Clandestine removal requires positive evidence; uncorroborated supplier statements and suspicion cannot sustain duty demand or penalties.

Allegations of clandestine manufacture and removal of excisable goods require positive and tangible evidence of suppressed production and removal; supplier statements, sales tax records and surrounding circumstances alone are insufficient where there is no proof of excess input consumption, abnormal power use, stock discrepancy, or other direct link to the factory. Uncorroborated third-party statements, especially when cross-examination is sought, cannot by themselves sustain the charge. As the foundational allegation failed, the related duty demand, penalties and extended limitation could not survive.

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Issues: (i) Whether clandestine manufacture and removal of excisable goods without payment of duty was proved on the basis of supplier statements, sales tax records and surrounding circumstances. (ii) Whether the demand of duty and penalties under the Central Excise Act and Rules could be sustained.

Issue (i): Whether clandestine manufacture and removal of excisable goods without payment of duty was proved on the basis of supplier statements, sales tax records and surrounding circumstances.

Analysis: The material on record did not establish that the appellant had manufactured the disputed goods or removed them clandestinely. The supplier concerns had filed sales tax returns and the record did not justify treating every transaction as fictitious merely because some suppliers were not traced later. The Department also did not bring positive evidence of suppressed production, excess consumption of inputs, abnormal power use, stock discrepancy, or any other tangible link showing manufacture of the impugned goods in the factory. Reliance placed on uncorroborated statements of third parties, particularly when the appellant sought cross-examination, was insufficient to prove clandestine removal.

Conclusion: The charge of clandestine manufacture and clandestine removal was not established, and the finding was in favour of the assessee.

Issue (ii): Whether the demand of duty and penalties under the Central Excise Act and Rules could be sustained.

Analysis: Since the foundational allegation of clandestine manufacture and removal failed, the consequential duty demand and penalties could not survive. The record did not justify invocation of extended limitation or the penal provisions on the evidence adduced. The order of the lower authority was therefore unsustainable.

Conclusion: The duty demand and penalties were set aside, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was unsustainable for want of reliable evidence of clandestine manufacture or removal, and the appeals succeeded with consequential relief.

Ratio Decidendi: In allegations of clandestine removal, the Revenue must adduce positive and tangible evidence establishing manufacture and removal; uncorroborated third-party statements and suspicion are insufficient where no independent proof of suppressed production or removals is brought on record.

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