Clandestine manufacture requires corroborative evidence; disputed trial calculations and unverified records cannot sustain duty demand or confiscation.

Allegations of clandestine manufacture and removal under central excise law must be supported by positive, corroborative evidence and cannot rest on disputed trial-run calculations, estimated packing material consumption, retracted statements, or unverified third-party records. The tribunal found no reliable proof of excess procurement or consumption of principal raw materials, and held that confiscation of seized laminated rolls, raw material and packing material was unjustified where the goods were legally acquired or not shown to be meant for duty-free removal. Transporter records and inconsistent statements, without independent linkage to the assessee, were insufficient to sustain duty demand, confiscation, or penalties.

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Issues: (i) Whether the duty demand based on a trial run and estimated consumption of packing material could sustain the allegation of clandestine manufacture and removal of pan masala gutka; (ii) Whether the demand on seized plastic laminated rolls, confiscation of raw material and packing material, and the demand based on transporter records were sustainable.

Issue (i): Whether the duty demand based on a trial run and estimated consumption of packing material could sustain the allegation of clandestine manufacture and removal of pan masala gutka.

Analysis: The demand rested on a disputed trial run conducted by the officers to estimate consumption of printed laminated rolls and, from that, to infer unaccounted production and removal. The statements relied upon by the department had been retracted, and the cross-examination of employees and officers disclosed inconsistencies in the manner in which the trial run and stock verification were said to have been carried out. The record did not show any corroborative evidence of excess procurement or consumption of the principal raw materials used for manufacture. Clandestine manufacture and removal cannot be inferred merely from theoretical calculations based on packing material, without direct, tangible and corroborative evidence.

Conclusion: The duty demand on this basis was not sustainable and the finding was in favour of the assessee.

Issue (ii): Whether the demand on seized plastic laminated rolls, confiscation of raw material and packing material, and the demand based on transporter records were sustainable.

Analysis: The seized laminated rolls were not shown to have been intended for removal without payment of duty and were ultimately used in manufacture after release. The raw material and packing material seized from the factory were legally acquired, and the finished goods were found in strip form before reaching the RG-1 stage, so confiscation was not justified. The demand founded on transporter records also failed because the records were third-party documents and were not linked by independent evidence to any clandestine clearance by the assessee. Similar infirmities existed in respect of the goods seized from third-party premises, where the statements were contradictory and retracted and no reliable nexus with the assessee was established.

Conclusion: The demand, confiscation and penalties on these counts were not sustainable and the finding was in favour of the assessee.

Final Conclusion: The adjudication could not be sustained because the allegations of clandestine removal, wrongful credit, and confiscation were not proved by reliable, corroborated evidence.

Ratio Decidendi: Allegations of clandestine manufacture and removal under central excise law must be proved by positive and corroborative evidence, and cannot rest on disputed trial calculations, retracted statements, or uncorroborated third-party records.

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