Clandestine Removal Demand Needs Corroboration; admitted duty paid before notice bars section 11AC penalty, while accounting lapses can still attract a reduced penalty.

Excise duty on alleged clandestine removal of 228 electronics trivector meters could not be sustained where the Department relied only on empty cartons and suspicion, without independent corroborative evidence of actual clearance; that demand was set aside. Duty confirmed on shortage of 649 cords was maintained because the shortage was admitted and the duty had already been paid. Penalty under section 11AC was not leviable where duty had been discharged before the show cause notice, but a reduced penalty was upheld because of accounting irregularities.

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Issues: (i) Whether duty could be sustained on 228 electronics trivector meters on the basis of empty cartons and an alleged inference of clandestine removal without corroborative evidence. (ii) Whether the confirmed duty of Rs. 89,120 on shortage of 649 cords and the reduced penalty for accounting irregularities could be sustained.

Issue (i): Whether duty could be sustained on 228 electronics trivector meters on the basis of empty cartons and an alleged inference of clandestine removal without corroborative evidence.

Analysis: The mere presence of empty cartons gave rise only to suspicion. The record did not contain independent corroboration that 228 meters had actually been cleared without payment of duty. The Department's case rested on an inference that the cartons were used repeatedly, but the investigation did not establish how or when any clandestine clearance allegedly occurred. A duty demand based only on suspicion, without proper investigative support, could not be upheld.

Conclusion: The demand of duty on 228 meters was set aside and this issue was decided in favour of the assessee.

Issue (ii): Whether the confirmed duty of Rs. 89,120 on shortage of 649 cords and the reduced penalty for accounting irregularities could be sustained.

Analysis: The shortage of 649 cords was admitted and the duty had already been paid. The confirmation of that amount therefore required no interference. Since the duty had been discharged before issuance of the show cause notice, penalty under section 11AC was not leviable. At the same time, the record disclosed irregularities in maintenance of accounts, justifying a limited penalty as reduced by the appellate authority.

Conclusion: The duty of Rs. 89,120 and the reduced penalty of Rs. 15,000 were sustained, while the section 11AC penalty was set aside.

Final Conclusion: The appeal succeeded only to the extent of deletion of the duty demand based on alleged clandestine removal, but the admitted duty and reduced penalty were upheld, leaving the matter partly in favour of both sides.

Ratio Decidendi: A demand for excise duty on alleged clandestine removal cannot be sustained on suspicion alone and must be supported by corroborative evidence; where duty has been paid before the show cause notice, penalty under section 11AC is not attracted.

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