Clandestine manufacture needs tangible proof; admitted duty-free removal can still justify penalty under excise law.

A duty demand for brass controllers and tops alleged to have been manufactured in one unit and moved to another was rejected because the department lacked direct and acceptable evidence of clandestine manufacture; the assessee's explanation that the goods were purchased externally was not adequately disproved, so mere suspicion could not sustain the demand. By contrast, a penalty for removal of LPG stoves without payment of duty was upheld because the removal was admitted and later duty payment did not undo the established contravention. The matter therefore distinguishes between unproven clandestine manufacture and admitted non-payment at the time of removal.

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Issues: (i) Whether duty could be demanded on brass controllers and tops alleged to have been manufactured in Unit No. 1 and moved to Unit No. 2 without adequate proof of manufacture by the assessee. (ii) Whether the penalty of Rs. 2,000 was sustainable for removal of LPG stoves without payment of duty.

Issue (i): Whether duty could be demanded on brass controllers and tops alleged to have been manufactured in Unit No. 1 and moved to Unit No. 2 without adequate proof of manufacture by the assessee.

Analysis: The demand rested on documents showing movement of parts to Unit No. 2, but there was no direct evidence that the goods were manufactured in Unit No. 1. The assessee consistently maintained that the goods were purchased from outside and produced supporting bills, and the rejection of that explanation was not adequately reasoned. In a matter involving alleged evasion and duty demand, the burden lay on the department to adduce solid and acceptable evidence of clandestine manufacture and removal. Where the evidence only created doubt and did not establish manufacture by the assessee, the benefit of doubt could not be denied without material proof.

Conclusion: The duty demand on brass controllers and tops was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the penalty of Rs. 2,000 was sustainable for removal of LPG stoves without payment of duty.

Analysis: The assessee had admittedly removed LPG stoves from Unit No. 2 without payment of duty and paid the duty later after proceedings were initiated. That admitted conduct furnished a sufficient basis for penalty, and the later payment of duty did not erase the contravention already established. The record therefore supported the penal consequence imposed by the lower authority.

Conclusion: The penalty of Rs. 2,000 was upheld against the assessee.

Final Conclusion: The appeal succeeded only on the duty demand relating to brass controllers and tops, but failed on the penalty imposed for the admitted removal of LPG stoves without timely payment of duty.

Ratio Decidendi: A duty demand for alleged clandestine manufacture and removal cannot stand without tangible and acceptable evidence establishing the assessee's manufacture of the goods, but a penalty may be sustained where removal without payment of duty is admitted.

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