Clandestine removal demands need corroboration and cross-examination safeguards; untested statements alone may not sustain duty liability.

Clandestine removal demands require reliable corroborative evidence, and a statement relied on in adjudication must satisfy the cross-examination safeguards reflected in section 9D; on that basis, an uncorroborated notebook and untested statement were treated as insufficient. By contrast, seized chits supported by a cross-examined partner were accepted as adequate to sustain the quantified demand. For the third set of alleged clearances, the evidentiary record was incomplete, so the matter was sent back for fresh adjudication and the connected penalties were modified to follow the revised duty outcome.

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Issues: (i) Whether the duty demand based on the notebook recovered from M/s. NHS and the statement of its partner was sustainable in the absence of corroboration and cross-examination under section 9D of the Central Excise Act, 1944; (ii) whether the demand based on chits recovered from the residence of the partner of M/s. Anand Steel Mart was sustainable; (iii) whether the demand based on the alleged clearances through M/s. MMSD required interference or remand, and how the penalties were to be modified consequentially.

Issue (i): Whether the duty demand based on the notebook recovered from M/s. NHS and the statement of its partner was sustainable in the absence of corroboration and cross-examination under section 9D of the Central Excise Act, 1944.

Analysis: The demand rested essentially on one notebook and a single statement. The surrounding circumstances and the alleged modus operandi were found to be unsupported by independent corroboration. The statement was not subjected to cross-examination and the requirements flowing from section 9D were held applicable to adjudication proceedings. In the absence of reliable corroborative material, the evidentiary basis for the demand was not accepted.

Conclusion: The demand of Rs. 31,96,509/- relating to 1219.89 MTs of CTD bars allegedly received by M/s. NHS was set aside in favour of the assessee.

Issue (ii): Whether the demand based on chits recovered from the residence of the partner of M/s. Anand Steel Mart was sustainable.

Analysis: The demand was supported by seized chits and the statement of the concerned partner, who was cross-examined and identified the chits. The Tribunal treated M/s. Anand Steel Mart as a noticee and held that the evidentiary material in this count was sufficient to sustain the quantified demand.

Conclusion: The demand of Rs. 11,48,044/- relating to 445.17 MTs of CTD bars allegedly received by M/s. Anand Steel Mart was sustained against the assessee.

Issue (iii): Whether the demand based on the alleged clearances through M/s. MMSD required interference or remand, and how the penalties were to be modified consequentially.

Analysis: The evidence relating to M/s. MMSD included third-party statements, retracted statements, transport-related discrepancies and electricity consumption material. The Tribunal found that the department had not sufficiently established the demand, but also held that mere related-party status could not by itself sustain the demand. Since the evidentiary record was incomplete, the matter required fresh adjudication. Consequentially, the penalty on the main assessee was to track the revised duty liability, the penalty on M/s. New Hindustan Steels was reduced to nil, and the penalty on the managing director was reduced.

Conclusion: The demand of Rs. 12,90,032/- relating to M/s. MMSD was remanded for de novo consideration, and the penalties were modified accordingly.

Final Conclusion: The appeal succeeded only in part: one demand was set aside, one demand was sustained, one demand was sent back for fresh adjudication, and the connected penalties were correspondingly reduced or made dependent on the de novo outcome.

Ratio Decidendi: A demand of clandestine removal must rest on reliable corroborative evidence, and where a statement is relied upon in adjudication, the safeguards relating to cross-examination under section 9D must be respected; otherwise, the demand cannot be sustained on that material alone.

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