Clandestine removal demand needs corroborative evidence; estimated production alone failed, cum-duty relief was denied, and penalty was reduced.

A clandestine removal demand based only on a theoretical consumption ratio of dyes and chemicals was treated as speculative without independent corroborative evidence, so the larger alleged clearance quantity was not sustained and duty was confined to the admitted unpaid clearances. Cum-duty deduction was rejected because the sale value was not shown to include excise duty. Mandatory penalty under Section 11AC was held inapplicable for the earlier period before that provision came into force, leading to reduction of penalty.

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Issues: (i) Whether the demand for duty on alleged clandestine removal of processed fabrics could be sustained on the basis of a consumption-ratio estimate of dyes and chemicals in the absence of independent evidence; (ii) whether the value of the clearances had to be treated as cum-duty price for deduction of duty; and (iii) whether mandatory penalty under Section 11AC could be imposed for a period prior to its commencement.

Issue (i): Whether the demand for duty on alleged clandestine removal of processed fabrics could be sustained on the basis of a consumption-ratio estimate of dyes and chemicals in the absence of independent evidence.

Analysis: The quantity of alleged unaccounted production was worked out only by adopting a theoretical ratio between chemicals consumed and metres of fabric allegedly produced. The evidence did not include any independent proof of clandestine manufacture or removal. A production estimate based on average consumption of raw materials, without corroborative evidence, was treated as speculative and insufficient to establish clandestine clearances. The admitted clearance of a smaller quantity without payment of duty was accepted only to that extent.

Conclusion: The larger demand based on the estimated quantity of 19,200 metres was not sustainable, and the duty liability was confined to the quantity actually admitted as cleared without payment of duty.

Issue (ii): Whether the value of the clearances had to be treated as cum-duty price for deduction of duty.

Analysis: Cum-duty treatment applies only where the sale price is shown to include excise duty. On the facts, the value adopted did not include excise duty, and therefore there was no basis for reducing the assessable value by back-calculating duty from the sale price.

Conclusion: The claim for cum-duty deduction was rejected.

Issue (iii): Whether mandatory penalty under Section 11AC could be imposed for a period prior to its commencement.

Analysis: The penal provision became operative only from 28-9-1996, while the alleged offence related to an earlier period from July 1996 to September 1996. Mandatory penalty under that provision could not, therefore, apply to the entire disputed period. A reduced penalty was considered appropriate on the facts.

Conclusion: Mandatory penalty under Section 11AC was not sustainable for the relevant period, and the penalty was reduced.

Final Conclusion: The appeal succeeded only in part: the duty demand was restricted to the admitted clearances, the cum-duty plea failed, and the penalty was substantially reduced.

Ratio Decidendi: A demand for clandestine removal cannot rest on a mere arithmetical estimate of production from raw-material consumption without independent corroborative evidence, and a penalty provision cannot be applied retrospectively to an offence committed before it came into force.

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