Clandestine removal and exemption notification valuation require duty recomputation at the concessional rate beyond the threshold.

Admissions made during inspection, together with shortage of raw materials and unrecorded finished goods, support a finding of clandestine manufacture and removal without payment of central excise duty, so the demand and penalty were sustained on merits. Where clearances crossed the exemption threshold under Notification No. 1/93, duty had to be recomputed at the concessional rate applicable immediately beyond the limit, and the penalty had to be reconsidered on the basis of the re-quantified duty. The matter therefore required fresh quantification of both duty and consequential penalty under the applicable exemption notification.

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Issues: (i) Whether the demand of central excise duty and penalty was justified on the basis that the short-found raw materials and unrecorded finished goods were used for clandestine manufacture and clearance without payment of duty; (ii) Whether the duty and penalty required re-quantification under Notification No. 1/93 by applying the concessional rate applicable to clearances immediately beyond the exemption limit.

Issue (i): Whether the demand of central excise duty and penalty was justified on the basis that the short-found raw materials and unrecorded finished goods were used for clandestine manufacture and clearance without payment of duty.

Analysis: The shortage of raw materials was noticed during inspection, the managing director had admitted the shortage and the use of the materials in manufacture of excisable goods, and he had also agreed to pay the duty. The later plea that the inputs had been sent to a job worker was not accepted, as it was inconsistent with the earlier admission and was not disclosed at the time of inspection. The presence of unrecorded finished goods also supported the finding of surreptitious clearances.

Conclusion: The demand of duty and the penalty were upheld on merits.

Issue (ii): Whether the duty and penalty required re-quantification under Notification No. 1/93 by applying the concessional rate applicable to clearances immediately beyond the exemption limit.

Analysis: The clearances after crossing the exemption threshold were liable to the concessional rate prescribed by Notification No. 1/93, and the demand had been worked out on a higher rate. The matter, therefore, required fresh quantification in accordance with the notification, and the penalty had to follow the re-quantified duty.

Conclusion: The original authority was directed to re-quantify the duty and reconsider the penalty accordingly.

Final Conclusion: The findings on liability were sustained, but the quantum of duty and the consequential penalty were left to be recomputed under the applicable exemption notification.

Ratio Decidendi: Admissions made at the time of inspection, supported by shortage of raw materials and unrecorded finished goods, can justify a finding of clandestine manufacture and removal, while the duty on clearances beyond a small-scale exemption threshold must be computed at the concessional rate expressly prescribed by the exemption notification.

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