Clandestine removal demands need corroborative evidence; third-party records and denied cross-examination can fail excise adjudication.

Clandestine removal in central excise must be proved by cogent corroborative evidence, and a demand cannot rest only on third-party electronic printouts, records, or untested statements. In the absence of supporting material such as raw material procurement, power consumption, labour deployment, transport, stock variation, sale proceeds, or any independent link to the appellant's factory, the duty demand was found unsustainable. Denial of relied-upon documents and cross-examination was treated as a violation of natural justice that weakened the adjudication. As the duty demand failed, the consequential penalties on the company and individual noticees also could not survive.

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Issues: (i) Whether demand of central excise duty for alleged clandestine removal could be sustained on the basis of electronic printouts and third-party records obtained from another concern, without corroborative evidence from the appellants' own records or investigation; (ii) whether denial of supply of relied upon documents and refusal of cross-examination of witnesses whose statements were relied upon vitiated the adjudication; (iii) whether the penalties imposed on the company and individual noticees could survive once the duty demand failed.

Issue (i): Whether demand of central excise duty for alleged clandestine removal could be sustained on the basis of electronic printouts and third-party records obtained from another concern, without corroborative evidence from the appellants' own records or investigation.

Analysis: The demand was founded mainly on records and printouts recovered from the premises of a third party concern and on statements recorded therefrom. The appellants did not admit the alleged unaccounted clearances. No meaningful corroboration was brought on record regarding procurement of raw materials, consumption of electricity, deployment of labour, transportation, stock discrepancy, receipt of sale proceeds, or any independent link connecting the appellants' factory to the alleged removals. The evidence was therefore held insufficient to prove clandestine removal.

Conclusion: The duty demand was not sustainable and was held against the Revenue.

Issue (ii): Whether denial of supply of relied upon documents and refusal of cross-examination of witnesses whose statements were relied upon vitiated the adjudication.

Analysis: The request for relevant documents and cross-examination was rejected. The adjudication was based substantially on third-party material and statements, while the appellants were not afforded a fair opportunity to test that material. In the peculiar facts, such denial was treated as a serious violation of the principles of natural justice and as weakening the evidentiary basis of the adjudication.

Conclusion: The adjudication was vitiated by violation of natural justice, in favour of the Assessee.

Issue (iii): Whether the penalties imposed on the company and individual noticees could survive once the duty demand failed.

Analysis: The penalties were entirely consequential to the demand of duty and were founded on the same uncorroborated allegation of clandestine removal. Once the underlying demand was found unsustainable, the basis for the penalties also disappeared.

Conclusion: The penalties were unsustainable and were set aside in favour of the Assessee.

Final Conclusion: The order of confirmation of duty, interest, and penalties was set aside and the appeals were allowed.

Ratio Decidendi: A charge of clandestine removal must be proved by cogent, corroborative evidence and cannot rest solely on third-party records or untested statements, especially where denial of cross-examination and supporting investigation deprive the proceedings of fairness and evidentiary reliability.

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