Clandestine removal demands need corroborative proof; third-party statements and unverified electronic records alone are insufficient.

A demand for central excise duty alleging clandestine manufacture and removal was found unsustainable because it rested mainly on third-party statements, private records and unverified computer printouts without corroborative evidence. The record lacked proof of excess electricity use, extra labour, transport movement, buyer-side evidence, or other tangible material showing receipt of raw material, manufacture, removal and flow-back. The third-party statements were relied on without compliance with the required procedure for admissibility, and the electronic printouts were not shown to meet statutory requirements. In clandestine removal matters, presumptions cannot replace proof, so the duty, interest and penalty were set aside.

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Issues: Whether the demand of central excise duty alleging clandestine manufacture and removal could be sustained on the basis of third-party statements, private records and un-certified computer printouts without corroborative evidence and without compliance with the statutory requirements governing admissibility of such material.

Analysis: The demand was founded substantially on records and statements obtained from a third party, together with computer printouts and an input-output ratio worked out by the department. No substantive corroboration was found in the assessee's books, no evidence of excess electricity consumption, extra labour, transport movement, or buyer-side evidence was brought on record, and the former director denied the alleged cash purchases. The statements recorded from the third party officials were relied upon without compliance with the mandatory procedure for admitting such statements in adjudication, and the computer printouts from the third party system were not shown to satisfy the statutory requirements for electronic evidence. In a clandestine removal case, presumptions cannot substitute proof, and the department must establish receipt of raw material, manufacture, removal and flow-back by tangible evidence.

Conclusion: The demand was not sustainable and the issue is decided in favour of the assessee.

Final Conclusion: The impugned duty, interest and penalty were set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Allegations of clandestine manufacture and removal cannot be sustained on third-party statements and unverified electronic records alone unless the revenue proves the case with corroborative, legally admissible evidence and complies with the statutory procedure for admitting such material.

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