Clandestine removal and consumption variance demand failed where no physical verification or direct evidence supported the allegation.

Departmental action based on alleged abnormal variance between theoretical and actual cut-tobacco consumption, and on alleged clandestine removal, was held unsustainable because the cigarette manual required physical verification to determine normal working loss, yet no such verification or experiment was conducted and no unaccounted stock was found. The allegations rested on assumptions and secondary material, without direct evidence of clandestine clearance, and the variance issue was already within departmental knowledge, so the extended period of limitation could not be invoked. As the substantive demand failed, the proposed penalty and interest also could not survive.

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Issues: Whether the demand of duty, penalty and interest based on alleged abnormal variance between theoretical and actual consumption of cut tobacco and alleged clandestine removal was sustainable, and whether the extended period of limitation and mandatory penalty could be invoked.

Analysis: The departmental cigarette manual recognised that differences between theoretical output and actuals are an accepted feature in the industry and required officers to determine a normal working difference by physical verification. No such verification or experiment was conducted, no unaccounted stock of cut tobacco was found in the surprise visit, and no direct evidence of clandestine removal was produced. The allegations rested on assumptions, presumptions and secondary material, while the records showed that the issue of variance had long been within the Department's knowledge. In these circumstances, the ingredients for invoking the extended period were not established, and a demand founded on supposed misdeclaration of formula or clandestine clearance could not be sustained. Since the major part of the demand related to a period before the mandatory penalty provisions and the substantive demand itself failed, penalty and interest also could not survive.

Conclusion: The demand was held unsustainable, the extended limitation was not invocable, and the proposed penalty and interest were not justified.

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