorded under section 14 of the Central Excise Act, can be admitted as evidence without following the procedure mandated under section 9D of the Central Excise Act.

4. Whether penalty imposed on the Director of Paradise Steels under rule 26 of the Central Excise Rules, 2002 was justified.

Issue 1: Compliance with Section 36B of the Central Excise Act in Retrieval and Certification of Electronic Data

The relevant legal framework is section 36B of the Central Excise Act, which mandates a specific procedure for retrieval and certification of data from electronic devices during investigation. The section requires that data retrieved from a computer or electronic device must be certified by a responsible official in relation to the operation of the device, thereby ensuring the authenticity and integrity of the data as evidence.

The department relied on a panchnama dated December 30, 2013, prepared in the presence of two independent witnesses and the Director of Paradise Steels, asserting it as the certificate under section 36B. The adjudicating authority accepted this as compliance.

The Commissioner (Appeals) disagreed, holding that a panchnama cannot substitute the certificate required under section 36B. The panchnama merely documents the retrieval process but does not certify the authenticity of the data. The Commissioner noted that the Director's clarifications regarding the excel sheet did not amount to certification of the data's authenticity. Furthermore, the data was not stored on the computer but on a USB drive, from which printouts were taken without obtaining any signature certificate as mandated under section 36B(4).

The Commissioner emphasized that the failure to obtain the required certificate was a significant procedural flaw that undermined the evidentiary value of the data. The Tribunal upheld this view, referencing a Division Bench decision which held that a panchnama cannot be treated as a certificate under section 36B, and the adjudicating authority cannot itself determine compliance with the certification requirements.

Thus, the Court concluded that the department failed to follow the mandatory procedure under section 36B, rendering the electronic data inadmissible as evidence to support the demand.

Issue 2: Burden of Proof Regarding Clandestine Removal and Product Type

The department alleged that Paradise Steels clandestinely cleared cold rolled patta as hot rolled patta to evade excise duty, as hot rolled patta was exempt. The department relied on data retrieved from the computer and the Director's statement to establish this.

The Commissioner (Appeals) analyzed whether the department discharged the burden of proof. It was noted that the most crucial evidence to prove the type of product cleared would be the confirmation from buyers who received the goods. However, despite having the names of buyers from the Director's statement, the department did not summon or record statements from any buyers. The investigation was wound up without this critical step.

The Commissioner held that issuing a show cause notice without obtaining statements from buyers, who were essential witnesses, was untenable and indicated departmental bias towards raising a demand without adequate proof.

The Tribunal agreed with this reasoning, holding that the department failed to produce cogent and corroborative evidence to substantiate the allegation of clandestine removal.

Issue 3: Admissibility of the Director's Statement under Section 14 and Section 9D of the Central Excise Act

Section 14 authorizes officers to summon persons and record their statements during inquiry. However, section 9D prescribes strict conditions for the admissibility of such statements in evidence, requiring that the person making the statement be examined as a witness before the adjudicating authority, and the authority must form an opinion that the statement should be admitted in the interests of justice. Additionally, the person against whom the statement is used must be given an opportunity for cross-examination.

The department relied on the Director's statement recorded under section 14 to support the demand. The Commissioner (Appeals) found that the procedural safeguards under section 9D were not complied with, rendering the statement inadmissible as evidence.

The Tribunal reinforced this position by citing a recent decision which clarified that statements recorded during inquiry cannot be relied upon unless the procedure under section 9D is followed. This procedural requirement is mandatory to prevent coercion or compulsion in recording statements and to ensure fairness.

Consequently, the Director's statement was not admissible to prove the allegations without adherence to section 9D.

Issue 4: Imposition of Penalty on the Director

The penalty of Rs. 2 lakhs was imposed on the Director under rule 26 of the Central Excise Rules, 2002, presumably for the alleged clandestine removal and non-compliance.

Given the findings that the department failed to prove the allegations due to lack of admissible evidence and procedural lapses, the Commissioner (Appeals) held that penalty could not be imposed on the Director.

The Tribunal concurred, dismissing the department's appeal against the penalty order.

Significant Holdings and Core Principles

The Tribunal held that:

"It was obligatory on the part of the department to follow the procedure contemplated under section 36B of the Central Excise Act and obtain a certificate. There is, therefore, no error in finding recorded by the Commissioner (Appeals)."

Regarding evidentiary requirements for statements, the Tribunal emphasized:

"A person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made."

It was also held that:

"The department was supposed to summon the buyers and record their statements to determine what type of products they had received. However, the investigating authority has not taken the statements of any of the buyers and have winded up the investigation. Such a show cause notice issued without taking the statements of buyers (when they were crucial evidences for proving the allegations) is not tenable."

On penalty, the Tribunal concluded that without proof of the allegations, penalty could not be sustained.

Accordingly, the Tribunal dismissed the department's appeals and upheld the Commissioner (Appeals) order allowing the appeals filed by Paradise Steels and its Director.