Clandestine removal must be proved by actual evidence, not projected yield or theoretical production figures.

Clandestine removal cannot be inferred merely from a declared input-output ratio or projected yield after installation of new machinery. The Tribunal held that expected production figures, without evidence of actual manufacture or movement of unaccounted goods, were insufficient where trial runs showed input losses and the new machine had not immediately reached optimum output. As the Department bore the burden of proving clandestine removal and failed to do so, the duty demand could not stand. The connected penalties and interest, being dependent on the same unsustainable foundation, also fell.

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Issues: Whether clandestine removal of finished goods could be inferred merely from the declared input-output ratio and projected yield after installation of new machinery, and whether the consequential duty, penalty, and interest could be sustained.

Analysis: The finding of clandestine removal rested on assumptions drawn from the assessee's intimation about expected yield under new technology and from theoretical production figures. The Tribunal found no material showing that the new machine immediately achieved optimum production, and noted that substantial inputs were lost in nine batches during trial runs. In such circumstances, production could not be presumed on the basis of expected yield alone. Since the Department bears the burden of proving clandestine removal, and there was no evidence of actual movement of unaccounted goods, the demand could not be upheld. Once the duty demand failed, the penalties and interest based on the same foundation also failed.

Conclusion: The issue was decided in favour of the assessee. The Tribunal's view was upheld and no interference was warranted.

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