Excise duty liability and job-work processing: suspicion alone cannot sustain demand, confiscation or penalties against traders.

Duty demand, confiscation and penalties cannot be sustained where the department relies only on invoice comparison and incomplete records without proving removal of grey fabrics to processing houses in breach of excise procedure. No statements were taken from the processing houses, no stock or document verification was made, and no evidence showed dispatch without challans or without the declaration required under Notification No. 305/77 read with Rule 174A. Mere suspicion is insufficient to establish evasion. The material also affirms that duty liability lies on the manufacturer, namely the processing house, and not on traders who merely arrange job-work processing. On these facts, the demand and penal consequences were held unsustainable.

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Issues: Whether the duty demand, confiscation and penalties could be sustained against the appellants in the absence of investigation or evidence showing removal of grey fabrics to processing houses without compliance with the applicable excise procedure, and whether duty could be demanded from the appellants as traders when the processing houses were the actual manufacturers.

Analysis: The proceedings were founded mainly on a comparison of sales invoices with duty-paying documents and on the absence of complete supporting records. No statements were recorded from the processing houses, no verification of their stocks or documents was undertaken, and there was no evidence that the appellants had sent grey fabrics without challans or without the declaration contemplated by Notification No. 305/77 under Rule 174A. The absence of documents may create suspicion, but an adjudication cannot rest on suspicion alone. The departmental burden to establish evasion was not discharged. Further, the liability to pay duty lay on the manufacturer, namely the processing house, and not on the traders merely because they arranged processing through job workers.

Conclusion: The duty demand, confiscation and penalties were not sustainable against the appellants.

Ratio Decidendi: Suspicion, however grave, cannot replace evidence, and excise duty is recoverable from the manufacturer and not from traders where manufacture is carried out by processing houses on job work basis.

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