Clandestine removal allegations fail where third-party statements were untested and independent corroboration was missing.

Demand for duty and penalties based on alleged clandestine manufacture and removal could not be sustained where the case depended chiefly on third-party statements and railway or transporter documents, but effective cross-examination was denied without the foundational requirements for admitting such statements under Section 9D being recorded. The evidentiary record also failed to independently prove linkage of the consignments to the assessee, procurement of raw materials, actual manufacture, buyers, transport trail, or capacity to produce the alleged quantities. Untested statements and uncorroborated documents were therefore insufficient to establish clandestine removal, and the demand and penalties were set aside.

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Issues: Whether the demand of duty and penalties for alleged clandestine manufacture and removal could be sustained on the basis of third-party statements and railway or transport documents without permitting effective cross-examination and without independent corroborative evidence.

Analysis: The allegations rested mainly on statements recorded during investigation and on railway receipts, transporter records and other third-party materials. The adjudicating authority denied cross-examination by invoking Section 9D of the Central Excise Act, 1944, but without recording the foundational circumstances that would make such statements admissible without cross-examination. The evidentiary record did not independently establish a reliable link between the impugned consignments and the assessee, nor did it satisfactorily prove procurement of raw materials, actual manufacture, buyers, transport trail, or capacity to manufacture the alleged quantities. Untested third-party statements and uncorroborated documents were therefore insufficient to prove clandestine removal.

Conclusion: The demand of duty and the connected penalties were not sustainable and had to be set aside in favour of the assessee.

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