Clandestine manufacture needs reliable proof, and permitted job-work movements cannot be treated as unlawful without withdrawal of permission.

Allegations of clandestine manufacture were not sustained where the record did not conclusively show that no manufacture took place at the unit, the Department's statements were not fully corroborated, and the explanation for records and workers remained unrebutted. Permitted movement of core assemblies under Rule 57F(2) of the Central Excise Rules, 1944 could not be treated as unlawful without proof that the permission had been withdrawn or discredited. The demand and penalties against Archana and Vidarbha were therefore set aside. The Department also failed to show a sufficient basis to disturb the order dropping proceedings against Nippon, so that relief was maintained.

---

---

Issues: (i) Whether the evidence established that no manufacture took place at Vidarbha and that the demand and penalties against Archana and Vidarbha were sustainable. (ii) Whether the Commissioner's dropping of proceedings against Nippon could be interfered with in the Department's appeal.

Issue (i): Whether the evidence established that no manufacture took place at Vidarbha and that the demand and penalties against Archana and Vidarbha were sustainable.

Analysis: The allegations rested on the premise that the manufacturing activity attributed to Vidarbha was in fact undertaken by Archana and that Vidarbha was not functioning as a manufacturing unit. The materials on record did not, however, conclusively establish that Vidarbha had no manufacturing activity at all. The statements relied upon by the Department were not fully corroborated, the explanation regarding the presence of records and workers was not rebutted, and the permitted movement of core assemblies under Rule 57F(2) of the Central Excise Rules, 1944 could not be treated as unlawful in the absence of cancellation of that permission.

Conclusion: The finding of absence of manufacture at Vidarbha was not proved to the required degree of probability, and the appeals of Archana and Vidarbha succeeded.

Issue (ii): Whether the Commissioner's dropping of proceedings against Nippon could be interfered with in the Department's appeal.

Analysis: The material referred to in the Department's appeal did not establish a sufficient basis to disturb the Commissioner's conclusion in favour of Nippon. The grounds urged did not show that the charge against Nippon had been proved on the record as required for reversal of the order.

Conclusion: The Department's appeal against Nippon was rejected and the Commissioner's order in its favour was sustained.

Final Conclusion: The common order was set aside insofar as it fastened duty and penalty on Archana and Vidarbha, while the relief granted to Nippon was maintained, resulting in a partial success for the assessee-side and rejection of the Department's challenge against Nippon.

Ratio Decidendi: A finding of clandestine manufacture or suppression must rest on evidence sufficient to displace the explained and permitted manufacturing arrangement, and a subsisting permission for job-work movements cannot be ignored unless it is first shown to have been validly withdrawn or discredited by reliable evidence.

---