CESTAT Chennai rules electronic evidence inadmissible without certification under Section 36B in excise cases

CESTAT Chennai rules electronic evidence inadmissible without certification under Section 36B in excise cases

Tribunal sets aside excise duty demand due to non-compliance with procedural safeguards in adjudication

In a significant development impacting adjudication under the Central Excise regime, the Customs, Excise and Service Tax Appellate Tribunal, Chennai, has ruled that statements recorded under Section 14 of the Central Excise Act, 1944, cannot be treated as admissible evidence unless the mandatory procedure prescribed under Section 9D is strictly followed. The ruling also underscores that electronic data, including those retrieved from pen drives and computers, must adhere to evidentiary safeguards under Section 36B(4) to be considered valid in proceedings.

Allegations of Clandestine Clearance

The appeals arose from a common Order-in-Original No.13/2014-CEX dated 29.12.2014, involving M/s Geetham Steels Pvt Ltd., a manufacturer of Mild Steel Ingots. The company was registered under the Central Excise Act, 1944. The Directorate General of Central Excise Intelligence (DGCEI) had conducted searches on 28 September 2010, seizing various documents, computers, and electronic storage devices from the premises. Based on statements recorded under Section 14 and the data retrieved from seized devices, the department alleged that the appellant had clandestinely manufactured and cleared MS Ingots without paying duty between February 2010 and February 2012.

Department’s Stand: Reliance on Statements and Digital Evidence

The adjudicating authority upheld the department’s demand of ₹1,70,97,731 in central excise duty, along with interest and penalties under Section 11AC of the Act. Additional penalties were also imposed on the directors and associated entities under Rule 26 of the Central Excise Rules, 2002. During the appeal, the Department argued that the statements recorded under Section 14 were voluntary and sufficiently corroborated by the seized documents and electronic evidence. It further submitted that the procedural requirement under Section 9D(2) was not obligatory in every case and that no objection was raised at the adjudication stage regarding the same.

Appellant’s Argument: Non-Compliance with Section 9D Vitiates Proceedings

Represented by advocate S. Durairaj, the appellants contended that the entire demand was based solely on unverified statements and untested electronic data. It was asserted that the adjudicating authority had failed to comply with the mandatory procedural safeguards under Section 9D(2), which require examination of the witnesses and provision for cross-examination by the assessee. The appellants also cited judicial precedents, including the Supreme Court’s ruling in Anvar P.V. v. P.K. Basheer (2014), to stress the importance of procedural fairness and the necessity of authenticating electronic evidence in quasi-judicial proceedings.

Tribunal’s Observations: Section 9D is Mandatory, Not Discretionary

The CESTAT Bench, comprising Judicial Member Ajayan T V and Technical Member Vasa Seshagiri Rao, unequivocally held that compliance with Section 9D is a mandatory precondition for relying on any statement recorded under Section 14 of the Central Excise Act. The Tribunal emphasized that statements can only become substantive evidence when the individual making the statement is examined and the assessee is allowed an opportunity for cross-examination. The Bench further clarified that a plea of non-compliance with Section 9D may be raised at the appellate stage, as it involves a pure question of law impacting the very legality of the adjudication process.

Electronic Evidence Deemed Non-Admissible Without Certification

The Tribunal also addressed the admissibility of electronic data seized during the investigation. It ruled that in the absence of certification under Section 36B(4), electronic records such as data retrieved from pen drives and hard drives cannot be relied upon. In support of this position, the Bench cited the Bombay High Court’s ruling in Bipin Badani v. Union of India (2023), which emphasized the pari materia provision under Section 138B of the Customs Act, 1962, reinforcing that procedural safeguards are indispensable to uphold the principles of natural justice.

Tribunal Sets Aside Demand and Penalties

In light of the above findings, the CESTAT held that the demand and penalties imposed by the adjudicating authority were legally unsustainable, given the procedural lapses. The Tribunal allowed the appeals and granted consequential reliefs to the appellants.

A Precedent-Setting Ruling for Tax Litigation in India

This ruling by the Chennai Bench of CESTAT sets a crucial precedent in central excise and indirect tax litigation. It reinforces the judiciary’s commitment to upholding procedural justice and evidentiary integrity in quasi-judicial forums. Going forward, this judgment will serve as a touchstone for ensuring lawful, fair, and transparent adjudications under the Central Excise Act and similar statutes.