Clandestine clearance demands fail without independent evidence linking alleged undisclosed income to factory removals.

Central excise duty, interest and penalty could not be sustained where the demand was based only on an income-tax survey and statements alleging undisclosed income, without independent investigation linking that income to clandestine removal of excisable goods from the manufacturing unit. The record showed no separate inquiry by the Revenue to prove that the surveyed income arose from manufacture and clearance from the factory, so the burden of proving clandestine clearance was not discharged. The order dropping the proceedings was therefore upheld in favour of the assessee.

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Issues: Whether the demand of central excise duty, interest and penalty could be sustained on the basis of an income-tax survey and statements allegedly showing undisclosed income, without independent investigation or evidence establishing that such income arose from clandestine clearances by the manufacturing unit.

Analysis: The demand rested on materials gathered in the income-tax survey under Section 133A of the Income-tax Act, 1961 and on statements recorded during investigation. The record did not show any independent inquiry by the Revenue to establish that the alleged undisclosed income was linked to manufacture and removal of excisable goods from the respondent's factory. In the absence of evidence connecting the surveyed income to the manufacturing activity, the burden cast on the Revenue to prove clandestine clearance was not discharged.

Conclusion: The demand was not sustainable and the impugned order dropping the proceedings was upheld in favour of the assessee.

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