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Issues: (i) Whether the allegation of clandestine receipt of polyester yarn and clandestine removal of texturised yarn was proved on the basis of an uncross-examined statement and private diary entries without corroborative evidence. (ii) Whether penalty under Section 11AC of the Central Excise Act, 1944 and duty/penalty demands could be sustained for a period prior to the commencement of that provision.
Issue (i): Whether the allegation of clandestine receipt of polyester yarn and clandestine removal of texturised yarn was proved on the basis of an uncross-examined statement and private diary entries without corroborative evidence.
Analysis: The evidence relied upon consisted mainly of the statement of a company officer and entries in a private diary, loose papers and packing slips. The statement did not disclose the source of the entries, the vehicle details, or any order placed by the assessee, and the maker did not submit to cross-examination. No corroboration came from the sales department, the joint managing director denied the alleged clandestine transfers, and no invoice, gate pass, seized yarn, incriminating purchase record, or buyer statement supported the charge. In these circumstances, the allegation remained based on assumptions and presumptions rather than cogent and tangible proof.
Conclusion: The clandestine removal allegation was not proved and the finding was against the Revenue.
Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 and duty/penalty demands could be sustained for a period prior to the commencement of that provision.
Analysis: The period in dispute preceded the coming into force of Section 11AC. The provision was treated as prospective, and therefore could not be invoked to impose penalty for the earlier period. Since the core demand itself was unsupported by legal proof, the connected duty and personal penalty consequences also could not survive.
Conclusion: Penalty under Section 11AC was not sustainable for the prior period, and the duty and related penalties were set aside in favour of the assessee.
Final Conclusion: The duty demand and all penalties were quashed, and the appeals succeeded with consequential relief as permissible in law.
Ratio Decidendi: Clandestine removal must be established by cogent, corroborative and tangible evidence, and a penalty provision cannot be applied retrospectively to past conduct.
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