Clandestine manufacture proof required before penalty under Rule 209A; uncorroborated scrap allegations were insufficient

Penalty under Rule 209A of the Central Excise Rules, 1944 was found unsustainable because the department failed to prove clandestine manufacture and clearance of MS ingots with reliable evidence. The record showed only an allegation of unaccounted scrap procurement, without supporting proof of actual manufacture, removal to identifiable buyers, electricity consumption, transport documents, sale proceeds, or any effective enquiry linking the alleged scrap with unlawful clearances. The surrounding materials, including end-use certificates, also weakened the allegation. On that basis, the penalty was set aside.

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Issues: Whether the penalty imposed on the appellant under Rule 209A of the Central Excise Rules, 1944 was sustainable in the absence of evidence proving clandestine manufacture and clearance of MS ingots.

Analysis: The appeal turned on whether the department had established, by reliable material, that the appellant procured unaccounted scrap and used it for clandestine manufacture and removal of finished goods. The record showed that the investigation largely addressed the alleged receipt of scrap from M/s Sujana, but did not adduce evidence of actual clandestine manufacture or of clandestine clearances to identifiable buyers. There was no supporting enquiry on electricity consumption, transport documents, buyers, or sale proceeds, and the materials relied on did not connect the alleged scrap procurement with unlawful removal of MS ingots. The surrounding circumstances, including the end use certificates, also weakened the allegation.

Conclusion: The penalty on the appellant was not justified and was liable to be set aside.

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