Clandestine removal and reduced penalty under central excise depend on unaccounted records and timely compliance with the adjudication order.

Clandestine receipt and removal under central excise can be established on unaccounted records, weighment slips, notebooks, and corroborative evidence of suppressed raw-material receipt and finished-goods clearance. A challenge based on denial of cross-examination of third parties does not necessarily undermine the finding where the assessee's liability rests on direct materials against it. Reduced penalty under the proviso to Section 11AC is available only if duty, interest, and the stipulated penalty are paid within the prescribed time after the adjudication order, and payment made only pursuant to a later appellate order does not meet that condition. Penalty on an individual under Rule 26 is sustainable where conscious participation in clandestine removal is shown.

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Issues: (i) Whether the demand and penalties were vitiated for denial of cross-examination and reliance on third-party records. (ii) Whether the appellants were entitled to the benefit of reduced penalty under the proviso to Section 11AC of the Central Excise Act, 1944. (iii) Whether penalty on the individual appellant under Rule 26 of the Central Excise Rules, 2002 was justified.

Issue (i): Whether the demand and penalties were vitiated for denial of cross-examination and reliance on third-party records.

Analysis: The liability of the assessee was founded on recovery and comparison of unaccounted records, weighment slips, notebooks, and evidence of receipt of raw material and clearance of finished goods outside the excise records. The Court held that, as against the mill, the question whether other persons were separately proceeded against or whether cross-examination was afforded to them did not affect the finding of clandestine receipt and removal. The plea based on third-party records and cross-examination therefore did not give rise to any substantial question of law.

Conclusion: The challenge on this ground was rejected.

Issue (ii): Whether the appellants were entitled to the benefit of reduced penalty under the proviso to Section 11AC of the Central Excise Act, 1944.

Analysis: The proviso granting reduced penalty applies only when duty, interest, and the stipulated penalty are paid within thirty days of communication of the adjudication order passed by the Central Excise Officer. Payment made pursuant to a later appellate order does not satisfy that statutory condition. Since the appellants had not discharged the duty in terms of the original adjudication order, the statutory concession was unavailable.

Conclusion: The appellants were not entitled to reduced penalty.

Issue (iii): Whether penalty on the individual appellant under Rule 26 of the Central Excise Rules, 2002 was justified.

Analysis: The individual appellant was found to be actively associated with the affairs of the firm and had made admissions connecting him with the transportation and weighing of the goods. The materials on record showed conscious participation in the clandestine removal activity, making the imposition of penalty sustainable.

Conclusion: The penalty on the individual appellant was upheld.

Final Conclusion: The Court found no substantial question of law in any of the appeals. The findings of clandestine receipt and removal, and the denial of relief on penalty-related grounds, were sustained.

Ratio Decidendi: Reduced penalty under the proviso to Section 11AC is available only when the duty and related amounts are paid in compliance with the adjudication order of the Central Excise Officer within the prescribed time, and liability for clandestine removal can be sustained on unaccounted records and corroborative evidence even if collateral proceedings against third parties are pending.

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