Clandestine removal needs positive evidence; Modvat credit remains available for inputs rendered waste during manufacture.

Duty demand based only on shortages or non-accountal of crown corks could not be sustained because no positive evidence linked the discrepancy to clandestine removal, and suspicion or presumption was insufficient to establish evasion. Modvat credit was also allowable on broken or damaged inputs that became waste during manufacture, because Rule 57D protects credit where materials lose utility in the manufacturing process and no contrary material shows unlawful removal. The demand was set aside and consequential relief followed.

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Issues: (i) Whether the demand of duty based only on shortages or non-accountal of crown corks, without corroborative evidence of clandestine removal, was sustainable. (ii) Whether Modvat credit was admissible on broken or damaged inputs rendered waste during manufacture under Rule 57D.

Issue (i): Whether the demand of duty based only on shortages or non-accountal of crown corks, without corroborative evidence of clandestine removal, was sustainable.

Analysis: The demand rested on the alleged shortage and defective accountal of crown corks, but no independent evidence was produced to show clandestine manufacture or surreptitious removal. A demand for central excise duty cannot be sustained on mere suspicion, presumptions, or assumptions when the Department fails to adduce positive evidence linking the shortage with unlawful clearance. The reasoning followed the principle that non-accountal of waste materials, by itself, is insufficient to establish evasion.

Conclusion: The demand on account of shortage of crown corks was unsustainable and was set aside.

Issue (ii): Whether Modvat credit was admissible on broken or damaged inputs rendered waste during manufacture under Rule 57D.

Analysis: The inputs in question were stated to have been broken or rendered unfit during the manufacture of the final product. Where such material becomes waste in the course of manufacture, Rule 57D permits credit because the loss of physical utility during the manufacturing process does not by itself disentitle the assessee from credit. In the absence of proof of clandestine removal or any contrary material, the credit could not be denied mechanically.

Conclusion: Modvat credit was admissible on the waste generated during manufacture.

Final Conclusion: The appeal succeeded in full, the impugned order was set aside, and the assessee obtained consequential relief.

Ratio Decidendi: A duty demand based merely on shortages or non-accountal of waste materials is unsustainable unless supported by positive evidence of clandestine removal, and Modvat credit cannot be denied for inputs rendered waste during manufacture where Rule 57D applies.

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