Clandestine removal inference from unexplained raw material shortage sustained duty demand, while proprietary and personal penalties were partly reliefed.

Clandestine manufacture and removal of gudakhu was inferred from unexplained excess raw material, contradictory explanations for stock shortage, late-produced return documents, supplier denials, and discrepancies suggesting fabricated supporting bills and letters. The Tribunal held that these circumstances sufficiently established unaccounted use of tobacco powder and sustained the duty demand. On penalty, it accepted the demand but reduced the penalty on the proprietary concern in light of the overall facts, and held that no separate personal penalty was exigible against the proprietor merely in that capacity.

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Issues: (i) whether the demand of duty on alleged clandestine manufacture and removal of gudakhu was sustainable; (ii) whether the penalty imposed on the proprietary appellant and the personal penalty on the proprietor were sustainable.

Issue (i): whether the demand of duty on alleged clandestine manufacture and removal of gudakhu was sustainable.

Analysis: The appeal turned on the credibility of the explanation offered for shortage of the principal raw material, the shifting stands taken at different stages, the late production of return documents, the denial by suppliers of any return of tobacco powder, and the discrepancies suggesting that the supporting bills and letters were fabricated. The discrepancy in stock and the implausibility of large-scale production on the date of inspection also supported the inference that excess raw material had been used in unaccounted manufacture. The absence of proof regarding other inputs did not displace the Revenue's case once excess receipt and unexplained utilisation of tobacco powder stood established.

Conclusion: The finding of clandestine manufacture and removal was upheld and the duty demand was sustained.

Issue (ii): whether the penalty imposed on the proprietary appellant and the personal penalty on the proprietor were sustainable.

Analysis: The Tribunal accepted the demand but interfered with the quantum of penalty imposed on the firm, considering the overall facts and circumstances. It further held that no separate personal penalty was exigible against the proprietor merely in that capacity.

Conclusion: The penalty on the proprietary appellant was reduced and the personal penalty on the proprietor was set aside.

Final Conclusion: The duty liability was affirmed, the firm's penalty was reduced, and the proprietor obtained complete relief from personal penalty.

Ratio Decidendi: Clandestine removal may be inferred from a combination of unexplained excess raw material, contradictory explanations, fabricated supporting documents, and production circumstances that corroborate unaccounted manufacture.

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