Actual manufacturer and corroborated evidence rule defeat joint excise demand and unproved clandestine removal allegations.

Liability for central excise duty had to be fastened on the actual manufacturer, and where the record showed that two separately registered firms carried on distinct production activities, a joint and several demand against the individual respondents was unsustainable. The reasoning also rejected the allegation of clandestine removal because the Revenue relied mainly on electronic printouts without effective enquiry or corroboration from buyers or other connected persons. In the absence of clinching evidence of raw material purchases, transport, sales, or flow back of funds, clandestine clearance was not proved. The common duty demand and penalties were therefore not maintainable against the individuals.

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Issues: (i) Whether the individual respondents or the two firms were the actual manufacturers and, therefore, liable for duty demand and penalty; (ii) Whether the allegation of clandestine removal stood proved on the material relied upon by the Revenue.

Issue (i): Whether the individual respondents or the two firms were the actual manufacturers and, therefore, liable for duty demand and penalty.

Analysis: The goods were found to have been manufactured from the common premises, but the record showed that the two firms were separately registered, had separate production activities, and were treated by the department itself as the manufacturers for purposes of release of seized goods. The demand was nevertheless raised jointly and severally against the individuals and also against the firms, although the duty, if any, had to be fastened on the legal person who actually manufactured the goods. The definition of manufacture under Section 2(f) of the Central Excise Act, 1944 supported the conclusion that liability must follow the actual manufacturing entity. The Revenue's own stand was inconsistent with a combined demand from the individuals when the firms were shown as the manufacturers.

Conclusion: The two firms were the actual manufacturers, and the joint and several demand and penalty on the individual respondents was not sustainable.

Issue (ii): Whether the allegation of clandestine removal stood proved on the material relied upon by the Revenue.

Analysis: The allegation rested mainly on printouts from floppy disks and related material, but no effective enquiry was conducted with the alleged buyers or other persons connected with the transactions. There was no clinching evidence establishing the essential ingredients of clandestine removal, such as corroborated purchases of raw material, transport, sale, or flow back of funds. In the absence of such supporting evidence, the finding of clandestine clearance could not be sustained.

Conclusion: The allegation of clandestine removal was not proved.

Final Conclusion: The Revenue failed to establish liability against the individual respondents, and the order setting aside the common duty demand and penalties was upheld.

Ratio Decidendi: Duty demand for clandestine manufacture must be fastened on the actual manufacturer, and a charge of clandestine removal requires corroborative clinching evidence, not merely unverified electronic printouts or assumptions.

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