Clandestine removal and Modvat recovery require corroborative evidence; later scrap demand survived while earlier demand and credit recovery failed.

Clandestine removal of scrap must be proved with cogent corroborative evidence: statements alone were treated as sufficient for the later period when supported by slips recovered from the factory, but not for the earlier years where no specific admission or corroboration existed and the burden remained undischarged. Recovery of Modvat credit under Rule 57-I was treated as untenable after substitution of the Modvat regime by the Cenvat Credit Rules, where the later notice invoked the repealed framework. Penalty was correspondingly reduced because only part of the duty demand survived.

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Issues: (i) Whether the duty demand on alleged clandestine clearance of scrap for the period April 1998 to November 1998 was sustainable. (ii) Whether the duty demand on alleged clandestine clearance of scrap for the period 1995-96 to 1997-98 was sustainable. (iii) Whether recovery of Modvat credit could be made under Rule 57-I of the Central Excise Rules, 1944 after the substitution of the Modvat regime by the Cenvat Credit Rules. (iv) Whether the penalty required modification in view of the extent of duty sustained.

Issue (i): Whether the duty demand on alleged clandestine clearance of scrap for the period April 1998 to November 1998 was sustainable.

Analysis: The demand for this period was supported by statements recorded from the partner and by slips recovered from the factory premises, both of which indicated clearances of MS scrap and SS scrap without payment of duty. The material on record was treated as sufficient to establish clandestine removal for this period.

Conclusion: The demand for April 1998 to November 1998 was sustained and upheld.

Issue (ii): Whether the duty demand on alleged clandestine clearance of scrap for the period 1995-96 to 1997-98 was sustainable.

Analysis: For the earlier period, the demand rested only on general statements, which did not amount to a specific admission of clandestine clearance during those years. No slips or other corroborative material were recovered to evidence removals for that period. The burden to prove clandestine clearance was not discharged by the Revenue.

Conclusion: The demand for 1995-96 to 1997-98 was not sustainable and was set aside.

Issue (iii): Whether recovery of Modvat credit could be made under Rule 57-I of the Central Excise Rules, 1944 after the substitution of the Modvat regime by the Cenvat Credit Rules.

Analysis: The show cause notice was issued after the Modvat provisions had ceased to operate and had been substituted by the Cenvat Credit Rules. In view of the settled interpretation of substitution and the saving provision, proceedings under Rule 57-I were not maintainable for recovery of credit in such circumstances.

Conclusion: Recovery of Modvat credit under Rule 57-I was held to be unsustainable and was set aside.

Issue (iv): Whether the penalty required modification in view of the extent of duty sustained.

Analysis: Since part of the duty demand was upheld and part was set aside, some penalty was considered warranted, but the quantum was reduced having regard to the amount of duty ultimately sustained.

Conclusion: The penalty was reduced to Rs. 1 lakh.

Final Conclusion: The appeal succeeded to the extent that the earlier period demand and the Modvat recovery were set aside, while the later period scrap demand was confirmed and the penalty was substantially reduced.

Ratio Decidendi: Where clandestine removal is alleged, the Revenue must establish the charge with cogent corroborative evidence, and recovery proceedings under a repealed or substituted Modvat provision cannot survive merely by invoking a saving clause where the substituted regime has displaced the earlier rule.

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