Clandestine removal demand fails without reliable corroboration; rough registers and estimates alone cannot sustain duty or penalty.

A duty demand for alleged clandestine removal could not be sustained on a rough register, estimated production, and uncorroborated assumptions where the register was not proved, the proprietor's statement was retracted, and no reliable evidence supported the alleged raw-material flow, sale proceeds, or electricity-consumption pattern. The estimated quantum was therefore found unreliable, and the demand was confined to the duty admitted by the assessee, subject to adjustment in accordance with law. As the clandestine removal allegation failed, the foundation for penalty under Section 11AC read with Rule 25 also disappeared, and the penalty was set aside.

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Issues: (i) Whether the duty demand based on the rough register and estimated production could be sustained in the absence of reliable corroborative evidence of clandestine removal. (ii) Whether penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 was sustainable.

Issue (i): Whether the duty demand based on the rough register and estimated production could be sustained in the absence of reliable corroborative evidence of clandestine removal.

Analysis: The demand rested on a rough register, estimated quantities, and assumptions regarding production and clearances. The register was not proved through its author, the proprietor's statement was retracted, and no reliable evidence was produced regarding source of raw materials, flow back of sale proceeds, or a supporting electricity-consumption pattern. The installed capacity certified by a Chartered Engineer and the low electricity consumption also weighed against the high-pitched estimate adopted by the department. In these circumstances, the estimated quantum of clandestine removal was found unreliable.

Conclusion: The duty demand was not sustainable in the manner computed by the department and was reduced to the duty admitted by the appellant, with consequential adjustment as directed.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 was sustainable.

Analysis: Once the departmental case on clandestine removal was found unproved and the demand was confined to the amount admitted by the appellant, the foundation for imposition of equal penalty did not survive. The record did not justify penal action on the basis of the disputed estimation.

Conclusion: The penalty was set aside.

Final Conclusion: The appeal succeeded in substance, with the impugned order set aside and the assessee granted relief except for the admitted duty component, which remained payable subject to adjustment in accordance with law.

Ratio Decidendi: A duty demand for alleged clandestine removal cannot be sustained on a mere rough register and assumptions without reliable corroboration, and penalty cannot survive once the basis of the clandestine removal allegation fails.

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