Uncorroborated statements and incomplete records cannot sustain central excise demand, penalties, or retrospective interest levy.

Central excise duty could not be sustained where the adjudication relied on incomplete records, uncorroborated witness statements and no effective opportunity of cross-examination, and the available invoices did not clearly establish manufacture or clandestine removal. The penalties under Rule 173Q and Rule 209A failed with the duty demand because they rested on the same unproven allegations. Interest was also held unsustainable for an earlier period because Section 11AB was not in force at the relevant time, and retrospective levy was rejected. The entire duty, penalty and interest liability was annulled.

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Issues: (i) Whether the demand of central excise duty could be sustained on the basis of incomplete documents and witness statements without adequate corroboration and effective opportunity of cross-examination. (ii) Whether the penalties imposed under the Central Excise Rules and the direction to recover interest on the old demand were sustainable.

Issue (i): Whether the demand of central excise duty could be sustained on the basis of incomplete documents and witness statements without adequate corroboration and effective opportunity of cross-examination.

Analysis: The demand had been re-adjudicated after remand with directions to supply relied upon and seized documents, but only a part of the record was made available. The adjudication itself recorded that some demands appeared to relate to traded goods, accessories, and invoices that required invoice-wise scrutiny, and that confirmation of demand solely on statements would be inconsistent with natural justice. On the available invoices, no clear sale of new computers was established. In these circumstances, the evidence was found insufficient to uphold the allegation of taxable manufacture or clandestine removal.

Conclusion: The duty demand was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the penalties imposed under the Central Excise Rules and the direction to recover interest on the old demand were sustainable.

Analysis: The penalties under Rule 173Q of the Central Excise Rules, 1944 and Rule 209A of the Central Excise Rules, 1944 rested on the same demand that failed for want of reliable proof. The direction to levy interest was also held unsustainable because the demand related to a period prior to the introduction of Section 11AB, and retrospective application was not accepted.

Conclusion: The penalties and interest demand were unsustainable and were set aside in favour of the assessee.

Final Conclusion: The impugned adjudication could not be sustained on the available material, and the entire demand, penalty and interest liability was annulled.

Ratio Decidendi: A duty demand based primarily on uncorroborated statements and incomplete records cannot be sustained where natural justice and effective cross-examination are not afforded, and interest cannot be imposed retrospectively for a period prior to the statutory provision authorising it.

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