Clandestine removal demands fail without corroborative evidence; third-party statements and suspicion alone cannot sustain duty or penalties.

Allegations of clandestine manufacture and removal must be proved by positive, tangible and corroborative evidence; suspicion, inference from third-party statements, or unsupported assumptions are insufficient. On the facts noted, there was no proof of transport, actual use of imported components, buyer identification, or admission by responsible officers, and stock records were in order, so the duty demand on clandestine receipt and use of imported PCBs was not sustainable. The separate allegation of paper clearances through M/s. Shivam Enterprises also lacked evidence of non-manufacture, diversion, or non-receipt by buyers, so the related duty demand and connected penalties were likewise set aside.

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Issues: (i) Whether the demand of duty against the assessee on the allegation of clandestine receipt and use of imported components in the manufacture of colour televisions was sustainable. (ii) Whether the duty demand based on alleged paper clearances through M/s. Shivam Enterprises and the consequential penalties were sustainable.

Issue (i): Whether the demand of duty against the assessee on the allegation of clandestine receipt and use of imported components in the manufacture of colour televisions was sustainable.

Analysis: The demand rested on statements of third parties and an inference that the balance quantity of imported PCBs must have reached the assessee's factory. There was no evidence of transportation of the goods to the factory, no proof of actual utilization in manufacture, no identification of buyers or transporters, and no statement from the assessee's responsible officers admitting clandestine activity. The stock verification at the factory was found to be in order, and the allegation remained based on presumptions rather than corroborated facts. In clandestine removal matters, the charge must be established by positive and tangible evidence and cannot be upheld on suspicion alone.

Conclusion: The demand on this count was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the duty demand based on alleged paper clearances through M/s. Shivam Enterprises and the consequential penalties were sustainable.

Analysis: The allegation that 85% of the sales shown by M/s. Shivam Enterprises were actually manufactured by the assessee was not supported by evidence of non-manufacture, non-clearance, or diversion of goods. The unit was found functioning, stock was present, raw materials were shown in records, and no investigation from buyers established that the goods were not received. The statement relied upon was not sufficient by itself to prove clandestine manufacture and removal. Since the substantive demands were unsupported, the penalties imposed on the connected persons also could not survive.

Conclusion: The demand on this count and the connected penalties were not sustainable and were set aside in favour of the assessee.

Final Conclusion: The impugned duty demands and penalties were quashed because the allegations of clandestine manufacture and removal were not proved by corroborative evidence.

Ratio Decidendi: Allegations of clandestine manufacture and removal must be proved by positive, tangible, and corroborative evidence, and cannot be sustained on conjecture, suspicion, or retracted third-party statements alone.

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