Clandestine manufacture requires corroborated evidence; composite site fabrication contracts cannot sustain excise demand or penalties on conjecture.

Allegations of clandestine manufacture and removal of excisable goods must be supported by concrete evidence linking raw material procurement, labour, power use, manufacture, transport and financial flows. On the facts recorded, the work orders and surrounding materials indicated a composite fabrication, supply and erection contract performed substantially at site, with large structures made there under project arrangements. The Department did not establish the actual quantity or value of goods manufactured in the factory or job-worker premises, and the director's statement, without documentary corroboration, was insufficient to sustain the entire demand. The duty demand was therefore held unsustainable, and the related penalties also failed.

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Issues: Whether the demand of central excise duty, along with penalty, could be sustained on the allegation that the appellants had clandestinely manufactured and cleared excisable goods, or whether the activity was a composite fabrication and erection contract executed substantially at site.

Analysis: The work orders and surrounding materials showed that the appellants were engaged in fabrication, supply and erection under composite contracts, with labour, materials, tools and site space being provided under the project arrangements. The record indicated that large structures were fabricated at site and that the Department did not establish the actual quantity or value of goods, if any, manufactured in the factory or job-worker premises. The allegation of clandestine manufacture required proof of procurement and use of raw material, deployment of labour, power consumption, manufacture, transportation and financial flow, but these links were not conclusively proved. The statement of the director, even to the extent it suggested occasional fabrication of smaller items, did not by itself establish that the entire demand arose from factory manufacture, and it required corroboration by documentary evidence, which was absent.

Conclusion: The allegation of clandestine manufacture and removal failed, the duty demand was not sustainable, and the penalties also could not survive.

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