Clandestine removal requires corroborative evidence, and Modvat credit cannot be denied for a mere invoice procedural lapse.

Alleged clandestine removal cannot be sustained on entries in a third-party register alone; such a charge requires positive, corroborative evidence such as parallel accounts, unaccounted raw material, excess consumption, or transport proof, and the demand and penalties were set aside. Modvat credit also cannot be denied, nor penalties imposed on registered dealers, merely because original manufacturer invoices were used instead of duplicate copies where the duty-paid nature of the inputs and entitlement to credit on merits were otherwise established; the invoice irregularity was treated as a procedural lapse, and the credit denial and penalties were set aside.

---

---

Issues: (i) Whether the demand of duty and penalties could be sustained on the basis of alleged clandestine removal supported mainly by a third party register and without corroborative evidence; (ii) Whether Modvat credit could be denied to the manufacturer and penalties imposed on the registered dealers merely because the dealers had taken credit on the basis of original manufacturer invoices instead of duplicate copies.

Issue (i): Whether the demand of duty and penalties could be sustained on the basis of alleged clandestine removal supported mainly by a third party register and without corroborative evidence.

Analysis: The alleged clandestine clearances were founded essentially on entries in a register maintained at a third party godown. The persons connected with the records stated that the goods received from the manufacturer were covered by Central Excise invoices, and the department did not produce any independent corroboration such as parallel accounts, unaccounted procurement of raw material, excess consumption, or transport evidence. Entries in a third party register, by themselves, were treated as insufficient to establish clandestine removal, which must rest on positive and tangible evidence and not on probabilities or assumptions.

Conclusion: The duty demand and the penalties based on alleged clandestine removal were not sustainable and were set aside in favour of the assessee.

Issue (ii): Whether Modvat credit could be denied to the manufacturer and penalties imposed on the registered dealers merely because the dealers had taken credit on the basis of original manufacturer invoices instead of duplicate copies.

Analysis: The credit taken by the manufacturer was supported by valid invoices issued by registered dealers, and the duty-paid character of the inputs was not disputed. The use of original invoices by the dealers, in the absence of any finding that credit was otherwise inadmissible or that the duplicate invoices were misused elsewhere, was treated as a procedural lapse. Since there was no evidence of wrongful availment of credit on merits, denial of credit and imposition of penalties were held unwarranted.

Conclusion: The denial of Modvat credit and the penalties on the registered dealers were not justified and were set aside in favour of the assessee.

Final Conclusion: The impugned order was set aside in entirety and all appeals were allowed with consequential relief.

Ratio Decidendi: A charge of clandestine removal must be proved by positive and corroborative evidence, and Modvat credit cannot be denied or penal consequences imposed for a mere procedural lapse where the entitlement to credit on merits is otherwise established.

---