Clandestine removal proven by parallel records, while confiscation failed and the scrap penalty was reduced under the correct rule.

Parallel production slips bearing the same serial numbers, recovery of the duplicate set from the office, and admissions in investigation were treated as sufficient evidence of parallel records and clandestine manufacture and removal, so the duty demand was upheld. Confiscation of waste and scrap could not stand where the impugned order relied only on Rule 173Q, because the Tribunal noted that non-entered goods were punishable, if at all, under the correct rule for such defaults; the confiscation was set aside. For the same reason, the penalty for non-entry in RG 1 was reduced to the statutory maximum applicable under the proper provision.

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Issues: (i) whether the demand of duty on account of alleged clandestine manufacture and removal was sustainable; (ii) whether confiscation of the waste and scrap under Rule 173Q of the Central Excise Rules, 1944 was valid; (iii) whether the penalty imposed for non-entry of waste and scrap in RG 1 was sustainable in full.

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

Analysis: The existence of two sets of production slips bearing the same serial numbers, the recovery of the second set from the office almirah, and the admissions made during investigation provided sufficient material to conclude that the appellant had maintained parallel records showing higher manufacture than what was entered in RG 1. The explanation of inadvertence was not accepted, and the evidentiary record supported the finding of clandestine manufacture and removal.

Conclusion: The duty demand under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A(1) of the Central Excise Act, 1944 was upheld in favour of the Revenue.

Issue (ii): Whether confiscation of the waste and scrap under Rule 173Q of the Central Excise Rules, 1944 was valid.

Analysis: The confiscation was ordered under Rule 173Q, but the settled view relied upon by the Tribunal distinguished between goods not accounted for and goods not entered in the prescribed records, holding that confiscation of such non-entered goods could be sustained only under Rule 226 and not under Rule 173Q. Since the impugned order rested only on Rule 173Q, the confiscation could not be sustained on that basis.

Conclusion: The confiscation of the waste and scrap under Rule 173Q of the Central Excise Rules, 1944 was set aside in favour of the Assessee.

Issue (iii): Whether the penalty imposed for non-entry of waste and scrap in RG 1 was sustainable in full.

Analysis: Although the appellant had not properly maintained the RG 1 record in relation to the scrap, the applicable provision for such lapse was Rule 226, which prescribed a maximum penalty of Rs. 2,000. The penalty imposed under Rule 173Q exceeded the permissible limit applicable to the established default and required reduction.

Conclusion: The penalty of Rs. 5,000 was reduced to Rs. 2,000 in favour of the Assessee.

Final Conclusion: The finding of clandestine removal and the consequent duty demand were sustained, while confiscation was annulled and the penalty relating to scrap was reduced to the statutory maximum under the appropriate rule.

Ratio Decidendi: Parallel production records and corroborative admissions can sustain a finding of clandestine removal, but confiscation and penalty must be imposed strictly under the correct statutory provision and within its prescribed limits.

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