Clandestine removal demands fail where third-party records lack corroboration and electronic evidence is not properly proved.

Duty demand and penalty based on third-party documents and uncorroborated computer data could not be sustained where the underlying search material had already been found unreliable for non-compliance with Section 100 CrPC read with Section 18 of the Central Excise Act and for use of electronic records without Section 36B compliance. The alleged shortage was also based only on eye estimation and average weight, with no independent corroboration of loose papers or third-party records. In the absence of clinching evidence of clandestine manufacture and removal, third-party material alone was insufficient to prove the allegations, and the demand of duty, interest and penalty was held unsustainable.

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Issues: Whether the duty demand and penalty against the appellant could be sustained on the basis of third party documents and uncorroborated material, in the absence of cogent evidence of clandestine removal.

Analysis: The demand was founded on documents and computer data recovered in the course of proceedings against the main noticee, but the earlier Division Bench decision arising from the same show cause notice had already held that the search and seizure were conducted in violation of the requirements of Section 100 of the Code of Criminal Procedure, 1973 read with Section 18 of the Central Excise Act, 1944, and that the computer data was relied upon without compliance with Section 36B of the Central Excise Act, 1944. It was further held that shortage had been inferred only by eye estimation and average weight, and that there was no independent corroboration for the loose documents or third party records. In such circumstances, third party material without clinching corroboration could not establish clandestine manufacture and removal.

Conclusion: The Department failed to prove the allegations against the appellant, and the demand of duty, interest, and penalty was unsustainable.

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