{"id":397640,"date":"2026-10-01T11:00:41","date_gmt":"2026-10-01T05:30:41","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=397640"},"modified":"2026-10-01T10:37:23","modified_gmt":"2026-10-01T05:07:23","slug":"cestat-electronic-data-not-complied-with-sections-9-d-36-b-of-central-excise-act-held-inadmissible","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2026\/10\/01\/cestat-electronic-data-not-complied-with-sections-9-d-36-b-of-central-excise-act-held-inadmissible\/","title":{"rendered":"Clandestine Clearance | Electronic data retrieved without compliance with Sections 9-D & 36-B, Central Excise Act, 1944 cannot sustain duty demand: CESTAT"},"content":{"rendered":"
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Custom, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata:<\/span> In the appeals filed against order confirming demand of central excise duty and penalty imposed under Section 11-AC<\/a>, Central Excise Act, 1944<\/a> (the Excise Act) based on documents retrieved from CPUs, computers or pen drives and statements recorded during the course of investigation, the Division Bench of K. Anpazhakan (Technical Member) and Ashok Jindal (Judicial Member)*<\/span> allowed the appeal and held that the statements and documents were inadmissible for sustaining the charge of clandestine clearance of goods as not complied in terms of Section 36-B(2) and (4)<\/a>, Excise Act<\/a>.<\/p>\n

Background:<\/p>\n

The appellant-Jai Mangla Sponge Iron Pvt. Ltd. was a company engaged in manufacture and clearance of sponge Iron and Charcoal falling under Chapters 72 and 27, Central Excise Tariff Act, 1985<\/a>. The proceedings originated from intelligence gathered by the Preventive Branch of the office of the Commissioner, GST and Central Excise, Jamshedpur pursuant to which a search was conducted at the premises stated to be the secret office of Maa Tara Ferrotech Ltd. During such proceedings, certain documents\/records were recovered, which were considered by the Department to contain references to procurement of Sponge Iron from the appellant. Various records, documents and electronic storage devices were recovered and seized from the aforesaid premises and were thereafter examined during investigation. Certain CPUs marked as “CPU Intex\/Neptune” and “CPU Intex\/Blaze”, which were taken into possession under the respective seizure proceedings. Data was retrieved from the seized CPUs and printouts were taken therefrom, which, according to the Department, contained details relevant to procurement, manufacture and dispatch of goods. The Department subsequently relied upon such retrieved data, along with the documentary records recovered during the searches, to allege that the appellants had engaged in clandestine clearance\/removal of finished products i.e., sponge iron and charcoal, without issuing central excise invoices and without payment of applicable central excise duties thereon, by way of wilful suppression of relevant facts.<\/p>\n

In view of the above material and upon scrutiny of the records\/documents and the retrieved data, the Department alleged that during the relevant period the appellant-Company had procured 44,954.27 MT of coal and 22,179.32 MT of iron ore which were not reflected in its statutory accounts and which were allegedly used for manufacture of unaccounted finished goods. The Department alleged clandestine clearance of 16,639.630 MT of sponge iron and 15,873.090 MT of charcoal during the period from 1 November 2014 to 7 September 2016, without issuance of central excise invoices, involving alleged central excise duty liability of ₹4,34,56,993, comprising central excise duty of ₹4,31,06,267, education cess of ₹2,33,816 and secondary & higher education cess of ₹1,16,910. A show-cause-cum-demand notice dated 9 December 2019 was issued to the appellants proposing recovery of central excise duty amounting to ₹4,34,56,993 for the aforesaid period by invoking the extended period under Section 11-A(4)<\/a>, Excise Act<\/a>, together with applicable interest and penalty under Section 11-AC<\/a>, Excise Act<\/a>. A personal penalty was also proposed against the Appellant 2\/Director of the appellant-Company under Rue 26, Central Excise Rules, 2002 read with Section 174<\/a>, Central Goods and Services Tax Act, 2017<\/a> (CGST Act) for his alleged role in the transactions in question. Commissioner of GST and Central Excise, Jamshedpur confirmed the demand of ₹4,34,56,993 against Appellant 1 and the penalty of ₹50,00,000 on Appellant 2. Thus, the present appeal.<\/p>\n

Issues for consideration were:<\/p>\n

1. whether the statements recorded during the course of investigation were admissible as evidence in the absence of compliance of the procedure laid down under Section 9-D<\/a>, Excise Act<\/a>, or not; and<\/p>\n

