Clandestine removal demands need independent corroboration; third-party records and untested statements were held insufficient.

Third-party notebooks and loose papers, without independent corroboration, were held insufficient to sustain clandestine removal allegations; the Tribunal found no supporting evidence such as stock discrepancy, excess raw material procurement, buyer or transporter evidence, electricity consumption data, or proof of flow back of funds. It further held that statements recorded during investigation could not be relied on in adjudication unless the statutory procedure was followed and the assessee was given an opportunity for cross-examination. On that basis, the duty demand and consequential penalties were set aside.

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Issues: Whether the demand of duty and penalties for alleged clandestine removal could be sustained solely on the basis of third-party notebooks and loose papers without independent corroboration, and whether the statements relied upon could be used without compliance with Section 9D of the Central Excise Act, 1944 and without cross-examination.

Analysis: The record showed that the case of clandestine clearance was built mainly on documents recovered from the possession of a third party, whose entries were only partly matched with the appellant's records and were not supported by independent evidence such as stock verification, evidence of excess raw material procurement, buyer identification, transporter evidence, electricity consumption data, or proof of flow back of funds. The Tribunal held that such third-party records, by themselves, do not constitute sufficient proof of clandestine removal unless their truth is established by tangible corroboration. It further held that statements recorded during investigation could not be relied upon in adjudication unless the statutory procedure under Section 9D of the Central Excise Act, 1944 was followed, and the assessee was afforded a fair opportunity to test those statements by cross-examination.

Conclusion: The demand of duty and the consequential penalties were held unsustainable and set aside.

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