Unretracted admission and post-detection payment support duty and penalty restoration despite non-apportionment.

An appellate authority should not reduce duty on the basis that excess finished goods were made from shortage of raw material when the director's un-retracted statement admitted both excess stock and raw material shortage, and there was no evidentiary basis for a contrary inference. Where duty was paid only after departmental detection and both penalty provisions were invoked in the show-cause notice, non-apportionment of penalty did not invalidate the order, and the prior deposit towards penalty satisfied the statutory requirement.

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Issues: (i) Whether the Commissioner (Appeals) was justified in reducing the duty demand on the footing that the excess finished goods were manufactured out of raw material found short; (ii) Whether the penalty could be set aside on the ground that duty had been paid before the show-cause notice and there was no apportionment of penalty under Section 11AC and Rule 173Q.

Issue (i): Whether the Commissioner (Appeals) was justified in reducing the duty demand on the footing that the excess finished goods were manufactured out of raw material found short.

Analysis: The Director's statement recorded at the time of physical verification admitted excess finished goods and shortage of raw material, and the duty was debited on that basis. The statement was never retracted. There was no evidentiary basis for the view that the excess goods had been manufactured out of the material found short, and the appellate authority could not infer that fact contrary to the admission on record.

Conclusion: The reduction of duty by the Commissioner (Appeals) was not sustainable and was set aside in favour of Revenue.

Issue (ii): Whether the penalty could be set aside on the ground that duty had been paid before the show-cause notice and there was no apportionment of penalty under Section 11AC and Rule 173Q.

Analysis: The duty was not paid voluntarily but only after detection by the departmental officers. Both Section 11AC and Rule 173Q had been invoked in the show-cause notice, so non-apportionment of penalty did not prejudice the assessee. The adjudicating authority had rightly imposed the penalty, and the appellate authority had no basis to set it aside in toto. The amount already deposited towards penalty satisfied the statutory requirement under Section 11AC.

Conclusion: The setting aside of penalty was unsustainable and the original penalty order was restored in favour of Revenue.

Final Conclusion: The appellate order was reversed in full, the original adjudication was restored, and the Revenue's appeal succeeded.

Ratio Decidendi: An appellate authority cannot reduce duty or set aside penalty on assumptions contrary to an un-retracted admission and, where duty is paid after detection and the relevant penalty provisions are duly invoked, non-apportionment of penalty does not vitiate the penalty order.

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