Cancelled invoices cannot sustain duty demand or penalty without proof of actual removal and required debit.

Duty could not be demanded on cancelled invoices in the absence of evidence that the goods were actually removed, because cancellation alone did not establish clandestine clearance; the duty demand was therefore unsustainable and was set aside. Penalty for failure to intimate cancellation of invoices within the prescribed time under Rule 173G(2)(vii) was also unjustified, because the intimation requirement applied only where duty had already been debited before cancellation, and the cancelled invoices were reflected in the RT-12 returns; the penalty was set aside. The impugned order was annulled and the assessee obtained full relief.

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Issues: (i) Whether duty could be demanded on the basis of cancelled invoices in the absence of evidence of clandestine removal of goods; (ii) Whether penalty was sustainable for not intimating cancellation of invoices within the prescribed period under Rule 173G(2)(vii) of the Central Excise Rules, 1944.

Issue (i): Whether duty could be demanded on the basis of cancelled invoices in the absence of evidence of clandestine removal of goods.

Analysis: The cancellation of invoices was not seriously disputed, and there was no evidence to show that goods had in fact been cleared under those invoices. In the absence of proof of clandestine removal, a demand of duty could not be sustained merely because the invoices had been cancelled.

Conclusion: The demand of duty on the cancelled invoices was not justified and was set aside.

Issue (ii): Whether penalty was sustainable for not intimating cancellation of invoices within the prescribed period under Rule 173G(2)(vii) of the Central Excise Rules, 1944.

Analysis: The intimation requirement under Rule 173G(2)(vii) applies only where the duty had already been debited before cancellation of the invoice. Here, the assessee had been permitted to make debit entries on a weekly basis, so the invoices had not been debited when they were cancelled. The cancelled invoices were also reflected in the RT-12 returns, and therefore the rule did not require intimation within 24 hours.

Conclusion: The penalty was unjustified and was set aside.

Final Conclusion: The impugned order was annulled, and the assessee obtained full relief in respect of both duty demand and penalty.

Ratio Decidendi: A demand or penalty cannot be sustained on cancelled invoices unless there is evidence of actual removal of goods, and the obligation to intimate cancellation under Rule 173G(2)(vii) arises only after the duty attributable to the invoice has already been debited.

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