Clandestine removal demands need corroboration; rough registers and statements alone were insufficient, and SSI exemption was upheld.

Allegations of clandestine clearance based mainly on a rough register and recorded statements were found unsustainable because the record lacked independent corroboration of actual manufacture, removal, transport, or input consumption. The unexplained mark "P" in the register was not shown to represent clandestine clearances, and the defence that it denoted returned goods for reprocessing was not disproved. Discrepancies and double entries further weakened the department's case. On that basis, the duty demand and penalty failed, and the assessee was held entitled to Small Scale Industry exemption under Notification No. 8/2003-CE.

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Issues: Whether the demand of duty and penalty for alleged clandestine clearance of medicines was sustainable on the basis of a rough register and statements, and whether the assessee was entitled to Small Scale Industry exemption under Notification No. 8/2003-CE dated 01.03.2003.

Analysis: The demand was founded mainly on entries in a rough register maintained by the chemist and on statements recorded during investigation. The register was not supported by corroborative evidence showing actual manufacture, removal, transport, consumption of inputs, or other material indicating clandestine clearance. The author of the register was not specifically asked what the mark "P" denoted, and the defence that it represented returned goods for reprocessing was not disproved. The record also showed discrepancies and double entries, weakening the inference drawn by the department. In the absence of independent corroboration, the statements and rough register were insufficient to sustain the charge of clandestine removal.

Conclusion: The demand of duty and the penalty were not sustainable. The assessee was entitled to the benefit of Small Scale Industry exemption, and the allegation of clandestine clearance failed.

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