Balance-sheet discrepancies alone cannot prove excise evasion; confiscation of excess stock and related redemption fine were upheld.

Central excise duty could not be sustained merely on discrepancies between balance-sheet figures and ER-1 returns where correction certificates and reconciliation statements were accepted and no corroborative evidence of clandestine clearance was shown; the duty demand was set aside. Excess stock of master batch found on physical verification was liable to confiscation, and the redemption fine was upheld because the explanation for the excess was not satisfactory. Penalties on the Director and the Authorized Representative were not justified because no specific personal role in clandestine clearance was established and the disputed duty attributable to the cash memos had already been paid; those penalties were deleted.

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Issues: (i) whether demand of central excise duty could be sustained solely on the basis of discrepancies between the figures in the balance sheets and the ER-1 returns, in the face of correction certificates and reconciliation statements; (ii) whether confiscation and redemption fine in respect of the excess stock of master batch were justified; and (iii) whether penalty could be imposed on the Director and the Authorized Representative.

Issue (i): whether demand of central excise duty could be sustained solely on the basis of discrepancies between the figures in the balance sheets and the ER-1 returns, in the face of correction certificates and reconciliation statements.

Analysis: The demand rested mainly on alleged differences between balance sheet figures and the monthly ER-1 returns. The correction certificates issued by the Chartered Accountant and the reconciliation statements were accepted as part of the corrected balance-sheet schedule, and there was nothing on record to doubt their veracity. It was held that duty cannot be demanded merely because of a mismatch between balance-sheet figures and ER-1 returns unless there is positive evidence of clandestine clearance. In the absence of corroborative material, the balance sheet could not be treated as conclusive proof of suppression or evasion.

Conclusion: The duty demand based on balance-sheet discrepancies was held unsustainable and was set aside.

Issue (ii): whether confiscation and redemption fine in respect of the excess stock of master batch were justified.

Analysis: The excess quantity of master batch was found during physical verification and had been seized. Although it was stated that no Cenvat credit had been taken on the excess material and an explanation was offered, the explanation was not found satisfactory. The record did not support a finding that the seized excess stock was free from liability to confiscation, and the order imposing redemption fine was maintained.

Conclusion: Confiscation of the excess master batch and the redemption fine were upheld.

Issue (iii): whether penalty could be imposed on the Director and the Authorized Representative.

Analysis: The penalties were based on the same disputed duty demand and on the alleged cash memo clearances. The duty attributable to the 14 cash memos had already been paid, and no specific role of either individual was established in the impugned order. In the absence of proof of personal involvement in clandestine clearance or any independent basis for penalty, the penal provisions were not attracted.

Conclusion: The penalties imposed on the Director and the Authorized Representative were set aside.

Final Conclusion: The duty demand was substantially set aside, the confiscation and redemption fine on the seized master batch were sustained, and the penalties on all three appellants were annulled.

Ratio Decidendi: A demand of excise duty cannot be confirmed merely on discrepancies between balance-sheet figures and statutory returns unless supported by corroborative evidence of clandestine removal, and penalty cannot be sustained without proof of individual role in the alleged evasion.

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