Electronic Data and Statements Without Cross-Examination Not Admissible: CESTAT

Electronic Data and Statements Without Cross-Examination Not Admissible: CESTAT

Introduction

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi Bench, has ruled that electronic records without proper certification under Section 36B and statements recorded without compliance with Section 9D cannot be used to demand duty or impose penalties.

Factual Background

Paradise Steels Pvt. Ltd., a manufacturer of stainless steel patta and patti, was investigated by the department, which seized a computer and certain records from the factory. The department alleged that Paradise Steels cleared cold rolled patta in the guise of hot rolled patta to evade paying excise duty.

Procedural Background

A show cause notice was issued demanding differential duty, interest, and penalties. The adjudicating authority confirmed the demand, interest, and penalties, but these were later set aside by the Commissioner (Appeals). The department then appealed to the CESTAT.

Issues

The primary issue was whether the electronic data retrieved from the factory and the statement of the director could be used as evidence to demand duty and impose penalties.

Contentions of the Parties

Department’s Contentions:

• The department argued that the director had admitted to clearing cold rolled pattas as hot rolled pattas, and that the panchnama prepared during data retrieval should be treated as certification under Section 36B.
• The department claimed that the electronic data and the director’s statement were sufficient evidence to prove clandestine removal.

Appellant’s Contentions:

• The appellant argued that the department did not produce the mandatory certification under Section 36B required for using electronic data as evidence.
• The appellant claimed that the department did not follow the procedure under Section 9D for admitting the director’s statement, which requires examination in chief and cross-examination.
• The appellant also argued that the department failed to examine buyers to confirm the nature of the goods received, which was essential to prove the allegations.

Reasoning & Analysis

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that Section 36B requires certification by a responsible officer for electronic records, and a panchnama cannot replace this requirement. The Tribunal also noted that Section 9D requires the opportunity for examination and cross-examination of the person whose statement is relied upon, and without following this procedure, the statement cannot be used as evidence.

The Tribunal further observed that the department did not take statements from buyers to confirm the type of goods received, which was critical for proving clandestine removal. The Tribunal held that without following these legal requirements, the department could not rely on the electronic data or the director’s statement to demand duty or impose penalties.

Implications

This decision highlights the importance of following the statutory procedures for collecting and relying on evidence in tax cases. The CESTAT’s ruling reinforces that electronic data and statements recorded without compliance with the required procedures cannot be used to demand duty or impose penalties.

Outcome

The CESTAT dismissed the appeals filed by the department, holding that the department’s case was not supported by admissible evidence.