Clandestine clearance demands need corroboration; retrospective electricity-consumption extrapolation alone cannot sustain earlier-period duty liability.

Clandestine manufacture and clearance demands were upheld only where contemporaneous evidence existed, including private records, customer and broker statements, and shortages found on verification; the corresponding short-period duty and Education Cess were sustained. By contrast, a demand for an earlier period based only on retrospective extrapolation of electricity consumption at 700 KWH per MT was rejected because no independent corroboration established that figure as an accepted industrial norm and power usage varied with operating conditions. Penalties were correspondingly reduced for the manufacturer and director, while the purchaser penalty linked to the sustained clearances was maintained.

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Issues: (i) whether the duty demand and Education Cess for the period from 1 August 2004 to 3 September 2004, based on private records, statements and shortages found on physical verification, was sustainable; (ii) whether the duty demand for the earlier period could be upheld by adopting electricity consumption of 700 KWH per MT as the basis for alleged clandestine production; (iii) what consequential penalty relief, if any, was warranted.

Issue (i): whether the duty demand and Education Cess for the period from 1 August 2004 to 3 September 2004, based on private records, statements and shortages found on physical verification, was sustainable.

Analysis: The demand for this short period was supported by seized private records, statements of customers and brokers, and shortages found during verification. The material was contemporaneous to the period in dispute and was treated as adequate evidence of unaccounted manufacture and clearance.

Conclusion: The demand for the period from 1 August 2004 to 3 September 2004 was upheld in favour of Revenue.

Issue (ii): whether the duty demand for the earlier period could be upheld by adopting electricity consumption of 700 KWH per MT as the basis for alleged clandestine production.

Analysis: For the earlier period, the only basis was an electricity-consumption norm derived from records relating to August 2004. The Court found that such a figure could not be retrospectively projected to prior years, especially when power consumption depends on variable factors such as scrap quality, breakdowns, voltage fluctuations and power cuts. The record also did not establish that 700 KWH per MT was an accepted industrial norm, and the demand was held to be unsustainable on a purely hypothetical basis.

Conclusion: The demand for the period prior to August 2004 was set aside in favour of the Assessee.

Issue (iii): what consequential penalty relief, if any, was warranted.

Analysis: Since only the short-period demand survived, the penalty on the manufacturer and its director was reduced to reflect the upheld duty, while the penalty on the purchaser linked to the sustained clandestine clearances was maintained. The statutory penalty under Section 11AC was applied in a modified form consistent with the partial success of the appeal.

Conclusion: The penalties were reduced for the manufacturer and its director and the penalty on the purchaser was upheld.

Final Conclusion: The adjudication sustained only the short-period duty demand and corresponding purchaser penalty, while the bulk of the alleged past-period demand was rejected and the main penalties were scaled down accordingly.

Ratio Decidendi: A demand for clandestine manufacture and clearance cannot be sustained for an earlier period merely by extrapolating electricity-consumption data from a later period without independent corroborative evidence; a retrospective demand based on such a norm is arbitrary.

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