Undervaluation demands need corroborative evidence; private diary entries alone cannot sustain excise liability or personal penalties.

Allegations of undervaluation and clandestine clearance cannot be sustained on private diary entries alone without independent corroboration such as proof of extra consideration or flow back of funds. The larger central excise demand for the earlier period was therefore held unsustainable because the record did not establish receipt of any amount over invoice value. The duty demand based on rough diary entries was also set aside for want of corroborative evidence, though the shortage-related duty demand was upheld. As the main undervaluation allegation failed on legally sufficient evidence, the personal penalties on the Managing Director and Authorised Signatory were also set aside.

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Issues: (i) whether the demand of central excise duty of Rs. 2,34,62,483/- for the earlier period on the allegation of undervaluation was sustainable; (ii) whether the confirmed duty demand of Rs. 13,36,476/- along with interest and penalty based on private diary entries was sustainable; (iii) whether the personal penalties imposed on the Managing Director and the Authorised Signatory were sustainable.

Issue (i): whether the demand of central excise duty of Rs. 2,34,62,483/- for the earlier period on the allegation of undervaluation was sustainable.

Analysis: The demand was founded on an allegation that the goods were cleared as chips though they were actually lumps, but the record did not establish any flow back of funds or any independent material showing receipt of consideration over and above the invoice price. The buyers did not admit payment of any extra amount, and there was no reliable evidence that the goods supplied were prime material cleared in the guise of inferior material. The private diary entries covered only a short period and could not, by themselves, sustain the larger demand for the extended period.

Conclusion: The demand of Rs. 2,34,62,483/- was not sustainable and the departmental challenge failed.

Issue (ii): whether the confirmed duty demand of Rs. 13,36,476/- along with interest and penalty based on private diary entries was sustainable.

Analysis: The confirmed demand rested substantially on rough diary entries and statements that were not supported by corroborative evidence. The identified buyers did not any payment over and above invoice value, and no independent material established undervaluation or clandestine realisation. In the absence of corroboration, the diary entries were only suspicious and not conclusive. The statement of the Managing Director was also not tested in the manner required for reliance on such evidence.

Conclusion: The duty demand of Rs. 13,36,476/- and the consequential penalty were set aside, while the duty demand of Rs. 24,012/- on shortage was upheld.

Issue (iii): whether the personal penalties imposed on the Managing Director and the Authorised Signatory were sustainable.

Analysis: Since the main allegation of undervaluation was not established on the basis of legally sufficient evidence, the foundation for fastening abetment-based personal liability did not survive. The material relied upon did not justify imposition of personal penalty.

Conclusion: The personal penalties were set aside.

Final Conclusion: The departmental appeal was rejected, the assessee obtained substantial relief against the main duty demand and penalty, and only the shortage demand survived; the connected personal penalty appeals also succeeded.

Ratio Decidendi: Allegations of undervaluation or clandestine clearance cannot be sustained on private diary entries alone unless they are supported by independent corroborative evidence such as proof of extra consideration or flow back of funds.

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