Clandestine removal needs corroborative evidence, while clearance without duty-paying invoices sustains duty demand and penalty.

Removal of bags without duty-paying invoices supported a duty demand and penalty, as the absence of prescribed invoices at removal indicated clearance without payment of duty and intent to evade. By contrast, the demand on fabrics allegedly cleared as waste failed because clandestine removal was not proved by tangible or corroborative evidence; extrapolation from limited production records and assumptions could not discharge the Department's burden. As a result, the demand and connected penalties on the waste allegation were set aside, while the duty demand and penalty on the bags count were sustained.

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Issues: (i) Whether the demand of duty on 1,18,546 bags alleged to have been cleared without payment of duty was sustainable and whether penalty under Section 11AC of the Central Excise Act was imposable. (ii) Whether the demand of duty on fabrics alleged to have been cleared in the guise of waste, along with the connected penalties on the manufacturer and other noticees, was sustainable.

Issue (i): Whether the demand of duty on 1,18,546 bags alleged to have been cleared without payment of duty was sustainable and whether penalty under Section 11AC of the Central Excise Act was imposable.

Analysis: The record showed that the bags were cleared without issuance of duty-paying invoices under Rule 52A of the Central Excise Rules, 1944. The statement of the Works Manager was relied upon, and the appellants did not successfully dislodge the documentary findings recorded in the order-in-original. The absence of prescribed invoices at the time of removal supported the inference of removal without payment of duty and intent to evade duty.

Conclusion: The duty demand of Rs. 1,44,572/- was upheld, and penalty under Section 11AC of the Central Excise Act was sustained against the manufacturer for this count.

Issue (ii): Whether the demand of duty on fabrics alleged to have been cleared in the guise of waste, along with the connected penalties on the manufacturer and other noticees, was sustainable.

Analysis: The Revenue did not produce direct tangible evidence of clandestine removal of fabrics as waste. The demand was worked out from Daily Production Reports for a limited period and extrapolated to an earlier period for which those reports were unavailable. The Court held that clandestine removal cannot rest on assumptions and presumptions and that the burden to establish non-genuine wastage remained on the Department. In the absence of corroborative material showing removal of good-quality goods in the guise of waste, the demand on this count could not stand. Since the main demand on this count failed, the connected penalties on the job worker, director, and works manager also lacked basis.

Conclusion: The duty demand and penalties relating to clearance of fabrics in the guise of waste were set aside, and the penalties on the other noticees were also set aside.

Final Conclusion: The appeal succeeded on the waste-allegation demand and the related penalties, but failed in respect of the duty demand on bags cleared without duty-paying invoices; the manufacturer remained liable only to the reduced penalty sustained on that count.

Ratio Decidendi: A demand for clandestine removal must be supported by tangible and corroborative evidence, and cannot be sustained merely on extrapolation, assumptions, or presumptions from limited records; however, removal without prescribed duty-paying invoices justifies duty demand and penalty.

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