Clandestine removal demands need corroborative evidence; private transporter records alone cannot sustain the main duty demand.

A charge of clandestine removal cannot rest solely on a transporter's private records or an uncorroborated statement; without independent corroboration and identifiable linkage to the assessee, the bulk duty demand was rejected. The duty demand based on factory shortages was sustained, while the additional demand on goods seized from merchant manufacturers and the transporter was set aside as duplicative and unsupported. Penalties and confiscation were correspondingly scaled back: the assessee's penalty was reduced, penalties based only on the rejected demand were cancelled, and confiscation of excess goods in the assessee's premises was set aside, though confiscation and related penalties for goods at merchant manufacturers' premises were upheld.

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Issues: (i) Whether the duty demand based on transporter records and the alleged code-name clearances was sustainable; (ii) whether the duty demand on goods found short or seized from the factory, merchant manufacturers and transporter was liable to be upheld in full; (iii) whether the penalties, confiscation and redemption fine were sustainable.

Issue (i): Whether the duty demand based on transporter records and the alleged code-name clearances was sustainable.

Analysis: The duty demand founded primarily on the transporter's private records and his statement was not supported by independent corroboration. The records did not, by themselves, establish that the entries related to the assessee, and the requested cross-examination was not allowed. In the absence of affirmative and tangible evidence linking the code-name entries to clandestine clearances by the assessee, the demand could not rest on surmise and conjecture.

Conclusion: The demand of duty based on the transporter records was not sustainable and was set aside.

Issue (ii): Whether the duty demand on goods found short or seized from the factory, merchant manufacturers and transporter was liable to be upheld in full.

Analysis: The duty demand relating to shortages found in the factory was accepted and upheld. The separate duty demand on fabrics seized from the merchant manufacturers and transporter was treated as already included in the shortage-based demand and there was no material to justify a second levy on the same goods. The higher demand founded on the transporter records was also rejected for want of reliable evidence.

Conclusion: The duty demand of Rs. 11,94,219.20 was upheld, while the additional demand of Rs. 2,17,005 and the bulk demand of Rs. 4,16,73,971 were set aside.

Issue (iii): Whether the penalties, confiscation and redemption fine were sustainable.

Analysis: The penalty on the assessee was reduced in view of the restricted duty confirmation. Penalties founded solely on the rejected bulk demand were set aside. Confiscation and redemption fine for excess goods found in the assessee's premises were set aside, but confiscation of goods found at the merchant manufacturers' premises and the connected penalties were sustained.

Conclusion: The assessee's penalty was reduced to Rs. 3 lakhs, the transporter's penalty and the director's penalty were set aside, confiscation of excess goods in the assessee's premises was set aside, and confiscation of goods at the merchant manufacturers' premises with the related penalties was upheld.

Final Conclusion: The decision sustained only the limited duty demand on shortages detected in the assessee's factory, while rejecting the main clandestine-removal demand based on transporter records and granting corresponding partial relief against penalties and confiscation.

Ratio Decidendi: A charge of clandestine removal must be proved by reliable corroborative material and cannot be sustained solely on untested private records or an uncorroborated statement, especially where the alleged entries do not independently identify the assessee.

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