Clandestine removal must be proved by tangible evidence; excise demand and penalties fail when only fictitious job workers are alleged.

Excise duty on acrylic yarn could not be sustained on the basis of alleged fictitious job workers alone, because clandestine manufacture and removal were not proved by tangible evidence of sale or clearance. The assessee's shipping bills, invoices, bank realisation certificates, DEEC books and redemption letters supported export compliance, and the Revenue did not rebut them. As the duty demand failed for want of proof, the associated penalties under the Central Excise Act and Rules also could not survive. The demand and penalties were therefore set aside, with complete relief to the assessee.

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Issues: (i) Whether the demand of central excise duty on acrylic yarn could be sustained on the basis of alleged fictitious job workers and alleged clandestine clearance without proof of sale or removal. (ii) Whether penalties were imposable under Section 11AC of the Central Excise Act, 1944, Rule 173Q of the Central Excise Rules, 1944, and Rule 209A of the Central Excise Rules, 1944.

Issue (i): Whether the demand of central excise duty on acrylic yarn could be sustained on the basis of alleged fictitious job workers and alleged clandestine clearance without proof of sale or removal.

Analysis: The only basis for the demand was that the alleged job workers were found to be non-existent. No material was brought on record to show to whom the yarn was sold or how it was removed from the factory. The finding of duty liability rested on assumption that, because the job workers were fictitious, the yarn must have been manufactured in the assessee's factory and cleared clandestinely. The assessee, on the other hand, produced shipping bills, invoices, bank realization certificates, DEEC books and redemption letters showing fulfilment of export obligation, and the Revenue did not rebut those documents.

Conclusion: The demand of duty was not sustainable and was set aside.

Issue (ii): Whether penalties were imposable under Section 11AC of the Central Excise Act, 1944, Rule 173Q of the Central Excise Rules, 1944, and Rule 209A of the Central Excise Rules, 1944.

Analysis: Once the duty demand itself failed for want of tangible evidence of clandestine removal, the foundation for penalty also disappeared. The record did not establish the requisite basis for penal action against the manufacturer or the managing director, and the evidence of export compliance negatived the allegation of deliberate evasion.

Conclusion: The penalties were not sustainable and were set aside.

Final Conclusion: The appeals succeeded, the duty demand and penalties were annulled, and the assessee obtained complete relief.

Ratio Decidendi: A demand of excise duty cannot be upheld on mere suspicion or on the sole premise that job workers are fictitious; clandestine manufacture and removal must be proved by tangible evidence, and penalties cannot survive when the underlying demand fails.

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