Clandestine removal cannot rest on old bag markings alone when stock tallies and no corroborative evidence exists.

Mere presence of sugar bags bearing earlier season markings did not establish clandestine production or removal where the physical stock tallied with the recorded stock and no shortage was found. The department relied only on the old markings, while the explanation that reused empty bags retained earlier year markings was accepted as plausible. In the absence of corroborative evidence of unaccounted manufacture or clandestine clearance, the inference of suppressed production could not be sustained, and the duty demand, confiscation and penalty were held unsustainable and set aside.

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Issues: Whether the presence of sugar bags bearing earlier season markings, despite tallying stock, justified a finding of clandestine production and removal, leading to duty demand, confiscation and penalty.

Analysis: The stock in the godown matched the recorded quantity, so there was no shortage in the physical stock position. The case of the department rested only on the fact that some bags bore markings of earlier sugar seasons. The explanation that old empty bags were reused and the year markings were not changed was found plausible. In the absence of any other evidence showing unaccounted manufacture or clandestine clearance, the inference that the earlier-marked bags represented suppressed production and that an equivalent quantity of the current season's sugar had been cleared clandestinely could not be sustained.

Conclusion: The finding of clandestine removal was not justified. The duty demand, confiscation and penalty were unsustainable and were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded because the department failed to establish clandestine removal beyond the suspicious markings on certain bags, and the impugned order was annulled.

Ratio Decidendi: A mere discrepancy in the season markings on bags, without shortage in stock or corroborative evidence of unaccounted manufacture or clandestine clearance, is insufficient to uphold duty demand, confiscation or penalty.

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