Documentary evidence of unaccounted empty bags sustained clandestine removal and excise demand, with penalty reduced as excessive.

Documentary evidence showing receipt and suppression of empty cement bags, together with the assessee's failure to rebut supplier records, transport documents, octroi material, handwritten slips and its own admission, was sufficient to sustain a finding of clandestine removal and excise duty demand. The absence of proof of shortage of raw materials did not undermine the specific evidence of unaccounted bags used for duty-free clearance of cement. Penalty was justified for deliberate non-accountal and illicit removals, but was reduced as the original amount was considered excessive; the appeal succeeded only to that limited extent.

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Issues: (i) Whether duty of excise could be confirmed on the basis that the assessee had received and not accounted for empty cement bags used for clandestine clearance of cement without payment of duty; and (ii) whether the penalty imposed was liable to be interfered with.

Issue (i): Whether duty of excise could be confirmed on the basis that the assessee had received and not accounted for empty cement bags used for clandestine clearance of cement without payment of duty.

Analysis: The evidence relied upon by the Revenue included supplier records, transport-related documents, octroi material, handwritten slips and the assessee's own reply acknowledging that 14,500 bags remained unaccounted for. The assessee did not seek cross-examination of the suppliers and failed to rebut the documentary evidence showing receipt of 92,000 empty bags and their use in removing finished cement without duty. The absence of proof of shortage of raw materials did not dislodge the specific evidence on record.

Conclusion: The demand of duty was rightly upheld and the finding of clandestine removal stood confirmed against the assessee.

Issue (ii): Whether the penalty imposed was liable to be interfered with.

Analysis: The conduct established deliberate non-accountal of empty bags and use of those bags for illicit removals, making penalty justified. However, the original penalty of Rs. 5 lakhs was considered excessive in the circumstances, and a lower penalty was found sufficient to meet the ends of justice.

Conclusion: The penalty was upheld in principle but reduced to Rs. 2.50 lakhs.

Final Conclusion: The appeal succeeded only to the limited extent of reduction in penalty, while the duty demand and the finding of clandestine removal were sustained.

Ratio Decidendi: Documentary evidence showing receipt and suppression of packing material, coupled with an assessee's failure to rebut that evidence, can sustain a finding of clandestine removal and duty demand even in the absence of direct evidence of raw material shortage.

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