Clandestine clearance demands require independent corroboration; diaries and disputed buyer statements alone were insufficient here.

Demand for duty and penalties based mainly on diaries, loose sheets and statements of alleged buyers was unsustainable because the records did not show the nature or quantity of goods, and the buyers' statements were disputed and retracted. No independent corroboration existed through excess raw material, power consumption, transport, receipt of sale proceeds, or movement of unaccounted finished goods. On that evidentiary record, clandestine manufacture and clearance were not proved with the required certainty, and the demand and penalties were set aside.

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Issues: Whether the demand of duty and penalties could be sustained on the basis of diaries, loose sheets, and statements of alleged buyers in the absence of independent corroborative evidence.

Analysis: The demand rested mainly on diaries and estimate papers seized from the factory and on statements of the partner and alleged buyers. The statements of the buyers were disputed in cross-examination and retracted on the ground that they were recorded in a language not understood by them. The entries in the diaries and loose sheets contained amounts and dates but did not disclose the nature of goods, quantity, or the basis of the amounts. No independent evidence was brought on record regarding excess raw material, power consumption, transportation, receipt of sale proceeds, or actual movement of unaccounted finished goods. In these circumstances, the material relied upon did not establish clandestine manufacture and clearance with the level of certainty required in such cases.

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

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