Clandestine removal claims need independent corroboration; limited stock discrepancies and formula-based calculations are not enough.
Clandestine removal allegations require clinching, independent and corroborative evidence of unaccounted procurement, production, clearance and receipt of sale proceeds. A limited excess stock found at a distributor's premises, together with recovery of one invoice from a director's residence, is insufficient where factory records show no stock discrepancy and the disputed goods are otherwise explained. An input-output calculation based mainly on one raw material, without evidence of excess electricity use, extra labour, identified buyers, transport of goods or flow back of funds, cannot by itself sustain duty demand and penalties.
Issues: (i) whether the demand of duty and penalties could be sustained on the basis of a small quantity of excess stock found at the distributor's premises and the related recovery of documents from the director's residence; (ii) whether clandestine manufacture and removal of zarda could be inferred on the basis of alleged unaccounted procurement of aromatic chemicals and the input-output ratio adopted by the department.
Issue (i): whether the demand of duty and penalties could be sustained on the basis of a small quantity of excess stock found at the distributor's premises and the related recovery of documents from the director's residence.
Analysis: The evidence at the factory did not show stock discrepancy in raw material or finished goods. The excess quantity found at the distributor's premises was of a limited nature and, on the assessee's own showing, duty attributable to it had already been accepted. The recovery of one invoice from the director's residence, by itself, did not establish clandestine removal, especially when the assessee explained that the goods covered by the disputed invoice had in fact been received under another invoice entered in the records.
Conclusion: The finding of clandestine removal could not be sustained on this material, and the related demand and penalties were not justified.
Issue (ii): whether clandestine manufacture and removal of zarda could be inferred on the basis of alleged unaccounted procurement of aromatic chemicals and the input-output ratio adopted by the department.
Analysis: Clandestine removal is a serious allegation and must rest on tangible and corroborative evidence. The record did not contain evidence of procurement of the principal raw material in excess, consumption of excess electricity, use of extra labour, identification of buyers, transport of the alleged finished goods, or flow back of funds. The department's quantification rested substantially on an input-output formula and assumptions drawn from a single raw material, which was insufficient in the absence of independent corroboration. Mere statements and third-party documents, without supporting evidence of actual clandestine production and clearance, were held inadequate.
Conclusion: The alleged clandestine manufacture and clearance was not proved, and the demand based on the departmental calculation was unsustainable.
Final Conclusion: The impugned order was set aside and the appeals succeeded with consequential relief to the appellants.
Ratio Decidendi: Clandestine removal cannot be upheld on assumptions, presumptions, or an uncorroborated input-output calculation; it must be proved by clinching and independent evidence showing unaccounted procurement, production, clearance, and receipt of sale proceeds.
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