Private records and unexplained input shortages can sustain duty recovery, but confiscation and penalty need strict rule compliance.

Private registers showing sales and stock entries may support a finding of clandestine clearances when the assessee cannot credibly explain them or correlate them to mere tentative orders; the document states that duty demand was sustained on that basis. Where inputs on which Modvat credit was taken are found short and the shortage is unexplained, the corresponding credit can be recovered. It also notes that confiscation of excess goods and personal penalty on an authorised signatory require strict compliance with the applicable rules, and those consequences were not sustainable where the necessary rule conditions were not satisfied.

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Issues: (i) Whether demand of duty could be sustained on the basis of entries in the private register said to reflect sales and production planning; (ii) whether duty equivalent to Modvat credit could be recovered on inputs found short; (iii) whether confiscation of excess goods and personal penalty on the authorised signatory were sustainable.

Issue (i): Whether demand of duty could be sustained on the basis of entries in the private register said to reflect sales and production planning.

Analysis: The register was seized from the assessee and contained entries under the heading "Quantity sold and stock" and "To whom sold". The authorised signatory had stated that some sales had missed Central Excise invoices. The assessee failed to correlate the entries with only tentative orders or to show that the entries represented merely probable sales. In the absence of a satisfactory explanation, the burden shifted to the assessee, and the private records were treated as evidence of actual clearances without duty.

Conclusion: The demand of duty based on the private register was upheld against the assessee.

Issue (ii): Whether duty equivalent to Modvat credit could be recovered on inputs found short.

Analysis: The shortage of inputs was not denied. As the assessee was operating under the Modvat scheme, it was required to account for the inputs on which credit had been taken. No explanation was offered for the shortage, and the credit taken on such short inputs was therefore recoverable in accordance with law.

Conclusion: Recovery of duty equivalent to the Modvat credit on the short inputs was upheld against the assessee.

Issue (iii): Whether confiscation of excess goods and personal penalty on the authorised signatory were sustainable.

Analysis: The excess goods were ordered to be confiscated under Rule 173Q, but the applicable ratio held that excess found goods could not be confiscated under that rule and that confiscation, if any, could arise only under Rule 226. The impugned order also did not record satisfaction of the conditions necessary for invoking Rule 209A against the authorised signatory.

Conclusion: Confiscation of the excess goods and the personal penalty were set aside in favour of the assessee.

Final Conclusion: The duty demands were sustained, but the confiscation and personal penalty did not survive.

Ratio Decidendi: Private records showing sales and stock, when not satisfactorily explained, may support a finding of clandestine removal, but confiscation and penalty must strictly satisfy the applicable rule requirements.

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