Clandestine removal demands fail where the department cannot prove finished goods clearance or shift the burden of proof improperly.

Allegations of clandestine clearance based on Rule 57F(3) challans failed where the department could not reliably prove that finished goods were cleared as semi-finished goods or that the assessee had the relevant finishing facilities. Evidence that similar processes were carried out through multiple job workers supported the assessee's case, while ambiguous statements and limited material were insufficient to establish the claimed reaming and run-out testing capability. The burden could not be improperly shifted to the assessee to prove receipt back of finished goods; the department had to prove its allegation. On that basis, duty demand and penalties were not sustainable.

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Issues: Whether the duty demand and penalties were sustainable on the allegation that the goods sent under Rule 57F(3) challans were finished goods cleared in the guise of semi-finished goods, and whether the department had proved that the job worker had no finishing facility during the relevant period.

Analysis: The evidence showed that goods were sent not only to one job worker but also to other job workers for the same processes, which supported the assessee's case that it lacked the relevant processing facility. The statements relied on by the department were found to be ambiguous and insufficient to establish that the assessee had the facilities for reaming and run out testing, particularly in relation to tapered steering wheels. The finding that the job worker was closed throughout the entire period was based on limited material and did not adequately address the plea that the closure was only temporary and that processing could have been done through another unit during that period. The adjudicating authority was also found to have improperly shifted the burden onto the assessee to prove receipt back of finished goods instead of requiring the department to prove its allegation.

Conclusion: The department failed to prove the alleged clandestine removal and the demand and penalties were not sustainable.

Ratio Decidendi: In a demand for duty on alleged clandestine clearance, the department must establish its case by reliable evidence, and ambiguous statements or an improper reversal of the burden of proof cannot sustain the levy or penalties.

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