Clandestine removal proved by private records and admission, but retrospective penalty under Section 11AC was not sustainable.

Clandestine removal was sustained where private records recovered from the factory showed quantities, rates and values of clearances, and the partner's statement admitted duty-free removals; the retraction was rejected as belated and unexplained. The duty demand was therefore upheld. Penalty under Section 11AC of the Central Excise Act was set aside because the alleged offence pre-dated that provision, but penalty under Rule 173Q(1) was sustained in reduced quantum. A separate penalty on the partner was deleted because the firm had already been penalised and there was no material showing independent culpability or conscious knowledge.

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Issues: (i) Whether the demand of duty based on the recovered note book and the partner's statement, alleging clandestine removal, was sustainable; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 and Rule 173Q(1) of the erstwhile Central Excise Rules, 1944 was justified; and (iii) whether a separate penalty on the partner was warranted.

Issue (i): Whether the demand of duty based on the recovered note book and the partner's statement, alleging clandestine removal, was sustainable.

Analysis: The note book was recovered from the factory premises and contained quantities, rates and values of goods sold. The partner had made a detailed statement admitting clearance of goods without payment of duty and the appellants had also made part payment of duty. The alleged coercion was rejected because the retraction was made only after a long delay and no explanation was offered for the contents of the note book.

Conclusion: The duty demand based on the note book was upheld and the allegation of clandestine removal was sustained.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 and Rule 173Q(1) of the erstwhile Central Excise Rules, 1944 was justified.

Analysis: Penalty under Section 11AC was found unsustainable because the alleged offence had occurred prior to insertion of that provision. However, the conduct still attracted penalty under Rule 173Q(1), and the quantum was reduced in view of the circumstances.

Conclusion: Penalty under Section 11AC was set aside, while penalty under Rule 173Q(1) was sustained at a reduced amount.

Issue (iii): Whether a separate penalty on the partner was warranted.

Analysis: Once the firm had been penalised, a separate penalty on the partner was not justified in the absence of material showing conscious knowledge or independent culpability.

Conclusion: The separate penalty on the partner was deleted.

Final Conclusion: The duty demand and reduced penalty on the firm were maintained, but the statutory penalty under Section 11AC was removed and the partner escaped separate penalty, resulting in a partial relief to the appellants.

Ratio Decidendi: A clandestine removal demand can be sustained on recovered private records corroborated by an admission and unexplained circumstances, but penalty provisions cannot be applied retrospectively and a separate penalty on a partner requires proof of independent culpability.

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