Clandestine removal demands need tangible proof; notional duty, machine confiscation, and proprietors' penalties were largely set aside.

Allegations of clandestine manufacture and removal must be proved by cogent, tangible evidence; a notional duty demand based on an unproved understanding with a manufacturers' association was unsustainable, so the demand and related equal penalty were set aside. Confiscation of 9 pouching machines also failed because actual use of the machines was not established, and confiscation of cash was unjustified since there was no reliable proof that it represented sale proceeds of smuggled goods within the relevant customs provision. The penalties on the proprietors were set aside as unnecessary where the firms had already been penalised, while the landlord's penalty was reduced and the accountant's penalty sustained.

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Issues: (i) Whether the duty demand for August and September 1997 could be sustained on the basis of an understanding with the manufacturers' association and alleged clandestine production without supporting evidence; (ii) whether the confiscation of 9 pouching machines and cash of Rs. 8,43,000/- was justified; and (iii) whether the penalties imposed on the appellants, including the proprietors, called for interference.

Issue (i): Whether the duty demand for August and September 1997 could be sustained on the basis of an understanding with the manufacturers' association and alleged clandestine production without supporting evidence.

Analysis: The demand had been worked out on a notional basis of Rs. 1 lakh per machine per month on the premise of an understanding said to have been arrived at by an association of manufacturers. The record did not show that such understanding had legal force or that the assessee was a party to it. Apart from that, there was no reliable evidence of actual use of the extra machines, no proof of extra raw material procurement, electricity consumption, buyer statements, or quantified clandestine clearances. A duty demand for alleged clandestine removal can be sustained only on cogent and tangible evidence, not on assumptions or presumptions.

Conclusion: The duty demand of Rs. 32 lakhs and the related equal penalty could not be sustained and were set aside.

Issue (ii): Whether the confiscation of 9 pouching machines and cash of Rs. 8,43,000/- was justified.

Analysis: The confiscation of the machines rested on the unproved assumption that they were actually used for manufacture. Once use of the machines was not established, confiscation could not survive. As to the cash, Section 121 of the Customs Act applies only where sale proceeds of smuggled goods are shown to have been received by a person having knowledge or reason to believe that the goods were smuggled. The currency was recovered from a trading premises, not from the manufacturing unit, and there was no reliable evidence that it represented sale proceeds of goods cleared clandestinely or that the recipient had the requisite knowledge.

Conclusion: The confiscation of the 9 pouching machines and the confiscation of Rs. 8,43,000/- were set aside.

Issue (iii): Whether the penalties imposed on the appellants, including the proprietors, called for interference.

Analysis: The penalties on the firms were considered reasonable. However, separate penalties on the proprietors of those firms were not warranted when the firms themselves had already been penalised. The penalty on the landlord was reduced having regard to his limited role in letting out the premises, while the penalty on the accountant was maintained.

Conclusion: The penalties on the proprietors were set aside, the landlord's penalty was reduced, and the accountant's penalty was sustained.

Final Conclusion: The impugned order was sustained only to the limited extent of the smaller penalties maintained or imposed on the firms and one individual, while the principal duty demand, confiscations, and separate proprietors' penalties were struck down.

Ratio Decidendi: Allegations of clandestine manufacture and removal, as well as confiscation of sale proceeds under the customs law, must be proved by cogent and tangible evidence; notional demands and presumptions cannot sustain duty, confiscation, or related penalties.

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