Clandestine removal and prospective policy change govern duty disputes over shortages, imported fabrics, wastage and job-worker waste.

Duty demand on alleged shortages, shrinkages and non-accountal of raw material was rejected because the record did not show clandestine removal or domestic clearance, and the calculations were not supported by proof. Alleged import and clearance of fabrics in the domestic tariff area was also found unsustainable where the goods had been declared, examined and warehoused under customs supervision. Excess wastage could not be denied retrospectively because a later policy correction applied only prospectively. Duty on wastage not returned by job workers likewise failed for want of proof that the waste was cleared in the domestic market or that a valid duty liability arose on the facts.

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Issues: (i) whether duty demand based on alleged shortages, shrinkages and non-accountal of raw material was sustainable; (ii) whether duty could be demanded on alleged import and clearance of fabrics in the domestic tariff area; (iii) whether excess wastage claimed under the policy could be denied retrospectively; and (iv) whether duty could be demanded for wastage not returned by job workers.

Issue (i): whether duty demand based on alleged shortages, shrinkages and non-accountal of raw material was sustainable.

Analysis: The shortage was worked out from joint stock verification and private records, but the objections regarding partial stock taking, omission of machine arms, cut bits, conversion factors and gram weight calculations were not dealt with in the impugned order. Mere shortage, without evidence of clandestine removal or domestic clearance of the short-found goods, could not support a demand of duty. The finding was based on assumptions and calculations rather than proof of illicit diversion.

Conclusion: The demand on alleged shortages of raw material was not sustainable.

Issue (ii): whether duty could be demanded on alleged import and clearance of fabrics in the domestic tariff area.

Analysis: The imported fabrics were declared in the bills of entry, examined by customs, and warehoused under supervision. In those circumstances, the import could not later be treated as a concealed or misdeclared act by the appellants. If the department considered the import impermissible under the licence conditions, the appropriate course was to prevent clearance at the relevant stage, not to fasten duty later on the basis of alleged wrong importation.

Conclusion: The demand on the alleged import and clearance of fabrics in the domestic tariff area was not sustainable.

Issue (iii): whether excess wastage claimed under the policy could be denied retrospectively.

Analysis: The policy position in force initially permitted the wastage norm relied upon by the appellants, and the subsequent public notice restoring a lower norm could operate only prospectively. The appellants could not be blamed for acting on the policy as it stood at the relevant time, and a later correction in the policy could not be used retrospectively to create liability.

Conclusion: The demand raised on account of excess wastage was not sustainable.

Issue (iv): whether duty could be demanded for wastage not returned by job workers.

Analysis: The record did not establish that the waste was cleared in the domestic market or that duty was payable on the raw material component rather than on the waste itself. The applicable treatment under the policy was for waste or scrap, and the appellants' liability, if any, would be confined to the waste not returned. On the facts found, the department failed to prove a sustainable duty liability on this count.

Conclusion: The demand relating to alleged non-return of wastage by job workers was not sustainable.

Final Conclusion: The duty demand and consequential penalties could not survive on any of the issues decided, and the impugned order was liable to be set aside.

Ratio Decidendi: A duty demand cannot rest on alleged shortages or wastage unless supported by evidence of clandestine removal or other legally sustainable proof of duty liability, and policy changes operate prospectively unless expressly made retrospective.

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