Clandestine removal proven through admissions and private records; penalties follow, but individual liability needs specific evidence.

Admissions, corroborating private records and mismatched statutory accounts can establish suppression of production and clandestine removal, especially where statements admit non-accountal of goods and clearance without invoices. Denial of relied-upon documents and personal hearing was not shown on the facts, as copies were supplied or offered and hearing opportunities were not availed. Where suppression is proved, penalty under Section 11AC follows with the duty demand. Penalties on individuals require specific evidence of involvement: the Managing Director's penalty may be reduced where his role is shown but the amount is excessive, while penalties on other Directors cannot rest on designation alone.

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Issues: (i) Whether denial of copies of relied upon documents and personal hearing violated the principles of natural justice; (ii) Whether the private records, read with the statements of the Managing Director and the distributor, established suppression of production and clandestine removal; (iii) Whether penalty under Section 11AC of the Central Excise Act, 1944 was warranted; and (iv) Whether penalties on the Managing Director and the other Directors were sustainable.

Issue (i): Whether denial of copies of relied upon documents and personal hearing violated the principles of natural justice.

Analysis: The record showed that the appellant was directed to collect copies of documents, part of the relied upon material was supplied, the remaining copies were forwarded, and further inspection opportunities were also given. The appellant also failed to avail several dates of personal hearing. On these facts, the plea of breach of natural justice was not made out.

Conclusion: The objection based on violation of natural justice was rejected.

Issue (ii): Whether the private records, read with the statements of the Managing Director and the distributor, established suppression of production and clandestine removal.

Analysis: The adjudicating authority had compared statutory records with private records and relied only on the mismatching entries. Those records were corroborated by statements admitting non-accountal of production in the statutory register and clearance of goods without invoices. The distributor's statement further supported direct supplies to customers through the appellant, with payments being made directly to the appellant though invoices were issued through the distributor. Once such admissions and corroboration were available, the plea that the case rested on uncorroborated private documents could not survive.

Conclusion: Suppression of production and clandestine removal were proved.

Issue (iii): Whether penalty under Section 11AC of the Central Excise Act, 1944 was warranted.

Analysis: Since the demand was upheld on the basis of suppression of facts and clandestine clearance, the statutory conditions for penalty under Section 11AC stood attracted. The penalty followed from the established evasion and was coextensive with the confirmed duty amount.

Conclusion: Penalty under Section 11AC was rightly imposed and sustained.

Issue (iv): Whether penalties on the Managing Director and the other Directors were sustainable.

Analysis: The Managing Director's own statements showed his active role in the affairs of the firm and his knowledge of the clearances, though the amount of penalty imposed on him was considered excessive in the circumstances and reduced. By contrast, no specific material linked the other Directors to the offending transactions, and mere status as Directors was insufficient to sustain penalty under Rule 209A of the Central Excise Rules, 1944.

Conclusion: The Managing Director's penalty was reduced and the penalties on the other Directors were set aside.

Final Conclusion: The duty demand and the main penalty against the appellant-firm were sustained, the Managing Director received partial relief by reduction of penalty, and the other Directors were completely relieved of penalty.

Ratio Decidendi: In cases of clandestine removal, admissions and corroborating private records can establish suppression and shift the burden to the assessee, while penalties on individuals require specific evidence of their involvement and cannot rest on designation alone.

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