Clandestine removal demands require tangible proof; without corroborative evidence, duty and derivative partner penalty cannot stand.

Clandestine removal of Acid Slurry was not proved because the Department relied on assumptions, statements and notional calculations rather than tangible, corroborative evidence linking raw material procurement, manufacture, removals and payment trail. The HC held that the burden of proving clandestine manufacture and removal was not discharged, so the duty demand against the firm was rightly set aside. As the foundation for the demand failed and no independent culpability by the partner was shown, the derivative penalty on the partner also could not stand. The penalty was therefore set aside.

---

---

Issues: (i) whether the demand of central excise duty on the assessee-firm on the allegation of clandestine manufacture and removal of Acid Slurry was sustainable; (ii) whether the penalty imposed on the partner of the firm could be sustained when the duty demand against the firm was set aside.

Issue (i): whether the demand of central excise duty on the assessee-firm on the allegation of clandestine manufacture and removal of Acid Slurry was sustainable.

Analysis: The assessment of clandestine removal must rest on tangible and corroborative evidence. The findings recorded by the Tribunal showed missing links in the Department's case, including absence of reliable evidence connecting the alleged procurement of raw materials, the alleged manufacture, the alleged removals, and the alleged payment trail. The demand was founded largely on assumptions, statements, and notional calculations rather than on clinching documentary proof. In such a case, the burden resting on the Department to establish clandestine manufacture and removal was not discharged.

Conclusion: The duty demand against the assessee-firm was not sustainable and was rightly set aside.

Issue (ii): whether the penalty imposed on the partner of the firm could be sustained when the duty demand against the firm was set aside.

Analysis: Once the foundation of clandestine removal against the firm failed, the basis for fastening penalty on the partner also fell away. The record did not disclose clinching evidence of any independent commission or omission by the partner sufficient to sustain the penalty. The Tribunal reduced the penalty without adequate reasons, even though the firm had been exonerated in full. In these circumstances, continuation of penalty against the partner was unjustified.

Conclusion: The penalty imposed on the partner was not sustainable and was set aside.

Final Conclusion: The challenges to the duty demand failed, but the partner obtained complete relief from penalty. The decision turns on the absence of reliable evidence to prove clandestine removal and the consequential inability to sustain derivative penal liability.

Ratio Decidendi: In a clandestine removal case, the Department must establish the charge with tangible and corroborative evidence; if the foundational demand fails for want of proof, a penalty imposed only as a derivative consequence on a connected individual cannot be sustained absent independent evidence of culpability.

---