Clandestine Production Evidence Requires Independent Proof; Average-Based Duty Demand Fails, but Contradictory Records Can Support Penalty

Duty demands based on presumed excess production, derived from differing mill-hour readings and average production calculations, are not sustainable without independent evidence of excess raw material consumption, clandestine manufacture, or actual removal. Inconsistent production records and variable operational factors such as clinker quality, grinding media, raw material availability, and meter fluctuations were insufficient by themselves to prove liability. However, maintaining two sets of timings for the same mill supported penal action, even though the duty demand failed for lack of proof. The order was therefore modified by deleting the duty demand while retaining the penalty.

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Issues: (i) Whether the duty demand raised on the basis of presumed excess production, worked out from differing mill hours and average production, was sustainable in law; (ii) Whether the penalty imposed for maintaining two sets of timings for the same mill was sustainable.

Issue (i): Whether the duty demand raised on the basis of presumed excess production, worked out from differing mill hours and average production, was sustainable in law.

Analysis: The demand rested on a presumption drawn from variations between the hour-meter readings and the production slips. The recorded hours were inconsistent, sometimes showing more hours in the slips and sometimes fewer, and the calculation of production was based on averages and other variable factors such as clinker quality, grinding media, raw material availability, and possible meter fluctuations. No independent evidence was produced to show disproportionate consumption of raw materials, use of a larger number of bags, or actual clandestine removal of the alleged excess quantity.

Conclusion: The duty demand on the presumed quantity of cement was not sustainable and was set aside.

Issue (ii): Whether the penalty imposed for maintaining two sets of timings for the same mill was sustainable.

Analysis: The existence of two different sets of timings for the same mill, one for statutory production records and another for showing mill running, was admitted from the record. Even though the duty demand failed for want of proof of suppression and removal, the maintenance of inconsistent records justified penal action.

Conclusion: The penalty was sustained.

Final Conclusion: The appeal succeeded on the duty demand but failed on the penalty, so the order was modified only to the extent of deleting the duty demand while retaining the penalty.

Ratio Decidendi: A duty demand for alleged clandestine production cannot be sustained solely on average-based calculations and inconsistent timing records unless supported by independent evidence of excess raw material consumption, manufacture, or removal, though penal action may survive where contradictory records are maintained.

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