Clubbing of dummy units without notice invalidates demand, while corroborated records can prove clandestine removal and justify confiscation.

Clubbing clearances with alleged dummy units could not support duty demand or penalties where no show cause notices were issued to those units, as that defect vitiated the demand to that extent. Computer printouts, bank records and corroborative witness statements were sufficient to establish clandestine manufacture and removal of photocopiers, so confiscation of the seized goods was upheld. The redemption fine, however, was found excessive and was set aside. The duty demand and penalties were also set aside for fresh adjudication in accordance with natural justice.

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Issues: (i) Whether the demand and penalties could be sustained in the absence of show cause notices to the alleged dummy units whose clearances were clubbed with those of the principal unit; (ii) whether the computer printouts, bank records and witness statements established clandestine manufacture and removal of photocopiers, and whether the confiscation and redemption fine were justified.

Issue (i): Whether the demand and penalties could be sustained in the absence of show cause notices to the alleged dummy units whose clearances were clubbed with those of the principal unit.

Analysis: The proceedings relating to clubbing of clearances of dummy concerns with the principal unit could not be sustained where no show cause notices had been issued to the alleged dummy units. The absence of such notices vitiated the demand to the extent it was founded on clearances attributable to those units. On that aspect, the demand and consequential penalties were not legally sustainable.

Conclusion: The demand and penalties were unsustainable to the extent they related to clearances attributable to the alleged dummy units, and this issue was decided in favour of the assessee.

Issue (ii): Whether the computer printouts, bank records and witness statements established clandestine manufacture and removal of photocopiers, and whether the confiscation and redemption fine were justified.

Analysis: The seized computer printouts, when read with the bank records and corroborative statements of employees, buyers and transport operators, established a pattern of unaccounted imports, assembly, sale and receipt of sale proceeds. The evidence supported the conclusion that photocopiers were manufactured and removed without compliance with Central Excise requirements. The confiscation of the seized photocopiers was therefore justified. However, the redemption fine fixed for the confiscated goods was found to be in excess of what was authorised by law. In view of the legal defect relating to clubbing without notices to the dummy units, the duty demand and penalties required reconsideration in a fresh adjudication after observing natural justice.

Conclusion: The confiscation was upheld, the redemption fine was set aside, and the duty demand and penalties were set aside for fresh consideration in accordance with law.

Final Conclusion: The appeal succeeded only in part: the confiscation of the seized photocopiers stood, but the fine, duty demand and penalties were not sustained in their existing form and the matter was remanded for fresh proceedings.

Ratio Decidendi: Where clearances are clubbed with those of alleged dummy units, the demand cannot be sustained without issuance of show cause notices to those units; computer-generated records may be relied upon when adequately corroborated by independent evidence.

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