Clandestine removal must be proved by basic evidence of manufacture and clearance, not by circumstantial material alone.

Clandestine removal demand for pan masala could not be sustained on incidental or circumstantial material alone where the Revenue failed to produce basic evidence of actual manufacture and clearance. The Tribunal examined the sealed packing machine, the inspection report, alleged seal tampering, small quantities of goods and packing material, and retracted statements, and found these insufficient to prove clandestine manufacture or removal. The duty demand, confiscation and penalties were therefore held unsustainable.

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Issues: Whether the Revenue had established clandestine manufacture and clearance of pan masala so as to justify confirmation of the duty demand, confiscation and penalties.

Analysis: The sealing of the packing machine on the assessee's request and the subsequent inspection report were examined in detail. The evidence relied upon by the Revenue consisted mainly of alleged seal tampering, small quantities of packing material and finished goods, and statements later retracted. The Tribunal held that these circumstances, without basic evidence of actual manufacture and clearance, were insufficient to sustain a substantial demand for clandestine removal. The findings of the original authority that the possibility of operation of the machine without removing the seal was remote were accepted.

Conclusion: The Revenue failed to establish clandestine manufacture or removal; the duty demand and connected proceedings were not sustainable.

Ratio Decidendi: A substantial duty demand for clandestine removal cannot be upheld on incidental or circumstantial materials alone in the absence of basic evidence of actual manufacture and clearance.

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