Retraction of statements and third-party papers cannot prove clandestine removal without independent corroborative evidence.

Clandestine removal could not be sustained on third-party documents and retracted statements alone. The statements recorded in de novo proceedings were treated as involuntary and, once retracted, lost evidentiary value as admissions or as a basis for estoppel under the Evidence Act. The department therefore retained the burden to prove manufacture and removal through independent, corroborative evidence. In the absence of search findings, stock verification, or other direct material against the assessee, loose papers from another unit and uncorroborated statements were insufficient; Section 106 of the Evidence Act was also held inapplicable. Demand and penalties were set aside.

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Issues: Whether the demand and penalties for alleged clandestine removal could be sustained on the basis of third-party documents and statements when the statements were retracted during de novo proceedings and the requested cross-examination was not effectively complied with.

Analysis: The adjudication rested on loose parchies, handwritten records and statements recovered from another unit, not from the appellants' premises. In de novo proceedings, the recorded statements of the concerned persons were specifically treated as having been made under threat and were retracted, which destroyed their character as voluntary admissions. Once the earlier statements lost evidentiary value, they could not be used as conclusive proof or as a basis for estoppel under Section 31 or Section 58 of the Indian Evidence Act, 1872. The burden therefore remained on the department to prove clandestine manufacture and removal by independent and corroborative material. As no search, stock verification or other direct evidence existed against the appellants, reliance on third-party papers and uncorroborated statements was insufficient. Section 106 of the Indian Evidence Act, 1872 was also held inapplicable on these facts.

Conclusion: The demand and penalties were not sustainable and were set aside.

Final Conclusion: The appeals succeeded because the alleged clandestine removal was not proved by legally admissible and corroborated evidence.

Ratio Decidendi: Clandestine removal cannot be upheld on the basis of third-party documents and retracted statements alone, and once such statements are shown to be involuntary or untrue, the department must establish the charge with independent clinching evidence.

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