Clandestine removal demands need solid corroboration; untested statements and unsupported records cannot sustain duty or director penalties.

Allegations of clandestine removal could not be sustained where the demand rested mainly on chit books and an untested statement of the authorised signatory. The chit books themselves showed duty-paid clearances, and no corroborative evidence was produced from purchasers, directors, or other persons to prove clandestine removals or receipt of sale consideration. The statement of the authorised signatory, without cross-examination, was held to have no evidentiary value. As the evidentiary foundation was insufficient, the duty, interest, penalty and confiscation were set aside, and the director's penalty was also set aside because no specific role was established against him.

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Issues: Whether the demand of duty, interest, penalties and confiscation based on alleged clandestine removal was sustainable, and whether penalty on the director could be imposed.

Analysis: The demand rested mainly on two chit books and the statement of the authorised signatory. The chit books themselves contained entries indicating duty-paid clearances, yet no corroborative evidence was produced by recording statements of purchasers, directors, or any other persons to establish clandestine clearances or receipt of sale consideration. The statement of the authorised signatory, in the absence of cross-examination, was held to have no evidentiary value. Since clandestine removal is a serious charge requiring solid corroboration, the evidentiary basis for the demand was found insufficient. The penalty on the director also failed because no specific role was attributed to him and it was dependent on the unsustainable demand against the company.

Conclusion: The demand of duty, interest, penalty and confiscation was set aside, and the penalty imposed on the director under Rule 209A of the Central Excise Rules, 1944 was also set aside. The appeals were allowed in favour of the assessees.

Ratio Decidendi: A demand for clandestine removal cannot be sustained solely on uncorroborated documents or an untested statement; solid corroborative evidence and observance of cross-examination are required before confirming liability or consequential penalties.

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