2025 (5) TMI 1529 - AT - Central Excise

Clandestine manufacturing and removal of goods without payment of Central Excise duty - Demand based on private record/note books without corroboration of other evidences - Fulfilment of conditions laid down under Section 36(B) of the Central Excise Act 1944 - Suppression of production and removing goods without payment of excise duty - Validity and admissibility of electronic evidence obtained during a search - pen drives found from the worker s quarters located behind the Account Section of the factory - onus of proof - HELD THAT - We find that the demand was confirmed by the Commissioner (Appeals) solely on the basis of the confessional statement of the director of the company. We further observe that it has not been clarified from which computer of the company data was stored in the impugned pen drives. It is a settled principal of law that evidences available in electronic modes are accepted only when conditions laid down under Section 36(B) of the Central Excise Act 1944 are fulfilled. As per sub clause (4) of Section 36(B) of the Central Excise Act 1944 electronic evidences would be admissible when a certificate is given identifying the documents contained in the statement and describing the manner in which it was produced. Given such particulars of any device involved in the production of those documents as may be appropriate for the purpose of showing that the documents were obtained from a computer and dealing with any of the matters to which the conditions mentioned in sub clause (2) relates. In the SCN there is no such mention regarding regular use of the computers to store or processing information and the computer was operating properly. In the present case pen drives were not resumed from office of the Appellant but from the worker s quarters and also there is no certificate taken by the Department as provided in sub clause (2) of Section 36(B) of the Central Excise Act 1944. In the above scenario the data retrieved from the pen drives cannot be accepted as tangible evidence. We may like to examine as to whether search was made as per provisions of Section 100 of the Cr. P.C. read with Section 18 of the Act or not. It is seen that the pen drives were not seized under proper seizure memo. Also it is not clear as if seal was put on pen drives at the time of search and was intact and is duly signed by panchas. Second panchanama proceedings for retrieval of data contained in pen drives was carried out in the office of DGCEI and the print outs were obtained without mentioning the computer which was used for such data retrieval. We are of the view that search and seizure proceedings were made in violation of Section 100 of Cr. P.C. read with Section 18 of the Act for the reason that Department has failed to follow the provisions of Section 36B of the Act. We also agree with the contention of the Learned Counsel of the Appellant that at the time of sealing and desealing of the external data storage device as well as the time of obtaining printouts therefrom a certificate should have been obtained as per the provisions of Section 36B of the Act. No such certificate has been brought on record without which the evidentiary value of these printouts gets vitiated. As no certificate from the responsible person of the Appellant was obtained by the Department the credibility of the computer printout gets vitiated. It is evident from the panchnama that the Department failed to gather any of documents from the factory of the Appellant. Thus we hold that the charges of clandestine removal of the goods cannot be upheld merely on assumptions and presumptions but has to be proved with positive evidence such as purchase of excess raw materials consumption of excess electricity employment of extra labour seizure of cash transportation of clandestinely removed goods etc. It has also been held that onus of proof of bringing clinching evidence is on the Revenue. It has been held that the clandestine manufacturing and removal of excisable goods is to be proved by tangible direct affirmative and incontrovertible evidence relating to receipts of raw materials inside the factory premises and non-accountal thereof in the statutory records utilization of such raw materials for clandestine manufacture of finished goods manufactured of finished goods with reference to installed capacity consumption of electricity labour employed and payment made to them amount received by the consignees statement of the consignees receipts of sale proceeds by the consignor and its disposal. All these material evidence are missing in the present case and the evidences brought into the record by the Department are incomplete inconsistent and are not a reliable piece of evidence to prove charges of clandestine removal. Hence the impugned order cannot be sustained and is accordingly set aside. Both the appeals filed by the Appellants are allowed with consequential relief as per law.

Summary

The core legal questions considered in this appeal revolve around the validity and admissibility of electronic evidence obtained during a search, the sufficiency of evidence to establish clandestine removal of goods without payment of excise duty, and the consequent demand of excise duty, interest, and penalty. Specifically, the issues include:

1. Whether the data retrieved from pen drives found during the search, which were not seized under a proper seizure memo and lacked certification as per statutory requirements, can be admitted as evidence under the provisions of the Central Excise Act, 1944.

2. Whether the Department has produced cogent and tangible evidence to substantiate the allegation of clandestine manufacture and removal of goods without payment of excise duty.

3. The applicability and compliance with procedural safeguards under Section 36(B) of the Central Excise Act, 1944, and the corresponding provisions of the Indian Evidence Act, 1972, regarding electronic evidence.

4. The legitimacy of the demand of excise duty, interest, and penalty based solely on the electronic data and statements without corroborative material evidence such as raw material purchases, electricity consumption, labor deployment, or transportation records.

