Clandestine removal cannot rest on packing-material shortage alone; Cenvat credit reversal and some penalties were sustained.

Shortage of laminates, containers and zippers alone was treated as insufficient to infer clandestine manufacture or removal of gutka where no shortage was found in the principal raw materials and there was no corroborative evidence of unaccounted production or clearance; the duty demand was therefore set aside. The Cenvat credit demand was sustained because the shortages of laminates and zippers were not supported by accounting evidence explaining wastage and could indicate short receipt of credit-availing inputs. Penalty on the company was reduced in view of the partial relief, while penalties on the authorised signatories were quashed for lack of proof of personal involvement in the prohibited dealing with excisable goods.

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Issues: (i) Whether shortage of laminates, containers and zippers, without shortage of other essential raw materials, could sustain a demand for duty on alleged clandestine manufacture and removal of gutka; (ii) whether Cenvat credit reversal/demand was sustainable on account of shortage of laminates and zippers; (iii) whether penalty was leviable on the appellant company and its authorised signatories.

Issue (i): Whether shortage of laminates, containers and zippers, without shortage of other essential raw materials, could sustain a demand for duty on alleged clandestine manufacture and removal of gutka.

Analysis: The demand rested only on shortage of packing material. No shortage was found in the principal ingredients of gutka, and the finding recorded that the alleged shortage of supari was not sustainable. In the absence of supporting evidence of manufacture or clearance of unaccounted goods, shortage of packing material alone was insufficient to infer clandestine removal.

Conclusion: The duty demand on alleged clandestine manufacture and removal was not sustainable and was set aside.

Issue (ii): Whether Cenvat credit reversal/demand was sustainable on account of shortage of laminates and zippers.

Analysis: The credit demand related to inputs found short. The explanation of wastage was not substantiated by accounting evidence, and the shortage could indicate short receipt of credit-availing inputs. On that basis, the credit demand was upheld.

Conclusion: The Cenvat credit demand was sustained.

Issue (iii): Whether penalty was leviable on the appellant company and its authorised signatories.

Analysis: With only the credit demand surviving, the penalty on the company required reduction. As regards the authorised signatories, there was no evidence that they dealt with excisable goods in a manner attracting confiscation or that they were individually liable under the penal provision invoked.

Conclusion: The company's penalty was reduced, and the penalties on the authorised signatories were set aside.

Final Conclusion: The appeal succeeded in part: the clandestine removal duty demand was annulled, the Cenvat credit demand was maintained, the company's penalty was reduced, and the penalties on the authorised signatories were quashed.

Ratio Decidendi: Clandestine removal cannot be inferred from shortage of packing material alone in the absence of corroborative evidence of manufacture and clearance, and penalty on individuals requires proof of personal involvement in the prohibited dealing with excisable goods.

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