Clandestine removal demands need corroborative evidence beyond private slips; unsupported demand fails, while confiscation and some penalties may stand.

A demand for clandestine removal cannot rest on private kutcha slips alone; without corroboration such as evidence of inputs, manufacture, sales, electricity use, or fund flow, the demand was set aside. Penalty under Section 11AC was reduced as disproportionate, while the penalty under Rule 173Q(1) was upheld for seized goods and pre-28-9-96 clearances. Penalties under Rule 209A on partners and connected persons were set aside for lack of a sufficient basis for individual liability. Confiscation of land, building, plant and machinery, with redemption fine, was sustained because removal of seized goods without duty payment was admitted.

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Issues: (i) Whether duty demand based solely on kutcha slips recovered from the premises, without corroborative evidence, was sustainable; (ii) whether the penalties imposed under the Central Excise law required modification; (iii) whether confiscation of land, building, plant and machinery with redemption fine was liable to be upheld.

Issue (i): Whether duty demand based solely on kutcha slips recovered from the premises, without corroborative evidence, was sustainable.

Analysis: The only basis for the disputed demand was the kutcha slips. They were unsigned, the authors were not examined, and no corroboration was produced regarding receipt of inputs, manufacture of final products, sale, excess electricity consumption, or flow back of funds. Suspicion arising from the presence of kutcha slips with transported goods was not enough to prove clandestine manufacture and removal. In the absence of independent evidence linking the slips to actual clearances, the demand resting on those slips could not stand.

Conclusion: The demand based on kutcha slips was set aside and is in favour of the assessee.

Issue (ii): Whether the penalties imposed under the Central Excise law required modification.

Analysis: The penalty under Section 11AC was found to be disproportionate to the duty component and was therefore reduced. The penalty under Rule 173Q(1) in relation to the seized goods and clearances prior to 28-9-96 was upheld. The separate penalties imposed under Rule 209A on the partners and other connected persons were found unsustainable and were set aside, as there was no sufficient basis for individual liability on the facts recorded.

Conclusion: The penalty under Section 11AC was reduced, the penalty under Rule 173Q(1) was upheld, and the penalties under Rule 209A were set aside.

Issue (iii): Whether confiscation of land, building, plant and machinery with redemption fine was liable to be upheld.

Analysis: Since there was admitted removal of goods without payment of duty in respect of the seized goods, confiscation of the assets and the option of redemption fine were maintained.

Conclusion: The confiscation and redemption fine were upheld in favour of the revenue.

Final Conclusion: The order was modified by setting aside the demand founded only on kutcha slips, while sustaining confiscation on admitted seized goods and partly sustaining the penalty structure with reduction and deletion of several penalties.

Ratio Decidendi: A demand for clandestine removal cannot be sustained on the basis of private slips alone unless supported by independent corroborative evidence establishing manufacture and clearance without payment of duty.

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