Clandestine manufacture not proved where records and assumptions alone failed to establish in-house production of excisable yarn.

Allegations of clandestine manufacture and removal of worsted woollen yarn were rejected because the evidence did not prove that the appellant itself manufactured the goods. Discrepancies in purchase and supply records, and the assumption that yarn supplied to DGS&D must have been of the appellant's own manufacture, were insufficient without supporting material such as raw material correlation, manufacturing stages, packing, dispatches, power consumption, or labour records. Stock verification showed no discrepancy, and the unexplained purchase of market yarn did not establish in-house production. The duty demand and penalty therefore could not be sustained.

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Issues: Whether the duty demand and penalty could be sustained on the allegation that the appellant had clandestinely manufactured and removed worsted woollen yarn without payment of central excise duty.

Analysis: The allegation rested mainly on discrepancies in the purchase and supply records and on the assumption that the yarn supplied to DGS&D must have been the appellant's own manufacture. The stock verification at the mill did not reveal any discrepancy, and there was no supporting material showing raw materials, manufacturing process, intermediate production stages, packing, dispatches, power consumption, or labour records to establish clandestine manufacture. The record also did not satisfactorily explain what happened to yarn admittedly purchased from the market, and the mere absence of duty-paying documents from the sellers was not enough to prove that the appellant had manufactured the goods itself. On the evidence available, the basic fact of manufacture by the appellant was not proved.

Conclusion: The allegation of clandestine manufacture was not established and the duty demand and penalty could not be sustained; the appellant succeeded.

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