Clandestine removal requires independent proof; reversed income-tax findings and stock records alone cannot sustain excise demand.

Duty demand and penalty based on alleged clandestine removal could not be sustained where the only basis was excess stock reflected in bank pledge records and Income Tax material. The excise case depended substantially on an Income Tax assessment order, but that foundation had already been reversed by the competent Income Tax authorities, and the stock inflation finding had been accepted in income-tax proceedings. With no independent corroborative or affirmative evidence of actual excess stock, manufacture, or clandestine removal, mere suspicion or inference from stock statements was insufficient. The demand and penalty were therefore held unsustainable in favour of the assessee.

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Issues: Whether the duty demand and penalty could be sustained on the allegation of clandestine removal of goods merely on the basis of excess stock shown in bank pledge records and the Income Tax assessment material.

Analysis: The duty demand rested substantially on an Income Tax assessment order which treated the stock as excess pledged stock, but that basis had been reversed by the competent Income Tax authorities. The finding that the stock was inflated to secure finance had already been accepted in income-tax proceedings, weakening the foundation of the excise charge. Apart from the material gathered in income-tax investigations, there was no independent corroborative or affirmative evidence showing that the goods were actually in excess or had been clandestinely removed. In taxing matters, suspicion or inference from stock statements is insufficient without substantial proof of manufacture or removal.

Conclusion: The demand and penalty were not sustainable and the finding was in favour of the assessee.

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