Retraction and documentary corroboration defeat excise demand; shortage liability survives, while confiscation for excess stock is set aside.

A retracted confession, without independent corroboration, was treated as insufficient to sustain excise demand where contemporaneous statutory records, returns, RG-23 entries, octroi receipts and cheque payments supported receipt and use of inputs in manufacture. The demand of duty, interest and penalties for alleged wrongful Modvat/Cenvat credit was therefore set aside. A separate shortage demand was upheld because no convincing rebuttal was offered to the verified shortage of finished goods and raw material. Confiscation of excess found goods and the redemption fine were set aside because the explanation for stock position was found plausible and there was no evidence of actual removal or intent to clear goods without duty.

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Issues: (i) Whether the demand of duty, interest, and penalties arising from alleged wrongful availment of Modvat/Cenvat credit on inputs not physically received was sustainable. (ii) Whether the demand of Rs. 55,163/- on account of shortages of finished goods and raw material was sustainable. (iii) Whether confiscation of the excess found goods with redemption fine was sustainable.

Issue (i): Whether the demand of duty, interest, and penalties arising from alleged wrongful availment of Modvat/Cenvat credit on inputs not physically received was sustainable.

Analysis: The evidence comprised confessional statements of the assessee's partner and employees, but it was weighed against contemporaneous statutory declarations, monthly returns, RG-23 records, octroi receipts, cheque-based payments, and expert material indicating that the disputed inputs were part of the manufacturing process. The statements attributed to co-noticees were not sufficient to fasten liability on them without corroboration. The Revenue did not conduct adequate independent verification, including bank verification or examination of transporters and drivers, to establish flow-back of cash or non-receipt of goods with certainty. In these circumstances, the confession could not prevail over the surrounding documentary and circumstantial evidence.

Conclusion: The demand of duty, interest, and the penalties connected with the alleged wrongful availment of credit were set aside, except to the limited extent separately upheld for the shortage demand.

Issue (ii): Whether the demand of Rs. 55,163/- on account of shortages of finished goods and raw material was sustainable.

Analysis: The assessee did not advance any convincing explanation to displace the finding of shortage. The record did not show a substantive rebuttal to the shortage detected during verification, and the liability to that extent remained undisputed in the final consideration.

Conclusion: The demand of Rs. 55,163/- was confirmed.

Issue (iii): Whether confiscation of the excess found goods with redemption fine was sustainable.

Analysis: The explanation that real weight was checked only at the time of dispatch and that the goods were not yet entered in the register because they were not finally tested was found plausible. There was no evidence of actual removal or an intention to clear the goods without duty. In the absence of such evidence, confiscation could not be justified.

Conclusion: The confiscation and redemption fine were set aside.

Final Conclusion: The dispute was substantially resolved in favour of the assessee, with only the quantified shortage demand surviving and all other duty, interest, penalty, and confiscation consequences being annulled.

Ratio Decidendi: A retracted confession cannot, by itself, sustain excise demand where contemporaneous statutory records and surrounding documentary evidence create doubt and the Revenue fails to establish the alleged irregularity through independent corroboration.

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