Untested and contradicted statements cannot sustain clandestine removal demands without independent proof of suppression.

A duty demand and consequential penalties based on alleged clandestine procurement and suppressed production could not be sustained where the department's case rested mainly on an untested statement and disputed invoices. The Supreme Court noted that the supplier's partner was not examined for cross-examination, later contradicted the alleged statement in writing and on oath, and the remaining material did not independently establish unaccounted purchases or excess production. In these circumstances, the adverse inference of clandestine removal failed, and reliable evidence was held necessary before confirming duty liability and penalties.

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Issues: (i) Whether the alleged clandestine purchase and use of carbon black, said to be based principally on a partner's statement and 82 invoices, was proved so as to sustain the duty demand and penalties; (ii) Whether reliance could be placed on that statement when the witness was not examined for cross-examination and had later contradicted the alleged statement in writing and on oath.

Issue (i): Whether the alleged clandestine purchase and use of carbon black, said to be based principally on a partner's statement and 82 invoices, was proved so as to sustain the duty demand and penalties.

Analysis: The foundation of the department's case was the asserted purchase of unaccounted carbon black from a supplier under fictitious invoices. The adjudicating authority and the Tribunal treated the alleged statement of the supplier's partner as the principal basis for inferring excess production and suppression. The record, however, showed that the supplier's partner was not examined before the adjudicating authority and was therefore not subjected to cross-examination. A contemporaneous letter from the supplier also contradicted the alleged statement and denied supply to the assessee under the disputed invoices. Once this material was excluded, the basis for inferring clandestine purchases and consequent suppressed production disappeared.

Conclusion: The alleged clandestine purchase and suppression were not proved, and the adverse findings could not be sustained; this issue is decided in favour of the assessee.

Issue (ii): Whether reliance could be placed on that statement when the witness was not examined for cross-examination and had later contradicted the alleged statement in writing and on oath.

Analysis: The alleged oral statement attributed to the supplier's partner was neither recorded in the manner required for reliable use nor tested by cross-examination. The same person later denied having made such a statement, confirmed the contents of the letter denying sale to the assessee, and gave sworn evidence inconsistent with the department's version. In these circumstances, the untested statement could not be treated as conclusive or preferred over the contradictory direct evidence. The adjudicating authority had applied inconsistent standards in accepting the alleged oral statement while rejecting the written denial from the same source.

Conclusion: No safe reliance could be placed on the alleged statement, and the evidentiary basis for the demand and penalties failed; this issue is decided in favour of the assessee.

Final Conclusion: The impugned orders were set aside because the department failed to establish the alleged clandestine procurement and the resulting duty evasion on reliable evidence.

Ratio Decidendi: A demand for duty and consequential penalties based on alleged clandestine removal cannot be sustained on an untested and contradicted statement that was not subjected to cross-examination, especially where the remaining material does not independently establish suppression.

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