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Issues: (i) Whether the clandestine removal of grey fabric and substitution with inferior fabric stood proved so as to justify confirmation of duty, interest and penalty against the assessee and co-noticees. (ii) Whether clearances by a 100% EOU were liable to duty under the proviso to section 3(1) of the Central Excise Act, 1944 and whether the benefit of Notification No. 125/84-C.E. was available.
Issue (i): Whether the clandestine removal of grey fabric and substitution with inferior fabric stood proved so as to justify confirmation of duty, interest and penalty against the assessee and co-noticees.
Analysis: The physical stock discrepancy found during the visit was supported by the statement of the authorised signatory admitting illicit clearance of grey fabric against cash and substitution with other fabric. The partner's statement corroborated this admission. The chemical examination also showed that the fabrics found in the unit were of lower GSM than the CT-3 procured goods. The statements were not shown to have been retracted and the test report was not dislodged.
Conclusion: The clandestine removal was proved and the liability to duty, interest and penalty was sustained against the assessee and the co-noticees.
Issue (ii): Whether clearances by a 100% EOU were liable to duty under the proviso to section 3(1) of the Central Excise Act, 1944 and whether the benefit of Notification No. 125/84-C.E. was available.
Analysis: The Commissioner (Appeals) had reduced the duty by treating the liability as arising under the main provision, but the Tribunal followed the Larger Bench ruling that DTA sales by a 100% EOU, with or without permission of the Development Commissioner, are assessable under the proviso to section 3(1) and do not qualify for exemption under Notification No. 125/84-C.E.
Conclusion: The reduced duty view was set aside and the original duty demand and equal penalty were restored in favour of Revenue.
Final Conclusion: The assessee's appeals failed, while the Revenue's appeal succeeded on the duty and penalty computation for the 100% EOU clearances.
Ratio Decidendi: Clandestine removal can be sustained on corroborated admissions and supporting test evidence, and DTA sales by a 100% EOU are assessable under the proviso to section 3(1) without the benefit of Notification No. 125/84-C.E.
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