Duty demand for alleged bottle shortage fails where records, duty-paid invoices and no evidence of clandestine removal support the assessee.

Alleged duty demand based on supposed shortage of decorated bottles failed because the record did not support physical verification or any proof of clandestine removal, and the clearances were already reflected in duty-paid accounts. Confiscation of decorated, reannealed and unprinted bottles also failed because their receipt, return and processing were accounted for under the duty-paid procedure, with no evidence of evasion after reannealing. Denial of Modvat credit was not justified where unprinted glass bottles were received under duty-paid invoices as inputs, and the penalty could not survive once the demand and confiscation were unsustainable.

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Issues: (i) Whether the duty demand based on alleged shortage of decorated bottles could be sustained in the absence of proper physical verification and evidence of clandestine removal. (ii) Whether confiscation of decorated, reannealed and unprinted bottles was justified when their movement and receipt were accounted for under the duty-paid procedure. (iii) Whether denial of Modvat credit and imposition of penalty were sustainable.

Issue (i): Whether the duty demand based on alleged shortage of decorated bottles could be sustained in the absence of proper physical verification and evidence of clandestine removal.

Analysis: The quantity of cullets cleared under duty-paid invoices had not been taken into account, and the record showed that such clearances were reflected in the appellant's accounts. The alleged shortage was based only on an eye estimate of bottles lying in the factory, without proper physical verification. A subsequent visit also did not reveal any shortage or excess. No evidence showed that the quantity of cullets was wrongly recorded or that any clandestine removal had taken place.

Conclusion: The duty demand on this count was not sustainable and was set aside.

Issue (ii): Whether confiscation of decorated, reannealed and unprinted bottles was justified when their movement and receipt were accounted for under the duty-paid procedure.

Analysis: The appellant was carrying out job work and decorative printing on duty-paid bottles, and the reannealing process was being undertaken on bottles received back from the duty-paid godown in terms of Rule 57F(4). The Department had been informed of this procedure. The receipt and return movement of goods was duly reflected in the records, and there was no evidence of clandestine removal after reannealing. The confiscation of unprinted bottles was also based only on production planning figures and not on physical verification.

Conclusion: The confiscation of the bottles was not sustainable and was set aside.

Issue (iii): Whether denial of Modvat credit and imposition of penalty were sustainable.

Analysis: The unprinted glass bottles were received under duty-paid invoices and constituted inputs for the appellant's operations. In the absence of any legal basis for treating the receipts as inadmissible, the credit could not be denied. Once the demand and confiscation failed, no penalty could survive.

Conclusion: Denial of Modvat credit and imposition of penalty were unsustainable and were set aside.

Final Conclusion: The impugned order did not survive and the appellant was granted full relief in the appeal.

Ratio Decidendi: Alleged shortage or clandestine removal cannot be presumed from mere visual assessment or planning figures when the goods are accounted for in records, the movement is under duty-paid documents, and no supporting evidence of evasion is shown.

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