Clandestine removal demands need corroborative evidence; third-party records alone are insufficient, while unaccounted stock may still face confiscation.

A demand for clandestine removal cannot be sustained on uncorroborated third-party records and untested statements alone; independent evidence linking the alleged removals to the factory is required, so the duty demand, interest and related penalties were set aside. Excess stock found during search and not reflected in the books was held liable to confiscation because the explanation for it was not proved, but the redemption fine and penalty were reduced as excessive. Separate personal penalties on the director and authorised signatory were also deleted, as the principal penalty on the company already covered the misconduct on the facts recorded.

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Issues: (i) Whether the demand of duty, interest and penalties could be sustained on the basis of uncorroborated third-party records and untested statements alleging clandestine removal of goods. (ii) Whether the excess stock found in the factory was liable to confiscation and what consequential relief, if any, was warranted. (iii) Whether separate penalty on the director and authorised signatory was justified.

Issue (i): Whether the demand of duty, interest and penalties could be sustained on the basis of uncorroborated third-party records and untested statements alleging clandestine removal of goods.

Analysis: The alleged clandestine removals were sought to be proved mainly from records seized from a third party and from statements of transporters, labourers and other persons. The material witnesses were not produced for effective cross-examination, no direct evidence linked the goods to removals from the factory, and no corroboration was brought from customers, drivers or recipients. The Tribunal held that third-party records by themselves, without supporting evidence, are insufficient to fasten duty liability for clandestine removal.

Conclusion: The demand of duty, interest and the penalties based on the alleged clandestine removals were not sustainable and were set aside.

Issue (ii): Whether the excess stock found in the factory was liable to confiscation and what consequential relief, if any, was warranted.

Analysis: The stock found at the time of search was not entered in the books of account, and the explanation that part of it represented same-day production or non-marketable goods was not substantiated by evidence. The Tribunal accepted confiscability of the unaccounted stock, but found the original fine and penalty excessive in the circumstances.

Conclusion: Confiscation of the excess stock was upheld, while the redemption fine and penalty were reduced.

Issue (iii): Whether separate penalty on the director and authorised signatory was justified.

Analysis: Since the principal penalty on the company in relation to the excess stock already covered the relevant misconduct, a separate personal penalty on the director and the authorised signatory was not called for on the facts recorded.

Conclusion: The separate penalties on the director and the authorised signatory were set aside.

Final Conclusion: The appeals succeeded to the extent of deleting the duty demand and the personal penalties, while the confiscation of unaccounted stock was maintained with reduced redemption fine and penalty.

Ratio Decidendi: A demand for clandestine removal cannot be sustained solely on uncorroborated third-party records and untested statements without independent evidence linking the alleged removals to the assessee's factory.

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