Clandestine removal demands fail when barrier records and untested statements lack corroboration of production and raw material procurement.

Clandestine manufacture and removal of LPG cylinders was not proved where the demand for duty and penalty rested mainly on barrier entries, untested witness statements, and alleged raw material procurement. The barrier records were not conclusive of actual transport, the statements were not subjected to cross-examination, and one key statement was considered doubtful because of personal hostility. The Department also failed to produce convincing evidence of raw material receipt matching the alleged production scale. On that evidentiary record, the allegation was found insufficient and the demand and penalty were held unsustainable in favour of the assessee.

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Issues: Whether the demand of duty and penalty for alleged clandestine manufacture and removal of LPG cylinders was sustainable on the basis of barrier records, witness statements, and alleged raw material procurement.

Analysis: The allegations rested mainly on entries at municipal, sales tax, and police barriers, and on statements of an ex-employee, truck drivers, and workers. The barrier records were not treated as conclusive proof of actual transport of the alleged quantity of cylinders on each trip. The statements relied upon had not been tested by cross-examination, and one of the principal statements was open to doubt because of personal hostility. The Department also failed to establish, with convincing material, receipt of the raw materials required for the alleged scale of production. In these circumstances, the evidence was found insufficient to substantiate clandestine manufacture and removal to a reasonable extent.

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

Ratio Decidendi: Allegations of clandestine removal cannot be upheld unless supported by clinching corroborative evidence of production, raw material procurement, and actual removal; untested statements and barrier entries alone are insufficient.

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