2. whether the data retrieved from the CPUs\/pen drives were admissible as evidence without adhering to the provisions of Section 36-B<\/a>, Excise Act<\/a> or not.<\/p>\n

Analysis, Law and Decision<\/p>\n

Addressing the issue of admissibility of statements the Tribunal observed that the statements recorded during the course of investigation, which had been relied upon in the proceeding by the Revenue, had never been tested by way of examination-in-chief and also not allowed for cross-examination. Therefore, the said statements were not reliable statements, without complying with the mandatory procedure prescribe under Section 9-D<\/a>, Excise Act<\/a> as held in Ambika International<\/span> v. Union of India<\/span>, 2018 SCC OnLine P&H 6515<\/a>. The Tribunal held that the statements recorded during investigation were inadmissible in the absence of examination-in-chief and cross-examination thereof and non-following of the procedure laid down under Section 9-D<\/a>, Excise Act<\/a>.<\/p>\n

Addressing the second issue whether the data, in the form of print outs\/documents, retrieved from the CPUs, computers or pen drives, could be treated as admissible evidence against the appellants in this case, or not, the Tribunal noted that the data retrieved from the CPUs, computers or pen drives were never tested in terms of Section 36-B(2) and (4)<\/a>, Excise Act<\/a> and therefore, the same were not admissible as evidence to substantiate the allegation of clandestine clearance of goods against the appellants. The Tribunal relied on Jai Balaji Industries Ltd.<\/span> v. CCE<\/span>, 2023 SCC OnLine CESTAT 8001<\/a> and held that the data\/documents retrieved from the CPUs, computers or pen drives could not be considered as admissible evidence for sustaining the charge of clandestine clearance of goods as the same had not been tested in terms of Section 36-B(2) and (4)<\/a>, Excise Act<\/a>.<\/p>\n

Having excluded the statements and electronic data from consideration, the Tribunal examined whether the Revenue nevertheless possessed sufficient independent evidence to establish clandestine manufacture and removal.<\/p>\n

The Tribunal referred to the parameters laid down in Arya Fibres Ltd.<\/span> v. CCE<\/span>, 2013 SCC OnLine CESTAT 2745<\/a>. The investigation in a clandestine manufacture case should, inter alia, produce tangible evidence rather than mere inference or unwarranted assumption and should examine material such as excess raw materials, actual removal of unaccounted finished goods, discovery of such goods outside the factory, sales to identified parties, receipt of sale proceeds, abnormal electricity consumption, statements of buyers, actual transportation of the goods and links between documents recovered during search and activities in the manufacturing factory.<\/p>\n

The Tribunal observed that neither the manufacturing capacity of the appellant had been examined, nor any proper investigation was conducted at the end of all alleged buyers of finished goods or as to the suppliers of raw materials. No investigation whatsoever was also conducted as regards the labour that would be required for manufacturing such clandestine clearances of manufactured goods or even as to how much electricity was required to manufacture such a quantity of goods. All these ingredients were absent. In such circumstances, the charge of clandestine manufacture and removal of goods was not sustainable.<\/p>\n

Thus, the case of the Revenue, which was based on documents retrieved from CPUs, computers or pen drives and various statements recorded during the course of investigation, which had been found to be inadmissible as evidence, to allege clandestine removal of goods, could not be sustained. In the absence of any evidence on record, the Tribunal held that the charge of clandestine clearance of goods was not sustainable against the appellants. It was further held that the whole demand of duty raised against the appellants was not sustainable, thus, set aside.<\/p>\n

[Jai Mangla Sponge Iron (P) Ltd<\/span>. v. Commr. (CGST)<\/span>, 2026 SCC OnLine CESTAT 2070<\/a>, order dt. 17-9-2026<\/span>]<\/p>\n

*Order by Ashok Jindal (Judicial Member)<\/span><\/strong><\/p>\n\n

Advocates who appeared in this case:<\/p>\n

For the Appellant(s):<\/span> Amit Kumar and Ms. Mandira Routh Advocates<\/p>\n

For the Respondent(s):<\/span> Subrata Debnath, Authorized Representative<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“The case of the Revenue, which is based on documents retrieved from CPUs, computers or pen drives and various statements recorded during the course of investigation, which have been found to be inadmissible as evidence, to allege clandestine removal of goods, cannot be 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