Excess wastage calculations alone cannot prove clandestine removal without tangible evidence or buyer linkage.

A demand for duty and reversal of Cenvat credit based only on excess wastage calculations could not be sustained where there was no tangible evidence of actual clandestine removal, no identifiable buyer, and the departmental statements had been retracted. The tribunal held that theoretical comparisons with wastage norms and other factories were insufficient to prove diversion of plastic granules. As the foundation for clandestine removal failed, confiscation of the seized granules and the connected penalties also could not stand. The adjudication orders were therefore set aside on merits, with consequential relief to the appellants.

---

---

Issues: (i) Whether the demand of duty and reversal of Cenvat credit could be sustained on the basis that excess wastage showed clandestine removal of inputs/diversion of plastic granules; and (ii) whether confiscation of the seized granules and the connected penalties could be sustained.

Issue (i): Whether the demand of duty and reversal of Cenvat credit could be sustained on the basis that excess wastage showed clandestine removal of inputs/diversion of plastic granules.

Analysis: The demand was founded on the assumption that the wastage shown by the assessees exceeded industrial norms and, therefore, the excess represented granules clandestinely removed without reversal of credit or payment of duty. The record did not disclose any purchaser of the alleged diverted goods or any direct evidence of clearance. The statements relied upon by the department had been retracted and were not treated as reliable evidence. The finding of diversion rested on theoretical calculations derived from wastage norms and was not supported by tangible material. In a case of alleged clandestine removal, the burden lies on the department to prove removal by evidence and it cannot rest on assumptions, presumptions, or comparisons with other factories.

Conclusion: The duty demand and credit reversal could not be sustained, and the finding of clandestine removal was rejected.

Issue (ii): Whether confiscation of the seized granules and the connected penalties could be sustained.

Analysis: The confiscation was based on the same unproven allegation that the seized granules belonged to the assessees and had been clandestinely diverted. There was no reliable evidence connecting the seized goods with the alleged removal or establishing that they were procured by the appellant. Once the foundation for clandestine removal failed, the basis for confiscation and the consequential penalties also disappeared.

Conclusion: The confiscation order and the connected penalties were set aside.

Final Conclusion: The impugned adjudication orders were unsustainable on merits and were set aside, with consequential relief granted to the appellants.

Ratio Decidendi: A demand for clandestine removal cannot be upheld on the basis of excess wastage calculations alone unless supported by tangible evidence of actual removal and linkage to identifiable buyers.

---