Clandestine manufacture allegations fail where duty demand rests only on catechu discrepancies without corroborative evidence.

A demand for duty based only on alleged excess catechu procurement and presumed clandestine manufacture could not be sustained without corroborative evidence such as proof of procurement of other raw materials, dispatch, sale proceeds, transport, or receipt of finished goods. The adjudicating authority was required to address the appellant's explanations on reconciliation, wrong postings, and processing loss. The note also highlights that Rule 173E contemplated identification of a principal raw material for normal production, but catechu was not shown to have been notified as such for the relevant products. On that basis, the demand and consequential penalties were held unsustainable.

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Issues: Whether the demand of duty confirmed on the basis of alleged excess procurement and use of catechu for clandestine manufacture and removal of finished goods was sustainable in the absence of corroborative evidence and in view of the appellant's explanations regarding reconciliation, processing loss, and the requirement of other raw materials; and whether the conclusion drawn by the original authority on the basis of one raw material was sustainable.

Analysis: The appellant's explanations regarding alleged discrepancies in catechu procurement, short supplies, wrong postings, and processing loss were not properly considered by the adjudicating authority. The record also did not show evidence of procurement of the other raw materials required for manufacture of the alleged quantities of finished goods, nor evidence of dispatch, sale proceeds, transport, or receipt of finished goods by buyers. The decision also noted that the principle in Rule 173E of the Central Excise Rules, 1944 contemplated identification of a principal raw material for arriving at normal production, but catechu was not shown to have been notified as such for the relevant products during the material period. In these circumstances, the allegation of clandestine manufacture and removal based only on catechu could not be sustained.

Conclusion: The demand and consequential penalties were not sustainable and the appeal was allowed.

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