Clandestine removal demands need corroborative evidence; captive clearances to own unit require cost-based valuation, not assumptions.

Cenvat and excise disputes arose over alleged clandestine clearance of protein beverage bulk mix, packing materials, sample pouches and Xtra-Mass. The article states that demands based only on a security register, mismatched figures or assumptions failed where there was no corroborative evidence of excess raw material use, excess power consumption, diversion, or clandestine removal, and the bulk mix sent to the assessee's own unit for repacking had to be valued on a cost-based captive-consumption method. It further notes that mere procedural non-compliance did not sustain demand for packing materials and inputs. The demand on Xtra-Mass was accepted because the goods were shown to have been cleared without duty.

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Issues: (i) Whether duty demand on bulk mix of protein beverages cleared to the assessee's own unit without payment of duty was sustainable; (ii) Whether clearance of Cenvat availed packing materials and inputs to another premises without reversal of credit was sustainable; (iii) Whether duty demand on sample pouches alleged to have been cleared without duty was sustainable; (iv) Whether duty demand on Xtra-Mass cleared without payment of duty was sustainable.

Issue (i): Whether duty demand on bulk mix of protein beverages cleared to the assessee's own unit without payment of duty was sustainable.

Analysis: The demand rested mainly on entries in a security register and mismatch in figures. The record showed that the assessee's Unit II manufactured bulk mix and cleared it to Unit I, where it was repacked into sample pouches and duty was paid on the final clearances. There was no corroborative evidence of excess raw material procurement, excess electricity consumption, or clandestine clearance from Unit I. In the absence of investigation at the receiving unit and without proof of clandestine removal by assumptions alone, the allegation could not stand. For valuation of such clearances to the assessee's own unit for further processing, the proper method was not the pro-rata MRP basis but cost-based valuation under the applicable valuation rules.

Conclusion: The demand on bulk mix was not sustainable and was set aside.

Issue (ii): Whether clearance of Cenvat availed packing materials and inputs to another premises without reversal of credit was sustainable.

Analysis: The materials were found in a rented premises used by the assessee as an additional storage space. The case did not establish shortage, diversion, or clearance of the goods outside the assessee's control. The dispute was essentially procedural, and the available record did not show unauthorized removal or misuse of credit. In the absence of contrary evidence, mere non-compliance with the suggested procedure did not justify confirmation of duty demand.

Conclusion: The demand on packing materials and inputs was not sustainable and was set aside.

Issue (iii): Whether duty demand on sample pouches alleged to have been cleared without duty was sustainable.

Analysis: The assessee consistently maintained that Unit II had no facility to manufacture sample pouches and that only empty sachets were sent to Unit I for filling and duty-paid clearance. The invoice relied upon by the department did not establish that filled sample pouches were cleared from Unit II. The evidence referred to by the department was also subsequent to the period in dispute and could not, by itself, prove clandestine removal for the relevant period.

Conclusion: The demand on sample pouches was not sustainable and was set aside.

Issue (iv): Whether duty demand on Xtra-Mass cleared without payment of duty was sustainable.

Analysis: The assessee did not seriously contest this demand. The record supported the finding that the goods were cleared without payment of duty.

Conclusion: The demand on Xtra-Mass was sustainable and was upheld.

Final Conclusion: The appeal succeeded substantially on the major demands, while the duty demand, interest, and equivalent penalty relating to Xtra-Mass alone were sustained.

Ratio Decidendi: A charge of clandestine removal cannot be sustained on assumptions or a solitary register entry without corroborative evidence; where goods are cleared to the assessee's own unit for further processing, valuation must follow the cost-based rule applicable to captive consumption.

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