Bonded input duty demand fails absent proof of clandestine removal or non-use in manufacture

Duty could not be demanded on a small quantity of yarn alleged to be unaccounted for where the yarn had been received under bond and the manufacturer was operating under the compounded levy scheme. The yarn was entered in the assessee's accounts, duty was recoverable at the stage of clearance of fabrics, and monthly returns were filed accordingly. No evidence showed that the disputed quantity was clandestinely removed or not consumed in manufacture, and the relaxed account-keeping requirements under the scheme meant that inability to match the yarn precisely with finished fabrics did not by itself justify an adverse inference. The duty demand on the alleged unaccounted yarn was therefore not justified.

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Issues: Whether duty could be demanded on a small quantity of yarn alleged to be unaccounted for, when the yarn had been received under bond and the manufacturer was operating under the compounded levy scheme.

Analysis: The yarn had been duly received under bond and entered in the assessee's accounts. Duty on the yarn was to be realised at the stage of clearance of fabrics manufactured from it, and monthly returns were submitted accordingly. There was no evidence that the disputed quantity had been surreptitiously removed or was not consumed in manufacture. In view of the relaxation in maintenance of yarn accounts under the scheme, the inability to correlate the quantity precisely with finished fabrics did not by itself justify an adverse inference.

Conclusion: The demand of duty on the alleged unaccounted quantity of yarn was not justified and was set aside in favour of the assessee.

Ratio Decidendi: Duty cannot be demanded on allegedly unaccounted bonded inputs unless it is established that the inputs were not used in manufacture or were otherwise cleared without duty.

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