Clandestine removal and natural justice: pre-deposit waived and recovery stayed where raw-material shortage was inconclusive.

Shortage of raw materials alone was held insufficient to prima facie establish clandestine manufacture and removal of air-conditioners, particularly where the shortages differed across components and the explanation that defective goods had been returned was not effectively rebutted. Non-supply of the investigation result before adjudication was treated as a breach of natural justice. As clandestine removal was not shown at the threshold on the material available, waiver of pre-deposit of duty and penalty was granted and recovery stayed.

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Issues: Whether pre-deposit of duty and penalty should be waived and recovery stayed in a case alleging clandestine manufacture and removal of air-conditioners on the basis of shortage of raw materials, and whether denial of the investigation report amounted to breach of natural justice.

Analysis: The shortage of raw materials, by itself, was found insufficient to conclusively establish manufacture and removal of finished goods without payment of duty, especially where the shortages varied across components and the explanation that the air-conditioners had been returned as defective had not been effectively contradicted. The investigation result had not been furnished to the assessee before completion of adjudication, which was treated as a clear failure of natural justice. On the material placed, clandestine removal was not shown prima facie to the required standard.

Outcome: Waiver of pre-deposit of duty and penalty was granted and recovery of the amounts was stayed.

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