Clandestine removal demands fail where private records and retracted statements lack independent corroboration and reliable proof.

Clandestine removal and undervaluation cannot be sustained on private records, transport documents and retracted statements unless the Department proves the allegation with credible, corroborative evidence. The majority found the burden of proof unmet because the private papers, kachcha challans and hisaba books were not reliably linked to the factories or to unaccounted production and removals; the seizure proceedings and panchnama were also seriously infirm. In the absence of independent support, the retracted statements were insufficient corroboration, and the material on capacity, raw material use, labour, electricity, diesel consumption and sale proceeds was treated as speculative. The duty demands, interest, confiscation and penalties were therefore set aside.

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Issues: Whether the demands of duty, interest and penalties based on alleged clandestine removal and undervaluation were sustainable on the strength of seized private records, transport documents and retracted statements.

Analysis: The majority held that the Department had not discharged the burden of proving clandestine manufacture and removal by credible and corroborative evidence. The private papers, kachcha challans and hisaba books were treated as unreliable because the authors were not satisfactorily established, the seizure proceedings and panchnama suffered from serious infirmities, and the documents were not shown, by independent evidence, to be linked to the factories or to actual unaccounted production and removals. The retracted statements were not accepted as sufficient corroboration in the absence of independent support. The evidence regarding capacity, raw material procurement, labour deployment, electricity and diesel consumption, and sale proceeds was found inadequate and based substantially on assumptions and presumptions.

Conclusion: The allegations of clandestine removal and undervaluation were not proved, and the duty demands, interest, confiscation and penalties were set aside in favour of the assessee.

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