Issue-wise Detailed Analysis

1. Admissibility of Electronic Evidence from Pen Drives

The legal framework governing the admissibility of electronic evidence in excise matters is primarily Section 36(B) of the Central Excise Act, 1944, which prescribes strict conditions for accepting computer printouts as evidence. Subsection (2) mandates that the computer producing the printout must have been regularly used for storing or processing relevant information during the material period, that the computer was operating properly, and that the information contained in the printout was supplied in the ordinary course of business. Additionally, subsection (4) requires a certificate identifying the documents and describing the manner of production to accompany such evidence.

The Court observed that the pen drives were found in the worker's quarters, not from the office or computers regularly used by the Appellant for business purposes. Crucially, these pen drives were never seized under a proper seizure memo, no seal was affixed or maintained, and no certificate as mandated by Section 36(B) was obtained. The printouts were extracted at the DGCEI office without specifying the computer used for retrieval, further compromising the chain of custody and authenticity.

The Court emphasized that the Department failed to comply with the procedural safeguards under Section 36(B), which is a settled principle for the admissibility of electronic evidence. The absence of a certificate from a responsible person of the Appellant company vitiated the credibility of the computer printouts. The Court also referred to the Supreme Court decision which requires compliance with Section 65B of the Indian Evidence Act, 1972, for electronic evidence admissibility, noting that the provisions of Section 65B and Section 36(B) are pari materia.

Consequently, the Court held that the data retrieved from the pen drives could not be accepted as tangible evidence. It further found that the search and seizure proceedings violated Section 100 of the Criminal Procedure Code read with Section 18 of the Central Excise Act due to non-compliance with the statutory requirements for electronic evidence.

2. Sufficiency of Evidence to Prove Clandestine Removal

The Department's allegation of clandestine manufacture and removal of goods was based solely on the data from the pen drives and statements recorded during the investigation. The Court noted that the Commissioner (Appeals) upheld the demand primarily relying on the confessional statement of the company's director without independent corroboration.

The Court referred to established legal precedents which require positive, tangible, and incontrovertible evidence to prove clandestine removal. Such evidence includes purchase of excess raw materials, consumption of electricity beyond normal limits, employment of additional labor, seizure of cash, transportation records, and other material indicia of clandestine activity. The Department failed to produce any bills, invoices, or documentary proof of raw material purchases or other corroborative evidence.

The Court cited authoritative judgments which hold that the onus lies on the Revenue to bring forth clinching evidence and that mere assumptions or presumptions are insufficient to sustain a charge of clandestine removal. The absence of any direct or affirmative evidence rendered the Department's case incomplete and unreliable.

3. Application of Law to Facts and Treatment of Competing Arguments

The Appellant contended that the pen drives were not seized properly, the data was not certified as required, and the Department failed to explain why only partial data (first quarter of 2017-18) was considered. Further, the Appellant argued that the demand was based on private records without corroboration, which is impermissible.

The Department maintained that the demand was justified based on the data and statements obtained. However, the Court found that the Department's reliance on uncertified electronic data and statements without supporting documentary evidence was legally untenable.

By analyzing the procedural lapses and evidentiary deficiencies, the Court concluded that the Department's demand was not sustainable. The Court also underscored the importance of procedural compliance in search and seizure operations and the necessity of adhering to statutory safeguards for electronic evidence.

4. Interest and Penalty

The Court noted the Appellant's submission that if the demand is not sustainable, interest and penalty cannot be levied. Given the Court's conclusion that the demand itself is unsustainable, the ancillary imposition of interest and penalty also fails.

Significant Holdings

"It is a settled principal of law that evidences available in electronic modes are accepted only when conditions laid down under Section 36(B) of the Central Excise Act, 1944 are fulfilled."

"In the present case, pen drives were not resumed from office of the Appellant but from the worker's quarters and also there is no certificate taken by the Department as provided in sub clause (2) of Section 36(B) of the Central Excise Act, 1944. In the above scenario, the data retrieved from the pen drives cannot be accepted as tangible evidence."

"No certificate from the responsible person of the Appellant was obtained by the Department, the credibility of the computer printout gets vitiated."

"Charges of clandestine removal based on such unauthenticated data is not sustainable and are therefore, set aside."

"The charges of clandestine removal of the goods cannot be upheld merely on assumptions and presumptions, but has to be proved with positive evidence such as purchase of excess raw materials, consumption of excess electricity, employment of extra labour, seizure of cash, transportation of clandestinely removed goods etc."

"The onus of proof of bringing clinching evidence is on the Revenue."

"The evidences brought into the record by the Department are incomplete, inconsistent and are not a reliable piece of evidence to prove charges of clandestine removal."

"When no demand is sustainable no interest and penalty is leviable."

The Court set aside the impugned orders confirming the demand, interest, and penalty, holding that the Department failed to comply with statutory evidentiary requirements and did not produce cogent evidence to prove clandestine removal of goods. Both appeals were allowed with consequential relief in accordance with law.