CESTAT Rules Electronic Data Without S. 36B Certification and Statements Without S. 9D Compliance Cannot Be Used for Excise Duty Demand [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that electronic data without certification under Section 36B and statements recorded without following Section 9D cannot be used to demand duty or impose penalties.

Paradise Steels Pvt. Ltd., the respondent, is a manufacturer of stainless steel patta and patti. The department conducted an investigation and seized a computer and certain records from the factory. Based on the data retrieved from a USB drive and the statement of the director, the department believed that Paradise Steels cleared cold rolled patta in the guise of hot rolled patta to avoid paying excise duty, reversing 6% on exempt goods instead of paying 12.36% duty.

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A show cause notice was issued demanding differential duty, interest, and penalties, including a penalty of Rs. 2 lakhs on the director. Paradise Steels denied the allegations. The adjudicating authority confirmed the demand, interest, and penalties on the company and its director. Aggrieved by the order, Paradise Steels and its director approached the Commissioner (Appeals).

The Commissioner (Appeals) allowed both appeals, leading the department to file appeals before the CESTAT.

The department’s counsel argued that the Commissioner (Appeals) was wrong in rejecting the use of the data retrieved and the statement of the director. The counsel argued that the director had admitted to clearing cold rolled pattas as hot rolled pattas, and the panchnama prepared during data retrieval should be treated as certification under Section 36B.

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

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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 observed that Section 9D requires 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 explained that without following these legal requirements, the department could not rely on the electronic data or the statement of the director to demand duty or impose penalties. The appeals filed by the department were dismissed.

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