Clandestine removal and record-keeping lapses cannot sustain duty demand or confiscation without substantive evidence.

Confiscation of excess finished goods was held unwarranted where the excess arose from incomplete record maintenance and there was no evidence of intended illicit clearance; only a token penalty for the procedural lapse was sustained. A duty demand based solely on an inferred input-output ratio and alleged clandestine manufacture or removal was also rejected because the period concerned was the assessee's initial working period and no direct proof of suppression was produced. The substantive duty demand and consequential penalty were set aside, leaving only the limited penalty for defective record-keeping.

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Issues: (i) Whether confiscation of excess found finished goods and the connected penalty were justified when the excess arose from incomplete maintenance of records; (ii) Whether demand of duty and consequential penalty could be sustained on the basis of alleged clandestine manufacture and removal supported only by raw material consumption ratio.

Issue (i): Whether confiscation of excess found finished goods and the connected penalty were justified when the excess arose from incomplete maintenance of records.

Analysis: The excess quantity of finished goods was admitted to have arisen because proper records were not maintained. However, no material showed that the goods were intended for removal without payment of duty. Mere accounting lapse, without evidence of intended illicit clearance, was insufficient to justify confiscation. The procedural lapse nevertheless warranted a token penal consequence.

Conclusion: Confiscation of the excess finished goods was not justified. The penalty was sustainable only to the limited extent of Rs. 2,000/- and was otherwise set aside in favour of the assessee.

Issue (ii): Whether demand of duty and consequential penalty could be sustained on the basis of alleged clandestine manufacture and removal supported only by raw material consumption ratio.

Analysis: The duty demand rested on an inferred input-output ratio and on the assumption of suppressed production. The relevant period was the assessee's initial working period, and no evidence was produced to establish clandestine manufacture or removal of final product without payment of duty. In the absence of direct proof, the presumption drawn from material consumption was not enough to sustain the demand.

Conclusion: The demand of duty and the consequential penalty, except for the limited penalty of Rs. 2,000/-, were not sustainable and were set aside in favour of the assessee.

Final Conclusion: The dispute was allowed in part by setting aside the confiscation and the substantive duty demand while sustaining only a token penalty for the record-keeping lapse.

Ratio Decidendi: Allegations of clandestine removal must be supported by substantive evidence, and a mere discrepancy in records or an inferred input-output ratio is insufficient to sustain duty demand or confiscation in the absence of proof of intended illicit clearance.

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