Clandestine removal must be proved by corroborative evidence; intra-factory challans and procedural lapses cannot by themselves sustain duty denial.

A charge of clandestine removal must be supported by substantial corroborative evidence and cannot rest only on selective raw-material consumption figures or intra-factory delivery challans used for movement within the factory. Where the record does not show excess consumption of all essential inputs or other indicators such as verified stock, labour, electricity, transport, or a complete chain of suppressed production, the duty demand cannot be sustained. The absence of prior permission for sending inputs to job workers under Rule 57F(2) is only a procedural lapse when the processed goods are received back and used in manufacture, so Modvat credit is not to be denied on that ground alone. Personal penalties also cannot survive once clandestine removal is not proved.

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Issues: (i) Whether the demand of central excise duty based on alleged clandestine removal could be sustained when it was founded only on selective consumption figures of a few raw materials and delivery challans used for intra-factory movement; (ii) Whether denial of Modvat credit was justified on the ground that inputs were sent to job workers without prior permission under Rule 57F(2) of the Central Excise Rules; (iii) Whether the personal penalties imposed on the individuals could survive when the alleged clandestine removal was not proved.

Issue (i): Whether the demand of central excise duty based on alleged clandestine removal could be sustained when it was founded only on selective consumption figures of a few raw materials and delivery challans used for intra-factory movement.

Analysis: The demand was based on the assumption that entries in delivery challans reflected production and clearance of final products, although those challans were maintained for movement of raw materials between different sections of the same factory. The manufacture of the final clocks involved more than the few items relied upon by the department, and the record did not show excess consumption of all essential inputs or any corroborative evidence such as verified closing stock, labour, electricity, transport, or other indicators normally required to establish clandestine clearance. The cross-examination of the departmental witness also showed that the department relied on delivery challans and only a limited set of inputs, without proving the complete chain of alleged suppressed production.

Conclusion: The demand of duty on the basis of clandestine removal was not sustainable and the finding was in favour of the assessee.

Issue (ii): Whether denial of Modvat credit was justified on the ground that inputs were sent to job workers without prior permission under Rule 57F(2) of the Central Excise Rules.

Analysis: The processed inputs received back from the job workers were admittedly used in the manufacture of the final products, and the existence of the job-work arrangement within the same premises was not disputed. The absence of prior permission under Rule 57F(2) was treated as only a procedural infraction in the facts of the case, not a ground to deny credit altogether, especially when the department did not dispute the return and use of the processed material in manufacture. Since the statutory scheme of Modvat credit was otherwise complied with, total denial was unwarranted.

Conclusion: The denial of Modvat credit was not justified and the finding was in favour of the assessee.

Issue (iii): Whether the personal penalties imposed on the individuals could survive when the alleged clandestine removal was not proved.

Analysis: The personal penalties were dependent on the establishment of clandestine removal and the applicability of the confiscation and penal provisions. Once the foundational charge of clandestine removal failed, the basis for invoking the penalty provisions also failed. In the absence of proof that the individuals dealt with confiscable goods with the requisite knowledge, the penalties could not stand.

Conclusion: The personal penalties were unsustainable and were set aside in favour of the appellants.

Final Conclusion: The impugned orders were set aside and all appeals were allowed with consequential relief.

Ratio Decidendi: A charge of clandestine removal must be proved by substantial corroborative evidence and cannot rest solely on selective input-consumption figures or intra-factory delivery challans; procedural non-compliance in job-work movement of inputs does not, by itself, justify denial of Modvat credit when receipt and use in manufacture are established.

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