2026-VIL-1792-CESTAT-KOL-CE
  1. Home
  2. 2026-VIL-1792-CESTAT-KOL-CE

CENTRAL EXCISE CESTAT Cases

Central Excise - Clandestine manufacture and removal alleged on the basis of third-party records - Appellant, a manufacturer of Sponge Iron, was alleged to have cleared goods without payment of duty on the strength of computer printouts and pen drive data retrieved from the premises of one buyer and a handwritten ledger recovered from another party - The Appellant's own sale register and ledger matched the duty paid entries, and no record was recovered from its premises - Whether the demand of duty, interest and penalty can be sustained on uncorroborated third-party records - HELD - Where the entire demand is founded on entries made by a third party, the Department must demonstrate by cogent and independent evidence that the entries relate to the assessee and bear a credible nexus with the clandestine manufacture or removal. A mere entry in a record maintained by another person cannot be transmuted into proof of manufacture and clearance by the assessee. There was no evidence of excess procurement of raw materials, excess consumption of electricity, excess production, receipt of consideration outside the books or flow back of funds. Though lorry numbers appeared in the printouts, no statement of any transporter or driver was relied upon to prove physical movement of the goods. Clandestine removal cannot be presumed from private records recovered from third parties unless fortified by independent and tangible evidence that the goods were manufactured and removed without payment of duty, as held in Dinabandhu Steel and Arya Fibres. The evidentiary chain commenced and terminated with the notings in the third-party records, and the allegation was based on assumptions and presumptions - The demand of duty with interest is set aside and the appeals are allowed - Admissibility of computer printouts under Section 36B and evidentiary value of handwritten ledger of unidentified author - Printouts taken from computers and pen drives seized from a third party were relied upon by the Department, and the FAA invoked the presumption under Section 36A - No certificate under Section 36B(4) was produced, the accountant of the third party only endorsed that the printouts were taken in his presence, and the SCN did not state how the pen drive was sealed and kept before it was opened - Whether the printouts and the ledger can be relied upon against the Appellant - HELD - Section 36B requires a certificate identifying the record, the manner of its production, the device involved and compliance with Section 36B(2). Witnessing the taking of a printout cannot be equated with such certification, and the accountant, who made entries only on the instructions of the Director, was not shown to be the author or custodian of the contents. The absence of an account of sealing and custody of the pen drive further detracted from the integrity of the record. Section 36A operates only against the person who produced the document or from whose custody it was seized, and the records were neither produced by nor seized from the Appellants. Following Trikoot Iron and Steel Casting, printouts taken from a computer or pen drive without a certificate under Section 36B cannot be admitted in evidence. A handwritten document of unknown authorship cannot be elevated to substantive evidence merely because it was recovered during investigation - The printouts and the ledger are inadmissible and unreliable as the foundation of the demand - Evidentiary value of statements recorded under Section 14 without compliance with Section 9D - Revenue relied upon statements of the Director and the accountant of a third party and upon the statement of Appellant No. 2, which the adjudicating authority characterised as evasive - None of the deponents was examined before the adjudicating authority, and the request for cross examination was not considered even by the FAA - Whether the statements can be relied upon against the Appellants - HELD - The statements did not contain any direct or unequivocal incrimination of the Appellants. Without compliance with Section 9D(1)(b), the statements cannot be treated as substantive evidence, as held in Geetham Steels. Appellant No. 2 consistently stated that the sales were made through a broker on payment of duty and that he could not comment on the records of an independent third party. Such an expression of want of knowledge cannot be equated with an admission, and the characterisation as evasive was unsupported by the statement - The statements fail to supply the missing corroborative link between the third-party records and the alleged clandestine clearances - Valuation - Undervaluation alleged on the basis of settled rates noted in third-party printouts - The Department compared the invoice value of duty paid clearances with the higher rates noted in the printouts of a buyer and alleged that consideration over and above the invoice value was received by Appellant No. 1 - Whether the demand on account of under-invoicing can be sustained - HELD - The demand rested primarily on third-party printouts whose admissibility was compromised by the absence of the certificate under Section 36B. There was no independent evidence that any amount in excess of the invoice value was paid to the Appellant, and the burden lay on the Department to establish by positive evidence both the existence of such consideration and its nexus with the Appellant. Preferring an unexplained third-party notation over the invoice value would reverse the evidentiary burden. A presumption cannot be founded on another presumption - The demand on account of under-invoicing is set aside - Penalty on the company under Section 11AC and on the Director under Rule 26 of the Central Excise Rules, 2002 - Penalties were imposed on the premise of clandestine manufacture, removal and undervaluation, with the Director held liable as being conversant with the affairs of the company - Whether the penalties are sustainable when the principal allegations are not established - HELD - Penalty under Section 11AC is consequential upon establishment of the duty liability with the ingredients of fraud, suppression or wilful misstatement, and no foundation survives once the allegations fail for want of positive and cogent evidence. Penalty under Rule 26 requires that the person dealt with excisable goods with knowledge or belief that they were liable to confiscation. No specific role was attributed to the Director by reliable evidence, and mere status as a Director cannot furnish an independent basis for penalty without evidence of conscious involvement or mens rea - The penalties on the company and on the Director are dropped and the appeals are allowed with consequential relief.
Download File

Quick Search

/

Advance Search

GST Resources

/

Gst Rate Finder

Tax Vista

Your Weekly Tax Recap

By Dr. G. Gokul Kishore

Weekly Summary

VIL Video

GST & Customs updates: Sep'26
By CA Vivek Jalan

Create Account

Security-Code
New Code?

Log In

New User ? Forgot Password ?

Forgot Password

Security-Code
New Code?
Please Note: This facility is only for Subscribing Members.

Email this page

Security-Code
New Code?

Feedback this page

Schedule a Demo

Schedule a demo to know the features and advantages of VILGST portal. Get to know the tips to find the desired results in faster way.

Security-Code
New Code?

Caselaw Request Form (CRF)

Didn’t find what you are searching for? No worries, please give us the following details and VIL will email you the desired Caselaws at the earliest:

Security-Code
New Code?