Clandestine removal requires positive corroboration; doubtful stock estimates and untested statements cannot sustain duty, confiscation, or penalties.
Allegations of clandestine removal could not be sustained where stock shortages and excesses were based on an unreliable eye-estimation exercise without proper inventory, workable weighing methodology, or evidence of physical weighing. The Revenue also failed to produce corroborative material such as proof of clandestine manufacture, raw material procurement, transport, buyers, or receipt of sale consideration, and the statements relied upon were non-confessional and not tested by cross-examination. On that basis, the duty demand was set aside, and confiscation and penalties on the company and its director were also held unsustainable. The appeals were allowed for the company and its director.
Issues: (i) Whether the demand of duty based on alleged shortages found during stock verification could be sustained as a case of clandestine removal. (ii) Whether confiscation of the alleged excess goods and imposition of penalties on the company and its director were sustainable.
Issue (i): Whether the demand of duty based on alleged shortages found during stock verification could be sustained as a case of clandestine removal.
Analysis: The stock verification was found to be unreliable because there was no proper inventory, no record of any workable weighing methodology, and no material to show that the huge stock was physically weighed. The alleged shortages were therefore treated as arising from eye-estimation. The Revenue also failed to produce corroborative evidence of clandestine manufacture, procurement of raw material, transportation, buyers, or receipt of sale consideration. The statements relied upon were not confessional, and their evidentiary value was further weakened as cross-examination was not allowed.
Conclusion: The demand of duty founded on the alleged shortages was not sustainable and was set aside.
Issue (ii): Whether confiscation of the alleged excess goods and imposition of penalties on the company and its director were sustainable.
Analysis: The alleged excess stock also rested on the same doubtful stock-taking exercise. In the absence of evidence showing that the excess goods were kept of the statutory records with intent to clear them without payment of duty, confiscation could not be justified. Once the demand against the company failed, the penalty imposed on the director also had no independent foundation.
Conclusion: Confiscation and penalties were not sustainable and were set aside.
Final Conclusion: The appeals were allowed for the company and its director, while the connected appeal of the deceased appellant abated.
Ratio Decidendi: Allegations of clandestine removal cannot be sustained on the basis of doubtful stock shortages or excesses recorded on eye-estimation alone, without positive corroborative evidence; untested and non-confessional statements cannot independently establish such a charge.
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