Clandestine removal requires direct evidence; raw material shortage and untested production estimates were insufficient to sustain the demand.

Clandestine manufacture and removal cannot be inferred merely from shortage of some inputs unless the evidence directly links that shortage to unaccounted production and clearance; on that basis, the duty demand was unsustainable. Estimated suppression of production also failed because the assessee's explanation of moisture loss and dust loss during supari processing was not rebutted with contrary evidence, so the production estimate could not be accepted. The duty demands and consequential penalties were therefore not sustainable on the record, and the appeals were allowed.

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Issues: (i) Whether shortage of some raw materials, by itself, established clandestine manufacture and removal of the final product; and (ii) whether the demand based on alleged suppression of production could be sustained without accounting for moisture loss and loss of dust in supari during processing.

Issue (i): Whether shortage of some raw materials, by itself, established clandestine manufacture and removal of the final product.

Analysis: The demand rested on shortage of certain inputs, while the manufacture of the final product also involved other inputs, including lamination, and the record did not show that the inputs found short were conclusively used for unaccounted production. Shortage of some raw material, without evidence linking it to clandestine manufacture and removal, is insufficient to uphold duty demand.

Conclusion: The issue was decided in favour of the assessee and the demand based on raw material shortage was not sustainable.

Issue (ii): Whether the demand based on alleged suppression of production could be sustained without accounting for moisture loss and loss of dust in supari during processing.

Analysis: The assessee consistently maintained that supari underwent cutting, heating, and removal of dust, causing weight loss, and that these manufacturing losses could not be ignored while estimating production. The revenue did not rebut this factual plea with contrary evidence, and rejection of the explanation merely on the basis of the director's earlier statement was insufficient.

Conclusion: The issue was decided in favour of the assessee and the demand based on alleged suppression of production was not sustainable.

Final Conclusion: The duty demands and consequential penalties could not be sustained on the evidence on record, and the appeals were allowed.

Ratio Decidendi: Clandestine manufacture and removal cannot be inferred merely from shortage of some inputs or from estimated production figures unless supported by evidence directly linking the shortage or estimate to unaccounted clearance, and a plausible explanation of manufacturing loss must be rebutted before rejecting it.

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