Clandestine removal allegation fails where job-work records and lack of corroboration do not prove diversion of yarn.

A demand for duty based on alleged clandestine diversion of yarn instead of job-work manufacture was held unsustainable because the record supported actual job work. The assessee had filed job-work intimations, sent yarn under challans, obtained acknowledgements from job workers, and paid job charges with TDS deduction. Revenue relied on statements of some job workers, transporters and third parties, but there was no clinching evidence of sale or transportation of yarn as such, no identified buyer, and no proof of flow-back of job-work payments. In the absence of corroborative evidence, clandestine removal was not established and the duty demand and penalties failed.

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Issues: Whether the demand of duty on the allegation that the appellants clandestinely diverted yarn instead of getting fabric manufactured on job work basis was sustainable.

Analysis: The appellants had filed intimation for job work, the yarn was sent under job-work challans, the job workers acknowledged receipt, and job work charges were paid with TDS deducted. The Revenue relied mainly on statements of some job workers, transporters, and third parties to infer that certain units were non-existent or lacked machinery and that some payments were routed through third parties. However, the record showed that five out of six job workers accepted having undertaken job work, and the mere inability to trace some units or the denial by some transporters did not by itself establish that no manufacturing activity had taken place. No evidence was produced to identify a buyer of the allegedly diverted yarn, no proof of transportation or sale of yarn as such was brought on record, and no material showed flow-back of job work charges to the appellants. In the absence of clinching and corroborative evidence, the allegation of clandestine removal could not be sustained.

Conclusion: The demand of duty and the penalties were unsustainable; the appeal was allowed in favour of the appellants.

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