Clandestine removal demands need corroborative evidence; unsupported calculations fail, while proven stock shortage sustains limited duty and penalty.

A demand for alleged clandestine removal of processed fabrics was set aside because the allegation rested on loose papers, job cards, uncorroborated statements and theoretical calculations, while the established machine capacity and surrounding circumstances did not support production on the claimed scale. The tribunal held that clandestine removal must be proved by credible, corroborative evidence of raw material use, power consumption, labour, storage or financial trail. By contrast, the duty demand on shortage of grey fabrics was sustained because physical verification showed unexplained shortage; the related penalty on the director was maintained in reduced form, while confiscation, redemption fine and penalties on other noticees were deleted.

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Issues: (i) Whether the demand of duty for alleged clandestine removal of processed fabrics could be sustained on the basis of loose papers, job cards, statements and theoretical calculations when the installed capacity and surrounding circumstances did not support such massive production. (ii) Whether the demand based on shortage of grey fabrics was sustainable, and whether the penalties, confiscation and redemption fine imposed on the assessee and co-noticees could be upheld.

Issue (i): Whether the demand of duty for alleged clandestine removal of processed fabrics could be sustained on the basis of loose papers, job cards, statements and theoretical calculations when the installed capacity and surrounding circumstances did not support such massive production.

Analysis: The factory was operating with two stenter machines having four chambers each, and the annual capacity fixed under the relevant compounded levy regime showed a capacity far below the quantity alleged to have been clandestinely manufactured and cleared. The allegation rested mainly on scribbling papers, job cards and statements of transporters and employees, but no credible independent evidence of procurement of raw materials, power consumption, labour strength, storage capacity, financial trail or actual clandestine clearance was brought on record. The statements relied upon were uncorroborated and the investigation did not satisfactorily establish that production of the disputed magnitude was possible within the available capacity.

Conclusion: The demand of duty on the alleged clandestine removal of processed fabrics was not sustainable and was set aside.

Issue (ii): Whether the demand based on shortage of grey fabrics was sustainable, and whether the penalties, confiscation and redemption fine imposed on the assessee and co-noticees could be upheld.

Analysis: The physical verification disclosed shortage of grey fabrics, and no satisfactory explanation was offered for that shortage. To that limited extent, duty liability was justified. Since the shortage was established, penalty on the concerned director was warranted though reduced in quantum. However, there was no material showing involvement of the other noticees, and confiscation with redemption fine was not justified for goods not available for confiscation. The penalty on the buyers was also unsustainable for want of evidence.

Conclusion: The duty on the shortage of grey fabrics and the connected reduced penalty on the director were upheld, while the confiscation, redemption fine and penalties on the other noticees were set aside.

Final Conclusion: The order was modified by sustaining only the duty and related penalty arising from the proved shortage of grey fabrics, while deleting the major demand based on alleged clandestine removal and setting aside the remaining penalties and confiscatory consequences.

Ratio Decidendi: A charge of clandestine removal in excise must be established by credible and corroborative evidence, and a demand founded only on theoretical calculations, uncorroborated statements and unsupported assumptions cannot stand, especially where the alleged production exceeds the established manufacturing capacity.

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