Clandestine manufacture allegations require cogent proof; isolated suspicious circumstances cannot sustain duty demand or penalties.

Clandestine manufacture and removal must be proved by cogent and convincing evidence, not by conjecture or isolated suspicious circumstances. The department's reliance on receipt of raw material at an office address, invoice use, sealing of premises, and product branding was insufficient where the unit had independent existence, excise registration, and disclosed premises, and there was no corroboration from excess raw material, abnormal electricity use, labour deployment, stock discrepancies, intercepted goods, statements, or proof of money flow back. The duty demand and penalties were set aside.

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Issues: Whether the duty demand, penalties, and findings of clandestine manufacture and removal were sustainable on the basis of the evidence on record.

Analysis: The firm against whom duty was confirmed had an independent existence, excise registration, and disclosed manufacturing premises. The evidence relied upon by the department, such as receipt of raw material at the office address, use of invoices, sealing of premises, and the brand name on the products, did not by itself establish that another unit manufactured and cleared the goods. There was no corroboration from excess raw material, excess electricity consumption, labour deployment, stock discrepancies, intercepted goods, statements from the Ministry of Defence, or proof of flow back of money. The allegations of dummy operation and clandestine clearances were thus not supported by cogent evidence, and presumptions could not substitute legal proof.

Conclusion: The duty demand and penalties were not sustainable and were set aside.

Final Conclusion: The appeals succeeded, with consequential relief available in law.

Ratio Decidendi: Allegations of clandestine manufacture and removal must be proved by cogent and convincing evidence, and cannot rest on conjectures, presumptions, or isolated suspicious circumstances.

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