Proof of clandestine clearance failed, so the central excise demand, interest and penalties were set aside.

Central excise duty, interest and penalties were held unsustainable because the revenue failed to prove that the duty-paid goods were different from the goods on which the demand was based. The allegation of clandestine clearance relied on third-party material and seizure proceedings away from the factory, but the record did not establish that the goods cleared on duty payment during the relevant period were not the very goods later made subject to the notice. Since the goods had been cleared from the factory gate after duty payment, the manufacturer had no control over their subsequent movement, and the factual foundation for the demand was not established. The impugned order was set aside.

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Issues: Whether the demand of central excise duty and the consequential penalties were sustainable when the revenue failed to establish that the goods on which duty had been paid were different from the goods on which the demand was raised.

Analysis: The allegation of clandestine clearance rested on material collected from third parties and on seizure proceedings at places away from the factory. However, the record did not show any investigation proving that the goods on which duty had already been paid during the relevant period were not the very goods on which the demand was later founded. The goods were cleared from the factory gate on duty payment, and once so cleared the manufacturer had no control over their subsequent movement or dealing. In the absence of evidence distinguishing the duty-paid goods from the goods covered by the notice, the foundation of the demand was not established.

Conclusion: The demand, interest and penalties were not sustainable and the impugned order was set aside.

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