Clandestine removal and undervaluation demands require reliable proof and rational, notice-compliant computation before duty can be sustained.

A demand for duty based on clandestine removal may rest on un-retracted statements and surrounding circumstances, and proof need not reach mathematical precision; however, the quantification must still show a clear nexus to the goods and comply with the notice. The text notes that the unit-wise attribution and computation were found defective because the coded records were not properly linked and the notice was departed from in calculating liability. It also states that an undervaluation demand failed where the higher price was applied across the board without a rational basis and the cum-duty working, including deductions for tax and octroi, was not properly explained. On that basis, the matter was remanded for de novo consideration.

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Issues: (i) Whether the demand of duty on the ground of clandestine removal was sustainable. (ii) Whether the demand based on undervaluation was sustainable.

Issue (i): Whether the demand of duty on the ground of clandestine removal was sustainable.

Analysis: The demand rested on coded records recovered from a person in authority and supporting statements from dealers and others. The Tribunal accepted that un-retracted statements recorded in excise proceedings can be relied upon when they are not shown to have been obtained by coercion and are supported by surrounding circumstances. It also held that proof of clandestine removal need not be established with mathematical precision and may rest on a preponderance of probability. However, the method adopted for quantifying liability and linking the coded material to each unit suffered from serious defects, including lack of clear nexus, doubtful territorial correlation in respect of one unit, and a departure from the notice while computing liability.

Conclusion: The charge of clandestine removal was not rejected outright, but the quantification and unit-wise attribution were held to be unsustainable, requiring fresh consideration.

Issue (ii): Whether the demand based on undervaluation was sustainable.

Analysis: The Tribunal found that the valuation exercise was arbitrary because the higher price of egg shampoo was adopted for the entire demand without a rational basis. It also found that the manner of arriving at the factory gate value from the cum-duty price was not properly explained and that deductions such as tax and octroi had not been clearly accounted for. These defects showed non-application of mind and made the valuation unsound for final adjudication.

Conclusion: The undervaluation demand was held to be vitiated by an arbitrary and unsupported computation.

Final Conclusion: The impugned order was set aside and the matter was remanded to the jurisdictional Commissioner for de novo consideration after hearing the appellants.

Ratio Decidendi: A demand based on clandestine removal or undervaluation must rest on reliable corroborative material and a rational, notice-compliant computation; where the quantification or valuation is arbitrary or procedurally unfair, remand for fresh adjudication is warranted.

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