Contemporaneous records outweigh oral statements in alleged diversion case, defeating duty demand and related penalties.

Contemporaneous statutory records, D-3 intimations, re-warehousing certificates, job-work records, panchanama and Excise Inspector verifications supported the assessee's claim that the goods were received, used in manufacture and exported. The Court held that a finding of diversion based mainly on oral statements could not override this documentary trail, so the duty demand, interest and penalty on the assessee were unsustainable. Once the duty demand failed, the consequential penalty on the director also could not survive, and the Revenue's challenge to reduction of penalty likewise failed. The Tribunal's order was set aside and the assessee succeeded.

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Issues: (i) Whether the duty demand and penalty on the assessee were sustainable when the finding of diversion rested mainly on oral statements and the assessee produced contemporaneous documentary records and Excise Inspector statements showing receipt, use and export of the goods. (ii) Whether the penalties on the director and the Revenue's challenge to reduction of penalty could survive once the duty demand itself failed.

Issue (i): Whether the duty demand and penalty on the assessee were sustainable when the finding of diversion rested mainly on oral statements and the assessee produced contemporaneous documentary records and Excise Inspector statements showing receipt, use and export of the goods.

Analysis: The Court found that the statutory registers, D-3 intimations, re-warehousing certificates, job-work records and panchanama contemporaneously supported the assessee's case that the raw material had been received and used in manufacture of export goods. The statements of Excise Inspectors recorded under Section 14 of the Central Excise Act, 1944 also confirmed verification of receipt of goods, supervision of exports and countersignature of the records. Against this, the Revenue relied principally on oral statements of a brother of one director and transporters, even though those statements only showed movement up to Bhiwandi and did not displace the documentary trail. The Court held that the conclusion of diversion was based on suspicion and that oral evidence could not override reliable contemporaneous documents.

Conclusion: The duty demand, interest and penalty on the assessee were unsustainable and were set aside, in favour of the assessee.

Issue (ii): Whether the penalties on the director and the Revenue's challenge to reduction of penalty could survive once the duty demand itself failed.

Analysis: The Court held that once the foundation of the duty demand was removed, the basis for consequential penalty on the director and the Revenue's grievance against reduction of penalty also disappeared. The finding of liability under Rule 209A of the Central Excise Rules, 1944 could not survive when the alleged illicit diversion itself was not established.

Conclusion: The penalty on the director could not survive and the Revenue's appeal against reduction of penalty failed, in favour of the assessee.

Final Conclusion: The impugned order of the Tribunal was set aside and the common result was that the assessee succeeded while the Revenue failed.

Ratio Decidendi: Where contemporaneous statutory records and official verification support a party's case, unreliable oral testimony cannot displace them, and a finding of clandestine diversion or duty evasion based only on such oral evidence is unsustainable.

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