Corroborative evidence is essential for clandestine removal and undervaluation demands in excise; suspicion alone is insufficient.

Allegations of clandestine removal in excise must be supported by credible corroborative evidence; private records, untested statements, and uncorroborated suspicion were insufficient here, so the demand failed. The Revenue also had to prove undervaluation, and where the finding rested only on presumption about includibility of certain bought-out items, that demand could not stand. Once the clandestine removal and undervaluation allegations collapsed, the related denial of small scale exemption also failed. The impugned demand and penalties were therefore set aside, with consequential relief granted to the assessee.

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Issues: (i) Whether the demand on the allegation of clandestine removal was sustainable in the absence of corroborative evidence; (ii) Whether the demand on account of undervaluation and denial of small scale exemption was sustainable.

Issue (i): Whether the demand on the allegation of clandestine removal was sustainable in the absence of corroborative evidence.

Analysis: The alleged clandestine removals were sought to be established mainly from private records recovered from the factory and certain statements. The record showed that the assessee had also pleaded repair activity and manufacture of exempted agro-based boilers under Notification No. 205/88 dated 25.05.1988. The statements of buyers were not fully reliable, as some did not appear for cross-examination and some retracted. No supporting evidence was produced regarding procurement of raw material, actual manufacture, transport, buyers, or receipt of sale proceeds. Clandestine removal requires evidence that inspires confidence and cannot rest only on suspicion.

Conclusion: The demand based on clandestine removal was not sustainable and was decided in favour of the assessee.

Issue (ii): Whether the demand on account of undervaluation and denial of small scale exemption was sustainable.

Analysis: The undervaluation allegation was founded on the assumption that certain parts were not includible because they were bought-out items supplied by customers, but the burden lay on the Revenue to establish the contrary. The finding of undervaluation was based on mere presumption. As regards small scale exemption, the rejection was linked to the same unsupported demand structure, and once the allegations of clandestine removal and undervaluation failed, the denial of exemption could not stand.

Conclusion: The demand based on undervaluation and the consequent rejection of small scale exemption were not sustainable and were decided in favour of the assessee.

Final Conclusion: The impugned demand and penalties were set aside and all appeals succeeded with consequential relief.

Ratio Decidendi: Allegations of clandestine removal or undervaluation in excise matters must be proved by credible corroborative evidence and cannot be sustained on suspicion, assumption, or presumption alone.

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