Clandestine manufacture must be proved by concrete evidence; duty-paid purchase records defeated the excise demand and penalty.

Clandestine manufacture and removal cannot be sustained on suspicion alone; the Revenue must prove the allegation with concrete evidence such as raw material procurement, manufacturing activity, excess power or labour consumption, or waste and scrap. Here, purchase invoices, ledger accounts, bank records and transport particulars showed receipt of duty-paid transformers from another supplier and their onward supply to the buyer, with a direct correlation between inward and outward consignments. As the Department failed to establish positive evidence of manufacture, the allegation was not proved and the demand of excise duty with equal penalty could not be sustained.

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Issues: Whether the demand of central excise duty and equal penalty could be sustained on the allegation that the appellant clandestinely manufactured and cleared transformers without payment of duty, or whether the transformers supplied to the buyer were duty-paid goods purchased from another manufacturer.

Analysis: The appellant produced purchase invoices, ledger accounts, bank records and transport particulars showing receipt of transformers from another supplier on payment of duty and further supply of the same goods to the buyer. The record showed a direct correlation between the duty-paid inward supplies and the outward consignments. The Department did not establish procurement of raw materials, manufacture activity, excess consumption of power or labour, waste, scrap, or any other positive evidence normally required to prove clandestine manufacture and removal. In such matters, the burden lies on the Revenue to prove the allegation with concrete evidence, and suspicion or absence of correlation in documents by itself is insufficient.

Conclusion: The allegation of clandestine manufacture and removal was not proved. The demand and penalty could not be sustained.

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