Clandestine removal demands need positive evidence; unsupported register lapses cannot sustain duty, confiscation, or partner penalties.

CESTAT held that a demand for duty based on alleged clandestine removal of man-made fabric cannot stand without positive, tangible evidence; incomplete register maintenance and an uncorroborated statement were insufficient, so the demand was set aside. It also held that confiscation of seized fabrics was unjustified where the assessee's explanation that the goods represented half-day production and would be entered in the statutory register was raised promptly and not rebutted, so confiscation was set aside. The penalty on the partner fell with the clandestine removal allegation, while the assessee's penalty was reduced to Rs. 2,000 for defective maintenance of the grey fabric register.

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Issues: (i) whether the duty demand on allegation of clandestine removal of man-made fabric was sustainable; (ii) whether confiscation of seized goods was justified; and (iii) whether the penalties imposed on the assessee and its partner were sustainable.

Issue (i): whether the duty demand on allegation of clandestine removal of man-made fabric was sustainable.

Analysis: The demand was founded only on the incomplete maintenance of the grey fabric register and the absence of other corroborative investigation. The existence of receipt entries in the register and the absence of positive, tangible evidence of clandestine manufacture or removal were held to be fatal to the charge. The partner's statement was not treated as an admission of clandestine clearance.

Conclusion: The duty demand for clandestine removal was not sustainable and was set aside.

Issue (ii): whether confiscation of seized goods was justified.

Analysis: The assessee's explanation that the seized fabrics represented half day's production and were liable to be entered in the R.G. 1 register at the end of the day was raised at the first opportunity and was not rebutted. In the absence of rebuttal, the basis for confiscation was not established.

Conclusion: The confiscation was not justified and was set aside.

Issue (iii): whether the penalties imposed on the assessee and its partner were sustainable.

Analysis: Once the duty demand based on clandestine removal was set aside, the penalty on the partner could not survive. However, the improper maintenance of the grey fabric register remained established and attracted penal action for the record-keeping lapse alone.

Conclusion: The penalty on the assessee was reduced to Rs. 2,000 under Rule 226 of the Central Excise Rules, 1944, and the penalty on the partner was set aside.

Final Conclusion: The appeal succeeded substantially on the merits of clandestine removal and confiscation, while only a limited penalty was retained for defective maintenance of statutory records.

Ratio Decidendi: Allegations of clandestine removal must be supported by positive and tangible evidence, and a penalty for deficient record maintenance can be sustained independently only to the extent permitted by the relevant rule.

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