Clandestine removal needs corroboration, and Rule 209A penalty requires physical dealing with liable goods and knowledge.

Clandestine removal of cigarettes must be supported by corroborative evidence such as extra raw material, electricity use, labour, transport, buyers, or other incriminating material; on the record, no such evidence was found, so the charge was not proved against the Revenue. Penalty under Rule 209A of the Central Excise Rules, 1944 requires physical possession of, or physical dealing with, excisable goods liable to confiscation, together with knowledge or reason to believe of that liability; the record did not establish such dealing by the company, directors, employees, or dealers, so the penalty was unsustainable. The impugned order was set aside in toto.

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Issues: (i) Whether the allegation of clandestine manufacture and removal of cigarettes was established on the basis of the material on record. (ii) Whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against the assessee-appellants and the connected persons.

Issue (i): Whether the allegation of clandestine manufacture and removal of cigarettes was established on the basis of the material on record.

Analysis: The allegation of clandestine removal required corroboration through evidence such as procurement and use of extra raw material, extra consumption of electricity, extra labour, transport arrangements, buyers, and other supporting material. The record did not show any incriminating material from the factory, nor was there evidence from any worker to support the charge. In the absence of corroborative evidence, the serious charge of clandestine removal could not be sustained.

Conclusion: The charge of clandestine manufacture and clandestine removal was not proved and the finding was against the Revenue.

Issue (ii): Whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against the assessee-appellants and the connected persons.

Analysis: Penalty under Rule 209A requires physical possession of, or physical dealing with, excisable goods liable to confiscation, together with knowledge or reason to believe that the goods were liable to confiscation. The record did not establish that the company, directors, employees, or dealers had physically dealt with the goods in the manner contemplated by the rule. There was also no satisfactory evidence of possession, transport, removal, sale, or purchase of the allegedly unaccounted goods by the persons penalised.

Conclusion: Penalty under Rule 209A was not sustainable against any of the appellants and the finding was in favour of the assessee.

Final Conclusion: The impugned order was set aside in toto and all the appeals were allowed.

Ratio Decidendi: A charge of clandestine removal must be supported by corroborative evidence, and penalty under Rule 209A can be imposed only where the person is shown to have physically dealt with excisable goods liable to confiscation with the requisite knowledge or belief.

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