Clandestine removal demands need corroborated evidence; recovered bills and untested statements alone cannot sustain excise liability.

Allegations of clandestine removal must be supported by a complete and reliable chain of corroborated evidence; recovered sale bills and untested buyer statements, without seizure, stock discrepancy, transport evidence, or supporting buyer records, were insufficient to sustain the demand. A later plea that processed knitted fabrics were not dutiable under Chapter Note 4 to Chapter 60 was also unavailable because duty had been paid during the relevant period and no such objection was raised in the earlier proceedings. The impugned demands and penalties were therefore unsustainable and were set aside with consequential relief.

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Issues: (i) Whether the alleged clandestine removal of processed fabrics was proved on the basis of recovered sale bills and buyer statements. (ii) Whether the plea regarding processed knitted fabrics and the effect of Chapter Note 4 under Chapter 60 of the Central Excise Tariff was available to the assessee.

Issue (i): Whether the alleged clandestine removal of processed fabrics was proved on the basis of recovered sale bills and buyer statements.

Analysis: The demand rested principally on recovered sale bills and statements of buyers, but no fabric was seized, no corroborative stock discrepancy or transport evidence was found, and the bills did not by themselves establish that the transactions related to processed fabrics rather than grey fabrics. The statements relied upon were not tested by cross-examination and were unsupported by documentary material from the buyers' records. In view of the large scale of the alleged evasion, the absence of detection during numerous surprise checks, and the lack of a complete and reliable chain of circumstantial evidence, the department failed to establish clandestine removal even on a preponderance of probabilities.

Conclusion: The allegation of clandestine removal was not proved and the duty demand and penalties founded on that allegation could not survive.

Issue (ii): Whether the plea regarding processed knitted fabrics and the effect of Chapter Note 4 under Chapter 60 of the Central Excise Tariff was available to the assessee.

Analysis: The assessee sought to raise, at a later stage, a plea that processed knitted fabrics were not dutiable for the relevant period and that Chapter Note 4 under Chapter 60, inserted later, supported that stand. The record showed that duty had in fact been paid on the processed knitted fabrics during the relevant period, and no protest or such objection had been raised in response to the show cause notice or during the earlier proceedings. The plea was therefore held to be unavailable in the circumstances.

Conclusion: The assessee's plea on non-liability of duty on processed knitted fabrics was rejected.

Final Conclusion: The impugned order was unsustainable, the demands and penalties were set aside, and the appeals succeeded with consequential relief in accordance with law.

Ratio Decidendi: Allegations of clandestine removal must be supported by reliable and corroborated evidence forming a complete chain; recovered invoices and untested statements, without seizure or other independent material, are insufficient to sustain a duty demand.

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