Clandestine removal and belated retraction: duty demand sustained, but new penalty in appeal and vehicle confiscation were set aside.

Belated and unexplained retraction of an inculpatory statement may be ignored, and the statement can support a finding of clandestine removal where goods were cleared without invoice and without duty. On that basis, the duty demand and confiscation of the goods were sustained. However, a penalty under Rule 173Q could not be newly imposed by the Commissioner (Appeals) when the original authority had not levied it and the Department had not challenged that omission, so the penalty on the company was set aside. Confiscation of the vehicle was also set aside and remanded because the order was passed before the connected goods appeal was decided, indicating non-application of mind.

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Issues: (i) Whether the goods were clandestinely removed from the factory so as to sustain the duty demand and confiscation of the goods, and whether the penalty on the company under Rule 173Q of the Central Excise Rules, 1944 was sustainable. (ii) Whether the order sustaining confiscation of the vehicle was vitiated and liable to be set aside and remanded.

Issue (i): Whether the goods were clandestinely removed from the factory so as to sustain the duty demand and confiscation of the goods, and whether the penalty on the company under Rule 173Q of the Central Excise Rules, 1944 was sustainable.

Analysis: The Director's inculpatory statement was not retracted promptly, and the subsequent retraction in reply to the show cause notice was held to be ineffective because no explanation was offered for the delay. The authorities were therefore justified in relying on that statement to conclude that the goods were removed without invoice and without payment of duty under cover of a trader's invoice. The duty demand was thus upheld. On penalty, the original adjudicating authority had not imposed penalty under Rule 173Q, and the Department had not challenged that omission. In the assessee's appeal, the Commissioner (Appeals) could not newly invoke that rule to impose penalty.

Conclusion: The duty demand and confiscation of the goods were sustained, but the penalty imposed on the company under Rule 173Q was not sustainable and was set aside.

Issue (ii): Whether the order sustaining confiscation of the vehicle was vitiated and liable to be set aside and remanded.

Analysis: Liability of the vehicle depended on the confiscability of the goods, which itself formed part of the company's pending appeal before the lower appellate authority. The vehicle appeal was disposed of earlier than the company's appeal, indicating a predetermined approach and non-application of mind. The order was therefore found to be vitiated.

Conclusion: The order concerning confiscation of the vehicle was set aside and the matter was remanded for fresh decision in accordance with law.

Final Conclusion: The assessee succeeded to the extent of deletion of the fresh penalty and remand of the vehicle confiscation matter, while the duty liability and confiscation of the goods were maintained.

Ratio Decidendi: A belated and unexplained retraction of an inculpatory statement may be disregarded, but a penal provision cannot be newly invoked in appeal to impose a penalty that was not levied by the original authority when the Department did not challenge that omission.

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