Production capacity is essential in clandestine removal disputes when alleged clearances exceed installed machinery capacity.

In clandestine removal proceedings, production capacity of the relevant machinery is a material factor where the alleged clearances are said to exceed installed capacity. The Court held that, after a remand directing redetermination of capacity, the adjudicating authority could not bypass that inquiry by assuming the machine was non-functional and refusing a reasonable comparative exercise, such as examining a similar machine or other suitable evidence. Reliance only on private records and statements, without first addressing capacity as directed, was insufficient to sustain the demand and penalties. The Tribunal's order was therefore unsustainable, and the demand and penalties did not survive.

---

---

Issues: Whether the Tribunal was justified in upholding the demand and penalties after ignoring the earlier remand direction requiring redetermination of the production capacity of the machinery, and whether the Department could sustain the allegation of clandestine removal without first ascertaining that capacity by an appropriate comparative exercise.

Analysis: The earlier remand had specifically required examination of production capacity because the assessee had disputed the alleged clearances as being far in excess of the installed machine's capacity. The later adjudication proceeded on the footing that the machine was not in working condition and, therefore, capacity could not be redetermined at the factory, but the request to examine a similar machine at another factory or by other suitable comparative means was not accepted. The reasoning adopted below was found inconsistent with the object of the remand. The Court held that, in a clandestine removal case of this nature, production capacity is a relevant and material factor, and if the seized machine is unavailable or non-functional, the Department must undertake a reasonable comparative exercise rather than bypass the issue. In the absence of such exercise, reliance only on private records and statements was insufficient to sustain the impugned conclusion.

Conclusion: The Tribunal's order was unsustainable. The appeals were allowed and the demand and penalties did not survive.

Ratio Decidendi: Where a clandestine removal demand turns materially on the alleged output of a particular machine, the adjudicating authority must first determine or reasonably approximate the machine's production capacity in accordance with the remand direction and relevant evidence; a demand cannot be sustained by ignoring that foundational inquiry and relying only on uncorroborated records.

---