Proof of clandestine removal requires reliable evidence; markings and third-party possession alone cannot sustain duty demand or penalty.

Liability for duty and penalty could not be sustained on presumptions alone where the department failed to prove that the seized urea was industrial grade goods manufactured in the assessee's factory and clandestinely cleared without payment of duty. The mere presence of the bags bearing the assessee's markings, or the fact that the goods were found at a third party's , was insufficient without a test report or other reliable evidence establishing identity, grade, manufacture, and removal. In the absence of such proof, the adverse findings and demand were held unsustainable.

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Issues: Whether the department had proved that the seized urea was industrial grade goods cleared from the appellant's factory without payment of duty, so as to sustain the demand and penalty.

Analysis: The finding of liability could not rest merely on the fact that the bags bore the appellant's markings or that the goods were found in the premises of a third party. No test report or other reliable evidence established that the seized urea was industrial grade. The department also failed to prove that the goods had been manufactured in the appellant's factory and removed clandestinely without payment of duty. In the absence of such proof, the authorities below proceeded on presumptions and conjectures.

Conclusion: The issue was decided in favour of the assessee. The demand and the consequential adverse findings were unsustainable.

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