Clandestine removal needs corroborative evidence, and clubbing clearances of a dummy unit requires notice to the affected parties.

Clandestine manufacture and clearance cannot be established on statements alone; the department must support the charge with objective corroborative evidence such as raw material consumption, power usage, installed capacity, and other production indicators. On the facts noted, the assessees' production and power records, together with their explanation regarding some clearances through dummy invoices, defeated the broader allegation of excess clearances except for a limited excess in one financial year. Where clearances of an alleged dummy unit are proposed to be clubbed with another entity, the affected unit and its partners must be put on notice; absent such show cause notice, the clubbing exercise and consequential demand and penalties are unsustainable.

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Issues: (i) Whether the allegations of clandestine manufacture and clearance were proved on the evidence led by the department. (ii) Whether the demand and penalties arising from clubbing the clearances of the alleged dummy unit could be sustained without issuing a show cause notice to that unit and its partners.

Issue (i): Whether the allegations of clandestine manufacture and clearance were proved on the evidence led by the department.

Analysis: The conclusion on clandestine removal cannot rest on statements alone when the surrounding circumstances do not support the charge. Proof is ordinarily expected through corroborative material such as raw material consumption, power consumption, installed capacity, and other objective indicators of production. The assessees produced documents showing production capacity and power usage, and also explained that a part of the clearances had been accounted for through dummy invoices. Once those clearances were taken into account, the department's case of excess clearances did not survive except to a limited extent in one year.

Conclusion: The allegation of clandestine manufacture and clearances was not proved, save for the limited excess found for one financial year.

Issue (ii): Whether the demand and penalties arising from clubbing the clearances of the alleged dummy unit could be sustained without issuing a show cause notice to that unit and its partners.

Analysis: Where clearances of a unit are proposed to be clubbed with those of another entity on the footing that the former is a dummy unit, the affected entity and its partners must be put to notice and given an opportunity to answer that allegation. The absence of such notice vitiates the proceedings insofar as the clubbing exercise and the consequential demand and penalties are concerned.

Conclusion: The demand and penalties based on clubbing the dummy unit's clearances were not sustainable.

Final Conclusion: The Revenue's challenge failed, and the respondents succeeded on the jurisdictional objection against clubbing without notice, resulting in rejection of the demand and connected penalties.

Ratio Decidendi: Clandestine removal must be established by corroborative objective evidence, and proceedings for clubbing clearances of an alleged dummy unit are vitiated if no show cause notice is issued to that unit and its persons concerned.

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