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Issues: (i) Whether the demand and penalty in respect of the alleged shortage of raw material were sustainable in the absence of evidence of clandestine clearance. (ii) Whether confiscation, duty demand and penalty in respect of unaccounted finished goods were sustainable when the goods were not redeemed and no evidence of clandestine removal was established.
Issue (i): Whether the demand and penalty in respect of the alleged shortage of raw material were sustainable in the absence of evidence of clandestine clearance.
Analysis: Mere shortage of one input, without inventories or other material showing actual clearance or utilisation of the shortage in clandestine manufacture, was held insufficient to infer clandestine removal. The revenue failed to establish that the shortage was real or that it led to evasion of duty.
Conclusion: The demand of duty and the connected penalty in respect of the alleged shortage of raw material were set aside in favour of the assessee.
Issue (ii): Whether confiscation, duty demand and penalty in respect of unaccounted finished goods were sustainable when the goods were not redeemed and no evidence of clandestine removal was established.
Analysis: The finished goods were found unaccounted, but there was no evidence that they had been cleared without duty. Since the assessee did not opt to redeem the seized goods, duty was not exigible on that account. However, the non-maintenance of proper statutory records justified a limited penalty.
Conclusion: The confiscation-related duty demand and major penalty were not sustained, but a token penalty of Rs. 2,000 was upheld against the assessee.
Final Conclusion: The appeal succeeded substantially, with the impugned demands and penalties largely set aside and only a nominal penalty sustained for failure to maintain proper records.
Ratio Decidendi: Alleged shortages or non-accountal of goods, by themselves and evidence of clandestine removal, do not justify duty demand or penal consequences, though a limited penalty may survive for non-maintenance of statutory records.
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