Clandestine removal demands require cross-examination and corroborative evidence; ledger entries and untested statements alone are insufficient.

Maintainability under section 35G of the Central Excise Act was upheld because the dispute did not turn on rate of duty or valuation, and the appeal had already been admitted with a substantial question of law framed. In a clandestine removal dispute concerning air-conditioners, a demand based mainly on ledger entries and third-party statements could not stand where the assessee was denied effective cross-examination without any established exception under section 9D. The absence of corroborative evidence of excess raw material, manufacture, or clandestine clearance rendered the demand unsustainable, and the major duty demand was quashed.

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Issues: (i) whether the preliminary objection to maintainability of the appeal under section 35G of the Central Excise Act, 1944 was sustainable; (ii) whether the demand confirmed on the alleged clandestine removal of 606 air-conditioners was sustainable in the absence of effective cross-examination and corroborative evidence.

Issue (i): whether the preliminary objection to maintainability of the appeal under section 35G of the Central Excise Act, 1944 was sustainable.

Analysis: The dispute did not concern the rate of duty or valuation so as to attract the objection raised by the Revenue. The appeal had already been admitted and a substantial question of law framed, and the objection did not alter the statutory character of the challenge before the Court.

Conclusion: The preliminary objection was rejected and the appeal was held to be maintainable.

Issue (ii): whether the demand confirmed on the alleged clandestine removal of 606 air-conditioners was sustainable in the absence of effective cross-examination and corroborative evidence.

Analysis: The demand rested mainly on ledger entries and statements of third parties. The assessee had specifically sought cross-examination of the persons whose statements were relied upon, but no exceptional circumstance justifying denial of that opportunity under section 9D of the Central Excise Act, 1944 was shown. The adjudicating authority also failed to deal with the assessee's explanation on the ledger entries and the Department did not produce tangible evidence of procurement of excess raw material, actual manufacture, or clandestine clearance of such a large quantity of air-conditioners. Mere suspicion and inferential reasoning were insufficient to sustain the charge.

Conclusion: The demand of duty on the alleged clandestine removal of 606 air-conditioners was set aside and quashed.

Final Conclusion: The appeal succeeded in part by deleting the major duty demand, while leaving intact the unchallenged duty demand relating to 24 air-conditioners.

Ratio Decidendi: In clandestine removal cases, a duty demand cannot be sustained on ledger entries and retracted or untested third-party statements alone unless the assessee is afforded cross-examination or the statutory grounds for denying it are established, and the Department must adduce tangible corroborative evidence of manufacture and removal.

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