Clandestine removal demands need corroborated evidence; loose papers and untested statements cannot sustain duty or penalties.

Allegations of clandestine manufacture and removal require reliable, corroborated evidence showing both unaccounted manufacture and clearance; untested third-party statements and loose documents are insufficient, especially where requested cross-examination is denied. Here, the duty demand and penalties on the main appellant were set aside because the Revenue relied mainly on recovered papers and statements without independent corroboration, including evidence of unaccounted raw material procurement or abnormal electricity use. The penalties on the connected appellants also fell once the foundational demand failed, as they were purely consequential and had no independent basis.

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Issues: (i) Whether the demand of duty and the related penalties could be sustained on the basis of documents recovered from employees and third parties, statements of customers and suppliers, and the Managing Director's statement, in the absence of reliable cross-examination and independent corroboration. (ii) Whether, once the demand against the main appellant failed, the penalties imposed on the connected appellants could survive.

Issue (i): Whether the demand of duty and the related penalties could be sustained on the basis of documents recovered from employees and third parties, statements of customers and suppliers, and the Managing Director's statement, in the absence of reliable cross-examination and independent corroboration.

Analysis: The material relied upon by the Revenue consisted mainly of documents recovered from the residences of employees and other third parties, along with a few inculpatory statements. Those persons were not produced for cross-examination, though requested, and the documents were not official records maintained in the ordinary course of business. The investigation also failed to establish unaccounted procurement of the major raw materials necessary for manufacture, abnormal electricity consumption, or other independent evidence showing clandestine manufacture and clearance. In such matters, the allegation is quasi-criminal in character and must be supported by cogent, corroborative evidence; a few loose papers and untested statements are insufficient.

Conclusion: The duty demand and the penalties on the main appellant were not sustainable and were set aside.

Issue (ii): Whether, once the demand against the main appellant failed, the penalties imposed on the connected appellants could survive.

Analysis: The penalties imposed on the connected appellants were consequential to the finding of clandestine removal against the main appellant. After the foundational demand itself was held unsustainable, no independent basis remained for sustaining the connected penalties.

Conclusion: The penalties on the connected appellants also could not survive and were set aside.

Final Conclusion: The appeals succeeded in full, with the impugned duty demand and all consequential penalties annulled, and consequential relief granted.

Ratio Decidendi: Allegations of clandestine manufacture and removal cannot be sustained unless supported by reliable, corroborated evidence establishing both unaccounted manufacture and clearance; untested third-party statements and uncorroborated loose documents are insufficient, especially when cross-examination is denied.

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