Clandestine removal and confiscation need credible proof; suspicion alone cannot sustain excise duty demand or penalties.

Confiscation of finished goods, raw materials and packaging materials found in the factory was held unsustainable where no reliable inventory or proof of statutory breach established excess stock or unaccounted removal. For goods seized from a railway station, duty demand based on alleged clandestine removal required credible evidence linking the goods to manufacture and clearance from the factory; suspicion alone was insufficient. On the same footing, penalties could not survive once the underlying allegations of confiscation and clandestine removal failed. The note emphasises that excise confiscation and duty demands must rest on proof, not conjecture, and that factory goods and seized goods are treated differently depending on the evidence.

---

---

Issues: (i) Whether confiscation of finished goods, raw materials and packaging materials found in the factory was sustainable; (ii) whether duty demand and confiscation in respect of goods seized from the railway station on alleged clandestine removal were sustainable; (iii) whether penalties on the noticees could survive.

Issue (i): Whether confiscation of finished goods, raw materials and packaging materials found in the factory was sustainable.

Analysis: The stock of finished goods was said to be in excess, but no proper inventory was shown to establish the alleged excess quantity. The goods were still within the factory premises and there was doubt whether they had reached the stage requiring entry in RG-1. The raw materials and packaging materials were also alleged to be unaccounted, but confiscation of such materials was not justified on the facts found, particularly when the assessee claimed that the materials were recorded and Cenvat credit had been taken on duty-paid inputs.

Conclusion: Confiscation of the finished goods, raw materials and packaging materials was not sustainable and was set aside.

Issue (ii): Whether duty demand and confiscation in respect of goods seized from the railway station on alleged clandestine removal were sustainable.

Analysis: The Revenue did not produce evidence linking the railway-station goods to manufacture and clearance from the assessee's factory. The assessee had lodged an FIR regarding spurious manufacture of its branded goods, and the surrounding circumstances supported the possibility that the seized goods were not manufactured by the assessee. In the absence of proof of clandestine manufacture and removal, the demand could not stand. Since the assessee did not claim the seized goods, confiscation of those goods was maintained.

Conclusion: The duty demand and consequential confiscation on the allegation of clandestine removal were not sustainable, though confiscation of the unclaimed seized goods was upheld.

Issue (iii): Whether penalties on the noticees could survive.

Analysis: The penalties were founded on the same allegations that failed for want of proof of confiscation and clandestine removal. Once the demand and the principal allegations were set aside, the penalties also lacked an for survival.

Conclusion: The penalties were set aside.

Final Conclusion: The appeals succeeded and the adverse findings were substantially vacated, with only the confiscation of the unclaimed railway-station goods remaining undisturbed.

Ratio Decidendi: Confiscation and duty demand in excise matters cannot be sustained on or suspicion alone; the Revenue must establish clandestine manufacture and removal with credible evidence, and confiscation of factory goods found within the premises requires reliable proof of excess and statutory breach.

---