Parallel invoices sustained the duty demand, but penalties failed where duty was pre-paid and the charge was not precisely stated.

Recovery and admission of parallel invoices, supported by seized records and variations in declared value, sustained the duty demand for clandestine clearance because the goods were not reflected in the regular books and the parallel invoicing showed suppression of true value. The objection based on denial of cross-examination did not displace the direct documentary evidence. Penalties under Section 11AC, Rule 173Q and Rule 209A were set aside because the duty had been paid before the show cause notice, Rule 173Q was invoked without specifying the exact contravened clause, and the Director's penalty could not stand once the connected issue was decided in the assessee's favour.

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Issues: (i) Whether the demand of duty based on recovery of parallel invoices and supporting records was sustainable; (ii) whether penalties under Section 11AC and Rule 173Q of the Central Excise Rules, 1944, and penalty on the Director under Rule 209A of the Central Excise Rules, 1944, were sustainable.

Issue (i): Whether the demand of duty based on recovery of parallel invoices and supporting records was sustainable.

Analysis: The record showed that invoices resumed from the factory and the report of the Trade Tax authorities disclosed serious variation in value. More importantly, a parallel invoice dated 7-8-99 was recovered from the factory, the goods covered by it were not reflected in the appellant's regular records, and the appellant admitted the existence of parallel invoices in respect of that transaction. The existence of parallel invoices established that the appellant had cleared goods through an unrecorded set of invoices to suppress the true value and evade duty. The objection regarding denial of cross-examination of Trade Tax did not survive in view of the direct documentary evidence of parallel invoicing.

Conclusion: The demand of duty was upheld against the assessee.

Issue (ii): Whether penalties under Section 11AC and Rule 173Q of the Central Excise Rules, 1944, and penalty on the Director under Rule 209A of the Central Excise Rules, 1944, were sustainable.

Analysis: The entire duty had been deposited before issuance of the show cause notice, which attracted the principle that the mandatory penalty under Section 11AC was not warranted in the circumstances. The penalty under Rule 173Q was also unsustainable because the notice and the adjudication order did not specify the precise clause of Rule 173Q alleged to have been contravened, depriving the assessee of clear notice of the charge. The penalty on the Director under Rule 209A was not maintainable in light of the identical issue having been decided in favour of the assessee.

Conclusion: The penalties under Section 11AC, Rule 173Q, and Rule 209A were set aside in favour of the assessee.

Final Conclusion: The duty demand survived, but all penalties were cancelled, resulting in a partial success for the assessee.

Ratio Decidendi: Recovery and admission of parallel invoices can sustain a duty demand for clandestine removal, but penalties may fail where duty is paid before the show cause notice or where the notice does not specify the exact contravention alleged.

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