Duty credit mismatch can sustain differential duty and interest, but penalty for clandestine removal needs corroborative evidence.

Where duty-paid inputs taken on credit are not properly accounted for, reversal of credit or payment of duty may be required for the unaccounted quantity, and the differential duty demand with interest was upheld on that basis. A stock mismatch or shortage in records, by itself, does not establish clandestine removal without corroborative evidence, so penalty equal to the duty demand was found excessive and reduced. Partial relief was therefore granted to the assessee.

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Issues: (i) Whether the differential duty demand and interest were sustainable on the basis of the stock mismatch and the tally records; (ii) Whether penalty equal to the duty demand was warranted in the absence of evidence of clandestine removal.

Issue (i): Whether the differential duty demand and interest were sustainable on the basis of the stock mismatch and the tally records.

Analysis: The opening balance and total receipts of duty-paid kraft paper were not in dispute. The controversy related to the quantity issued for consumption and the resulting closing stock. The tally printout reflected month-wise receipt and issue figures maintained in the assessee's records, and the later reconciliation based on final-product conversion ratios was not accepted. Since duty-paid inputs had been taken on credit, the assessee was obliged to account for their use and reverse the credit or pay duty to the extent of the unaccounted quantity.

Conclusion: The differential duty demand and interest were upheld.

Issue (ii): Whether penalty equal to the duty demand was warranted in the absence of evidence of clandestine removal.

Analysis: A shortage or mismatch in accounts, by itself, does not establish clandestine removal unless supported by corroborative evidence. The show cause notice did not rely upon such evidence of clandestine removal. In those circumstances, imposition of penalty equal to the duty demand was considered excessive.

Conclusion: The penalty was reduced and not sustained at the original quantum.

Final Conclusion: The duty demand and interest were maintained, but the penalty was substantially reduced, resulting in partial relief to the assessee.

Ratio Decidendi: Where duty-paid inputs taken on credit are not properly accounted for, reversal of credit or payment of duty can be required, but penalty for clandestine removal cannot be imposed absent corroborative evidence of such removal.

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