Clandestine removal not proved; record-keeping irregularity alone justified, with penalty confined to incorrect raw material accounts.

Clandestine manufacture and removal of acrylic yarn were not established beyond doubt where the departmental material failed to conclusively prove that the acrylic fibre recorded in Form IV had been converted and removed without duty. The evidence adduced at the appellate stage created doubt, so liability could not be sustained on a charge of clandestine removal under Rule 9 of the Central Excise Rules, 1944. On the facts, the matter disclosed at most incorrect maintenance of raw material accounts in Form IV, for which the appropriate response would have been penalty under Rule 226 of the Central Excise Rules, 1944. The appeal was allowed in favour of the assessee.

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Issues: Whether clandestine manufacture and removal of acrylic yarn from the raw material shown in Form IV had been established, and whether the case could sustain anything more than a charge of incorrect maintenance of raw material accounts.

Analysis: The record did not establish beyond doubt that the 4500 kg. shown as acrylic fibre had been converted into acrylic yarn or removed without payment of duty. The evidence produced at the appellate stage created doubt, while the departmental material failed to conclusively prove clandestine manufacture and removal. On the facts, the case at the most disclosed incorrect maintenance of the raw material account in Form IV, for which the proper course would have been a penalty under Rule 226 of the Central Excise Rules, 1944, rather than action predicated on clandestine removal under Rule 9 of the Central Excise Rules, 1944.

Conclusion: The allegation of clandestine manufacture and removal was not proved, and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where clandestine manufacture and removal are not established beyond doubt, liability cannot be sustained on that basis and the matter may lie only in an incorrect statutory account, attracting the appropriate record-keeping penalty.

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