Clandestine removal demands need supporting evidence beyond worksheets, while an unretracted buyer statement can still sustain a limited duty demand.

A charge of clandestine removal cannot be sustained merely on shortage worksheets or recovered records where surrounding material shows invoiced clearances and a pending compounded levy application during the relevant period; on that basis, the demand founded on shortages and folding records was set aside. An unretracted buyer statement that goods were received without duty-paying documents could independently support a limited duty demand, and interest followed as a statutory consequence with an equivalent penalty on the main appellant. Penalties on individual appellants were reduced to token penalties.

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Issues: (i) Whether the demand raised on alleged clandestine removal based on shortages and folding records was sustainable. (ii) Whether interest and penalties, including penalty on individuals, were justified.

Issue (i): Whether the demand raised on alleged clandestine removal based on shortages and folding records was sustainable.

Analysis: The demand relating to shortages and the folding-book worksheet was examined against the surrounding records, including the assessee's invoices, reply to the show cause notice, and the admitted position that an application to operate under the compounded levy scheme had been filed before the relevant clearances. The discrepancies in the worksheet, the overlap of entries, and the fact that several clearances were shown under invoices and ARE-4 documents weakened the allegation of clandestine removal. The rejection of the compounded levy application, made later, did not by itself establish clandestine removal for the period in question.

Conclusion: The demand based on shortages and folding records was not sustainable and was set aside.

Issue (ii): Whether interest and penalties, including penalty on individuals, were justified.

Analysis: The demand relating to illicit removal of 26,534 L.Mtrs was supported by the buyer's unretracted statement that the goods were received without duty-paying documents. On that demand, interest followed as a statutory consequence and an equivalent penalty was warranted on the main appellant. As the principal demand was largely set aside, the role of the individuals justified only a nominal penal consequence.

Conclusion: The demand of Rs. 80,663/-, with interest and equivalent penalty on the main appellant, was upheld, while the penalties on the individuals were reduced to token penalties.

Final Conclusion: The appeals succeeded substantially for the assessees, but the demand pertaining to 26,534 L.Mtrs and the consequential interest and penalty survived, with only token penalties imposed on the individual appellants.

Ratio Decidendi: A charge of clandestine removal cannot be sustained merely on shortage worksheets or recovered records where the surrounding material shows invoiced clearances and the assessee was operating under a pending compounded levy application during the relevant period; however, an unretracted buyer statement can independently sustain a limited demand.

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