Clandestine removal requires direct evidence; consequential confiscation and penalties fall when the principal allegation is unproved.

A charge of clandestine removal of chewing tobacco and pan masala must be proved by direct and positive evidence, not by suspicion or inference. Statements of dealers and retailers indicating purchases from a distributor without bills did not directly establish removal by the manufacturer without duty payment, especially where the manufacturer and distributor stated that clearances were made under central excise invoices on payment of duty. As the principal allegation failed, the consequential confiscation of goods and penalties on connected persons under Rule 26 also could not survive and were set aside.

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Issues: (i) Whether the demand of duty and penalty for alleged clandestine removal of chewing tobacco and pan masala were sustainable on the evidence on record; (ii) whether confiscation of goods and penalties under Rule 26 could survive once the principal demand against the manufacturer was set aside.

Issue (i): Whether the demand of duty and penalty for alleged clandestine removal of chewing tobacco and pan masala were sustainable on the evidence on record.

Analysis: The allegations rested mainly on statements of dealers and retailers indicating purchase from the distributor without bills. Those statements did not directly implicate the manufacturer in removal without duty payment. On the contrary, the distributor and the manufacturer both stated that the goods were cleared under central excise invoices on payment of duty. A charge of clandestine removal must be proved by direct and positive evidence and cannot be sustained on suspicion or inference alone.

Conclusion: The demand of duty and the penalty against the manufacturer were not sustainable and were set aside.

Issue (ii): Whether confiscation of goods and penalties under Rule 26 could survive once the principal demand against the manufacturer was set aside.

Analysis: The confiscation and the penalties on the dealers and their representatives were only consequential to the alleged clandestine removal by the manufacturer. Once the foundation of clandestine removal failed, the ancillary findings against the seized goods and the persons proceeded against under Rule 26 also could not stand.

Conclusion: The confiscation and the penalties on the connected persons were not sustainable and were set aside.

Final Conclusion: The appeals succeeded in full, with the impugned orders vacated in their entirety.

Ratio Decidendi: A charge of clandestine removal must be established by direct and positive evidence, and consequential confiscation or penalty cannot survive when the principal allegation itself is unproved.

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