Unreliable stock records and marginal weight differences cannot by themselves sustain duty demand or penalty for alleged clandestine clearance.

Mere differences in estimated component weights or an unreliable comparison of physical stock with incomplete computer records do not, by themselves, establish inflated consumption, clandestine clearance, or actual shortage so as to sustain duty demand and penalty. Duty on amortised basic customs duty and interest on moulds and dies was upheld, but penalty was not justified absent intent to evade. On admitted shortage of finished goods, duty with interest was sustained; however, because duty had been paid before the show cause notice, penalty was reduced. Confiscation of unaccounted finished goods was upheld, with a reduced redemption fine and the separate penalty for non-accountal set aside.

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Issues: (i) whether differential duty on amortisation of basic customs duty and interest on moulds and dies was payable and whether penalty was sustainable; (ii) whether the duty demand based on alleged inflated consumption of plastic granules and corresponding penalty could be sustained; (iii) whether the demand raised on alleged shortage of inputs, on the basis of computer stock records, was sustainable; (iv) whether the demand and penal consequences relating to shortage of finished goods and confiscation of excess finished goods were sustainable.

Issue (i): whether differential duty on amortisation of basic customs duty and interest on moulds and dies was payable and whether penalty was sustainable

Analysis: The duty liability on the amortised amount was not disputed and was upheld with interest. The demand was therefore maintainable on merits. However, for penalty, the matter was treated as covered by the earlier view that where the vendors merely passed on the duty element on imported moulds and dies and there was no intention to evade duty, penalty was not justified.

Conclusion: The duty demand with interest was upheld, but the penalty was set aside in favour of the assessee.

Issue (ii): whether the duty demand based on alleged inflated consumption of plastic granules and corresponding penalty could be sustained

Analysis: The demand was founded only on a comparison between the weight of components as stated by the appellant's officials and the actual weight determined by the department. The difference was found to be marginal, and the returns did not record component weight as assumed in the impugned order. On that basis, inflated consumption and clandestine clearance could not be presumed.

Conclusion: The demand and penalty on this count were set aside in favour of the assessee.

Issue (iii): whether the demand raised on alleged shortage of inputs, on the basis of computer stock records, was sustainable

Analysis: The alleged shortage was worked out by comparing physical stock on the date of visit with computer records that were not fully updated for that date. Since the computer account did not reflect the relevant receipts and consumption for the intervening period, the comparison was unreliable and could not establish a real shortage.

Conclusion: The duty demand and associated penalty were set aside in favour of the assessee.

Issue (iv): whether the demand and penal consequences relating to shortage of finished goods and confiscation of excess finished goods were sustainable

Analysis: The shortage of finished goods was not disputed and the duty demand was therefore upheld with interest. However, as the duty had already been paid before the show cause notice, the penalty was reduced. The confiscation of unaccounted finished goods was also upheld, but the redemption fine was reduced and the separate penalty for non-accountal was set aside.

Conclusion: The duty demand on finished goods was upheld with reduced penalty, confiscation was upheld with reduced redemption fine, and the separate penalty for non-accountal was set aside.

Final Conclusion: The appeal succeeded only in part, with major duty demands on alleged inflated consumption and alleged input shortage being annulled, while the admitted duty liabilities and confiscation-related consequences were modified as to penalty and fine.

Ratio Decidendi: Mere discrepancies in estimated weight or unreliable stock comparison cannot by themselves establish inflated consumption or shortage so as to sustain duty demand and penalty; where duty is admitted but no intention to evade is shown, penalty may be denied or reduced.

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