Clandestine removal demands positive corroboration; loose sheets, retracted statements and third-party records were insufficient for duty and penalty.

Demand for central excise duty and equal penalty based on loose sheets, third-party records and a retracted statement was treated as unsustainable because the documents were seized from a third party, the author of the private records was unidentified, and no independent proof linked them to the assessee. Clandestine manufacture and removal also failed for want of positive evidence of excess raw material consumption, abnormal power use, unaccounted transport, identified buyers or receipt of sale proceeds; stock and statutory records tallied. The principle applied was that suspicion cannot replace proof, and clandestine removal must be established by credible, corroborative evidence.

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Issues: (i) whether the demand of central excise duty and equal penalty could be sustained on the basis of loose sheets, third-party records and retracted statements without independent corroboration; (ii) whether clandestine manufacture and removal of goods was proved on the evidence on record.

Issue (i): whether the demand of central excise duty and equal penalty could be sustained on the basis of loose sheets, third-party records and retracted statements without independent corroboration.

Analysis: The documents relied upon were seized from a third party and not from the appellant's premises. The author of the private records was not identified, the documents were not independently proved, and the statement relied upon had been promptly retracted. The record also showed that the related documents had been rejected in the adjudication concerning the third party. In these circumstances, the materials lacked evidentiary reliability and could not form the sole basis for duty and penalty.

Conclusion: The demand and penalty could not be sustained on such uncorroborated material and were unsustainable against the assessee.

Issue (ii): whether clandestine manufacture and removal of goods was proved on the evidence on record.

Analysis: No credible evidence established excess procurement or consumption of raw materials, disproportionate power use, transport of unaccounted goods, identified buyers, or receipt of sale proceeds. Stock and statutory records were found to tally, and there was no tangible proof linking the seized papers to actual clandestine manufacture or clearance. The settled principle applied was that suspicion, however strong, cannot take the place of proof, and clandestine removal must be established by positive and corroborative evidence.

Conclusion: Clandestine manufacture and removal was not proved.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: A demand for clandestine removal cannot be upheld merely on loose sheets, retracted statements or third-party material unless the Department establishes the link with the assessee through positive, credible and corroborative evidence of unaccounted manufacture and clearance.

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