Clandestine removal evidence is essential before Rule 209A penalty can survive; duplicate bills alone were insufficient.

Penalty under Rule 209A was held unsustainable because the record did not prove clandestine removal of excisable goods. The Tribunal noted that the Department failed to produce reliable evidence of excess raw material use, excess electricity consumption, transport of unaccounted goods, or verified supplier and buyer records. The duplicate invoices were found to have been used for bill discounting, and the bank witnesses confirmed that no physical verification of goods had occurred. The evidence showed a financial fraud on the banks, not removal of goods from the factory, and there was no knowledge or reason to believe that goods were liable to confiscation. The penalties were therefore set aside.

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Issues: Whether penalties under Rule 209A were sustainable on the allegation of clandestine removal based on duplicate bills and whether the assessee-appellants could be penalised when the evidence disclosed only a financial irregularity in bill discounting.

Analysis: The Tribunal found that the cigarette manufacturing units were under physical control, yet the Department did not produce reliable evidence of clandestine clearance such as proof of excess raw material procurement, excess electricity consumption, transport of unaccounted goods, or verified supplier and buyer records. The record showed that the duplicate invoices were used for bill discounting, the bank witnesses stated that the bills were discounted without physical verification of goods, and the transactions were recorded in the books of account. On these facts, the Tribunal held that the material established a fraud on the banks by raising duplicate bills, but not clandestine removal of excisable goods. It further noted that, in the absence of clandestine removal and where the appellant company had no knowledge of goods liable to confiscation, penalty under Rule 209A could not survive.

Conclusion: The penalty under Rule 209A was not sustainable and was set aside in favour of the assessee-appellants.

Final Conclusion: The appeals succeeded, the impugned order was set aside, and the penalties imposed on the assessee-appellants were dropped.

Ratio Decidendi: Penalty for dealing with goods liable to confiscation cannot be imposed without strict evidence of clandestine removal and knowledge or reason to believe that the goods were liable to confiscation.

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