Circumstantial evidence insufficient to prove clandestine manufacture where no positive proof of factory capacity or removal was shown.

Circumstantial evidence based mainly on discrepancies in purchases and supplies of yarn was found insufficient to establish clandestine manufacture and removal of goods under the Central Excise Act. The Tribunal's view was upheld because no material was produced to displace its finding that the evidence did not prove actual manufacture, and the vague reference to a worsted system in the factory was unsupported by particulars of manufacturing facilities, raw material, packing, or despatches. In the absence of positive evidence showing the capacity for manufacture, no infirmity was found in the Tribunal's conclusion and no question of law arose for reference.

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Issues: Whether circumstantial evidence on record was sufficient to prove clandestine manufacture and removal of goods and to justify reference of a question of law under Section 35H(1) of the Central Excise Act, 1944.

Analysis: The finding of the Tribunal was that the material relied upon by the Revenue, consisting mainly of discrepancies in purchases and supplies of yarn, did not establish the fact of manufacture. No material was shown to controvert that conclusion. The alleged observation of the Commissioner about the existence of a worsted system in the factory was found to be vague and unsupported by discussion of manufacturing facilities, raw material, manufacture, packing, or despatches. In the absence of positive evidence showing the facility for manufacture, no infirmity was found in the Tribunal's view.

Conclusion: Circumstantial evidence was held insufficient to prove clandestine manufacture and removal, and no question of law arose for reference. The petition was dismissed.

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