Retraction of statement and unexplained stock shortage can sustain clandestine removal demand and penalty in excise cases.

A statement recorded from a director during excise investigation remained admissible where physical verification was conducted in his presence, he signed the verification chart, and the later retraction was unsupported by any proof of coercion or duress. The Tribunal treated the retraction as an afterthought. A substantial shortage of scrap, coupled with an unusually high burning loss shown in the subsequent return, was sufficient to support the allegation of clandestine removal. Objections based on the absence of a panchnama and alleged loading difficulties were rejected as inconsistent with the contemporaneous verification. The confirmed demand and penalties were upheld.

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Issues: (i) Whether the statement recorded from the Director under Section 14 of the Central Excise Act, 1944 and later retracted could be relied upon as admissible evidence. (ii) Whether the shortage of scrap found on physical verification, together with the burning loss shown in the subsequent return, sustained the demand and penalty on the allegation of clandestine removal.

Issue (i): Whether the statement recorded from the Director under Section 14 of the Central Excise Act, 1944 and later retracted could be relied upon as admissible evidence.

Analysis: The physical verification was conducted in the presence of the Director with his active assistance, and he signed the verification chart in token of correctness. The retraction was made only to the Commissioner, not to the recording officer, and no coercion, force, pressure, or duress was alleged or proved. In these circumstances, the retraction was treated as an afterthought and the statement was held to remain admissible evidence.

Conclusion: The statement was held to be admissible and reliable against the appellant.

Issue (ii): Whether the shortage of scrap found on physical verification, together with the burning loss shown in the subsequent return, sustained the demand and penalty on the allegation of clandestine removal.

Analysis: The stock verification established a substantial shortage of scrap, while the appellant's own records for the immediately following month reflected an unusually high burning loss. The Tribunal held that such a sudden rise in burning loss was not normal and appeared to be a device to explain the detected shortage. The appellant's objections regarding the absence of a panchnama and the alleged inability to load the trucks were rejected because the verification was done with the Director's participation and approval. The case law relied upon by the appellant was found distinguishable on facts.

Conclusion: The shortage and surrounding circumstances were held sufficient to sustain the demand and penalty on the allegation of clandestine removal.

Final Conclusion: The challenge to the confirmed demand and penalties failed, and the departmental order was upheld.

Ratio Decidendi: A statement recorded during investigation remains dependable when supported by contemporaneous physical verification in the assessee's presence, and a retraction unsupported by proof of coercion does not displace such evidence; a substantial unexplained stock shortage may justify an inference of clandestine removal.

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