Clandestine removal demands and job work manufacturing liability failed for lack of evidence and were set aside.

A demand for clandestine removal failed where it rested on assumptions about alleged dummy and benami units, because the record, including income-tax findings, did not show cogent evidence of procurement or removal of capital assets. The duty demand also failed where capital goods were fabricated through labour contractors on job work basis, since the contractors supplied the actual manufacture and the assessee was not the manufacturer merely because the work was done at its site under its supervision. As both duty demands failed, the penalties also fell away and were set aside.

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Issues: (i) Whether duty of Rs. 4,41,10,056/- was demandable on the alleged clandestine removal of capital assets from the factory of the appellant; (ii) Whether duty of Rs. 1,11,67,833/- was demandable from the appellant as the manufacturer of capital goods fabricated in the factory through labour contractors; (iii) Whether penalties were sustainable.

Issue (i): Whether duty of Rs. 4,41,10,056/- was demandable on the alleged clandestine removal of capital assets from the factory of the appellant.

Analysis: The demand rested on the premise that the appellant had procured capital assets through dummy and benami units and thereafter clandestinely removed them. The material on record, including the findings from income-tax investigations, indicated that the alleged transactions with the dummy units were non-existent. The demand was based on assumption and presumption rather than cogent evidence of procurement or removal of capital assets.

Conclusion: The demand of Rs. 4,41,10,056/- was held unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether duty of Rs. 1,11,67,833/- was demandable from the appellant as the manufacturer of capital goods fabricated in the factory through labour contractors.

Analysis: The fabrication was undertaken by contractors on job work basis under agreements under which the appellant supplied raw materials and electricity and paid job work charges. On these facts, the contractors were the actual manufacturers and the appellant could not be treated as the manufacturer merely because the work was carried out at its site under its supervision.

Conclusion: The demand of Rs. 1,11,67,833/- was held unsustainable against the appellant and liability, if any, lay with the contractors.

Issue (iii): Whether penalties were sustainable.

Analysis: Once both duty demands failed, the foundation for the penalties also ceased to survive.

Conclusion: The penalties were set aside.

Final Conclusion: The appeals succeeded in full and the impugned demands and penalties were set aside, with consequential reliefs as admissible.

Ratio Decidendi: A demand for clandestine removal cannot stand on mere assumption or presumption without cogent evidence, and where fabrication is undertaken by independent contractors on job work basis, the contractor is the manufacturer for excise purposes.

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