Duty-free export inputs and genuine manufacturing wastage do not justify recovery without evidence of clandestine removal.

Duty recovery was not sustainable where duty-free inputs used for export production resulted in genuine manufacturing wastage that was accounted for, the declared input-output ratio had been verified, and there was no evidence of clandestine removal of raw materials or finished goods. On those facts, alleged shortage or input-output mismatch could not by itself justify duty, interest, or penalty under the recovery provisions, and the assessee's position was upheld.

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Issues: Whether duty demand, interest, and penalty could be sustained on alleged shortage or wastage of duty-free inputs used in the manufacture of exempt export goods in the absence of evidence of clandestine removal.

Analysis: The inputs were procured duty-free for use in manufacture of export goods under the applicable notifications and rules. The declared input-output ratio had been verified by departmental officers, and the wastage arose during the manufacturing process. The record did not show any shortage at the premises or any evidence of clandestine removal of raw materials or finished goods. In such circumstances, genuine manufacturing loss or wastage could not be treated as clearances attracting duty, and the demand under the recovery provisions was not sustainable.

Conclusion: The demand of duty, interest, and penalty was not sustainable and the assessee's position was upheld.

Final Conclusion: The revenue appeal failed, and the order setting aside the demand was affirmed.

Ratio Decidendi: Where duty-free inputs used for export production result in genuine manufacturing wastage, duly accounted for, and there is no evidence of clandestine removal, duty recovery is not permissible merely on the basis of alleged input-output mismatch.

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