Unproved receipt and manufacture cannot sustain duty, while proved shortage recorded in panchnama supports confirmation and penalty modification.

Duty could not be confirmed on copper wires alleged to have been manufactured from excess copper rods because the earlier finding of excess raw material had been rejected, the rods were not notified goods under the Customs Act, and the department produced no evidence of receipt, manufacture or clearance from such material. Duty on the shortage of finished goods was sustained because the shortage was recorded in the panchnama and admitted by the partner, with no contrary evidence to discredit that record. The statutory penalty under Section 11AC was modified by granting the option to pay duty, interest and reduced penalty within the stipulated time, and the partner's penalty was reduced.

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Issues: (i) whether duty could be confirmed on the copper wires alleged to have been manufactured out of 13,353 Kgs. of excess copper rods; (ii) whether the duty demand on the shortage of 8,793.790 Kgs. of finished goods was sustainable; (iii) whether the penalty under Section 11AC of the Central Excise Act, 1944 and the penalty on the partner called for modification.

Issue (i): whether duty could be confirmed on the copper wires alleged to have been manufactured out of 13,353 Kgs. of excess copper rods.

Analysis: The finding of excess raw material had already been rejected in the earlier proceedings. Copper rods were not notified goods under Section 123 of the Customs Act, 1962, and mere slips on the bundles were insufficient to establish illicit import. The department did not adduce evidence to prove receipt of the alleged raw material from any source or to prove manufacture and clearance of finished copper wires from such material. The new demand was therefore founded on an unproved assumption.

Conclusion: The demand on the alleged copper wires was not sustainable and was set aside, in favour of the assessee.

Issue (ii): whether the duty demand on the shortage of 8,793.790 Kgs. of finished goods was sustainable.

Analysis: The shortage was recorded in the panchnama, no contrary evidence was produced to discredit it, and the partner admitted the shortage as well as illicit removal. The objection that the exact nature of the material was not specified did not dislodge the contemporaneous record or the admission. On these facts, the shortage stood proved.

Conclusion: The duty demand on the shortage was sustained, in favour of the Revenue.

Issue (iii): whether the penalty under Section 11AC of the Central Excise Act, 1944 and the penalty on the partner called for modification.

Analysis: Since a substantial part of the demand failed, the penalty on the partner required reduction. As regards the statutory penalty, the order was modified to grant the assessee the option to pay duty, interest and reduced penalty within the stipulated time, failing which the penalty would remain equal to the duty amount demanded.

Conclusion: The penalty under Section 11AC was modified by granting the statutory option, and the partner's penalty was reduced to Rs. 15,000, in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of disallowing the demand based on alleged excess raw material and of reducing the penalties, while the demand relating to the proved shortage was maintained.

Ratio Decidendi: A duty demand founded on an unproved allegation of receipt and manufacture cannot be sustained, whereas a shortage established by contemporaneous panchnama and admission supports confirmation of duty and consequential penalty, subject to statutory modification where applicable.

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