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Issues: (i) Whether the demand of Cenvat credit reversal on the alleged diversion of plastic granules could be sustained on the basis of excess wastage calculations and other material relied upon by the Department. (ii) Whether the confiscation of cash seized from the residence could be upheld as sale proceeds of diverted excisable inputs. (iii) Whether the personal penalties and extended limitation could survive once the main demand failed.
Issue (i): Whether the demand of Cenvat credit reversal on the alleged diversion of plastic granules could be sustained on the basis of excess wastage calculations and other material relied upon by the Department.
Analysis: The demand was founded on Annexure-D, which compared declared wastage with an assumed actual usage for packing and treated the balance as diverted granules. The reasoning rested substantially on a retracted statement and on inferred norms of permissible wastage, but no independent affirmative evidence was produced to show that the granules were actually removed or sold. No purchaser of the alleged diverted goods was identified, and the demand was worked out by a theoretical formula rather than by proof of clandestine clearance. The record also showed that the assessee had disclosed wastage in regular returns, weakening the allegation of suppression.
Conclusion: The demand of Cenvat credit reversal was not sustainable and was set aside in favour of the assessee.
Issue (ii): Whether the confiscation of cash seized from the residence could be upheld as sale proceeds of diverted excisable inputs.
Analysis: The confiscation depended on the premise that the seized cash represented proceeds of unaccounted sale of plastic granules. The Department did not establish any transaction showing purchase of granules from the assessee or any direct link between the cash and alleged clandestine removals. A substantial part of the amount was explained by the assessee through accounts, and the evidentiary basis for invoking confiscation was absent. In the absence of proof connecting the cash with the alleged diversion, the statutory basis for confiscation could not be made out.
Conclusion: The confiscation of cash was not sustainable and was set aside in favour of the assessee.
Issue (iii): Whether the personal penalties and extended limitation could survive once the main demand failed.
Analysis: The penalties were consequential to the duty demand and the alleged clandestine removal. Since the foundational demand itself failed for want of evidence, the basis for personal penalties also failed. Further, the assessee had been filing regular returns disclosing wastage particulars, and the Department had earlier visited and examined the records, which negatived the allegation of suppression needed to sustain the extended period.
Conclusion: The penalties and invocation of the extended period were not sustainable in favour of the assessee.
Final Conclusion: The impugned order was wholly set aside because the Department failed to prove clandestine diversion of inputs, failed to connect the seized cash with any illicit sale, and consequently failed to justify the penalties and extended limitation.
Ratio Decidendi: A demand for clandestine removal or related confiscation cannot be sustained on assumptions or theoretical wastage calculations alone and must rest on affirmative, corroborative evidence establishing actual diversion or sale.
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