Clandestine removal demands need direct evidence; pro rata duty on unrelated invoices and confiscation without mens rea were not sustained.

Duty demand for alleged clandestine removal cannot be extended on a pro rata basis to invoices unconnected with direct evidence; the material supported excess clearance only for the 28 invoices backed by recovered packing slips and corroborating statement, so the broader demand failed. Confiscation of finished goods not entered in statutory records could not be sustained without proof of the requisite mens rea where that clause applied, so confiscation was set aside. Penalty and interest were justified only to the extent they related to the sustained demand supported by cogent evidence.

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Issues: (i) whether duty could be confirmed on 89 invoices on a pro rata basis merely because excess removal was established for 28 invoices with corresponding packing slips, and (ii) whether confiscation of finished goods not entered in the statutory records could be sustained without proof of the requisite guilty intent, and (iii) whether the penalty and interest sustained by the appellate authority called for interference.

Issue (i): Whether duty could be confirmed on 89 invoices on a pro rata basis merely because excess removal was established for 28 invoices with corresponding packing slips.

Analysis: The evidence conclusively supported excess removal only in respect of the 28 invoices for which both invoices and corresponding packing slips were recovered from the consignees and the statement of the commercial assistant corroborated the excess quantity reflected therein. The material relied upon for the remaining 89 invoices was only of a general nature and did not contain a specific admission or direct linkage showing excess removal under those invoices. In the absence of evidence connecting those invoices with clandestine clearance, a pro rata inference was not permissible.

Conclusion: Duty demand for the 89 invoices was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether confiscation of finished goods not entered in the statutory records could be sustained without proof of the requisite guilty intent.

Analysis: The show cause notice proceeded on alleged contravention of the provisions requiring maintenance of stock accounts and daily entries. On those allegations, confiscation fell within the clause that required proof of mens rea. The earlier finding of clandestine removals did not by itself dispense with the need to establish the guilty mind necessary for that clause. In the absence of such finding, confiscation of the goods could not be upheld.

Conclusion: Confiscation was rightly set aside and the assessee succeeded on this issue.

Issue (iii): Whether the penalty and interest sustained by the appellate authority called for interference.

Analysis: The confirmed demand in respect of the 28 invoices was supported by cogent evidence, including the recovered packing slips and corroborating statement. Since clandestine removal was established to that extent, the corresponding penalty and interest on the sustained demand were justified.

Conclusion: No interference was warranted with the sustained penalty and interest on the confirmed demand.

Final Conclusion: The appeals resulted in a mixed outcome, with the demand sustained only to the extent supported by direct evidence, while the broader demand and confiscation were not upheld.

Ratio Decidendi: A duty demand based on clandestine removal cannot be extended by conjecture to invoices unconnected with direct evidence, and confiscation under the relevant clause cannot stand without the requisite mens rea where that clause is specifically invoked.

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