Clandestine removal demands need reliable evidence, and balance-sheet income cannot be treated as sale proceeds without proof of nexus.

Duty demand for alleged clandestine removal cannot be sustained on audit objection or presumption alone; reliable documentary evidence, admissions, or corroborative investigation are required, and the demand based on three challans was rejected because they were explained as replacement of earlier short-supplies in job-work consignments. Miscellaneous income shown in the balance sheet also could not be treated as unaccounted excise-sale proceeds without enquiry or proof linking it to clearance of excisable goods, so that demand was likewise unsustainable. The order setting aside the duty demand and penalty was upheld.

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Issues: (i) Whether the duty demand on the alleged clearances was sustainable when the respondent claimed that the goods covered by the three challans only made good earlier short-supplies in respect of consignments received for job work; (ii) Whether the demand raised on the basis of miscellaneous income shown in the balance sheet could be sustained as unaccounted sale proceeds for excise purposes.

Issue (i): Whether the duty demand on the alleged clearances was sustainable when the respondent claimed that the goods covered by the three challans only made good earlier short-supplies in respect of consignments received for job work?

Analysis: The record showed that the respondent was engaged in job work and had explained the challenged clearances as replacement of earlier short-supplied quantities. The departmental allegation of clandestine removal rested on inference drawn from audit objection, without reliable documentary support, admission by the respondent, or investigation at the end of the principal buyer.

Conclusion: The duty demand on this count was not sustainable and the finding in favour of the respondent was upheld.

Issue (ii): Whether the demand raised on the basis of miscellaneous income shown in the balance sheet could be sustained as unaccounted sale proceeds for excise purposes?

Analysis: The miscellaneous income was treated as sale value only on presumption. No enquiry or investigation was conducted to establish its nature, and no evidence connected it with sale of excisable goods.

Conclusion: The demand based on miscellaneous income was not sustainable and the finding in favour of the respondent was upheld.

Final Conclusion: The order setting aside the duty demand and penalty was sustained, and the departmental challenge failed.

Ratio Decidendi: A duty demand for alleged clandestine removal cannot be sustained on presumption or audit objection alone and must rest on reliable evidence and corroborative investigation; similarly, unaccounted income cannot be treated as excise-sale proceeds without proof of its nexus with clearance of goods.

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