Clandestine removal demands require affirmative evidence, not presumption, and penalty enhancement failed for lack of justification.

Duty demand for alleged non-accounting and clandestine removal of processed man-made fabrics was set aside where the Department relied on presumption rather than affirmative evidence. The record did not properly address the assessee's explanation that 11,459 linear metres were manufactured before officers' visit, and no reliable enquiry was made from suppliers or recipients regarding the 12,900.75 linear metres covered by challans. The adjudicating authority itself noted the absence of positive evidence of illicit processing or clearance, so the duty demand could not stand. Enhancement of penalty was also rejected because the existing penalty and redemption fine were already substantial and there was no sound basis to treat the original penalty as inadequate.

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Issues: (i) Whether the demand of duty and finding of non-accounting in respect of 11459 L. mtrs. of processed man-made fabrics and 12,900.75 L. mtrs. covered by 10 challans were sustainable. (ii) Whether enhancement of penalty was justified.

Issue (i): Whether the demand of duty and finding of non-accounting in respect of 11459 L. mtrs. of processed man-made fabrics and 12,900.75 L. mtrs. covered by 10 challans were sustainable.

Analysis: The finding of non-accounting of 11459 L. mtrs. found in the factory was set aside because the record showed that entries in RG-1 for processed man-made fabrics were required to be made at the relevant stage, and the explanation that the goods had been manufactured before the officers' visit was not properly examined. As to the 12,900.75 L. mtrs. covered by 10 challans, the Department failed to establish clandestine removal by reliable evidence. No enquiry was made from the suppliers or recipients of the grey fabrics, and the adjudicating authority itself recorded that there was no positive evidence of illicit processing or clearance. The demand was based only on a reasonable presumption, which could not substitute proof.

Conclusion: The finding of non-accounting and the corresponding duty demand in respect of both quantities were set aside, in favour of the assessee.

Issue (ii): Whether enhancement of penalty was justified.

Analysis: The penalty and redemption fine already imposed were substantial in relation to the duty involved. In view of the reduction of duty liability and the absence of any sound basis to treat the original penalty as inadequate, no justification existed for increasing the penalty.

Conclusion: Enhancement of penalty was rejected, in favour of the assessee.

Final Conclusion: The assessee obtained partial relief by setting aside the impugned duty demands and one confiscation-related fine, while the revenue's request for a higher penalty failed and the remaining findings were left intact.

Ratio Decidendi: A demand for duty on alleged clandestine removal must rest on affirmative evidence and not on presumption or conjecture, and the Department bears the initial burden of proving non-accounting or illicit clearance.

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