Clandestine removal penalty needs corroboration; statements and third-party papers alone were insufficient, and the order was set aside.

Penalty under Rule 26 of the Central Excise Rules, 2002 cannot be sustained on statements and third-party documents alone where clandestine removal is not independently corroborated. The record showed no search or recovery from the assessee's premises, and no independent evidence of excess production, procurement, transport, receipt of sale proceeds, or other material ordinarily needed to establish clandestine clearance. The statements relied on did not amount to a clear admission, and the request for cross-examination brought Section 9D of the Central Excise Act, 1944 into focus. In the absence of cogent corroboration, the evidentiary basis for penalty failed and the impugned order was set aside.

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Issues: Whether penalty under Rule 26 of the Central Excise Rules, 2002 could be sustained on the basis of statements and third-party documents without clinching corroborative evidence, and whether reliance on such statements was vitiated for want of compliance with Section 9D of the Central Excise Act, 1944.

Analysis: The allegations of clandestine removal were founded mainly on statements of the appellants and documents recovered from the premises of a third party, while no search or recovery was made from the premises of the assessee company or the appellants. The record did not show independent corroboration of excess production, procurement, transport, receipt of sale proceeds, or other material ordinarily required to establish clandestine removal. The statements relied upon did not amount to a clear admission of clandestine clearance, and the request for cross-examination brought Section 9D into focus. In the absence of cogent evidence and proper corroboration, the evidentiary basis for fastening penalty was not established.

Conclusion: The penalty under Rule 26 was unsustainable and the impugned order was set aside.

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