Clandestine removal demands need tangible corroboration, not private records or untested statements, when linking factory and transport evidence.

Clandestine manufacture and removal cannot be established on presumptions, private records or uncorroborated statements; the record must show tangible, independent evidence linking the factory, raw materials, transport, buyers and sale proceeds. A belated stock discrepancy derived from a panchnama and reconciliation chart was treated as unreliable where the unit was under departmental physical supervision and no contemporaneous shortage or excess was verified. Railway receipts, parcel agents' notebooks and third-party statements were also found insufficient without direct linkage to the factory or corroboration such as raw-material consumption, excess electricity or proved buyer evidence.

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Issues: (i) Whether the alleged stock difference at the factory, computed belatedly from the panchnama and reconciliation chart, could sustain a demand of duty when the unit was under departmental physical supervision. (ii) Whether the duty demand based on railway receipts, private notebooks of parcel agents and third-party statements established clandestine manufacture and removal, and whether the penalties on the noticees could survive.

Issue (i): Whether the alleged stock difference at the factory, computed belatedly from the panchnama and reconciliation chart, could sustain a demand of duty when the unit was under departmental physical supervision.

Analysis: The stock discrepancy was not recorded as an adverse finding at the time of search and arose only from a later reconciliation. The comparison with RG-1 was found unreliable because loose goods were treated as finished stock without proper participation of the assessee's representatives. The factory was under physical supervision of Central Excise officers, and the record did not show any contemporaneous action or verified shortage/excess at the time of inspection. The alleged discrepancy was therefore unsupported by dependable evidence.

Conclusion: The stock-based demand was not sustainable and was set aside.

Issue (ii): Whether the duty demand based on railway receipts, private notebooks of parcel agents and third-party statements established clandestine manufacture and removal, and whether the penalties on the noticees could survive.

Analysis: The railway receipts described ordinary parcels and the private notebooks were merely expense records of parcel agents, not records of cigarette clearances. No direct evidence linked those documents to the factory, no transporter or booking evidence established movement from the factory to the railway station, and no corroboration of raw-material procurement, consumption, excess electricity, or actual buyers was produced. Several statements were retracted or remained untested by cross-examination, and the statements relied upon were vague and unsupported by independent evidence. In the absence of tangible corroboration, the charge of clandestine manufacture and removal could not be upheld, and the penalties, being consequential, also failed.

Conclusion: The RR-based demand and the penalties were not sustainable and were set aside.

Final Conclusion: The alleged clandestine removal was not proved by reliable, corroborated evidence, especially in the context of a unit functioning under departmental supervision; accordingly, the duty demand and all penalties were annulled and the appeals succeeded.

Ratio Decidendi: A demand for clandestine manufacture and removal cannot rest on presumptions, private records or uncorroborated statements; it must be supported by tangible, independent evidence linking the factory, raw materials, transport, buyers and sale proceeds.

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