Clandestine excise demand requires tangible evidence; speculative shortages and equivocal statements cannot sustain duty or penalties.

A demand for clandestine manufacture and removal of pan masala/gutkha based on alleged receipt of supari was held unsustainable where the case rested on speculative inference, an equivocal statement, and shortage figures without corroborating documentary evidence, excess electricity data, recovery of records, or proof of clandestine clearances. The major duty demand, related interest, and connected penalties were deleted. Penalties under Rule 209A were also set aside because the record did not establish each appellant's conscious involvement or the statutory ingredients for penalty. The decision reiterates that clandestine excise demands require tangible, corroborative evidence, not assumptions or presumptions, and that penalty provisions must be supported by specific proof against each person proceeded against.

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Issues: (i) Whether the principal duty demand based on alleged clandestine receipt of supari, manufacture of pan masala/gutkha, and removal thereof without payment of duty could be sustained on the basis of the recorded statement and surrounding circumstances; and (ii) whether the penalties imposed on the connected appellants under Rule 209A of the Central Excise Rules could be sustained.

Issue (i): Whether the principal duty demand based on alleged clandestine receipt of supari, manufacture of pan masala/gutkha, and removal thereof without payment of duty could be sustained on the basis of the recorded statement and surrounding circumstances.

Analysis: The demand rested essentially on a speculative inference drawn from shortage in the stock of trading firms and an equivocal statement that the supari might have gone to the manufacturing unit if reconciliation was not achieved. No allegation that the trading concerns were dummy firms was made in the show cause notice, and no case for clubbing their clearances with the manufacturer was established. There was no corroborating documentary evidence of clandestine transfer of supari, no recovery of such records from either side, no evidence of excess electricity consumption, and no evidence of clandestine clearance to buyers or consumers. A charge of clandestine manufacture and removal must be supported by concrete and tangible evidence, not by assumptions or presumptions.

Conclusion: The principal duty demand and the connected penalty and interest were not sustainable and were set aside.

Issue (ii): Whether the penalties imposed on the connected appellants under Rule 209A of the Central Excise Rules could be sustained.

Analysis: The penalties on the connected appellants were imposed without discussion of their specific role or material showing the ingredients required for invoking Rule 209A. In the absence of evidence establishing conscious involvement in handling goods liable to confiscation, the penal action could not be justified.

Conclusion: The penalties on the connected appellants were set aside.

Final Conclusion: The order was modified by deleting the major duty demand and all penalties on the connected appellants, while leaving untouched the uncontested smaller duty confirmations, confiscation, and related adjustments.

Ratio Decidendi: A demand for clandestine manufacture and removal cannot be sustained unless supported by tangible, corroborative evidence; a mere equivocal statement or inferred shortage, without more, is insufficient, and penalty provisions require proof of the statutory ingredients against each person penalised.

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