Non-accountal alone cannot sustain duty demand; penalty may survive where accounting-rule breach is proved.

A duty demand based only on non-accountal of wool tops, without independent or corroborative evidence of clandestine manufacture or clearance, was held unsustainable and set aside. The record showed merely a Form IV accounting lapse, which was insufficient to support an inference of evasion. On penalty, the original penalty could not be maintained under Rule 173Q, but the proved failure to keep Form IV properly and up to date, and the bringing of non-manufacturing goods into the factory, constituted a breach of Rule 226. The penalty was therefore sustained only in converted form under Rule 226.

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Issues: (i) Whether the demand for duty based only on non-accountal of wool tops and without corroborative evidence of clandestine clearance was sustainable; and (ii) whether the penalty imposed under Rule 173Q could be maintained or converted to penalty under Rule 226 for breach of the relevant accountal obligations.

Issue (i): Whether the demand for duty based only on non-accountal of wool tops and without corroborative evidence of clandestine clearance was sustainable.

Analysis: The demand rested on a presumption that woollen yarn had been manufactured from unaccounted wool tops and cleared without payment of duty. The record disclosed only non-accountal in Form IV and no independent material or corroborative evidence to support clandestine removal or evasion of duty.

Conclusion: The duty demand was not maintainable in law and was set aside.

Issue (ii): Whether the penalty imposed under Rule 173Q could be maintained or converted to penalty under Rule 226 for breach of the relevant accountal obligations.

Analysis: Penalty was held to be not maintainable under Rule 173J. However, the petitioners were found to have violated Rule 226 by not maintaining Form IV properly and up to date and by bringing into the factory goods not meant for manufacture of yarn. The original penalty of Rs. 250 imposed under Rule 173Q was therefore converted to a penalty under Rule 226.

Conclusion: The penalty was upheld in converted form under Rule 226.

Final Conclusion: The revision application succeeded on the duty-demand issue but failed on the penalty issue, with the overall relief granted only to the extent of setting aside the duty demand while sustaining the penalty in converted form.

Ratio Decidendi: A duty demand based solely on presumption from non-accountal, without corroborative evidence of clandestine clearance, is unsustainable; a penalty may, however, be sustained if the proved facts establish breach of the applicable accounting rule.

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