Clandestine removal demands fail where electricity-use estimates lack corroborative proof and prescribed production norms are not followed.

Excise duty demand based on alleged clandestine removal could not be sustained where the department relied mainly on electricity consumption estimates and incomplete records without reliable corroborative evidence of excess manufacture or clearance. Goods were found within the factory, and the non-entry in records was explained by night-shift timing and later posting of entries. The prescribed norm-fixing approach under Rule 173E, requiring consideration of installed capacity, raw material, labour and power consumption, was not shown to have been followed. In the absence of convincing proof of clandestine removal, the demand, confiscation and penalties were unsustainable.

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Issues: Whether the demand, confiscation and penalties could be sustained on the allegation of clandestine removal and suppressed production based mainly on electricity consumption and incomplete accounting records.

Analysis: The goods were found within the factory premises and the non-entry in the records at the time of inspection was explained as arising from the night shift timing and the practice of making entries after the day staff reported for work. The department's case rested substantially on assumptions drawn from electricity consumption and estimated production, but there was no reliable corroborative material to establish the alleged excess manufacture or clandestine clearance. Rule 173E required normal production to be fixed having regard to relevant factors such as installed capacity, raw material, labour and power consumption, and the record did not show that this statutory method was followed. In the absence of convincing proof of clandestine removal, the demand and consequential confiscation and penalties could not stand.

Conclusion: The allegation of clandestine removal was not proved and the impugned order was unsustainable.

Ratio Decidendi: A demand for excise duty on alleged clandestine removal cannot be sustained on assumptions based only on electricity consumption or estimated production unless the department establishes the charge by reliable corroborative evidence and in accordance with the prescribed norm-fixing framework.

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