2026-VIL-1705-CESTAT-KOL-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise – Clandestine removal and undervaluation – Evidentiary value of private records, computer printouts and statements – Appellant, a manufacturer of Non-Alloy Steel Ingots, was alleged to have cleared goods without payment of duty and to have undervalued goods, based on documents and computer printouts recovered during search from its office premises and from the premises of a dealer, statements recorded during investigation, excess electricity consumption and an FIR for theft of electricity. The Commissioner confirmed the demand of duty with interest and imposed penalty under Section 11AC – Whether the charge of clandestine manufacture and clearance and under-invoicing is established on the basis of such documents, printouts, statements and electricity consumption - HELD - The mere retrieval of a document from the premises or the computer system of an assessee, without more, cannot by itself be treated as conclusive proof of clandestine clearance or undervaluation. The records were maintained under a separate caption and were retrieved as printouts from a computer in the Appellant's office. The Revenue relied principally on the statement of one employee, who had severed his connection with the Appellant shortly after the statement was given. Suspicions, howsoever strong, cannot take the place of proof. The Revenue made no corroborative exercise to establish the identity, existence and transactions of the separately captioned entity. The other documents did not bear the name of the Appellant. The link with the Appellant was sought to be established only through the certification and statement of its authorised signatory. A document recovered from the premises of a dealer with whom the Appellant has no ownership or organisational nexus was treated as the Appellant's document without independent verification of authorship, source or identity of the parties named therein. A statement made for one set of documents cannot be extended to an unconnected set recovered from third-party premises. The conditions of Section 36B of the Central Excise Act, 1944, including the requisite certificate identifying the manner of production of the computer output, were not complied with. Electronic records, in the absence of the procedural safeguards mandated under Section 36B, cannot be accorded evidentiary value to found a demand of this nature. Power consumption can vary on account of fluctuations in voltage, load-shedding, machine efficiency, idle running and other operational variables. In the absence of a scientifically verified norm of consumption per MT of finished goods for the particular furnace, a comparison of units consumed with the quantity recorded does not constitute cogent evidence of unaccounted production. An FIR alleging theft of electricity, without anything linking it to a quantified figure of unaccounted manufacture and clearance, remains collateral to the proceedings. The demand founded on electricity consumption had also been dropped by the Department in de novo proceedings in the Appellant's own case. A charge of clandestine manufacture must be tested against the physical capability of the plant to produce the quantum of goods alleged. The Appellant had intimated the department in 2005 and 2006 that its second furnace had become operational. Even on the combined capacity of both furnaces, the Revenue did not demonstrate how the alleged production could have been achieved. No case was set up that the Appellant had any third or fourth furnace or any other undisclosed manufacturing facility. The statements relied upon were not tested in the manner mandated under Section 9D(1) of the Act, and the adjudicating authority did not apply its mind to this requirement. Such untested statements cannot be read in evidence. Clandestine removal cannot be presumed merely on the basis of note-book entries, private records or third-party computer printouts unless corroborated by independent and tangible evidence such as verification of excess production with reference to installed capacity and consumption of raw materials or power, movement of goods through transporters and identifiable flow-back of funds. None of these corroborative parameters was satisfied. The charge of under-invoicing was also not satisfactorily established. As the charge of clandestine removal and under-invoicing does not sustain, no penalty can be imposed - The demand of duty along with interest is set aside, the penalty under Section 11AC read with Rule 25 of the Central Excise Rules, 2002 is dropped and the appeal is allowed.
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