Clandestine removal of molasses not proved by stock entries alone; excise duty and interest were rejected, penalty stayed intact

Excise duty on alleged clandestine removal of diluted and damaged molasses from katcha pits was held unsustainable because the Revenue produced no evidence of actual removal outside the factory. RG-1 discrepancies were treated only as a presumption, not proof of clearance without duty. The record also indicated that the disputed quantity had either already been cleared on duty from the tanks or remained part of stock, so the clearance and return violations were not established. Duty demand and interest were rejected, while the separate stock-account penalty remained undisturbed.

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Issues: Whether the duty demand and interest on the alleged removal of diluted and damaged molasses from katcha pits was sustainable in the absence of evidence of removal outside the factory.

Analysis: The disputed molasses were found to be lying in open pits in diluted and damaged condition for years. The Revenue produced no evidence of actual removal outside the factory without payment of duty. The inference of clandestine removal from RG-1 entries was held to be only a presumption and not proof of removal. The applicable excise rules required payment of duty on clearances from the factory, but the record showed either that the disputed quantity had been cleared on payment of duty from the tanks or that it remained part of the stock. On these facts, the alleged violations of the clearance and return provisions were not established. The separate penalty for improper maintenance of stock account was not under challenge.

Conclusion: The duty demand and interest were held unsustainable and the appeal failed.

Final Conclusion: The assessee succeeded on the core controversy relating to duty liability on the disputed molasses, and the Revenue's appeal was rejected while the penalty already imposed remained undisturbed.

Ratio Decidendi: Excise duty on alleged clandestine removal cannot be sustained on mere presumptions or stock discrepancies without proof of actual removal from the place of manufacture or storage.

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