Clandestine removal requires corroborative evidence; unproved records and electricity use alone cannot sustain demand or penalties.

Clandestine manufacture and removal cannot be sustained on disowned or unproved records, such as an empty bag register or notebook entries, without independent corroboration. Electricity consumption figures alone are insufficient unless supported by evidence of excess raw material, finished goods, stock variation, buyer statements, or other reliable material. On that basis, the larger demand failed and was upheld only to the limited extent supported by notebook entries for a four-day period. Penalty under Section 11AC could not apply for a period before its introduction, and penalties under Rule 173Q and Rule 209A were also set aside for want of facts establishing company liability or individual culpability.

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Issues: (i) Whether clandestine manufacture and removal of goods could be sustained on the basis of unproved entries in the empty bag register, the note-book and electricity consumption without independent corroboration; (ii) Whether penalty under Section 11AC of the Central Excise Act, Rule 173Q of the Central Excise Rules and Rule 209A of the Central Excise Rules was sustainable.

Issue (i): Whether clandestine manufacture and removal of goods could be sustained on the basis of unproved entries in the empty bag register, the note-book and electricity consumption without independent corroboration.

Analysis: The demand based on the empty bag register failed because the document was disowned, its entries were not accepted as authentic, and the witness statements supporting it were not available for effective cross-examination. The electricity consumption figures, by themselves, were also insufficient to establish excess production or clandestine clearance, as there was no supporting evidence of excess raw material, seized finished goods, buyer statements, stock discrepancy, or other corroborative material. The principle applied was that clandestine production and removal must be proved by reliable evidence and cannot rest on suspicion or uncorroborated records.

Conclusion: The allegation of clandestine manufacture and removal was not proved for the larger period, and the demand was sustainable only to the limited extent supported by the note-book entries for 4-12-95 to 7-12-95.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, Rule 173Q of the Central Excise Rules and Rule 209A of the Central Excise Rules was sustainable.

Analysis: Penalty under Section 11AC could not be imposed for a period when that provision was not on the statute. Penalty under Rule 173Q on the company was also not justified in the facts because the proved duty liability was confined to a very small period. Penalty under Rule 209A on the employees was unsupported by evidence showing any act or omission on their part that caused evasion of duty.

Conclusion: The penalties under Section 11AC, Rule 173Q and Rule 209A were set aside.

Final Conclusion: The company remained liable only for the limited duty demand proved for four days, while the remaining demand and all penalties against all appellants were set aside, resulting in a partial allowance of the company's appeal and full allowance of the employees' appeals.

Ratio Decidendi: Clandestine removal must be established by reliable corroborative evidence, and penalty cannot be imposed for a period prior to the introduction of the penal provision or without proof of individual culpability.

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