Clandestine removal requires corroborated evidence; untested statements and private entries cannot, by themselves, prove evasion.

Allegations of clandestine removal require cogent, tangible and corroborated evidence; rate contract terms, untested dealer statements and unverified assumptions were treated as insufficient by themselves. Private spiral pad entries also could not establish clandestine production without independent support such as inputs, power, labour or sales evidence, and the SSI threshold issue depended on whether the disputed clearances were first excluded. Shortages of finished goods and base paper stood on a different footing: unaccounted stock justified duty liability, confiscation with reduced redemption fine, MODVAT credit reversal, and modification of penalties.

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Issues: (i) whether the duty demand on alleged clandestine clearance of laminated sheets through the Delhi godown was sustainable; (ii) whether the duty demand based on the spiral pad entries and denial of small scale exemption was sustainable; and (iii) whether the demands arising from shortages and the related confiscation and penalties were sustainable.

Issue (i): whether the duty demand on alleged clandestine clearance of laminated sheets through the Delhi godown was sustainable.

Analysis: The demand rested on the rate contract conditions, the brand name requirement, and statements of dealers said to have not supplied 3 mm sheets. However, the assessee produced transport documents, sales tax records, ST-I forms, D-form references, and material showing dispatches from the Delhi godown. The Revenue did not rebut the transport evidence or produce direct evidence that the goods were first manufactured in the factory and then moved to Delhi. The dealer statements were not tested by cross-examination, and the rate contract terms by themselves were insufficient to prove clandestine manufacture and removal.

Conclusion: The duty demand on alleged clandestine clearance from the Delhi godown was not sustainable and was set aside.

Issue (ii): whether the duty demand based on the spiral pad entries and denial of small scale exemption was sustainable.

Analysis: The spiral pad entries were relied upon as proof of actual production, but the Revenue produced no independent corroboration such as input purchases, labour, power consumption, or sales evidence. The person who maintained the entries stated that they represented production planning. In the absence of clinching evidence, the entries could not be treated as proof of clandestine production. Once the alleged traded clearances were excluded, the aggregate value of clearances remained within the SSI threshold for the relevant year.

Conclusion: The duty demand based on spiral pad entries and the denial of small scale exemption were not sustainable and were set aside.

Issue (iii): whether the demands arising from shortages and the related confiscation and penalties were sustainable.

Analysis: The assessee did not satisfactorily explain the shortage of finished goods or the shortage of base paper. The finished goods found unaccounted were admitted in the contemporaneous statement and were liable to confiscation, though the redemption fine required reduction. The shortage of base paper warranted reversal of the MODVAT credit taken. Since the main allegation of clandestine removal was not established, the penalty on the director could not survive, while the penalty on the company required reduction.

Conclusion: The duty demand on shortages was sustained, the confiscation was upheld with reduced redemption fine, the MODVAT credit reversal was upheld, the penalty on the director was set aside, and the penalty on the company was reduced.

Final Conclusion: The appeal succeeded on the principal clandestine removal demands and the SSI denial, but failed on the shortage-related liability, with consequential modification of confiscation and penalties.

Ratio Decidendi: Allegations of clandestine removal must be proved by cogent, tangible and corroborated evidence, and cannot rest merely on contractual terms, untested statements, or unsupported presumptions; uncorroborated private entries likewise cannot by themselves establish actual clandestine production.

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